Small Cap Value Report (2 Sep 2015) - SAL, HFD, JSG, SFR, CNC

Wednesday, Sep 02 2015 by

Good morning!

Markets have been all over the place again since the UK closed yesterday afternoon. The US plunged again, but not quite as badly as a week ago - somehow a 470 point drop in the Dow last night doesn't seem such a big deal these days!

The Futures are showing that the US is expected to recover about a third of that when it opens today. The price of oil is lurching all over the place too, with a big percentage rally, now apparently fizzling out. So nobody really knows if we've just had a dead cat bounce, and are on our way to further falls, or if we're just re-testing the lows for another buy the dip opportunity?

At the moment I'm feeling reasonably relaxed about my long term portfolio of UK small caps - the recent sell-off showed most of them to be resilient, and the ones that did fall, quickly recovered. Also, the sharp falls showed which shares were the strongest, with several in my portfolio not dropping at all - so if buyers were absorbing all the sells during a market sell-off, then the future looks bright for those particular stocks.

As always, I think it's all about holding decent companies, at reasonable valuations, then providing the fundamentals of the company remain strong, the share price should look after itself in the long run.

Halfords (LON:HFD)

Trading update - it's not a small cap, with a £1.02bn mkt cap last night, but the shares are down 9.5% today to 462p. This news looks topical, and might have read-across for other retailers possibly, so I'll mention it.

Halfords has a 3 April year-end, so its Q1 figures (Apr-Jun) were reported on 15 Jul, and looked good, with group Like-for-like (LFL) sales up 3.5%.

Today however, the figures for Q2 to date (Jul-Aug) are reported, and they show a marked deterioration - LFL sales are down 1.3%, with cycling being the problem category, reporting -11.0% LFL sales (compared with +2.0% in Q1). That's some drop in demand for cycling. Reasons given are: more discounting (i.e. competitive pressures), and poor weather.

I've been wondering how long it would be before retailers started blaming the weather for disappointing sales! I suspect clothing retailers will probably be OK, as they hold summer clearance sales in July (when the weather was alright in the UK), and so August is…

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SpaceandPeople plc is a United Kingdom-based media specialist company. The Company is engaged in marketing and selling of promotional and retail licensing space on behalf of shopping centers and other venues throughout the United Kingdom, Germany, France and India. The Company's segments include Promotional Sales, Retail, Head Office and Other. The Company markets, sells and administers promotional space in a range of footfall venues across the United Kingdom, including shopping centers, theme parks, garden centers, retail parks and airports. The Company offers a service covering from consultancy services to the provision and management of retail merchandising units in shopping centers. It enables venues to market, administer, promote and sell their promotional space. Its subsidiaries include MacPherson & Valentine Limited, SpaceandPeople GmbH, Retail Profile Holdings Limited, POP Retail Limited, Retail Profile GmbH, SpaceandPeople India Pvt Limited and S&P+ Limited. more »

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Halfords Group plc is a retailer of automotive and cycling products. The Company is also an independent operator in auto repair. It operates in two segments: Halfords Retail, which operates in both the United Kingdom and Republic of Ireland, and Halfords Autocentres, which operates in the United Kingdom. The Halfords Retail segment includes car parts, accessories, consumables and technology. The Halfords Retail segment's product ranges are marketed through a national network of stores and through a multi-channel offer, which combines Website promotion with direct delivery or collection from store. The Halfords Retail segment includes approximately 165,000 product lines that are available online, and over 460 Halfords stores selling motoring and cycling products. The Halfords Autocentres segment provides car service, repair and MOTs to both retail and fleet customers throughout the United Kingdom. The Halfords Autocentres segment has over 300 centers across the United Kingdom. more »

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Johnson Service Group PLC is a United Kingdom-based company that provides textile rental related services. The Company is the supplier of workwear and protective wear. The Company operates through Textile Rental segment. The Textile Rental segment is engaged in the supplying and laundering of workwear garments and protective wear; linen services for the hotel, restaurant and catering markets, and high volume hotel linen services. The Textile Rental segment principally consists of workwear garments, cabinet towels, linen and dust mats, are initially treated as inventories. It operates Textile Rental business under the brands, including Apparelmaster, Stalbridge, Bourne and London Linen. Its market workwear rental business, providing a clothing portfolio to the workplace, supported by sourcing supply and aftercare service solutions. Its Johnsons Stalbridge Linen Services offers the laundry service to the hospitality sectors. more »

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

12 Comments on this Article show/hide all

FREng 2nd Sep '15 1 of 12


This time last year you looked at the interims from Concurrent Technologies (LON:CNC) Any chance you might look at the interims released today?

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whitepjs 2nd Sep '15 2 of 12

I read a suggestion that the recent market volatility was being caused by a lack of liquidity. Restrictions on what big investment banks can and cannot trade has supposedly made the markets generally less liquid. In the past investment banks would have traded in these conditions, making the lurches a little less violent. The trading environment has been left to the HFTs and computer algorithms, causing sharp spikes. Anyone with greater city knowledge able to shed more light on that suggestion?



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billytk 2nd Sep '15 3 of 12

Still a long way to go for Spaceandpeople (LON:SAL) management to regain peoples trust. As you say, no financial information contained in the RNS which would ordinarily mean it's not worth mentioning in your report. Good luck to all holders though.

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zoolook 2nd Sep '15 4 of 12

Thanks for further info on SAL and I admit I was nervous shareholder that sold but bought back in (fortunately at a lower price) and just topped up.

When JC Decaux was awarded the five year contract in 2010 it was stated to be worth £160m (link below). I have no idea what margin can be expected but the size of the contract is a game changer for a minnow like SAL.

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muckshifter 2nd Sep '15 5 of 12

that looks like an entirely different contract to do with advertising rather than kiosks within the station used for promotion. It would be very nice if SAL's contract was even a quarter of that size though!

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Paul Scott 2nd Sep '15 6 of 12

In reply to post #105745

Hi billytk,

I've done my own research on the SAL contract, and I believe it is likely to be material to future years' results from SAL, hence why it's important & clearly a price-sensitive announcement.

Also, where a stock is something I've commented on extensively in the past here, and a lot of readers are interested in the share, then people expect me to comment on it.

I wouldn't comment if SAL put out a run of mill contract renewal announcement though. So it's material news only (where materiality is c.+/-10% of future profits).

It's always a juggling act deciding what to put in these reports, so I try to achieve a mix of companies that I do, and don't invest in personally, and focus on things that generally look interesting to me.

Readers are perfectly welcome to add their own comments about companies I haven't mentioned, if you think it would be useful to flag up something I've missed. With a Value/GARP slant of course, as that's what we're trying to focus on here.

Interestingly, I'm noticing a good convergence between my favourite shares, and the StockRanks, which is really encouraging. Note that Spaceandpeople (LON:SAL) has a high StockRank of 91, so that's another reason it should be covered closely here.

Regards, Paul.

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Paul Scott 2nd Sep '15 7 of 12

In reply to post #105748

Hi Zoolook,

As muckshifter (great name!) has commented below, I don't think you're comparing apples with apples there with the SAL and JC Decaux contracts. I seem to recall hearing figures in mid single-digits £m's (for annual turnover) being mentioned somewhere (I forget where) for the likely level of business for SAL.

The big JCD contract you mention is probably for much more extensive billboard advertising, which SAL doesn't get involved in.

Regards, Paul.

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billytk 2nd Sep '15 8 of 12

In reply to post #105754

Hi Paul,
On the face of it it does look like a good contract to be awarded. I'm not sure I'd be buying into Spaceandpeople (LON:SAL) on todays announcement personally though. I had a lucky escape last year as I nearly bought in the 120p region an upwards (mainly due to the coverage on this site). I can't bring myself to trust the management here after what unfolded last year in such a short time frame. Best of luck with this one though. Having doubled from the lows hopefully your into the blue with them now.

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Bouvier 2nd Sep '15 9 of 12

Paul, it is your column so surely you are entitled to comment on any company or news items that you choose.
I welcome your clarification that the SAL contract is just for the 20 biggest stations which may not be obvious to some because Network Rail owns all of the stations but only manages the ones you listed. I am sure that this enough for the SAL management at the present but I am sure that if this contract is a success (for Network Rail) then the passenger train operating companies which manage the other stations on the network might be interested in using SAL's service. They will be keen to maximise revenue from their leased real estate and there will be a good spread of contract renewal dates.

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zoolook 2nd Sep '15 10 of 12

Thanks Paul and Muckshifter

Feel embarrassed now !

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simoan 2nd Sep '15 11 of 12

At the moment I'm feeling reasonably relaxed about my long term portfolio of UK small caps - the recent sell-off showed most of them to be resilient, and the ones that did fall, quickly recovered.

Hi Paul,

Mine too, despite continued weakness in ALY that is. As you know, I was not happy with the Singapore property purchase and the share price has been slugged ever since its announcement. On the whole though, the rating is not demanding and I'm happy to hold for the divi for the time being.

Another holding that has sold off and not bounced is Avation (AVAP) so I've been nibbling at those again recently. Results are due next Monday and it's looking very interesting on a low P/E and discount to NTAV. Hopefully the results will be better presented than the interims :-)


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jonesj 2nd Sep '15 12 of 12

To me, charging high prices for washers is a Halfords strength.

OK, if you leave home specifically to buy washers, going to Screwfix is likely to be a better destination.

However, if you happen to be walking past Halfords, it's not worth your time to drive up the road just for 1 bag of washers, so they can make the prices stick. Also, Halfords have no credible national competitors for a lot of the products sold in their stores.
I still do not own the stock, but if I were to add a large retailer, this would be one to consider.

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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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