Small Cap Value Report (15 Dec 2016 - Part 1) - JE., PURP, IPEL, PTY, CMS

Thursday, Dec 15 2016 by

Good morning!

We have 2 reports for your delectation again today. I shall be covering trading updates from Impellam (LON:IPEL), Communisis (LON:CMS), and Parity (LON:PTY) . Plus any other bits & bobs that look interesting - e.g. big price movers, takeover bids, etc.

Graham will be writing his own report, click here today - covering Xaar (LON:XAR), Sutton Harbour Holding (LON:SUH), and Haynes Publishing.

Tomorrow it will be 1 report only, from Graham, as I'm having the day off.

All our reports appear on the SCVR landing page here. The most recent is highlighted in the large box, but others appear below. So it's worth scrolling down to see if there are 2 reports for the day, although we'll always mention this at the start of each report too.

Internet shares - winner takes all?

Just Eat (LON:JE.) has announced this morning the acquisition of two competitors. In the UK, it has bought its main competitor, Hungry House, for £200-240m. I'm surprised this has not triggered competition regulatory issues. Certainly, from what I've seen, JustEat and Hungry House have been the 2 big takeaway delivery companies in terms of TV advertising. It seems that JustEat has won the war, and is now gobbling up its competitor. This now gives it a very dominant position in the UK - although Deliveroo and UberEats seem to be up & coming.

(UPDATE: a friend has pointed out to me that Deliveroo & UberEats serve a different market - delivering food from restaurants which don't have their own delivery staff. Whereas JustEat is an interface between takeaways & their customers.)

We've seen similar things in many other sectors, where once in a lifetime changes to business models are taking place, driven by the internet and ubiquitous smartphones.

Where sector disruption occurs, with new technology, It seems to me that, all other things being equal, after a while there tends to be one big winner. This might be the first mover. And/or the big winner might be the company which simply out-spends the competition on marketing. It's often the case that the big winner becomes self-reinforcing after a while, as it sucks in liquidity…

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Just Eat plc is a United Kingdom-based operator of digital marketplace for takeaway food delivery. The Company's segments include the UK, Australia & New Zealand, Established Markets and Developing Markets. The Established Markets includes Benelux, Canada, Denmark, France, Ireland, Norway and Switzerland. The Developing Markets includes Italy, Mexico and Spain. The Company's restaurant partnership program provides products and services to its estate, such as food, soft drinks, card processing, wireless fidelity (Wi-Fi), broadband, motorbike insurance, business rates advice and finance funding. Its subsidiaries include Just Eat Holding Limited and JUST EAT Central Holdings Limited. more »

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Purplebricks Group plc is a United Kingdom-based company engaged in the business of estate agency. The Company operates through the division of providing services relating to the sale of properties. The Company uses technology in the process of selling, buying or letting of properties. The Company operates in the United Kingdom. more »

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Impellam Group plc is a holding company that provides strategic planning and management services to its portfolio of subsidiaries. It is engaged in the provision of staffing solutions, human capital management and outsourced people-related services in the United Kingdom, Ireland, North America, mainland Europe, Australasia, New Zealand, Singapore and the Middle East. It’s segments include Managed Services-UK, Europe and Australasia; Specialist Staffing-UK, Europe and Australasia; Managed Services-North America, and Specialist Staffing-North America. It operates various supply models within its Managed Service Programs (MSP), including Neutral vendor, Master vendor and Hybrid vendor. It also offers Recruitment Process Outsourcing, which refers to the outsourcing of permanent, temporary and contract recruitment. It offers staffing services for specialties, such as Healthcare, Legal, Engineering and technical, Construction, Catering, Driving, Office and Industrial. more »

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56 Comments on this Article show/hide all

Andrew niven 16th Dec '16 37 of 56

Hi paul
Hope the hangover not too bad this morning.
I used to own an estate agency with several branches n Bournemouth which I sold out in the late 80s.
I see purple bricks operates from an address in Livingston rd parkstone poole which is not Bournemouth , and not exactly the best postal address in the world. No disrespect meant to residents of this first time buyers location.
I just cannot see people living in the sandbanks or canfird cliffs of the area taking them seriously.
At the end of the day what is so different from the purple bricks model that we haven't seen before.
Lots of unanswered complaints against them on the Internet .
I remember a company called seekers a few years ago opening in secondary positions promising to beat the world that went bust and I suspect this lot will go the same way

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Andrew niven 16th Dec '16 38 of 56

Just had another thought regarding purple bricks. Just supposing these guys were able to close on four property sales a week which quite frankly working from either their front room or at best secondary shop or office position in parkstone is extremely unlikely, that is still less than 200k turnover a year .
I know The argument is well it's all done on the Internet but you still have to persuade vendors to instruct you and buyers to contact you and working out of a secondary side street position it just ain't going to happen.
In the late 80s everybody wanted to own estate agents. Insurance companies, banks, building societies they all wanted part of the action. Look how many failed . Agents that had sold for 250k an office were buying their businesses back for a quid five years later. There is a justifiable dislike for estate agents and a desire to see an alternative but I do not see purple bricks as that option.

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Blissgull 16th Dec '16 39 of 56

In reply to post #162727


"National Debt now £1.77 trillion odd. (up from £750bn odd in 2008!)"
"At 2% interest. Debt service costs will be eywatering,especially as we are still piling on debt!"

Gilt prices have risen as interest rates have fallen. This makes the national debt larger in theory. Lower gilt prices on rising interest rates would make the national debt smaller, but either way, the interest paid (dividends on gilts) would be little changed. The payments due on existing gilts would be unaffected.

The same however is not true of mortgage payments. How homeowners who have borrowed at high multiples of incomes will cope with rising mortgage rates, and what effect that will have on house prices and housebuilders shares is an interesting speculation.

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herbie47 16th Dec '16 40 of 56

In reply to post #162763

4 a week? Where do you get that from, they have 1,000s on their books, their revenue for this year is already £30m. I don't really think the location of their office is relevant at all. Most people in the uk won't even know about that area or care.

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Andrew niven 16th Dec '16 41 of 56

In reply to post #162778

I meant 4 a week from that branch in a back street of parkstone. Most sales are created by people living within the area. People moving into an area make up very small proportion of sales. So location and number of offices within a location is very important.
1000s of instructions doesn't bring in sales revenue
How many branches do they have ? I think it is a very brave investor who buys shares in this company.

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herbie47 16th Dec '16 42 of 56

In reply to post #162787

Do they have branches? I thought it was just internet based with contacts for each area. The more properties you have the higher the revenue? Their reviews are excellent, so it seems most people who have used them are happy.

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Blissgull 16th Dec '16 43 of 56

"1000s of instructions doesn't bring in sales revenue "

Actually it does. You have to pay these agents regardless of whether or not they actually sell your property. I think that's one possible flaw in the business model. In a downturn when property is hard to sell people may prefer the traditional commission only fee structure.

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Bushranger 16th Dec '16 44 of 56

In reply to post #162787

It is my understanding they are paid up front on instruction. Their model is to have all who put their house on the market pay a small slice rather than taking a big slice from those who actually sell. This also cuts out time wasters, or people who change their mind or double list so Purple Bricks takes profit from all clients. Re: An internet based companys address, who would take a an idiot kid in his university bedroom seriously?

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Wimbledonsprinter 16th Dec '16 45 of 56

Communisis (LON:CMS) has strong free cash flow which should allow it to improve its balance sheet over time, even with its high div yield.

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Bushranger 17th Dec '16 46 of 56

I am tempted to dabble with Purplebricks (LON:PURP). but am still not 100% convinced. I was reading realestate website forum post re purplebricks and mcuh of what they were debating you could transfer to ther Stockopedia froum and title it as bull and bear arguments! Purplebricks (LON:PURP). is obviously starting to be noticed by conventional realestate angents, I dont think they will just roll over. There are some vaild "bear" points they make though that would concern me.
1. Of the instructions how many turn to sales? If the percentage was small,even if it matched local estsate agents, the upfront fee model could colapse. I could just see some news article saying how many people pay upfront and get nothing in return. Many on the forum state cheap upfront fixed fee realestate agents are not new and dont last.
2. Do purplebricks get the best price for the seller? If it transpirses in the future that this is not on par with normal estate agents, again, this could serious taint purple bricks.

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herbie47 17th Dec '16 47 of 56

In reply to post #162979

I'm not totally convinced either but, I looked at their reviews on Trustpilot and there were over 10,000 and they score 9.4 which is very good, so most sellers seem happy. How will traditional estate agents compete with their overheads, offices in town centre locations? Yes some other agents may adopt this selling method but Purplebricks (LON:PURP) has quite a head start? Many people don't like estate agents.

Much will depend on the housing market over the next 2 years or so, if a crash comes soon then it could be goodbye or else they will survive with their low overheads?

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Blissgull 17th Dec '16 48 of 56

I don't think Purplebricks has so much of a head start. House Tree for example ( have been around for years and they offer the same service as Purplebricks but at a much lower cost. In addition Housetree also offer a 0.5% no sale/no fee alternative.

In the early 1990's there was a property market correction and the phrase "negative equity" came into common use. At the time I was trying to sell a leasehold flat through a traditional estate agent. I was repeatedly contacted by a local agent offering a cheap service with an upfront fee. Even though it was much cheaper I did not consider it as I knew the property might not sell in that market. Within a year the upfront agency had disappeared. A lot of traditional estate agents also disappeared, but the upfront fee agencies seemed to have a much harder time in the market downturn.

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Bushranger 17th Dec '16 49 of 56

In reply to post #163000

Yes I have found the same. Hello Real Estate is an on line realestate in Austrailia that described itself as being the next uber. Its model is almost identicle to purplebricks. It , a private company, was to list on ASX but has not as from what I can gather buisness did not pan out as good as expected?

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Bushranger 17th Dec '16 50 of 56

Just to continue the bear in Purplebricks (LON:PURP)., BMP on the ASX again is another company very similar to purplebricks. Go to their website and have a look. Current value $0.37. Her is a comment in an investors forum. Sound familiar?

"BMP is if anything an attempt to replace agents
Seen the quarterly report
Do the sums
Have spent $m to deliver a couple of hundred thousand revenue over organic... In my book that's a fail
But hey. DYOR if you find something .... Parabolic growth, new revenue etc do let me know... I would be intrigued"

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herbie47 17th Dec '16 51 of 56

In reply to post #163000

I have never heard of them. Had a quick search and nothing in my area. On reviews there are only 4 on Trustpilot, as I said PurpleBricks have a head start. If they have been around for years why have they not grown?

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Blissgull 18th Dec '16 52 of 56

A good question herbie, and perhaps it tells us something about the viability of the busines model.

From a quick search on google I found several similar companies, and all of them seem to be much cheaper than Purplebricks while offering the same or similar service. Housesimple for example offer a fixed fee service for £495 or a no sale/no fee service for £995. Emoov are £695. are £495.

Purplebricks seem to be the most expensive.

But there is something more worrying about Purplebricks, which is that they seem to be promoting "nothing to pay upfront" in the hope that customers will misunderstand that to mean "no sale-no fee." I notce that there have been a couple of complaints upheld by the ASA to this effect. If that is the case then either regulators will step in at some stage or there will be significant adverse publicity making it clear that they charge regardless of whether or not they sell your property. Aside from the dishonesty it looks like an accident waiting to happen

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Bushranger 18th Dec '16 53 of 56

In reply to post #163021

The Austrailan link is important because they are about to spend £17million launching into the Australian market. There are already lots of players in Australia. One of the most high profile charges vendors half the cost Purplebricks intend to. Is purple bricks going to try and outspend such competitors on advertising? Are they going to have to lower there fee to compete?

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Fangorn 19th Dec '16 54 of 56

In reply to post #162775

National Debt increasing month on month Bliss, to tune of £70-90billion odd a year.
So interest bill will rise accordingly both as a result of this extra debt in the first instance, but also being "financed" at ever rising rates of itnerest one would expect.

"The same however is not true of mortgage payments. How homeowners who have borrowed at high multiples of incomes will cope with rising mortgage rates, and what effect that will have on house prices and housebuilders shares is an interesting speculation."

Indeed. it wont be pretty for those overleveraged home owners.

The ability to kick the can down the road is fast eroding. At some point the ponzi schemes many have used to live lifestyles they cant actually afford in normal itnerest rate environments will come home to roost.

Wont be pretty.

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octochamp 20th Dec '16 55 of 56

In reply to post #163021

I'm currently choosing an agent with whom to place my (first) house on the market so thought I'd add my thoughts (so far) here.

I was immediately drawn to Purplebricks (LON:PURP) as the whole estate agent game seems ripe for being radically undercut by an internet-based company. I had seen a few signs in my area over the last year or two so was aware of the brand. High street agent's offical cost is approx £4,500 - albeit this is negiotable to some extent - whereas Purplebricks is £849 without them conducting viewings.
Despite the fact that there's a reasonable chance that we end up removing our house from the market without selling (due to some narrow requirements re what we're looking for) this doesn't put me off PURP, as once paid now the fee means we can sell with PURP at any time in the future without further cost (bears may laugh at my naivety). This being my first house it is almost guaranteed that I will sell it at some point in my life, likely within the next 5 years.

I hadn't heard of the other similar companies mentioned until reading this thread.
Housetree at £586.80 (inc floor plan & sale board) is significantly cheaper but their website looks dated & unimpressive to me, including a sentence that doesn't make sense on their 'About Us'.
Hatched require another up front fee to continue/repeat their services after 12 months.
Housenetwork (£599) looks more tempting for me as their fees last indefinitely, like Purplebricks.

I think Purplebricks (LON:PURP) do have a head start if they're agreeing 90 sales a day (they claim a sale every 16 mins, 24hrs a day) so perhaps >30,000 sales a year compared to, say, Housenetwork's 11,577 all time. Couldn't find figures for Emoov.

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matylda 22nd Dec '16 56 of 56


Anyone got any thoughts or ideas on how many share options are around for directors, sales people etc.

How does one find this out?

Concerned that perhaps there are huge incentive share options lying around here that will always have the share price under pressure.

Blog: Briefed Up
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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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