Small Cap Value Report (17 Jan 2017) - BRY, DOTD, HOTC, JPR, GAW, MGR, DIS, CRW, GRG, EHG,

Tuesday, Jan 17 2017 by

Good morning!

Today I'm going to cover 5 companies, as follows;

  • Brady (LON:BRY) - in line trading update
  • dotDigital (LON:DOTD) - in line trading update, plenty of cash, and good growth
  • Hotel Chocolat (LON:HOTC) - in line trading update - is that good enough to justify such a high PE rating?
  • Greggs (LON:GRG) - large cap bakery/fast food - Strong LFL proves that High Streets still viable.
  • Elegant Hotels (LON:EHG)- profit down a bit, as expected.

Also, Graham is going to report on;

His sections will be added to the end of this report (as opposed to him publishing a separate report).

Please note that Graham added sections to yesterday's report, in the evening, covering Ashmore (LON:ASHM) and Orosur Mining Inc (LON:OMI) .


Is starting to rear its head again. Figures out this morning apparently show the CPI measure of inflation rising to 1.6%. This is likely to be the thin end of the wedge, because sterling's depreciation is only starting to feed through.

Therefore investors need to think carefully about this issue. How will higher inflation affect companies that you've invested in? Will they be able to pass on cost increases to the end customers? Pricing power is very important at the moment. To have pricing power, companies need to sell differentiated products/services, that people want to buy. Not generic products.

At the moment, I expect we'll probably see a spike up in inflation during 2017 to somewhere between 3-5%, at a guesstimate. That view is based on what happened in 2008, when sterling also devalued sharply, and inflation spiked up to about 5%, before coming back down again.

Changing my mind

Just to clarify, from yesterday's report. If the facts change, then I change my mind - as the famous saying goes. This point is worth reinforcing. I'm not expressing sentiment in these reports. I'm trying to form a rational, facts/figures-based view on various shares at this specific moment in time.

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Brady plc is a United Kingdom-based provider of trading and risk management software to the global commodity and energy markets. The Company combines integrated and complete solutions supporting the commodity trading operation, from capture of financial and physical trading, through risk management, handling of physical operations, to back office financials and treasury settlement for energy, refined, unrefined and scrap metals, soft commodities and agriculture. The Company's business units are Commodities and Energy. Its clients include various financial institutions, trading companies, miners, refiners and producers, scrap processors, tier one banks, various London Metal Exchange (LME) Category 1, 2 clearing members, and other European energy generators, traders and consumers. It offers commodities solutions, energy solutions, credit risk, cloud services, and client services and support. more »

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dotdigital Group Plc is a United Kingdom-based company, which is engaged in providing software as a service (SaaS) and managed services to digital marketing professionals. The Company offers dotmailer, which provides e-mail and multi-channel marketing automation platform with various tools that enable marketers to create, manage, execute and evaluate various campaigns. In addition to its automation technologies, the Company also provides multi-channel marketing consultancy and services for businesses seeking to manage customer acquisition, conversion and retention. The Company also has pre-built integrations with e-commerce platforms and customer relationship management (CRM) products, such as Magento and Salesforce. dotmailer helps in using contact data to design, test and send automated campaigns. The Company's subsidiaries include dotmailer Limited, dotsearch Europe Limited and dotmailer Inc. Through its subsidiaries, it is engaged in providing Web- and e-mail-based marketing. more »

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Hotel Chocolat Group plc is a chocolate company. The Company is engaged in manufacturing and retailing of chocolate in the United Kingdom and overseas. The Company operates in three areas: the United Kingdom, Europe and Rest of World. The Company offers chocolates under the brand, Hotel Chocolat. The Company sells its chocolate direct to customers though subscription, online and its approximately 83 stores. The Company's product ranges include self purchase, gift and occasion, rare and vintage, and other. Its product types include boxed chocolates, luxury boxed chocolates slabs and batons, enrobed fruit and nuts, chocolate hampers, ribbon bags, wine and spirits, hot chocolate and cocoa cuisine. Its chocolate types include dark, milk, white, bean to bar, boozy, caramel, cocoa gin, coffee, fruity, marzipan, mint, nut, patisserie, praline and truffles. The Company owns a cocoa plantation in Saint Lucia called the Rabot Estate. more »

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

40 Comments on this Article show/hide all

will89 17th Jan '17 21 of 40

I'd never come across Distil until reading about it here today, but I've done a bit more 'holistic' investigation this afternoon. Not that I know much at all, but I tend to think that with a business as small as this it's often better to use the figures as a baseline introduction (as well as trying to understand the history of the company in all its guises), but then the real research needs to be reading some product reviews, checking online presence and checking management experience (and possible aims) etc. I should probably also sample some Gin...

Yes it's loss making and the Mkt Cap seems very generous for the current sales, and yes it's tiny so it's illiquid, but I like the branding and it seems to be selling well based on bestseller lists (with good reviews) on Amazon etc, which should be a good sign?

The growth announced today seems decent enough, and the board have clear experience in the field (Ex Diageo etc). Wouldn't it only take a few more big supermarket listings and some viral marketing to put this much higher? They are clear that there is planned international growth too, although I notice they were already selling into Spain etc years ago.

From the website and understanding of this in its previous guise as Blavod I get the impression that they've taken time to 'get their act together', especially because of slow US regulatory approval. It's definitely been a 'jam tomorrow', especially when you consider that Blavod was listed in I think 2001, but are we about to see some Jam? I would normally think that the director experience is the key thing in a business like this, especially in a market where brand is so vital (and Diageo are big on brand building), but they sure have taken their time about it...

Perhaps worth a small punt as a tiny % of a portfolio?
Does anyone have any views/info either way?

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simoan 17th Jan '17 22 of 40

In reply to post #167206

There are many, many more which have destroyed value in the process.The push to acquire is obsessive. Institutional investors like newsflow, brokers like making commissions, management like increasing the size of their empires.

The ability to sit still is, in my opinion, massively underrated.

I must admit from the companies I've invested in I've seen far more good acquisitions than poor ones, so my own experience is quite different. Of my current holdings, I'm talking about companies like RPC (LON:RPC), Trifast (LON:TRI), Empresaria (LON:EMR), IG Design (LON:IGR), Amino Technologies (LON:AMO), Keller (LON:KLR), Ricardo (LON:RCDO) and even Norcros (LON:NXR) has made some good additions (Vado and Croydex). Only NCC (LON:NCC) has made a complete dogs breakfast of things and the jury is still out on a couple of others.

Perhaps I'm just lucky to invest in companies that are good at making acquisitions, but then quality of management is a key criteria for me being invested in the first place.

All the best, Si

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apad 17th Jan '17 23 of 40

Couldn't average menu per client 24% simply be achieved by low spending clients growing quickly and high spending clients growing slowly and so not be directly related to the 17% figure?
It might be, but not necessarily, or I am I missing something?
That the number of clients is not mentioned is, perhaps, a signifier.

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dulciemo 17th Jan '17 24 of 40

I held Distil (Blavod) for 8 years and finally gave up on them last year and sold. I have tried their Blackwood Gin and it is very good. My only complaint about it is that the company don't make the most of it's unique selling point. This gin is made on the Shetland Isles, using handpicked botanicals, and yet the label is quite bland and it's only by reading the tiny print that you find out it's made in Shetland. It's reasonably priced though.

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Wildrides 17th Jan '17 25 of 40

Small holding in Dis for several years . This seems a good RNS .......... but it is reflecting its best trading period . Deffo a jam tomorrow stock in recent past years . Marketing is the key and what is holding it back . One of those shares that never seems to drop back with stock market ebbs and flows so one tends to feel quite safe ......but ......come some poor figures that could change overnight . Dont plonk the ranch on it .

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sharw 17th Jan '17 26 of 40

Paul- neither you nor, more importantly, the Elegant Hotels (LON:EHG) report mentioned Zika, but it is a problem that is not going to go away until a cure is found. Originally it was only pregnant women that needed to avoid an infected area but now we are told that men can have symptoms so mild they do not know they have had it but the virus can linger in their semen for 6 months. Hence the World Health Organisation recommends that men returning from a Zika area should practise safe sex for 6 months. Then there is the alarming report that the testicles of mice exposed to Zika have shrunk (see ) although no human cases yet! So do you as a male want to holiday in a hotel on Barbados however good?

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tabhair 18th Jan '17 27 of 40

In reply to post #167245

re Distil (LON:DIS) - I see a lot of red flags here.

15 years of continuous losses.
Lack of insider ownership.
Horrible dilution.
Insiders being showered in shares.
66% of revenue is through just one wholesaler.

Good luck to anyone getting involved.

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Paul Scott 18th Jan '17 28 of 40

In reply to post #167257

Hi sharw,

I've mentioned the Zika virus in a couple of previous articles here about Elegant Hotels (LON:EHG) , but not today's.

The reports of possible testicle shrinkage are indeed very worrying!

Regards, Paul.

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doublelutz 18th Jan '17 29 of 40

I would not worry too much about Zika. I cannot imagine there have been some cases in Barbados and none in the rest of the Caribbean and America's. If you do worry then you will not go to Florida or particularly Brazil where thousands, including my son and partner, went for the Olympics. I would expect it to go the same way, if it has not already done so, as aids, bird flu and all the other health issues that were going to wipe us out and which no one worries about.

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gsbmba99 18th Jan '17 30 of 40

The management team at Greggs (LON:GRG) have stated that they think that they can take store count "well into the 2,000s". If you assume they mean about 2,500, then they think they can expand the store count by about 50% from the current level of about 1,680. Store count has been relatively flat in the last three years as they've been refurbishing their entire estate and have undertaken a load of resites. There's a useful article and supporting graphics here ( For comparison, McDonalds has about 1,200 UK locations (

Greggs are part way through a multi-year transformation program. They are transitioning away from a high-street baker to bakery food on the go. Store formats have gone from three to two and will go from two to one. The multi-year refurb of every store location is nearly complete and they've started reshaping manufacturing by developing and upgrading three bakery centres of excellence which will support the planned increase in store count. This is being funded by internally generated cash flows and the sale of a now surplus location in Twickenham for £20m+.

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davidjhill 18th Jan '17 31 of 40


The point that is missed in all of this is the asset value that is around 130p per share after accounting for debt (and that number was before some of the depreciation in GBP/USD). That means you are getting a business that makes 10p EPS in a relatively bad year at a discount of 40% to NAV.
The dividend of 7p is obviously 1.5* covered at present but even if it were cut to say 5p that's very reasonable yield at current prices.

Customers come from both UK and US and revenues are in USD. So whilst the weakness of GBP does impact visitors from the UK, the company reports in USD and there is something of an offset there.

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GrowthStocks 18th Jan '17 32 of 40

Great read as ever! Thanks!

I'd be interested to know if anyone has a new opinion or update of D4T4?

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Andrew niven 18th Jan '17 33 of 40

In reply to post #167257

Zika is not a risk in Barbados at the moment.
Regular fogging around the island is keeping the mosquitto situation under control.
Barbados is having a cracking season despite the weak pound, with visitors coming from places other than U.K. And Canada .
Elegant hotels purchased Waves hotel last year for a lot of money in my opinion. They would have been better off with what is now called sugar bay on the south coast which also changed hands last year ( previously amaryllis ( spelt wrong , sorry ).

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jonesj 18th Jan '17 34 of 40

In reply to post #167275

As far as I can see, Greggs have already transformed from a baker to food on the go some time ago.
A couple of years back, I participated in some of the uplift from approx £4 to over £7, but sold out before they swiftly climbed to over £10.

Since they are adding coffee and some of the coffee shops are broadening the food offer to overlap with Greggs more, I see more competition, although Greggs undercut the coffee shops.

In the Milton Keynes store, Greggs are in winding down mode at least an hour before the official closing time, with chairs upside down on the tables, just to make sure inconvenient customers do not put their closing time at risk. Not a great sign.
Meanwhile, Costa, Pret a Manger etc, the shops are doing as they should and serving customers.

In the cities, there is more competition in food on the go, from all sorts of places, including the excellent Wasabi chain (privately owned, unfortunately).

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herbie47 18th Jan '17 35 of 40

I have seen Greggs stores on industrial estates which I think is a good idea, tapping into workers in those areas for breakfast, snacks and lunches, not just relying on the high street. The one I came across was in Bridgewater, my satnav took me round there:,-3000670,615&tbm=lcl&tbs=lf_od:-1,lf_oh:-1,lf_pqs:EAE,lf:1,lf_ui:9&rlfi=hd:;si:3286340293715404925;mv:!1m3!1d14423.153111150883!2d-2.988224550170912!3d51.129886639532685!3m2!1i860!2i553!4f13.1

Busiest time is 7-8am.

Looking on google quite a few others around.

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Andrew niven 18th Jan '17 36 of 40

In reply to post #167227

I bought blavod shares many years ago and lost my shirt.
Why on earth I thought a black vodka would be popular is anybodies guess. Think I must have been drunk.
I sell spirits and novelty or unknown brands do not sell well unless they are Cheap pouring spirits .
Just too difficult to get into the market

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paraic84 19th Jan '17 37 of 40

In reply to post #167500

It looks like an interesting share and I note the company's products have good v reviews. According to its broker it's on a forward P/E of 25 for y/e 2019 which isn't unreasonable if it maintains its growth. Perhaps the other attraction here is the company being bought out by a foreign owner? I'm half tempted. However, the other risk here surely is Brexit and Trump. Isn't this exactly the sort of product that could be whacked with high tariffs in some of its key markets? Also I don't really see what it's USP is compared with other gin and rum products.

It's a shame there isn't more revenue breakdown by product and region. I prefer companies who are more transparent with their results.

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smatthews1 19th Jan '17 38 of 40

In reply to post #167185

I thank you both for bringing this subject up, its one I have always questioned my self. Why doesn't a company invest its cash in what its good at, but you have both made very excellent points on either side of the discussion.


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simoan 20th Jan '17 39 of 40

In reply to post #167692

Hi Sean,

It seems that I'm in the minority of people that do not like to see a growth company (can it be anything else on a PER >20) hand back cash rather than re-invest it to accelerate growth. Surely it should be reasonably simple to find an earnings enhancing acquisition when your own equity is so highly rated?

Terry Smith would pull his hair out if he read this blog! :)

All the best, Si

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mkbrazier 24th Jan '17 40 of 40

RE dotDigital (LON:DOTD) - I think the falling customer numbers combined with higher spend per customer can be explained by a deliberate strategy to move upmarket towards medium/large enterprises. Slide 37 of the latest results presentation implies this although it isn't the clearest.

"Lifetime value of a mid market client is 10x that of the SME sector."

Of course this means that customer concentration risk is increasing but their strategy of deepening integration with CRMs and continued product development should make these customers more "sticky".

Message volumes are the key metric rather than customer numbers for this business imo (although there is some price erosion at a certain point).

BTW I recently found your blog Paul/Graham and very much enjoy reading it.

Disc: I hold DOTD

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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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