Small Cap Value Report (13 Apr 2016) - SPD, KOOV, PFD, WGB

13th Apr '16 by Paul Scott

21 comments 19592 reads

Good morning!

Another day, another clarification statement from Sports Direct. This latest one seeks to justify the property acquisition announced yesterday. This excerpt strikes me as very odd:

...The deal vindicates the Group's faith in Michael Murray, who has successfully played a pivotal role executing the property strategy. This is one of the hottest freehold sites in London, superbly located in the mid-section of Oxford Street to the east of Oxford Circus...

Mr Murray is of course the boyfriend of Mike Ashley's daughter, and is on a controversial deal whereby he receives 25% of the uplift in value on properties he sources. He has little prior experience in commercial property, according to an article in the Telegraph. So this deal is quite obviously a mechanism to enrich an individual, and has little to no commercial rationale. That would be fine if Mad Mike owned 100% of the company, then he could do as he wishes. However, as a listed company, it's just the latest abuse of his controlling shareholding.

Furthermore, I fail to see what value Mr Murray has added. Any fool can go to property agents, wave a chequebook, saying they've got £108m to spend, and hey presto a prime site is found for you.

It's not clear what part of the Guardian article is supposedly inaccurate. Hardly anyone in the private sector finance world reads the Guardian, so in putting out an RNS rebutting this article, Mad Mike has actually just drawn attention to it. Yet another own goal from almost certainly the large company with the worst corporate governance imaginable.

That said, I still think Sports Direct is quite a good business, hence why I personally hold a long position in it.

Premier Foods (LON:PFD)

It's not a stock that I follow, but a reader mentioned it recently.

The bid approach has fallen through - see this announcement today. The potential bidder conducted due diligence, but felt that it was not able to make an offer, saying:

McCormick has, after careful consideration, concluded that it would not be able to propose a price that would be recommended by the Board of Premier Foods while also delivering appropriate returns for McCormick shareholders.

That's clearly bad news for the shares, and they're down 25% today to 42.5p. It looks as if PFD management tried to get too clever on price, over-playing their hand…

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stockandy

13th Apr '16

Good.Maybe wise to look to buy around the 25p fundraising but who knows Well done to buyers who bought much lower .

OsullivanB

You are not alone. I think this is a well managed company with a prudent business plan. I am a holder for the long term,

daveinthelakes

I bought shares in Telford last year as I consider them to be a sound developer however soon after they needed to raise capital for a very large development portfolio. They placed this with existing and new institutional shareholders at a large discount and private shareholders didn't get a look in. As a result of the placing the shares dropped in price, I think by about 10% and I sold.

I try to maintain the principle of not dealing with companies who aren't fair with private investors albeit that Telford may continue to make decent profits thru 2017/8 if the London property market holds up.

ap8889again

Hi Paul,

The shenanigans with Sports Direct are quite the red flag. I view this sweetheart arrangement as a massive no-no. When the shareholders are being taken for mugs so blatantly, why keep it in the portfolio? At some point the accumulation of such feathering of nests and other such cynical arrangements will eat away at the earnings. Why bother with a company that is openly running to your own detriment?

Keep up the good work, your SCV report is a daily must read!

Kind regards

Ap8889

PJ0077

If SPD's latest property deal gives away 25% of any property upside, surely this is an opportunity cost rather than something will 'eat away at earnings'?

bobo

Has Mad Mike got any other daughters?

Rusty2

I'm a Telford Homes (LON:TEF) holder, I bought last year as they looked good value, I'm still about 10% down, do I like them? well not really, if they go up some more I will sell, too many problems soon in that sector I feel.

The point is I object to any company that openly sanctions the giving away of even the tiniest upside that perhaps ought to belong to all shareholders rather than current favoured shags of connected family members.

I try to put my money where I am not quite so brazenly being skinned.

bsharman

Get in the Queue!! I suppose you also have to be a Newcastle fan, which I'm not!

Jack Brumby

Have been a close follower of the Premier Foods process and have to say, as far as bids etc. go, I've seen them better handled!

Standard Life (big shareholder) called for the CEO to resign if the deal did not go through -- will be interesting if they still feel this is still the case in light of the recent presentation pack being handed out, Nissin's purchase of stock at 63p, and upwardly revised medium term growth prospects.

Some negatives:
The pension is not only a millstone around Premier's neck, but a confusing and variable one at that; payments through to 2030 have an estimated NPV of £390m. PFD has £147m EBITDA and will need to pay some £50m in pension payments for the next few years through to 2019, IIRC. Add on to that the c£30m of annual debt interest, and a chunk of its cash flow is already spoken for. Furthermore, performance is dependent on maintaining its Cadbury's cakes license, which is probable but not certain.

Some positives:
There is still spare cash to continue paying down debt, and PFD is finally investing in its products and marketing again (marketing spend is set to grow further in the coming years). It is also investing in its international growth capabilities and management have a decent amount of skin in the game. Still very risky, but a lot of work has been going on beneath the surface to make it a healthier company and it has the luxury of acting like a proper business again for the first time in a long time (as opposed to exclusively tending to its financial obligations).

There are no quick fixes, however, save for another bid.

TL:DR Still very risky and there is no getting around the pension and debt commitments, but healthier than it has been in a long time + has improving growth prospects.

back2value

Mike Ashley is taking the mickey - or the Michael Murray - out of his shareholders with this appointment. Any favourable outcome for others is just a happy accident.

Good luck, Paul, but no way I would invest in this. It's ludicrous.

B2V

JDW72

To me SPD is a special situation.

You have to be a bit special to invest in it.

haroldthegreat

is he receiving a salary? perhaps his 25% uplift commission is instead of a salary ! I doubt it though.

troytea

Mad Mike is a character. I've used his Ratner style statements to dip in and out to make decent money

gus 1065

Mr. Ashley, I think it is fair to say, is a smart cookie when it comes to handling money. Especially his own. He's self made, his own boss and sticks two fingers up to the establishment whether it's the NUFC fan base, the City or a House of Commons Special committee. Good luck to him.

As a smart cookie, he seems to have done some strange things in recent months. Giving a profit warning out via a newspaper interview; terminating a sweetheart loan to SPD on a bit of a whim; buying a plush new HQ for a large chunk of cash towards the top of the commercial property cycle with a 25% uplift commission payable to someone as potentially transitory as a wannabe son-in-law. All of this has clearly affected the SPD share price, although lately things do seem to have stabilised. The reaction on this thread so far seems to be a pretty good straw poll of what most of his shareholders are probably thinking at the moment.

Time to sell? Quite possibly. Get out while you can. Is it just the cynic in me, or is someone in an XXL black and white striped football shirt about to try and take this brand rich, highly profitable cash cow private for a song? Stranger things have happened.

Gus.

LovelyLovelyGorgeous

I'd prefer people to comment on Pauls article or at least something relating to it. Non-related matters should go elsewhere.

MrContrarian

I have been monitoring Sports Direct (LSE:SPD) but this nepotistic gravy Orient Express First Class compartment is an incredible affront to fair dealing and the truth. Does Mashley think shareholders are so credulous as to believe the £108m property deal was such a blinder that no normal employee or director of the company could have pulled off? Is it the same mindset that plasters '70% off' signs round the stores?
I was an admirer of Mashley's brilliant business skills in killing JJB Sports and his chutzpah but this is just two fingers and a head-butt in the nuts to shareholders.

Love the irony LLG! ;)

16th Apr '16

Just noticed the latest leg of the Mike Ashley/Sports Direct random walk. Seems they have taken a 6% stake in Goals Soccer Centres (LON:GOAL) via shares/CFD. What next?

http://www.investegate.co.uk/goals-soccer-centres/spd/holding-s--in-company/201604151745284190V/?fe=1&utm_source=FE%20Investegate%20Alerts&utm_medium=Email&utm_content=Announcement%20Alert%20Mail&utm_campaign=Goals%20Soccer%20Centres%20Alert

Gus.

garkum01

20th Apr '16

As faith and trust in management having shareholders interests at stake is important for me as a long-term holder (rather than a trader), an investment in sports direct is a complete no no. Thats why i sold out of greed incorporated, vislink

Small Cap Value Report (13 Apr 2016) - SPD, KOOV, PFD, WGB

Premier Foods (LON:PFD)

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Paul Scott

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