Small Cap Value Report (16 Sep) - FCCN, ZIOC

Monday, Sep 16 2013 by

Good morning! Firstly a reminder that it is the usual monthly investor evening & dinner in Beckenham tonight, called Mello. I am told that around 60 of us will be descending on "Sea Salt" restaurant for a lively evening of two presentations (from me to begin with, followed by Netplay TV, then dinner), with drinks & networking. Those of you who are booked in are asked to definitely turn up (or cancel if you can't make it), as organiser David Stredder is concerned that it may cause problems with the restaurant if there are too many no-shows, since the large numbers booked in means that he's asked them to allocate the whole restaurant to us only. Contact details are here.

NetPlay TV (LON:NPT) should be an interesting presentation. The shares look really good value at first sight, but there is a big question mark over sustainability of earnings after forthcoming Govt taxation changes. Directors becoming repeated sellers of shares personally from Sept 2012 onwards is not exactly a positive sign.


The FTSE 100 Futures shot up overnight, perhaps Ben Bernanke has said something? Anyway, at present the market is set to open up 68 points at 6,652.




I called in to see Zanaga Iron Ore Co (LON:ZIOC) on Friday afternoon with some fellow investor friends, and discussed their series of exciting announcements on Friday confirming that, much to our surprise, Glencore has decided to progress their jointly-owned iron ore project in the Republic of Congo. It's a vast resource, and Glencore has already spent around $300m on the feasibility study.

Glencore has overhauled the project such that the capex requirement has been reduced by about two thirds, from $7.4bn to somewhere in the £2.5bn to $3.0bn range. This has been achieved by planning to develop the resource in stages. The initial stage is little more than scraping the purest product off the surface, and putting it in trucks (this is called "DSO"), so production could start as early as 2015, and then gradually increase in stages as the capex is completed.

The house broker, Liberum, has done a very quick analysis of the deal, and believes ZIOC shares are worth 114p to over 200p, depending…

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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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Zanaga Iron Ore Company Limited is an investment holding company. The Company is an iron ore exploration and development company. The Company holds investment in the project held through Jumelles Limited. The Company's Zanaga Iron Ore Project is an iron ore deposit in Africa. The Zanaga Iron Ore Project is located in the south west of the Republic of Congo, close to the border with Gabon, and approximately 300 kilometers northeast of the port city of Pointe Noire and over 250 kilometers northwest of the capital Brazzaville. more »

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

11 Comments on this Article show/hide all

ChangFai 16th Sep '13 1 of 11

You wont be happy at the Trap Oil news this morning Paul ?

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Paul Scott 16th Sep '13 2 of 11

In reply to post #77285

It's not great, no. But sounds like something that can be fixed, and only affecting part of their production. So I don't normally react to things like that, as most companies experience bumps in the road.

Cheers, Paul.

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grumpy5 16th Sep '13 3 of 11

Re FCCN the bad habit of overpricing, I am fairly sure, is down to Marks' arrogant views of the brand's worth in the market place. He is the off-balance sheet liability holding back the recovery and the share price!

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Paul Scott 16th Sep '13 4 of 11

In reply to post #77288

Hi grumpy5,

You're probably right. Although pricing is particularly difficult for FCCN because they need to build in enough margin to allow wholesale customers & franchisees to make enough margin. So if they slash the selling prices, then that will rip out the margin which is needed to make their wholesale operation work.

Bottom line is that they need to get out of retailing altogether, and just become a brand that is licensed & sold wholesale to speciality stores & franchisees.

Regards, Paul.

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hedley05 16th Sep '13 5 of 11

A general question aimed at all. Does anybody read daily broker notes, and if so where do you find them? Is a subscription to eg required?

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staverly 16th Sep '13 6 of 11


What do you base your "big question mark over sustainability of earnings after forthcoming Govt taxation changes" concerns on? Their past two trading updates do not allude to these threats.

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Paul Scott 16th Sep '13 7 of 11

In reply to post #77297

Hi staverly,

Well a friend looked at Netplay & mentioned that he thinks the change in taxation of gambling on the internet could have a big impact on Netplay's profits from 2015 onwards. It's something we'll ask the company about at tonight's presentation, so will be able to report back on it tomorrow.

Cheers, Paul.

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Funderstruck 16th Sep '13 8 of 11

I have only recently started following your reports which are extremely interesting and educational (at least for me). I do not currently invest in speculative exploration /Mining companies so would appreciate some input on what % of ones funds ;allotted to small caps ( currently > £200m Cap); you have found by experience to be the optimum. Also if entering this market lower down the Cap scale how many individual stocks would be a sensible portfolio. Many Thanks.

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cyberbub 16th Sep '13 9 of 11

Paul hi, interesting to see that you've been 'somewhat' converted to resource stocks! LOL. You've done very well on ZIOC. I have the feeling that my knowledge of the technicalities of mining stocks gained over the years is (possibly) better than yours, but my timing on investment has usually been poor and so I have rarely made much profit!.... so I'm not sure what good my knowledge has been!!

If ZIOC gets diluted for a 'free carry' then there is (IMHO) no way that they will get a 25% free carry of such a huge project.  It is more likely to be 5%. However even that would make the company worth several times what it is today, in the long term.

 Have you ever investigated Wolf Minerals (LON:WLFE) ? It's a tungsten miner just at the start of its journey northwards, hopefully, with my own target being around 80p+ in 2015 as it comes into production. The unusual (and good) thing is that it's one of the rare listed UK-based mining projects, which, while not giving any guarantee (see SXX), means that it is at least politically stable and not subject to capricious 3rd-world autocrats...Anyway that's my plug over for the day...needless to say I am a holder there (disclosure) advice intended etc etc

Keep up the good work on your newsletter, I find it very informative!

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cyberbub 17th Sep '13 10 of 11

Paul by the way, I hope I didn't come across as offensive or arrogant saying that I might know more than you about mining companies, that wasn't the intention. Just you said that you had until ZIOC rarely if ever looked at foreign-based miners, much less invested, whereas yours truly has been trying his best on a range of minig shares for the last 4 years... some very successfully, most not.... learned the hard way! All the best...

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Paul Scott 17th Sep '13 11 of 11

In reply to post #77351

Hi cyberbub,

Of course I wasn't offended, one has to develop a very thick skin in this business, and you didn't even remotely upset me!

With resource stocks, I've got some very good contacts in my network, who basically do all the research, and just flag up their best ideas to me. So I look at who consistently makes money in the sector & usually gets their ideas right, and follow them sometimes. I have to broadly understand the investing case, but don't get too bogged down in the detail.

ZIOC was just a cracking special situation, where the upside was thrown in almost for free, and is now looking remarkably good. Don't worry, they will end up with far more than 5% of the project, this is a world class management team, who really know what they're doing, and have got the deal with Glencore set up very nicely so that they can't be cash called.

For those of us who are prepared to be patient, the upside on ZIOC even from the recent rises, is very substantial. I've been buying more today actually, at 27p. I think it has scope to 4-8 bag from this price, based on some numbers that the house broker has put out, and ideas that I've bounced about with other investors & the company itself.

No guarantees obviously. However, now that Glencore are progressing the project, it's a whole different ball game, and very exciting indeed.

I won't be researching other resource stocks myself, but will flag up any particularly interesting ones that come my way through my network of experts. I've been told by them that Trap Oil (LON:TRAP) and Bowleven (LON:BLVN) are very good on risk/reward right now, but as always DYOR!

Cheers, Paul.

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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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