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

20th Jan '17 by Graham Neary

22 comments 18066 reads

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

Graham

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…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Rusty2

20th Jan '17

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

SmallCappy

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

ricky65

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

Lion Tamer

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 (https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/dec2016) 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.

Dunco

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

Joe

Michael Billingham

In reply to Herbie47 re Character.....is 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.

RichardK

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.

Richard

jonesj

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 ?

JohnEustace

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.

aflash

Graham,

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.

gus 1065

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.

Best,

Gus.

Wol

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.

Graham Neary

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

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).

Zipmanpeter

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!

ISAallowance

"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).

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. )

Santawani

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
Santa

Longshanks2016

21st Jan '17

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!

Tortoise investor

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: https://www.londonchic.co.uk/ 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.

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

Unlock the rest of this article with a 14 day trial

About the Author

Graham Neary

22 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...