Small Cap Value Report (19 Dec 2016) - JE., CTAG, WPHO, COS, NWF

19th Dec '16 by Paul Scott

41 comments 19118 reads

Good morning!

There's just one report today, from me. Graham is busy travelling back from Asia to Ireland, so he's got today & tomorrow off, and possibly Weds if he's jet-lagged!

Everything is winding down for Christmas now, so there shouldn't be a great deal of newsflow. Although I enjoy this time of year, as with many market participants off work, or too hungover to function normally, there can be nice little trading opportunities in small caps. Illiquid markets can often cause bizarre price movements - providing good buying & selling opportunities.

There's also a heightened risk of profit warnings occurring at this time of year, as some companies fail to close deals that they need, in order to hit full year forecasts. So I keep a close eye on the list of top fallers for the day - and hoping that none of those will be things in my portfolio!

Just Eat (LON:JE.)

Not a small cap, I know, but an interesting & topical share. I'm very interested in internet disrupters at the moment, as discussed last week. I came very close indeed to buying some JustEat shares last week, because it seems to be dominating its niche. Although I'd be surprised if the regulators let it go ahead with its proposed purchase of major competitor Hungry House.

However, something happened over the weekend which made me realise that JustEat has a fundamental flaw in its business model. In my London household we use JE probably twice a week, and have been trying out different local takeaways. Anyway, we've now found a curry place which is our favourite, by far.

Last night, the delivery man from our favourite curry house looked much older than the usual ones, so the penny dropped that this was probably the proprietor. As he handed me our meal, he thrust a few menus into my hand, saying - please order direct with us in future, and we'll either give you a bit of discount, or some free extras. So that's what we're going to do from now on - cutting out JE altogether from our future transactions.

Bottom line, I think by charging (apparently) 14%, JustEat are being too greedy, and thereby sowing the seeds of their own decline. Some business is likely to leak away, as takeaways connect with their regular customers, and persuade them to order direct, by telephone,…

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jonesj

19th Dec '16

In Cambodia, if booking a hotel direct (no deposit), all you have to do is just mention your arrival time at the bus stop and the hotel will send a Tuk Tuk driver with a name placard, just to make sure you don't get taken to a different hotel by some hawker. He'll be in the scrum outside the door of the bus.

On the other hand, if you have a booking.com reservation, backed by a credit card, they have no need to send a free Tuk Tuk and do not bother.

There's a lot to be said for cutting out these booking sites.

Roger Lawson

As a holder of Just Eat, I am not sure everyone is so clever to bypass Just Eat just to save a few pennies, particularly when their ordering system is so slick.

As regards Cloudtag could not agree more with Paul's comment. The market for fitness tracking products is way overcrowded. Having just bought a smartwatch as an xmas present for self (a Huawei one), this can do steps and hard rate tracking. But a lot more - for example, you can verbally ask it for the share price of any company. How cute is that! Plus view text messages sent to your phone, look up anything with Google, get a weather forecast etc. Smartwatches are not yet quite in the mainstream (a but fiddly to set up) but soon will be - almost there. Can anyone recommend a good supplier of portfolio price alerts and news via text message?

Beginner

Booking.com take up to 30% of the stated price. The rate depends on volume of traffic. If anyone is thinking of booking a hotel in Britain or Ireland, other than the large chains that run their own booking sites, I recommend you use the booking engines etc to find somewhere you like, then ring the place direct to book. Prices are almost invariably lower doing this, and receptionists will usually tell you if there are any 'deals' available. (I work in a small, family-run hotel. At this time of year a weekend for two with us will cost you £240 booked through booking.com. They take £72. Ringing direct gets you the same room for £180, with two three-course dinners thrown in).
Intermediary websites charge extortion fees of smaller businesses, and result in excessive charging for the consumer. A curse on them all! (Such businesses will ultimately thrive though, simply because younger people demand to do all their business through their phones)

Bushranger

Around about 2000, which is a century ago in terms of tech/internet advance, booking sites such as Wot If etc were great. They did really collate deals and offers that were just not available, and or allow you to book somthing online that did not have its own online booking system. As the decade rolled on I used these less and less. Hotels/ accomodation caught up with the times and you would be hard pressed to find any that dont have their own webite/ bookings and deals. Now looking at these sites Wot If , Last Minute etc they are often dearer than the hotels own site. Most hotel sites boast that the best deals are by booking directly online with them. Times change.

ericb

Roger, are you posting on behalf of ShareSoc, or are these your own personal views ?

organictrader

Roger, have a look at VOX markets, great for RNS text alerts & free:-) They also offer live prices much cheaper than others although I've not yet tried this. Good Luck!

Organictrader

muckshifter

That's what I do now, beginner, but I never realised the size of the deduction was up to 30%. Thanks for the information.

Ericb:: Those are my personal views of course. Posted in my name.
Roger Lawson

Organictrader: Thanks for that info. I have found some others but that could be a good option.

Bushranger: even if the independent booking systems give you a cheaper room, when you turn up at the hotel you often find that they have given the best rooms to their direct clients! But I doubt that similar problems can affect meal booking providers, unless they provided smaller portions!

James RH

'As a holder of Just Eat, I am not sure everyone is so clever to bypass Just Eat just to save a few pennies, particularly when their ordering system is so slick.'

From Just Eat's website, it says that they guarantee a customer will pay the same price for a delivery meal as you would ordering direct from the restaurant.

I therefore don't think it's a case of trying to save a few pennies. More the takeaway owner saying 'Thanks for your order. Next time you're after a (pizza), call us direct and we'll throw in a freebie', in the knowledge that the 14% commission they're saving can be used as a sweetener to gain/retain your loyalty.

Put it another way - I use a local takeaway maybe 2 or 3 times a month. We are quite loyal as the food is really good and the prices are reasonable. If I suddenly started ordering my food on Just Eat rather than direct with the takeaway, they will actually start to lose profit on my orders as although I would use them anyway, they now have to pay a third party for the privilege. If everyone in my town does this, then something has to suffer - higher prices, less quality ingredients, smaller portions, etc.

The only way I can see it as being possibly beneficial is if you're out of area, holiday, business trip or the like and you're not sure what's around, however that leads me to my next observation:

As for their website, I'm in agreement with another poster - if I type my postcode in, it locates me to a town which is 4 miles away. Even based on that location, the distance rates from the actual takeaways are miles out. If someone unfamiliar to this area used Just Eat's website to order something, they will most likely be put off thinking it's going to take ages to arrive thus losing local takeaways/restaurants a potential customer.

As a consumer, I feel Just Eat offers nothing that I can't already type into a Google search and order direct.

I would second your thoughts completely. In my area and much wider into the larger towns, new or one off buisness is not what is making the local takaway their profit. I have become very loyal to my particular eats. Occasionaly if they are shut or I take fancy I'll try a different one, but always come back to the ones I like the best. If you ever have to wait in a local takaway just take notice of how many customers are known buy name..lots. At the end of the day its all about the economics. In a very transient busy area where repeat custom is not your core profit base then I could see the advantage of Just Eat. How many local takewaways fit into this catagory? Probably not too many.

rhomboid1

I've just put my post code in the JE website, only one nearby takeaway that I'd never heard of,, every other one delivered from 5 to 10 miles away , a little googling says the mystery local option has changed names frequently but remained resolute in it's inability to secure a decent food hygiene score.

I've no idea as to whether this business is a good investment but not inclined to look further

Ok I decided to try my area. Only one takeaway on Just Eat servicing my area. They are 12.5 miles away on the outskirts of the largest nearest town and according to google maps it will be a 46 minute round trip!. No-one from that area that I know of delivers from where they are to where I am. Tempted to put in a £3.80 order and see if they turn up? This takaway does not have its own website. Seems to be hosted by Just Eat. Found three reviews for this place. One says their pizza is good. The other two say aviod as they got food poisoning from it and the the other says it was the rudest service.

Lord Zion

20th Dec '16

Thanks for the article, Paul. As a holder of Just Eat (LON:JE.), I have been happy with progress so far, but you raise a salient point so will keep a close eye on them.

As a newcomer to investing (since June), I'm interested to see my first Christmas through. Knowing how other industries behave, I wonder how closely shares follow suit? ie, Will it be quiet so a good time to grab some shares that may dip unnaturally? I would love to hear anyone's thoughts on that.

Finally, Paul, slightly off topic, but I understand that you tend to buy and hold. It is a strategy I am leaning toward, but have massive confusion and conflict as to when - and how - to take profits on those longer term investments. Apologies if this is something you have previously covered, but I couldn't find a post on it.

Best regards,

Zion

PabloAguas

RE: JE
My finger has hovered over the buy button more than once, but I have been put off by their foreign aquisitions in countries that do not have the same food culture as here, nor the same demographics.

I should add that I rarely eat takeaways and have never used Just Eat, but I do stay in hotels and have used booking.com a lot, so Thank you for the tip Beginner.

alpha2

I posted negatively about JE last week. My point was that the re-rating due to take effect in April will dramatically increase overheads for all operators and where else can they look to make a saving. They already have the delivery men working for them (unlike the Deliveroo and Uber Eats) model. They have to have the cooks, dishwashers waiting staff and all the equipment. The only discretionary area left to try and cut to compensate for the increased rates is the JE commission.

Many businesses in London are reporting headline rates increase of 20-50%.

I also think that the target market for JE affiliates are probably the most price sensitive.

herbie47

21st Dec '16

Thats interesting about the uk, if I ever book a Hotel again in UK I will try that. Just checked a few Hotels in Bangkok and booking direct is no cheaper, 1 was about the same, the other was over 20% more expensive, that was before any cashback deal I get which is about 10% with Expedia. So maybe fees are lower in Asia?

As for Cambodia I got a free tuktuk from bus station booking through any agency.

As for Just Eat (LON:JE.) nearest takeaway to me is over 11 miles away, has min. order and delivery charge, there are only 3 that cover my area, 2 chinese and 1 american, I won't be using, seems they are not signing ones up in the smaller towns? I have several about 1 mile away from me, Indian and Chinese.

'As for Just Eat (LON:JE.) nearest takeaway to me is over 11 miles away, has min. order and delivery charge, there are only 3 that cover my area, 2 chinese and 1 american, I won't be using, seems they are not signing ones up in the smaller towns? I have several about 1 mile away from me, Indian and Chinese.

Or, it could be that the Indian and Chinese takeaways in your area are so good and popular, did their research and decided they don't require a third party to eat into their profits?

Small Cap Value Report (19 Dec 2016) - JE., CTAG, WPHO, COS, NWF

Just Eat (LON:JE.)

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Paul Scott

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