Small Cap Value Report (21 Nov 2014) - HRN, ZZZ, EBQ

Friday, Nov 21 2014 by

Good morning! Another exciting morning, with a lot of price volatility in some more speculative stocks.

Hornby (LON:HRN)

Share price: 73p
No. shares: 39.2m
Market Cap: £28.6m

Interim results - for the six months to 30 Sep 2014 are published this morning. A modest improvement in underlying profits is reported, on turnover up 8% to £24.2m. See the excerpt below from today's results, for a reconciliation of statutory and adjusted profit. These adjustments look reasonable to me, so I'm prepared to accept the £245k underlying profit figure as representing the true performance of the business:


It's not clear what the seasonality of the business is. I note that turnover was weighted towards H2 last year, but profit was only slightly better in H2 than H1. One would expect more buoyant trading in the H2 period, as that includes Christmas & the run-up to it - this type of product must be popular as a seasonal gift, maybe not so much for children, but older customers who seem to now be the market for this kind of product - as a nostalgia for their youth thing perhaps?

Outlook - as this is a turnaround situation, the outlook statement is vital for signs of progress, so here it is;

The final results for the year as a whole depend on the success of the Christmas trading season and current indications are that it will meet the Board's expectations. As a consequence, and despite the additional costs of the ongoing investment in the future of the business, the Board currently expect to meet market expectation for the year as a whole in terms of sales and profits.

Valuation - broker consensus is for 2.8p EPS this year (to 31 Mar 2015), so the market is ascribing a PER of 26.1 times, based on the 73p share price. Clearly that is too high a valuation, were earnings to plateau at that level, so the market is effectively pricing in a future doubling of profits from this year's expected level of profit (since a PER of about 13 would be the right ballpark valuation once the turnaround is complete).

Balance Sheet - net tangible asset value is £19.3m, which I'm happy with. The current ratio is satisfactory at 1.32. However, this company has £14.8m in inventories, which is too high in my opinion. That compares with cost of sales (on…

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Hornby Plc is a holding company. The Company is engaged in developing, designing, sourcing and distribution of hobby and interactive products. The Company distributes its products through a network of specialists through its online activities and various retailers throughout the United Kingdom and overseas. The Company has operations in the United Kingdom, the United States, Spain, Italy and the rest of Europe. The Company offers its products under various brands, such as Hornby, Scalextric, Airfix, Humbrol and Corgi. Its subsidiary, Hornby Hobbies Limited, offers products under various categories, which include Train Sets, Locomotives, Train Packs, Tracks and Extras, Wagons and Coaches, and Spares and Accessories. Its subsidiaries include Hornby Espana S.A., which is engaged in the development, design, sourcing and distribution of models, and Hornby America Inc., Hornby Italia s.r.l, Hornby France S.A.S and Hornby Deutschland GmbH, which are distributors of models. more »

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Snoozebox Holdings plc is engaged in investing in the development of accommodation solutions for existing and new vertical markets. This includes investment in developing prototypes of new V1 type accommodation, V2 second generation accommodation together with developments for the medical and social housing markets. The Company's segments are Events and Semi-Permanent. The Events segment includes all activities providing short-term hotel accommodation at events and festivals. The Semi-Permanent segment includes all activities in relation to the provision of long-term managed hotel solutions. Its geographical segments include United Kingdom, Other European countries and Rest of the World - South Atlantic. It has possession of and access to approximately 570 V1 containerized rooms and over 18 V2 rooms on trailers for deployment to generate Semi-Permanent revenues. more »

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Ebiquity plc is a United Kingdom-based holding Company. The Company is engaged in providing independent marketing analytics and insights across the marketing and media landscape. It operates through three segments: Media Value Measurement, Market Intelligence and Marketing Performance Optimization. Its Media Value Measurement segment includes the Company's media benchmarking, financial compliance and associated services. The Market Intelligence segment includes the Company's advertising monitoring, reputation management and research/insight services. Its Marketing Performance Optimization segment consists of the Company's marketing effectiveness and multi-channel analytics services. Its multi-channel analytics allows clients' requirements to personalize and automate their marketing communications across multiple channels. It provides its clients with competitor advertising monitoring, owned coverage, reputation analysis and communication insights. more »

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

9 Comments on this Article show/hide all

Ramridge 21st Nov '14 1 of 9

Hornby? we are talking about model railways for hobbyists? granddads wearing flared trousers, kipper ties and  railway guard's hats? kneeling down and playing 'choo-choo' with their grandchildren?
Please tell me this is a serious business with a future. :)

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rick 21st Nov '14 2 of 9


Any comment on Future (FUTR.LON) finals. It is a complex one (increasing move to digital media, debt reduction and asset disposals etc.) and I would value your opinion.

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ln1sof 21st Nov '14 3 of 9

That would be snoozebox accommodation for Premier Oil. Sadly, Enterprise Oil is no more as it was taken over by hell in 2002. But yes, a year long contract for the old units does bode well.

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Paul Scott 21st Nov '14 4 of 9

In reply to post #87999

Hi In1sof,

Thank you for pointing out this error in today's report. I have replaced the incorrect "Enterprise Oil", with the correct "Premier Oil". It will forever remain a complete mystery as to why I wrote Enterprise Oil originally, I can only put it down to inadequate caffeine, and tiredness. Just one of those brainstorms where you occasionally type something completely wrong by mistake.

My apologies & thank you again.

Regards, Paul.

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Paul Scott 21st Nov '14 5 of 9

In reply to post #87998

Hi Rick,

I've had a quick look at results from Future (LON:FUTR) - the figures look absolutely terrible!
Turnover reduced 20% to £66m for the year to 30 Seo 2014, and the pre-exceptional operating loss was £10.3m. Add on £7.5m of exceptional costs & £16.88m impairment of intangibles, and the loss balloons to £34.6m!!

The Balance Sheet is weak, with negative net tangible assets, I can't see anything here to even remotely like. Does Future have a future? On the basis of these figures, I would say, probably not.

I see there is a going concern section in the narrative, which is worrying.

There was net cash of £7.5m, obtained from disposal of non-core titles of £21.3m.

The company says that a heavily reduced overhead base will benefit the current year. It also says that in Q4 of last year it moved into EBITDAE profit.

It seems to be a declining printing business.

What do you like about it?

Regards, Paul.

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Mark Carter 21st Nov '14 6 of 9

In reply to post #88013

Future (LON:FUTR), revenues are down and operating losses have widened. It has moved into net cash, but how long will that last? I find it puzzling that the share price is up nearly 29% today.

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cig 21st Nov '14 7 of 9

In reply to post #88014

Future (LON:FUTR) looks in a much better shape than last time I looked at it, perhaps a year ago, when it looked like a train crash in progress with a half baked digital strategy. Sounds much better now. And it's much cheaper too.

Revenues are down but they have also halved staff count, and kitchen sinked/disposed some of the (presumably loss making) print elements, as well as making the print editions more like printouts of the websites, which is the way to go if the digital transition is to work at all -- before it seemed the other way round, dump the magazines onto the web, which hardly ever works well. Online content wants to be free so it's not going to be easy, but then they're focusing on segments with sizeable advertising budgets and were at least some of their sites have some traction. Also impressed they got £20m+ for the sports/craft magazines, seems good value for something that is in structural, if slow, decline and where going digital seemed hopeless.

As for negative tangible assets, a media company's desks are rarely going to be worth much. Would be interesting to see what was the tangible book value of the magazines they sold -- I'd expect it to be a small proportion of the sticker price.

Big price moves seem unsurprising for an option-like share (it's worth zero or a multiple of the current price).

(No position, but back on the watchlist.)

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rick 21st Nov '14 8 of 9

In reply to post #88013

Thanks Paul,

Thought you might not like it. Only redeeming feature is move to digital publishing (titles for Xbox, PlayStation and Nintendo - possible growth areas now accounting for 40% of revs.) but I take your point about the balance sheet (not good, problematic). Low valuation but a long shot at best.

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rick 21st Nov '14 9 of 9

In reply to post #88016

Thanks cig,

A good overview "option-like share (it's worth zero or a multiple of the current price)" sums it up perfectly. It is still on the naughty step, but see if it improves next term.

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

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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