Small Cap Value Report (15 Sep 2017) - GYM, PURP, CCT

Friday, Sep 15 2017 by

Happy Friday!

Great news for holders of GBP as EURGBP has fallen by 1.1% over the last 24 hours.

The FTSE had to compensate for this, and it also fell by 1.1%. All because of a few non-committal hints from the central bankers about what they might do, depending on the data.

Paul added more sections to yesterday's report in the evening, so it now includes Franchise Brands (LON:FRAN) and Haynes Publishing (LON:HYNS) along with four other stocks.

Finally, there is a Mello Beckenham on Monday at which Image Scan Holdings (LON:IGE) will be presenting (in which Paul holds a long position!)




  • Share price: 201.75p (pre-open)
  • No. of shares: 128 million
  • Market cap: £259 million

Acquisition of 18 gyms from Lifestyle fitness

An interesting boost to growth for this low-cost gym operator, as it buys out 18 sites from a competitor (albeit a competitor which doesn't strictly meet the definition of a low-cost gym).

Gym has been opening 15-20 sites per year organically, so this is a nice doubling of the organic growth rate. The acquisition is expected to be "significantly earnings enhancing by 2019".

Revenue has been growing at a decent clip here: up 19% according to the most recent interims, with H1 PBT increasing 75.5% to £6 million.

I'm impressed with the business model and the prospects, and find myself tempted to dabble in these shares again.

Stocko acknowledges the Quality and the Momentum: two out of three ain't bad!


Purplebricks (LON:PURP)

  • Share price: 389.75p (pre-open)
  • No. of shares: 272 million
  • Market cap: £1,060 million

Purplebricks launches in US

Another growth story, although not one that I'm a fan of. This real estate agency is one I'd like to short, if I was still in the business of shorting!

It's launching in the US later today, in Los Angeles. The plan is to spread through California and then other target states.

LA is apparently a place of extraordinarily high commission income for realtors. There are both selling agents and buying agents for LA property transactions, raking in the fees,…

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All my own views. I am not regulated by the FSA. No advice.

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The Gym Group plc is a United Kingdom-based holding company. The Company provides health and fitness facilities. The Company operates approximately 90 gyms across the United Kingdom that are open around the clock. The Company offers gym memberships. Its subsidiaries include The Gym Group Midco1 Limited, The Gym Group Midco2 Limited, The Gym Group Operations Limited and The Gym 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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The Character Group plc is a toy company. The Company is engaged in the design, development and international distribution of toys, games and gifts. Its geographical segments include other EU, UK and Far East. It designs and manufactures toys based on television, film and digital characters, and distributes these products in the United Kingdom and overseas. It also distributes finished products in the United Kingdom developed by overseas-based toy producers. Its diverse product range includes products for pre-school, boys, activity and girls. The Company's brands include Peppa Pig, Little Live Pets, Teletubbies, Minecraft, Scooby Doo, Mashems, Fireman Sam and Ben & Holly. Its customer list includes the United Kingdom toy retailers, the United Kingdom independent toy stores and a selection of overseas distributors. It operates approximately two distribution warehouses located near Oldham, Greater Manchester. It primarily distributes products sourced from overseas third parties. more »

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  Is GYM fundamentally strong or weak? Find out More »

22 Comments on this Article show/hide all

daveinthelakes 15th Sep '17 3 of 22

In reply to runthejoules, post #2

Kirin Shah, the joint MD and largest shareholder with a 10% holding has taken back the CFO role he relinquished last year and as the statement says no effect on trading or finances I saw it as an opportunity to increase my position at 480p

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browndogwork 15th Sep '17 4 of 22

I too am a little sceptical of Purplebricks US offering. I was however surprised to see they have 700 listings already, and that's with their launch focus being primarily LA. It was exactly 700 which seems a little co-incidental !

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dealtn 15th Sep '17 5 of 22

IG Design (LON:IGR) could be having that "dip" under the "market wobble" you were looking for Graham.

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abiggins 15th Sep '17 6 of 22

RE Purplebricks
Hi Graham
Thanks for that. Something intrigued me in your review. Not really to do with the company itself - but you said that you would be tempted to short the sector 'if you were still in the business of shorting'.
I'm actually thinking of shorting stocks myself - as it seems an obvious progression from 'longing'.

Presumably you gave up for a reason, though? Care to Share?

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aflash 15th Sep '17 7 of 22

Graham, are you out there?

UCG (United Carpet Group) dropped yesterday on huge volume with no announcement.

Average vol is 92 000 -250 000. Well over 1 000 000 traded yesterday and 525 000 today.

Ex div is 28 Sep .275p, a good yield.

Tempting to top up but obviously someone knows something.

Do you?

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barnetpeter 15th Sep '17 8 of 22

Another 100 points off FTSE as I write. US retail figures poor today. OK for me as I am short esp of Ftse.

Lots of shares starting to fall away now eg IQE is down nearly 25% in the last few days or so. I know Paul S has a big holding of these.

Don't give all those hard earned gains back! Easily done. I think of it as all the way up the mountain, all the way down the other side.

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herbie47 15th Sep '17 9 of 22

Certainly some volatility today, I see Fevertree Drinks (LON:FEVR) were down over 10% this morning now down 4%. A lot of high flyers are flying lower now. Time to buy or sell?

I make it IQE (LON:IQE) are down 18%.

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andrea34l 15th Sep '17 10 of 22

In reply to herbie47, post #9

Personally I feel that it is time to hold... provided that one feels the reason for buying an individual share remains. Yes, some companies may be on high ratings... but if they are delivering growth of 40-50% then why is this not justified? A lot of high-flyer shares are down a lot on very little market, so I feel the market makers are playing with investors. BTW, IQE are barely changed today.

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willhampson 15th Sep '17 11 of 22

The market really has been very volatile today and those reasons are understandable - there has been another missile over Japan, another horrible attack in London and the pound is temporarily strengthening in turn causing a drag on the FTSE100. However, I have a hard time seeing that this means the market is now going to correct and that high quality growth stocks will suddenly lose their premium rating. I guess the next few weeks/months will show the result, but I have been buying today.

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JamesrWilson1989 15th Sep '17 12 of 22

Find a reason not to invest and you'll discover one.

What should concern people more is about their own timescales and strategy. For example, with me, it's investing for an early retirement (I'm late 20's) so at a push I'll be invested for another 20 years.

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herbie47 15th Sep '17 13 of 22

In reply to andrea34l, post #10

Thanks Andrea.

Yes IQE (LON:IQE) was not today it was in response it had fallen back nearly 25% that barnetpeter said, it was down 3% but now almost recovered. Yes I think you are correct if the price can be justified by growth, just feel some shares have got ahead of themselves such as Frontier Developments (LON:FDEV). I have only sold some Burford Capital (LON:BUR), that was a trim as a bit over exposed there and despite the excellent results the price has not really gone up. I did not know about the bomb today in London. I'm not fully invested so I can buy on falls.

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kenobi 15th Sep '17 14 of 22

The rise in the pound, against the dollar at least is good news but of course it means we should reconsider those companies which have high dollar demonination earnings, are they still good value with the pound where it is now ? It's good news too because many products are bought in dollars, so a lot of that inflation in the system is going to be rolled back, this will take months to come through, but it should.
Personally I think the boe really needs to step up and reverse asap the .25 % emergency cut after brexit. actually doing this instead of hinting you might, will help stablise the pound and hopefully push it up a bit further too.

re iqe, I've been caught out by this one, perhaps with hindsight, it's a bit of anti climax after the iphone launch ?

I note though, while all these high flying shares have been falling BOO has been very strong and close to all time highs still. I wonder if there's good news in the pipelline from the US operations and plt ??


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kenobi 15th Sep '17 15 of 22

In reply to runthejoules, post #2

I would say this is a red flag, why has the fd gone ? what did he do to loose the confidence of the board ? It wasn't so many months ago the fd at revolution bars went, we were told soothing stories about how this is nothing to worry about, and how it involved puppies and kittens (ok maybe he wanted to be close to his family, but you get the gist), a few months later we get a big profit warning and the share price drops by over a third. Now I'm not saying this, or even anything bad is going to happen here, but it is a red flag, a big one, with WATCH OUT SOMETHING DODGEY HAPENED HERE, written in big letters. I was tempted when I saw the price fall this morning, not many good companies on a pe of less than 10.

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cig 15th Sep '17 16 of 22

In reply to kenobi, post #15

If they had something to hide, why would they go out of their way to make the announcement look frightening, as opposed to the usual soothing words used in regulatory departure announcements? Sometimes a cigar is just a cigar... (I like Carcosa's theory in the Sep 6 thread :-).)

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simoan 16th Sep '17 17 of 22

In reply to cig, post #16

If they had something to hide, why would they go out of their way to make the announcement look frightening, as opposed to the usual soothing words used in regulatory departure announcements? Sometimes a cigar is just a cigar... 

I agree. The statement was pretty blunt so my first thought was that something untoward happened at the meeting that was a sackable offence in itself; maybe he thumped one of the other directors!

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kenobi 16th Sep '17 18 of 22

In reply to cig, post #16

You may well be right, and as Buffet says be brave (or greedy), when others are fearful, perhaps it's alright, seems very strange, your suggestion that it might have been some sackable offense is plausible, if it was something related to honesty, it would be a bigger worry, and would raise the possiblity that there is something as yet undiscovered,

Making it sound frightening does cover them better if anything is later discovered.


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Gromley 17th Sep '17 19 of 22

I'd been running through in my mind over the weekend  conspiracy theories around this odd announcement by Character (LON:CCT).

It was only when I came to write them down that I remembered to re-check the announcement itself which specifically says :

This Board change does not reflect any circumstances relating to the trading of the Group or its finances.

(I had forgotten that they had said this and was about to chide them for not making that clarification).

It is quite an extreme measure for the company to so publicly distance themselves from a former employee, so there is clearly some juicy story here, imho. But the categoric statement I bolded above is all the comfort I would need that it should not be share price impacting.

(I think I last held shares in Character (LON:CCT) over a decade ago and sold out for a very small gain - so have very  much missed out  on the serious gains over the last few years, but on the upside they did give me a Dalek at a Mello event that I was able to pass on to my son!!

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Graham N 18th Sep '17 20 of 22

In reply to aflash, post #7

Nope, sorry :)

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Allan Collins 18th Sep '17 21 of 22

In reply to Graham N, post #20

Good Morning Graham,

Re Purplebricks.

I spoke to a realtor friend in Maryland this weekend about Purplebricks and its push into the States.

Redfin Corporation has a similar model; it listed recently with a 45% premium to the IPO price amid a lot of hype. Revenue has been growing strongly over the last two years but they have yet to make a profit in what is proving to be a difficult market.

I think Purplebricks faces a lot of challenges with this move.

Personally, I think this move raises even further the speculative element of this mid-cap stock and does little to improve its quality.

Allan Collins.

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gus 1065 19th Sep '17 22 of 22

After hours trading update just (4.45pm) released by Character (LON:CCT) . Unusual not to do so at the more normal 7am, especially given the "in line" nature of the comments, i.e. Nothing especially dramatic to report. Some comment on ToysRUs Chapter 11 filing but no quantification of exposure (potentially some receivables and inventory at risk) but otherwise doesn't seem much to pick over.



The Character Group plc

("Group" or the "Company")

Designers, developers and international distributors of toys, games and giftware

Trading update

The Board of the Character Group plc (AIM: symbol: CCT.L) is pleased to report that the business has had a solid finish to the 2017 financial year. Accordingly, the Directors anticipate that, Group underlying pre-tax profits for the year ended 31 August 2017 are expected to meet current market expectations. The Group's balance sheet remains strong.

Conditions in the wider market generally remain challenging at the consumer level. This morning, we note the announcement from one of our major customers that its US operations have filed for Chapter 11 bankruptcy protection in the US and Canada and is seeking to restructure its debt. At this early stage, we do not know the extent to which this will impact our trading position with them both in the UK and internationally. Consequently, we do not currently have reliable visibility on the important 2017 Christmas trading period and its effect on the current financial year ending 31 August 2018.

On the positive side, during July we announced a three-year extension to 2020 to our Teletubbies Master toy licence, and earlier this month, we were delighted to announce that we have been appointed as the Master toy distributor in UK and Ireland for the globally popular Pokémon brand. These exciting lines, together with several product opportunities being considered for next year are expected to positively impact Christmas 2018 trading.

In summary, we continue to develop our strong and diverse portfolio of 'in-demand' products. Character's market leading position in the UK ensures that it remains the 'partner of choice' for many of the leading brand owners and therefore, we remain confident in our ability to further expand our presence both domestically and internationally going forward.

The Company looks forward to updating the market and its shareholders further on trading and the opportunities we are looking at when it announces the preliminary results for the year ended 31 August 2017 during the week commencing 4 December 2017.

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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