Small Cap Value Report (14 Apr 2014) - FCCN, NWKI, NTA, HAT, PPR, SPRP

Monday, Apr 14 2014 by

Good morning!  The market opened down heavily first thing today, but has since bounced back. I suppose the escalating situation in the Ukraine must be worrying everyone, but I cannot see why that should make me adjust my investment portfolio. So I'm not.




French Connection (LON:FCCN)

Rather annoyingly, fashion retailer French Connection has ignored the convention of issuing trading statements at 07:00, so that everyone has one hour to digest the contents before the market opens. Instead the company has issued a stonking trading update today at 08:39. The price shot up about 10% within seconds, and it is obvious why;


In the 11 weeks to 12 April 2014, UK/Europe Retail LFL's were up 11.0%, continuing the positive trend as our retail initiatives and improved product range continue to gain traction.


Given that this company has really struggled in recent years, a bounce back to an 11% increase in LFL sales is remarkable. Although they do go on to caution that the prior year comparatives were soft, at -4.5% for the equivalent period.

Even so, this completely transforms things. Thinking back to my days in ladieswear retailing, a sales increase of this magnitude means that your buyers have really hit the spot in terms of the fashions. That means you sell a lot more at full price, so there should be a double benefit from a higher gross margin, although today's trading statement says nothing about that.

I've done some very rough calculations based on last year's interim figures, and I reckon this should translate into additional H1 retail sales of about £5.1m, at a 55% gross margin that is £2.8m in additional profit. Add another 2% gross margin onto all UK/Europe retail sales (my assumption), and that adds another £1m. So that gives a possible improvement in H1 profitability just in the UK/Europe retail division of about £3.8m. Given that the group made an H1 loss of £6.1m last year, it looks as if a sharply reduced loss of about £2.3m for H1 is now on the cards. Add in some improvement from the other divisions, and they could be approaching breakeven for H1. That would be a very good result, as it's an H2 weighted year, so it's now a real possbiliity that FCCN could actually report a…

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French Connection Group PLC designs and supplies branded fashion clothing and accessories for men and women. The Company operates retail stores and concessions in the United Kingdom, Europe, the United States and Canada and also operates e-commerce businesses in each of those territories. Its principal brand is French Connection, which designs, produces and distributes branded fashion clothing, accessories, such as toiletries and fragrances, shoes, watches, jewelry, eyewear, furniture and homeware through its distribution channels: retail stores, e-commerce, wholesale and licensing. Its other brands include, Great Plains and YMC. The Company operates in approximately 50 countries around the world. The Company's subsidiaries include French Connection Limited, French Connection UK Limited, French Connection (London) Limited, Contracts Limited, French Connection Group Inc., French Connection (Hong Kong) Limited, French Connection (Canada) Limited and YMC Limited. more »

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Northacre PLC is a holding company. The principal activity of its operating subsidiaries is property development, development management, and the provision of architectural and interior design services for residential property schemes. The Company's segments are development management, interior design, architectural design and sales agency commission. The Company's development projects include The Broadway, 1 Palace Street, 13&14 Vicarage Gate, Vicarage Gate House, Chester Square and 22 Prince Edward Mansions. The Company's subsidiaries include Waterloo Investments Limited, N Studio Limited, Northacre Development Management Services Limited, Northacre Capital (5) Limited, Northacre Capital (7) Limited, Lancaster Gate (Hyde Park) Limited and Nilsson Architects Limited. more »

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  Is LON:FCCN fundamentally strong or weak? Find out More »

11 Comments on this Article show/hide all

CliveBorg 14th Apr '14 1 of 11

Hi Paul.
Regarding NWKI: I note that their valuation is already at its highest - for the last ten years anyway: Do you think they have much further to go? Regards, Clive

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fek47 14th Apr '14 2 of 11

I'm pleased with finals from Networkers International (LON:NWKI) this morning. I bought a very small amount a couple of months ago (after last trading statement I think) and have doubled my holding this morning.

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darlocst 14th Apr '14 3 of 11

Want to flag up Carrs Milling Industries (LON:CRM) whose interims were out this morning. The lack of growth this year, which is partly down to a very mild UK winter v a long cold winter the previous year, disguises an excellent earnings track record over the past 5 years (2008 is distorted due to fertilizer division - now sold). Management continue to invest in all divisions in which good, predictable growth opportunities should persist over the coming years. Still cheaply rated at 12x eps imo.

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Paul Scott 14th Apr '14 4 of 11

In reply to post #82675

Hi Clive,

You said;

"Regarding NWKI: I note that their valuation is already at its highest - for the last ten years anyway"

I think you're talking about price, not value! The PER of just over 10 is certainly not expensive, especially in a recovering economy. So I would argue that the valuation is attractive right now. Historical share price is largely irrelevant, all that matters is value vs future earnings & dividends, in my opinion.

I will insert a sector chart in the main article now.

Rgeards, Paul.

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CliveBorg 14th Apr '14 5 of 11

Ah, now I get it. Sometimes I have to ask the stooopid question before I twig the meaning - wot shoulda bin obvious. Thanks.

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Paul Scott 14th Apr '14 6 of 11

In reply to post #82677

Hi darlocst,

I had a quick look at Carrs Milling Industries (LON:CRM) results, but they looked unimpressive.
Although as you say, the EPS growth since 2009 has been very good, so I might take another look.

Regards, Paul.

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kevanp 14th Apr '14 7 of 11

Paul, I wondered if you had any thoughts on one of your favourite topics, regarding the share placing in Sprue Aegis (OFEX:SPRP), announced today, with no apparent offer to individual shareholders. It's for £8m, against a current enterprise value of £75m. The price hasn't yet been announced.

Best, Kevan

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PhilH 22nd May '14 8 of 11

Some serious volume coming in for Sprue Aegis (LON:SPRP) today after its recent admission to the aim. Perhaps institutions are starting to build positions.

Let's hope so it's one of my largest positions

As anyways dyor

Professional Services: Sunflower Counselling
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Ian_of_London 4th Jul '14 9 of 11

Re Networkers International (LON:NWKI) in light of the c.27% gain since this article, I wonder if anyone had spotted any recent news on this? I hold.

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beatingmrindex 4th Jul '14 10 of 11

Undervalued to sector, just playing catch up. Real trigger (both ways) is case outcome

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beatingmrindex 7th Jul '14 11 of 11

@ian - I havent seen any articles and would be interested if anyone does know anything as well - been a great share to hold for me....

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 Are LON:FCCN's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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