Small Cap Value Report (18 Apr 2017) - BEG, ASHM, DIS, UK Election

Tuesday, Apr 18 2017 by

Good afternoon,

It's a quiet start to the week following the long weekend, but I'll add a few snippets below for those releases which might be of interest. 

I hope you all had a relaxing break!



UPDATE: The FTSE is lower by 2% and the pound is up 1.4% against the dollar, after Theresa May called a snap general election for 8 June.

So in the short-term, we can look forward to a lot more uncertainty and plenty of hand-wringing over the immediate effects this will have on business confidence and of course on the consumer.

Looking to the slightly longer-term, however, it should result in an increased majority for the Conservatives. With potentially a 200-seat lead, and with no election due until long after Brexit negotiations should have completed, perhaps we'll get a little bit more macro-political stability than we expected (which is not saying much, of course).

I try to focus much more on the prospects for individual companies than I do on the economy as a whole, but I would certainly welcome GBP strength and the knock-on effect this would have on British retailers and importers. The forthcoming election should clear a path forward for a new government to settle the terms of Brexit and deliver the certainty which the currency markets crave.

Begbies Traynor (LON:BEG)

Share price: 48.5p (-3%)
No. shares: 106.7m
Market cap: £52m

Red Flag Alert Research: Q1

The long-standing threat that insolvencies might return to normal rates sounds closer than ever, according to the headline from this latest quarterly alert

Apparently, the level of "significant" financial distress is up by 26% on average, when one looks at what Begbies describes as "key supply industries" - namely, Industrial Transportation & Logistics, Wholesale, and Food & Beverage Manufacturing.

However, that does sound like a fairly limited set of industries, compared to the size of the business sector as whole.

It's true that the impact of the new National Living Wage hasn't been measured yet, and that there is some considerable uncertainty over these industries' future access to European labour.

But I don't think this report will be enough to sway too many minds on the subject of future insolvency rates. For me, I continue to suspect that it's primarily a question of interest rates and bank policies.

Ashmore (LON:ASHM)

Share price:…

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

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Begbies Traynor Group plc is a business recovery and property services consultancy. The Company's segments include insolvency and restructuring, and property. It provides services from a network of the United Kingdom locations through two operating divisions: Begbies Traynor and Eddisons. Begbies Traynor is an independent business recovery practice that handles corporate appointments, serving the mid-market and smaller companies. It provides insolvency, restructuring and consultancy services to businesses, their professional advisors and financial institutions. Eddisons is a national firm of chartered surveyors, delivering transactional and advisory services to owners and occupiers of commercial property, investors and financial institutions. It provides professional services, such as business rescue options, advisory options, forensic accounting and investigations, corporate and commercial finance, personal insolvency solutions and services to banking, legal and accounting sectors. more »

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Ashmore Group plc is a United Kingdom-based company, which operates as a specialist emerging markets asset manager. The Company offers a range of investment themes, such as external debt, local currency, corporate debt, blended debt, equities, alternatives, multi-strategy and overlay/liquidity. Its geographical segments include United Kingdom, United States and Others. The external debt theme invests in debt instruments issued by sovereigns (governments) and quasi-sovereigns (government-sponsored). The local currency theme invests in local currency-denominated instruments issued by sovereign, quasi-sovereign and corporate issuers. The corporate debt theme invests in debt instruments issued by public and private sector companies. The Company's products are available in a range of fund structures, covering the liquidity spectrum from daily-dealing pooled funds through to multi-year locked-up partnerships. more »

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Distil Plc is a United Kingdom-based holding company. The Company is engaged in marketing and selling of Blavod Black Vodka, Blackwood's Gin and Vodka, Blackwood's Limited Edition Vintage Gin, Diva Vodka, Jago's Vanilla Cream Liqueur and RedLeg Spiced Rum domestically and internationally. The Company markets and sells its brands in various international markets, including the United Kingdom, the United States, Germany, Spain, Australia and Russia. RedLeg is a premium Caribbean rum, infused with spices. Jagos is the vodka-based cream liqueur with a vanilla cream flavor made with whole cream. Blavod is made using grain vodka, triple distilled and double filtered. The Company's subsidiary is Distil Company Limited. more »

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

12 Comments on this Article show/hide all

JohnEustace 18th Apr '17 1 of 12

"It's a quiet start to the week following the long weekend"
That's what I thought until Mrs. May called a General Election!

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dahokolomoki 18th Apr '17 2 of 12

In reply to post #180075

Looks like we're going to be in for a few volatile weeks of trading until the election day!

Good thing I haven't used up my isa allowance yet and have some dry powder to deploy for opportunities in he coming weeks.

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AlanJenkins2 18th Apr '17 3 of 12

I'm deeply suspicious that we'll wind up with higher taxes short-term ! [ -:

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paraic84 18th Apr '17 4 of 12

I looked at Distil (LON:DIS) when it was 1.5p and thought investors were over-valuing the prospects. It's offering didn't look that exciting to me! Damn!

On a different note I see IQE (LON:IQE) is down quite a lot today which is looking like a buying opportunity to me. I can't see any news out so I am assuming it's just profit-taking, but if anyone is aware of anything do shout!

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dscollard 18th Apr '17 5 of 12

Cable is the one to watch: fairly big move in GBP today on election result. It has been quietly rallying for a few weeks with a several failed  attempts on the BREXIT trendline in place since end of June 2016.  As of today that trendline  now looks broken and GPB/USD is above its 200MA for the first time since the referendum. If this is a new trend then there will be some unwinding in correlated equities and dollar earning plays: mining is leading the way on that one today. 

Should be some great trading ahead

"Sell in May" might now be "sell on May" ;P

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pastybap 18th Apr '17 6 of 12

Hi Graham,

"RedLeg Spiced Rum and Blackwoods Vintage Dry Gin will be listed in another national supermarket chain from May 2017, while Q4 revenues were up by 23% (volumes by 25%) (this growth boosted by the late Easter promotional period)."

My reading of the trading statement is actually the opposite. ie. This year there was no Easter in Jan-Mar, whereas the 2016 figures where boosted by such period. What effect the Easter period figures have though on spirits sales probably depends on people's taste for gin and chocolate or spiced rum and hot cross bun....

Overall though, I think revenue forecasts are erring on the conservative side. Also, there is the added potential of a larger distributor purchasing the brands and using their network to add significant value. The takeout alone of RedLeg for example, could be a multiple of today's share price.

(NB Obvious current owner's bias in this comment)

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daveinthelakes 18th Apr '17 7 of 12

Distil (LON:DIS)
"The RNS helpfully provides a link to the company website where there is a commissioned research note from January - this estimates breakeven in FY 2017 adjusted PBT, rising to £0.1 million in FY 2018 and £0.3 million in FY 2019."
£0.3M is a P/E of 50 in three years time? That appears steamy to me and as by a paid analyst these are presumably the company's figures tinged with optimism.


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Modform 18th Apr '17 8 of 12

PE is the most stupid metric of measuring growth companies. If you had relied on PE, you would have missed FEVR BOO KWS G4M SPE PRSM, and recently DIS and in particular the young company WEY that produced a superb set of results today.

Btw, the value of DIS is not in how much money it makes now but on how much value will one put in Redleg and other brands. One could argue that the value of Redleg could be more than the current mcap.

Dyor, no advice is intended.

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Graham Neary 19th Apr '17 9 of 12

In reply to post #180102

Hi pastybap... thanks for pointing that out, I guess you're probably right about Easter. Cheers! That would boost the argument that sales forecasts are conservative.


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herbie47 19th Apr '17 10 of 12

In reply to post #180261

Hi Graham, would be able and willing to review Burberry (LON:BRBY) trading statement that was issued today?

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Graham Neary 21st Apr '17 11 of 12

In reply to post #180279

Hi herbie, I'm not planning to cover that in the SCVR. I might cover it in a different format.



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herbie47 21st Apr '17 12 of 12

In reply to post #180555

OK I understand it's not a small cap but you did cover it before, thought I would ask.

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 Are LON:BEG's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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