Small Cap Value Report (17 Aug 2016) - ALY, TRCS, VCP, LOOK

Wednesday, Aug 17 2016 by

Good morning!

Laura Ashley Holdings (LON:ALY)

Share price: 22.1p (up 4.1% today)
No. shares: 727.8m
Market cap: £160.8m

(at the time of writing, I hold a long position in this share)

Results for 74 weeks to 30 Jun 2016 - one of the headlines in my newsfeed this morning was "profits up at Laura Ashley", which surprised me. However, on closer inspection there's a catch - the period being reported on today is an extended one - 74 weeks to 30 Jun 2016, or 17 months. The change in year end was announced here on 14 Sep 2016.

I very much dislike year end changes, as it completely throws out comparisons of performance for several years. Although often companies use pro forma figures for comparison purposes, which is helpful. Unfortunately ALY has not done that today - so the 74 week period is compared with the previous accounting period of 53 weeks, which of course is a totally meaningless comparison.

There were however, a set of accounts reported for the 52 weeks to 30 Jan 2016, which I reported on here. This showed a solid performance in the UK, but disappointing international performance (mainly due to Japan being weak).

We can of course deduce the more recent performance, by taking the most recent 74 week figures, and deducting the 52 weeks to 30 Jan 2016. The result of that is a profit of £5.1m for the 22 weeks to 30 Jun 2016.

The nearest comparison is the 26 weeks to 1 Aug 2015, which showed a pretax (and pre-exceptional) profit of £8.4m. However, that's not a valid comparison, since the missing 4 weeks are in July, which will be a highly profitable month.

So my conclusion is that it looks as if performance is currently running in roughly the same ballpark as last year.

LFL sales - a key measure of performance for retailers, since like-for-like figures strip out any impact from new store openings & store closures. Therefore it's a good measure of underlying performance. However, there is no standard method of calculation, so some retailers are naughty and include refitted shops in LFL figures, which of course is wrong! A refitted store is quite clearly not a like-for-like comparison.

ALY reports decent LFL sales growth at +4.1% for the 74 weeks. That's impressive, at a time when many retailers are struggling to report…

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Laura Ashley Holdings plc is engaged in designing and manufacturing products for home and fashion. The Company's segments include Retail and Non-Retail. The Retail segment includes sales through Laura Ashley's Managed Stores, Mail Order, e-Commerce and Hotel. The Non-Retail segment includes licensing, franchising and manufacturing. The Company's property portfolio in the United Kingdom includes approximately 190 stores. The Company's United Kingdom business includes the Home Accessories, Furniture, Decorating and Fashion categories. The Furniture product category includes upholstered and cabinet furniture, beds and mirrors. The Home Accessories product category includes lighting, gifts, bed linen, rugs, throws, cushions and children's accessories. The Decorating category includes fabric, curtains, wallpaper, paint and decorative accessories. The Fashion category includes adult fashion, fashion accessories and perfumery. The Company also holds interests in the Laura Ashley hotel. more »

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Tracsis plc is a holding company. The Company is engaged in the business of software development and consultancy for the rail industry. Its segments include Rail Technology and Services, and Traffic & Data Services. The Rail Technology and Services segment includes its Software, Consultancy and Remote Condition Monitoring Technology, and also includes Ontrac Limited and Ontrac Technology Limited (together being Ontrac). The Traffic & Data Services segment includes data capture, analysis and interpretation of traffic and pedestrian data to aid with the planning, investment and ultimate operations of a transport environment and it also includes SEP Limited (SEP). It provides software products, consultancy services and delivers customized projects to solve a range of problems within the transport and traffic sector. It specializes in solving a range of data capture, reporting and resource optimization problems along with the provision of a range of associated professional services. more »

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Victoria PLC is a designer, manufacturer and distributor of flooring products. The Company's principal activities are the manufacture, distribution and sale of floorcoverings. Its segments include UK and Australia. It manufactures wool and synthetic broadloom carpets, carpet tiles, underlay and flooring accessories. In addition, it markets and distributes a range of luxury vinyl tile (LVT) and hardwood flooring products produced by third-party manufacturers. Its product offering in the United Kingdom ranges from both crafted, woven Wilton carpets to Tufted carpets in a myriad of fashion colors and styles. Its stock range offerings cover saxonies, tonals, velvets, twists and natural loop pile styles for residential use. The Company supplies its products to the mid to high end residential market and contract sector both in the United Kingdom and overseas. Its subsidiary, Munster Carpets Limited, is engaged in the manufacture and distribution of floorcoverings for the contract market. more »

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

21 Comments on this Article show/hide all

Carcosa 17th Aug '16 2 of 21

Laura Ashley Holdings (LON:ALY) Possible that there is a dividend cut? I say this because 0.7 - 0.8p dividend would be needed to adjust for the year end change, not the 0.5p quoted which is set to be paid 'in due course'

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Trident 17th Aug '16 3 of 21

Hi Paul. This is an interesting and promising contract award for Tracsis.

Bit worried that the 2015/2016 trading statement is a bit slow in coming. Last year was announced by 12th August 2015, and the interim trading statement was announced by 16th of the month following period end.

Hoping that management have been somewhat preoccupied negotiating this contract, and that it will be now forthcoming.

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Paul Scott 17th Aug '16 4 of 21

In reply to post #147231

Hi carcosa,

Yes I did wonder about that too. It's not clear what the dividend policy is, although I assume they would have specifically stated if the intention was to reduce or rebase the divis at Laura Ashley Holdings (LON:ALY) .

The major shareholders seem very dividend-hungry, so I assume they would not want to cut the divis.

Regards, Paul.

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Ramridge 17th Aug '16 5 of 21

In reply to post #147234

Trident - re. Tracsis (LON:TRCS) It looks like you missed the statement in today's RNS that a trading update will be issued next Monday 22nd Aug.

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Trident 17th Aug '16 6 of 21

In reply to post #147240

Hi Ramridge.

I have indeed! Many thanks

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LittonOwl 17th Aug '16 7 of 21

Agree with Carcosa re: ALY, appears to be a veiled dividend cut and quite a significant one at that. 0.5p over 21 weeks, annualised is just 1.24p against the usual 2p dividend or a yield of c5.6% versus the more often quoted 9-10% .

Is it possible they've used this whole 74 week period to foggy the dividend issue? Also no dates given, just a note that it will be paid 'in due course', which also seems strange?

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JASPERTHEDOG 17th Aug '16 8 of 21

' ...the company said that weaker sterling has made it more competitive in the UK market, where about half of product is imported from the EU (mainly the low countries)'
I'm not sure how they work that out. Weak sterling makes for more expensive product.
Or do they mean: 'AS only half of product is imported' as opposed to their competitors where ALL the product is imported?

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JohnEustace 17th Aug '16 9 of 21

I thought I would look at the Victoria (LON:VCP) Stock Rank and I note that it is showing a high Earnings Manipulation Risk based on it's Beneish score.

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paraic84 17th Aug '16 10 of 21

Does anyone know if Laura Ashley Holdings (LON:ALY) margins for its online business are significantly higher than the retail side? (Presumably).

I have wavered a long time about whether to buy Laura Ashley Holdings (LON:ALY). My problem with them is that they never seem to grow despite their continued ambitions to. Although I'm not their target market their brand also feels a bit dated although their stuff does seem to be high quality. However, with good online growth my view might change about whether it is a good investment.

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bobo 17th Aug '16 11 of 21

ALY, the whole Malaysian thing and the office block just puts me off.

Victoria, large share buy back, I bet there is a fantastic DIrector's bonus scheme driving this nonsense. If so disgust is the only reaction.

Tracis, good result

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Gostevie 17th Aug '16 12 of 21

Hi Paul,

Many thanks for the excellent analysis of the Laura Ashley Holdings (LON:ALY) results. Very helpful, especially given the change of year-end and the resulting 17-month reporting period.

One thing about the RNS did stand out to me:

The Board has recommended the payment of a final dividend of 0.5 pence per share. This will take the total dividends paid for the 74 week period to 2.5p (period ended January 2015, 2.0p for a 53 week period). The dividend will be proposed at the forthcoming AGM and, subject to shareholders' approval, will be paid in due course.

(My bold.)

I don't think I've seen that "in due course" thing before. It's usually something like "Subject to shareholder approval a dividend of 0.5 pence per share will be paid on xx xxxx 2016 to shareholders on the register on xx xxxx 2016. The ex-dividend date will ne xx xxxx 2016".

Not sure if anything untoward should be into that but it's a bit of a curio.


Disclosure: I hold shares in ALY

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simoan 17th Aug '16 13 of 21

In reply to post #147237

HI Paul,

It's just not good enough though is it? The standard of shareholder communications from Laura Ashley Holdings (LON:ALY) is quite frankly a disgrace. They never announce when the results are coming out, when they do appear they're so vague that any rational person would think there's willfull obfuscation taking place.

Why could they not be bothered to make comparison with results from prior years easier? And today we have a dividend announced at half the normal level with no explanation as to future dividend policy and no idea as to when it will be paid. The only major reason to hold this share is the dividend and we don't even know if it's just been cut. It's no wonder the share price is on it's arse!

All the best, Si

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Paul Scott 17th Aug '16 14 of 21

In reply to post #147249

Hi Jasperthedog,

Re Victoria (LON:VCP) - to clarify, they're saying that their own UK-produced carpets, sold in the UK, are now significantly more competitive against Belgian/Dutch carpets, imported into the UK market, which have just got about 15% more expensive.

Therefore VCP has a significant opportunity to grab more market share in the UK market, because they just got a lot more competitive compared with imported carpets, which will now be c.15% dearer in sterling terms.

The same is true for most UK manufacturers - they are not only more competitive as exporters, but they are also now more competitive against imported products in the UK market.

Currency devaluation is the classic way that economies recover, so should be seen as a good thing.
Yet it's always (wrongly) described as something negative by the media.

Hope that clarifies.

Regards, Paul.

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AlanJenkins2 17th Aug '16 15 of 21

It might all work out fine for Victoria,but companies with net debt shouldn't be looking to buy back their shares.

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ExpectingValue 17th Aug '16 16 of 21

In reply to post #147270

Why not? Must one pay off one's mortgage before one invests in shares?

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AlanJenkins2 17th Aug '16 17 of 21

In reply to post #147276

No,but at current share valuations,it's a good idea.

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dfs12 20th Aug '16 18 of 21

A quick update following these Lookers (LON:LOOK) results. I was really pleased with the results, as was Paul above. So I was bamboozled when, afer a small and shortlived uptick, the share price started declining steadily. Yesterday morning I spotted an announcememt that Fidelity investments had reduced their holding of Lookers down to under 5%. So they had taken the great results as an opportunity to get out. I guess they judged there would be plenty of buyers around after the good announcent to mop up their shares. Looking at Fidelity in more detail I noticed that they have been getting out of Marshall Motor Holdings (LON:MMH) too. Looks like a strategic move out of car dealerships. Now that the major seller has been largely cleared I expect the share price to move up. That certainly happened on Friday where it was my biggest winner. Hopefu?y more of the same next week. Personally I am comfortable with the sector (especially since there have been positive trading updates from several different companies in this sector recently).

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hayashi22 20th Aug '16 19 of 21

I must say Victoria is an interesting company which divides opinion -a bit like SCS.
It appears to be doing very well. The nagging concerns are for me why the vendors of the acquired businesses sold to VCP and why VCP appears to be doing better than the others. Management suggest they make big efficiency improvements to newly acquired businesses.Be good to get a view from someone in the carpet trade!

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PJ0077 20th Aug '16 20 of 21

Hey Hayashi

There was an explanation on Shareprophets last year as to how Geoff Wilding became the dominant shareholder in VCP. No idea if this story is 100% aligned with reality, but it explains a lot if it is!

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hayashi22 22nd Aug '16 21 of 21

In reply to post #147708

Many thanks -an interesting read.

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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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