Small Cap Value Report (20 Jan 2017) - BJU, CCT, CBG, BON

Friday, Jan 20 2017 by

Happy Friday,

Today I'm looking at Brainjuicer (LON:BJU), Character (LON:CCT) and Close Brothers (LON:CBG).

Paul, who is on his day off but can't stay away, will be covering MySale (LON:MYSL) and Bonmarche Holdings (LON:BON).

Paul also made a couple of late updates to yesterday's report

That report now includes all of ST Ives (LON:SIV), Revolution Bars (LON:RBG), FreeAgent Holdings (LON:FREE), Portmeirion (LON:PMP), Mission Marketing (LON:TMMG).

Best regards


Brainjuicer (LON:BJU)

Share price: 675p (+13%)
No. shares: 12.2m
Market cap: £82m

Trading Update

It feels like just the other day that I last covered a trading update from Brainjuicer. Indeed, I covered it in the Dec 9 report; the shares rallied 7% that day when the company announced that results would be "above current market forecasts".

Amazingly, the shares are up by a further 27% since then.

But this is a "juicy" statement:

For the 12 month period, Gross Profit, our main top line indicator, increased by some 27% to approximately £25.6m, driven primarily by continued strong progress by our US business and an encouraging recovery in Continental Europe.

Besides improving fundamentals, the share price rise also reflects an effective short-GBP position:

Excluding the impact of exchange rate movements the increase in Gross Profit was some 15%.

For me, the best thing about this update is the success in the Ad Test/Brand Tracking services. As I've pointed out before, and as the company reiterates today, these are "comparatively high margin and scalable quantitative services". Well, their contribution rose by 80%, to make up 39% of the company's total gross profit.

Back in September, I thought we were in store for a pre-tax profit here of c. £5.5 million, which I revised to c. £6 million in December. Today it announces that it is going to achieve c. £6.2 million.

In December, I forecast that cash at year-end would be "possibly in excess of…

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

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System1 Group PLC, formerly BrainJuicer Group PLC, is a United Kingdom-based company, which is focused on marketing and brand consultancy, with proprietary market research and advertising solutions grounded in the principles of behavioural science. The Company’s services include System1 Agency and System1 Research. System1 Agency is advertising agency, that creates advertising proven to translate emotion into profitable brand growth. System1 Research produces the FeelMore50, an annual ranking of the world’s 50 TV and digital ads. The Company offers its client create 5-Star, fame-building communications. The Company operates in the United Kingdom, the United States, Continental Europe, Brazil, China and Singapore. more »

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The Character Group plc is a toy company. The Company is engaged in the design, development and international distribution of toys, games and gifts. Its geographical segments include other EU, UK and Far East. It designs and manufactures toys based on television, film and digital characters, and distributes these products in the United Kingdom and overseas. It also distributes finished products in the United Kingdom developed by overseas-based toy producers. Its diverse product range includes products for pre-school, boys, activity and girls. The Company's brands include Peppa Pig, Little Live Pets, Teletubbies, Minecraft, Scooby Doo, Mashems, Fireman Sam and Ben & Holly. Its customer list includes the United Kingdom toy retailers, the United Kingdom independent toy stores and a selection of overseas distributors. It operates approximately two distribution warehouses located near Oldham, Greater Manchester. It primarily distributes products sourced from overseas third parties. more »

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Close Brothers Group plc is a merchant banking company. The Company provides lending, deposit taking, wealth management services and securities trading. The Company operates through three segments: Banking, Securities and Asset Management. The Banking segment provides lending to small businesses and individuals, with an emphasis on specialist finance. It also offers deposit-taking services to the United Kingdom businesses and individuals. The Securities segment provides trading services in the United Kingdom through Winterflood, a market-maker. The Asset Management segment provides a range of financial advice, investment management and online investing services to private clients and professional advisors. Its portfolio of solutions include aviation and marine, broker finance, brewery rentals, asset-based lending, commercial vehicle hire, insurance premium finance, invoice finance, motor finance, property finance, professional services finance, retail finance and technology services. more »

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  Is System1 fundamentally strong or weak? Find out More »

22 Comments on this Article show/hide all

herbie47 20th Jan 3 of 22

Character (LON:CCT) I'm really not surprised, 2 directors were selling in December. I would be more confident if the directors were buying.

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SmallCappy 20th Jan 4 of 22

I have held CCT since they were 55p through good and bad. Not one that I plan on selling. As I was waiting in traffic this morning I just started to wonder if they might make a juicy morsel for a US based predator. Probably not

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ricky65 20th Jan 5 of 22

Hi Paul and Graham. No worries if you have't got the time but I'd be grateful if you could have a look at software small cap Elecosoft (LON:ELCO). The trading statement mentioned pre-tax profit to be 'significantly' ahead of expectation. It's up 23% as I write. Thanks

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Lion Tamer 20th Jan 6 of 22

Hi Paul

Bonmarche Holdings (LON:BON)
"... and I generally worry about the survival prospects for retailers who have not managed to crack selling online as well as in physical stores"

The detail in today's retail sales data for December ( adds still more weight to this view and your previous commentary about the plight of the high-street. Small retailers of Textile, clothing and footwear stores had a 13.9% fall, whereas online for the same segment had a 13.9% increase.

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1milby30 20th Jan 7 of 22

Anyone got any ideas why Victoria (LON:VCP) is up today?


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Michael Billingham 20th Jan 8 of 22

In reply to Herbie47 re it also significant that in their RNS dated 1 December they stated "current trading is commensurate with the company achieving the Board's profit expectation"?..... no mention of the lower sales in the four months to December referred to today. Might this have lowered the share price prior to them selling their shares?

I held Character but sold this morning aggrieved.

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RichardK 20th Jan 9 of 22

In reply to Damien (post 1) re Synthomer, I was pleased with the update, some 23% over consensus forecast. The outlook for 2107 is moderately optimistic.

If after tax profit is about £100mn, and anout 340 mn shares in issue, the eps comes out around 30, giving a historic P/E of 14. There is a fair amout of debt plus a significant pensions deficit, so maybe fairly valued? However I am happy to hold as the company has tended to under promise and over achieve, and may buy more on a dip.


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jonesj 20th Jan 10 of 22

I was recently checking Purplebricks terms for post payment of fees (trying to figure out how they ensure payment) & apparently the fee is owed to Close Brothers. So I suppose Purplebricks offload that risk ?

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JohnEustace 20th Jan 11 of 22

In reply to jonesjeff, post #10

Yea, invoice factoring is a large part of the Close Brothers business.

They are in fact a bank, but a merchant bank rather than a high street retail one.

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aflash 20th Jan 12 of 22


It is vital to cover Financials because of Brexit.
(Employment, Euro-clear, Volumes, US firms using London as base, Property firms letting office space to them.)

Paul looks at it now and again anyway; e.g. CNKS, PMR

Hopefully this post will find echoes.

Despite 'Big Bang' (1986), there is still too much 'landed gentry' mentality among the 'chaps' in the City to my mind, especially when it comes to sharing information.

Technological platforms in North America are more more friendly to the P.I. through limit order duration (30-60 days) and commission rates (no stamp duty).

Nevertheless London is better placed in the time zone and closer to Europe and the Middle East. There is also a vast pool of talent.
So what happens politically over the next few years will have a huge effect on the performance of the sector. Any imput from someone who feels familiar with the sector can only benefit Stockopedia subscribers.

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gus 1065 20th Jan 13 of 22

In reply to Lion Tamer, post #6

I agree with the general view that online sales growth is very important to share values both in terms of bottom line earnings and especially the p/e multiplier (i.e. No online growth story equates to a low market rating). However, I wonder for Bonmarche Holdings (LON:BON) if there may be a case for suggesting that their target customer demographic (ladies of a certain age with an eye for value) might be less susceptible to online offerings both in terms of having less access and less interest in online goods preferring to see and feel goods before buying and maybe enjoying the high street shopping experience with friends to a quick snatch via a phone app. My gut feel is based on the mere observation of my teenage daughters' predilection for Boohoo.Com (LON:BOO) online compared to my elder sisters' enjoyment of a good Saturday afternoon high street rummage.



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Julianh 20th Jan 14 of 22

In reply to Michael Billingham, post #8

Re: Character (CCT)
The best sales for a toy company should be the months leading up to Christmas. So why are sales down on last year? The RNS gives no explanation unless they have put up prices to cover import costs and suffered as a result. I almost sold after the December RNS but gave them the benefit of the doubt. This is one of the behavioural quirks that Ed Croft talks about. I assess shares I own more favourably than shares I don't own. Having made the decision to buy I find it difficult to change my mind. I need to keep reminding myself of Paul's motto - when the facts change, I change my mind.
I sold this morning. There are enough really good investments out there. No need to hold on in the hope that my optimism becomes justified.

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Graham N 20th Jan 15 of 22

In reply to aflash, post #12

Great comment, aflash, I'll do my best!

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Graham N 20th Jan 16 of 22

In reply to JohnEustace, post #11

That's true and I hope people are aware that I am only excluding conventional high street banks when I say "non-bank financials". There are lots of other financial companies which borrow and lend (some of which have official bank status, and some don't).

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Zipmanpeter 20th Jan 17 of 22

On Bonmarche Bonmarche Holdings (LON:BON), I think it will be a value trap. Follow the consumer. Their average consumer is a female pensioner over 65 who walks in to the store and buys a (pretty sad !!) range of products of basic items. This demographic grew up and formed habits pre-computer. It is literally also literally dying off. It is trying new locations but I doubt the sales density and margins will be enough. In the short run having only the best stores out of administration makes everything look good. Long term I can only see it declining.

There IS a population bulge entering run up to and early pension age (baby boomers) but they are far more demading in terms of range and shopping experience and online shopping is not so scary or unfamiliar to them. The benefits of convenience and increasing ease of use make them a group likely to very rapidly migrate on line in my view, especially as the first digital natives come of age and command the economy. This is a great potential opportunity for JD Williams of N Brown (£BWNG) which is now revitalising its image to appeal to this group specifically and has spent 4 years in the wilderness and lots of money migrating its catalogue buyers online. (Disclosure. I hold (£BWNG) for this reason) and possibly at the top end for NEXT (£NXT) - instead of GAP Kids, how about Next Seniors. Bonmarche is too small to have scale and too weak a brand to justify aggressively moving.

If there is any value in Bonmarche Holdings (LON:BON) it lies not in the stores but in thevery specific database of 250,000 frequent Bonmarche users of their loyalty card. This will be a great buy for JD Williams in 5 years time when Bonmarche (as its parent Peacock did) goes in administration!

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ISAallowance 20th Jan 18 of 22

In reply to Julianh, post #14

"The best sales for a toy company should be the months leading up to Christmas. So why are sales down on last year?"

Well, presumably they're comparing them to the run-up to the previous Christmas, so it's not a given that they should rise.  Having said that, a sales miss in the busy period will have a larger affect on the year than a miss in the quieter period.

I think it's reasonable to give shares one holds slightly more benefit of the doubt, since otherwise it's easy to over-trade and get hit by the dealing fee, stamp duty and spread each time.  I take your point that it should be a dispassionate assessment though without any emotional attachment to the stock.

Personally, for me the update isn't nearly bad enough to sell, although I only have a small position in Character (LON:CCT).

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Zipmanpeter 20th Jan 19 of 22

Further to my post above and Gus 1065's comment, I have just read the N Brown (LON:BWNG) trading statement from 19th Jan. JD Williams up >10% - so the seniors ARE going online !! Bye bye Bonmarche!

Overall, I thought this was an excellent trading statement for N Brown (LON:BWNG), the best for ages. Normally, I rely on Paul Scott's thoughts on retailers but he missed this one (or it was too big). But 70% sales online now, mature business but growing online at double digit rates, Fit for the Future spending starting to fall away . If this was a sexy IPO company, it would starting to look good - and not be on a 9.5 PE with 6.5% share

If only they would sell the Specialist brands and cut the the debt, I think the shares would power away. Have been and remain a holder through some difficult times of late but think that an "internet butterfly" is now only a couple of years away.

(Blimey, just realised I am starting to have done DYOR and formed/acted on my own views - the training wheels supplied by this column and its contributors must be ready to come off. Thanks from another grateful PI graduate. )

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Santawani 20th Jan 20 of 22

Hi Graham
Just want to add my thanks for your coverage and views on 'financial' companies. Especially as some may stand to gain from the rise in interest rates. I hold Close Brothers so grateful for your take on that

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Longshanks2016 21st Jan 21 of 22

Thanks for your coverage of BrainJuicers results.

They did properly smash all expectations and I agree that it is the 80% growth in the "sticky" and not just "juicy" Ad/Brand Tracking services that is most encouraging.

Canaccord have increased their target price to £7.20 on the basis that they will increase PTP by 13% next year. I think there is a good likelihood that these targets will again prove somewhat conservative.

The company is on a roll - it has successfully established a strong niche providing a different kind of market research. In an era where disruptive businesses are hot property - BrainJuicer is well placed to capitalise on a total shakeup in the way that market research is undertaken.

Am I in love with this stock - a little, yes, I admit and probably more than I am prepared to admit.

Their shareprice has never really been cheap - this has put off many from investing. Perhaps falling in love can actually sometimes pay off!

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paraic84 21st Jan 22 of 22

I would love to hear Paul's view about the MySale (LON:MYSL) update. The only thing that made me slightly nervous was there was no real update about how they are doing in the UK - perhaps because they will give that update in their full results but perhaps it is because growth is not as stellar as they'd like.

Also a pity they still haven't RNS'ed the fact that they are now running their own online clothing brand! Check it out here: I am a bit disappointed with its website though as it seems to have a few bugs on Firefox and it looks a bit bland. Anyway the key thing is that could help margins if it's at all successful. The market cap is £195m (even less when you exclude its tonne of cash) which I don't think is massively demanding for a company that is improving its profitability and is still growing nicely, albeit not as fast as the likes of Boohoo.Com (LON:BOO). I'm long.

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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