Small Cap Value Report (21 Sep 2016) - SWP, WINE, EGS, DX., DSG

21st Sep '16 by Paul Scott

43 comments 21824 reads

Good morning!

It's worth noting that sterling is weakening again, which has a knock on impact on shares, as we've discussed here before. So those dollar earning companies, and UK exporters, are becoming increasingly attractive again.

As an example of that, Judges Scientific (LON:JDG) pointed out yesterday that as mainly a UK exporter, it is enjoying the most favourable exchange rates since 2009. This was one of the companies that I wrote about in a late update last night. The other one was Fastjet (LON:FJET) - a complete crock.

Here is the link to yesterday's complete report, to get you started whilst I crack on with writing up some new stuff about companies reporting today.

Profit warnings

As the day goes on, I will report below in more detail on 3 companies which have all put out profit warnings this morning, and are all hitting fresh 52-weeks lows, namely;

Majestic Wine (LON:WINE) - under-performance in commercial, and Naked Wines USA. Warning doesn't look too bad though. Am awaiting updated broker forecasts.

Bonmarche Holdings (LON:BON) - as I predicted here on 28 Jul 2016, another profit warning looked "a virtual certainty". I don't see any rush to buy the shares this morning, as profit expectations are way down, and the company is clearly under-performing. Guess what? It blames the weather!

Cenkos Securities (LON:CNKS) - not a sector I usually cover, but the deep plunge in H1 profit today illustrates the feast or famine cyclicality of this sector.

SWP (LON:SWP)

Recommended cash offer - the company's own Directors have made a cash bid for SWP, at 9p per share. This looks a fair price to me, being a 50% premium to yesterday's closing price of 6p.

Well done to all holders. The usual form now is for everyone to start bellyaching that the company is worth far more, etc. Then people quietly accept the deal, bank the profit & move on.

It's almost a done deal, with 57.2% already in the bag.

Majestic Wine (LON:WINE)

Share price: 325p (down 25.0% today)
No. shares: 70.8m
Market cap: £230.1m

Trading update…

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Orangetree

21st Sep '16

Got to do my fundamental analysis to trade this stock.

Cleeve

Paul did you give your view anywhere on the Fairpoint video conference or have I just missed it?
thanks

FREng

Cleeve

See yesterday's comments section

Paul Scott

Awesome! Glad to have been of service :-)

P.

andrea34

I had a quick look at DSG - revenue and EBITDA only increased by 2%, eps only +1%. I suppose "New business orders in January - August already significantly ahead of the equivalent value for the whole of 2015" sounds promising, but with a turnover of less than 10m and pedestrian growth at present they are too speculative for me. Maybe I'm missing something....

mammyoko

Interesting to see that Sun European Partners retain 52.4% of the shares in Bonmarche Holdings (LON:BON) so they are taking the biggest bath of anyone. Small beer for them but still somebdy will have some explaining to do and, with that holding, a support operation is perfectly possible.

I wouldn't be so sure that Sun will want them to cut the dividend either.

Funderstruck

Paul; re Naked Wines;
When they sent me a mail shot I recall they had a simple questionnaire at the beginning of the blurb, asking if one was a 'Wine snob' ; a filter to identify those who were ok drinking un known label wine. The American market possibly also see this as dubious, as they have plenty of their own of high quality reasonable price with which they will be familiar. I too rely on Waitrose and take advantage of their major discount promotions; for these it is an advantage to get to know the Wine Dept manager who in time will advise when short time promotions are coming up....Cheers.

aflash

Hi Guys and Girls,

This is relevant to the discussion thread on positions in BON but it is a note to my self that I can refer to when fear levels are high.

'Capitulation' investment or maybe trading works!

All of the stocks referred to here have been discussed by Paul after severe falls and all dismissed as risky with little investment merit.
Some I bought, some I sold, some I held, some I avoided. The prices I got and the dates of MY transactions are not necessarily the same as quoted here. The only people who get in at the bottom and out at the top are liars. I have just taken a quick look at my notes and data bases.

The purpose is to illustrate that 1) consensus leads to mediocre results 2) short term trading can be 'safer' than long term investment 3) institutional sales throw up bargains for nimble Private Investors 4) short covering is a powerful force to the upside.

BON
buy 25 May 121p sell 26 May 136p
buy 29 July 101p sell 30 Aug 124p

GAH (Gable insurance)
buy 12 Aug 2,13p sell 23 Aug 3,60p

AVN (Avanti)
buy 7 July 19p sell 13 July 33p

SGI (Stanley Gibbons)
buy 15 July 7,78p sell 1 Aug 16,19p

RUR (Rurelec)
buy 20 July 66p sell 1 Sep 1,50p
2015
buy 20 Oct 50p sell 14 Dec 1,35p

DX Group
buy 21 July 13,50p sell 17 Aug 18p

If you have followed the sequence to here then the disclaimers are: Percentages are not calculated for numerous reasons a) not the price achieved, b) not the high or low for the day, c) only relevant to position size and brokerage charges.

It is possible to see, however, that there are some 100% moves here.

DYOM = Develop Your Own Method

Samsgrandad

Hi Paul,
There certainly are issues connected with Quindell. The FCA gave them a severe slap and a half million pound fine. I don't know all the story but reading around, the general opinion is their reputation has taken a big hit and they struggle to attract quality business now.

Wimbledonsprinter

Andrea341 - I don't think you missed anything - just a solid company which is not on an aggressive multiple (which to me is basically because of the illiquidity of the shares).. Balance sheet look robust with £1.4 million of net cash and company seems to be run for shareholders (directors salaries are modest and dividend policy is generous).

On a small point, the quote you make about "2016 Jan-Aug new business orders being already significantly above full-year 2015" refers just to the Dillistone Systems Division (half of the business). But still the other half of the business , Voyager Software Division, already has its Jan-Aug new orders above full-year 2015 (just not significantly above). Therefore, both sides of the business are receiving strong orders, reflecting product improvements (particularly FileFinder) and this should bode well for sales into 2017 etc.

dfs12

Hi Paul,

Great report as always. As a holder of both Bonmarche Holdings (LON:BON) and Cenkos Securities (LON:CNKS) I've had better days.

Of the 2 profit warnings Cenkos is far worse that Bonmarche in my opinion. Cenkos has regularly updated the market over the last 12 months saying everything is fine. They don't seem to see that the monumental drop in revenue and profit is anything but fine. They dismiss the number of companies they have lost as acting nomad as insignificant, and they issue statements stating that current trading is good. In the same fashion to the last 6+ months whilst they have been secretly having a disaster. There really should be some clear cut rules on issuing profit warnings when it is clear that trading is not going well. Today's RNS has absolutely no humility or even recognition that they have performed appallingly badly. Totally shocking behaviour and from a company that advises PLCs on their obligations! sold out 100% on that one.

Bonmarche Holdings (LON:BON) is a slightly different one for me. I have held all of the shares in this one as I think the drop today was massively overdone. The price should have already priced in this second profit warning as it was as near to a certainty as you can get. I agree that the constant banging on about the weather is a mistake but it must seem like an easy excuse and the new CEO is probably listening to the old hands advising her. The reasons to hold: I think demographics will favour them, and protect them from internet erosion (unlike the youth market). The balance sheet is very strong. They have put out a clear statement, they have a new CEO who i think after a good bit of kitchen sinking will be a good match to the business (coming from George at ASDA) and they clearly acknowledge that things are not good and need to change.

Hopefully tomorrow will be a better day.

Cisk

aflash, your post was certainly thought-provoking for me.

All of the stocks you listed I would classify as dog sh*t stocks - ones that I would never conceivably own for any period of time. I'm a definite buy-and-hold investor - mainly because at the moment (at least until the end of the month) I'm not in a position to take advantage of intra-day price movements.

So quality, buy and hold stocks are my preferred investment. However in the examples you listed, you made an excellent return in a short period.

So can I ask: what metrics did you use to decide to invest? What led you to buy and sell those stocks you listed (obviously subject to how much you would like to divulge on a public forum)?

Completely understand if you would prefer not to elaborate. But it just goes to show that every dog does indeed have its day. Indeed some of my most successful investments have been shares where I have previously lost a large % and bought back in at a later date.

Also (no offence to Paul here) but retail stocks are my least favourite shares and ones typically from which I run a mile. Just goes to show that sometimes straying out of your preferred investment area can yield results. And being open to new ideas can yield results.

PJ0077

Great post aflash.. are you Howard Marks in disguise?? Here's a quote from his latest memo that I'm sure you'll agree with:

“When everyone believes something is risky, their unwillingness to buy usually reduces its price to the point where it’s not risky at all. Broadly negative opinion can make it the least risky thing, since all optimism has been driven out of its price.”

Wise words indeed.

https://www.oaktreecapital.com/docs/default-source...

Beginner

22nd Sep '16

Yes, Dillistone (LON:DSG) is a good solid little business, and they throw out most of their profits as dividends to investors. One point omitted is that they are consolidators in their field, making small acquisitions over the years that have all become profitable. Also the management team are excellent, being extremely shareholder focussed. I am a long-term holder, and happy with it. As you say, not one to trade but one to buy and sit on.

dahokolomoki

One interesting outcome I have for DX (Group) (LON:DX.) is a purchase by a strategic buyer. Not another logistics company, but by one of the big online retailers in the UK.

Why? One of Amazon's key competitiveness is their own delivery network, which they are growing aggressively. To offer same day delivery, and decrease costs. One of the other big retailers trying to compete could acquire DX's network and infrastructure, saving themselves a lot of pain trying to create one from scratch.

pwozzy

Hi Paul,

I'm a long time lurker and avid reader of your reports, many thanks for write ups, I find them valuable.

Anecdotally regarding £DX, they were the 3rd party delivery company delivering flowers for me yesterday and made a right dogs breakfast of it.
The delivery was due to be made to an office address and when I checked tracking for an update in the afternoon, I discovered that they left a calling card as they 'couldn't deliver the package'. There was no further explanation, no call to me or the recipient. I then spent 20 minutes on hold waiting for customer service who, when I finally got through, investigated for me. I was baffled that they weren't able to deliver to an office where reception is open all day. It turns out the delivery driver simply didn't bother delivering the flowers!
I was pretty shocked with the useless tracking (lack of detail) and general customer service.

Thought I would share as you like hearing about personal experiences with the firms you write about. "This company is the living dead" - In a cut throat market like this, I agree!

Best
Pete

AnonymousUser252054

Not invesment related but I'd like to mention that we use the DX where I work and apart from their ropey online tracking (or our out of date IT) they have customer service that puts the Royal Mail to shame. People respond quickly to emails or phone calls and genuinely seem to want to help. The pricing is good and they are our number one choice for handling confidential files that we wouldn't trust to RM - which may explain why they are struggling to get enough suitably qualified drivers. Something I was told many years ago was that the government supports them as they never go on strike, the civil service would have major problems if the mail was backing up in post rooms around the country.

23rd Sep '16

metrics: too long to explain and anyway you do not appear to have the time to develop check lists like mine.

However your text is well written so here some pointers in the order I listed the stocks:

BON met value criteria on data bases
GAH the only 'punt' due to knowledge of the insurance sector
AVN has tangible assets- satellites
SGI has tangible assets - stamp collections
RUR has contracts in developing countries, sometimes has to enforce with litigation
DX see Stockopedia discussions

Instant overnight success is achieved after years and years of long days and nights of hard work!

5th Jan '17

I see that Mike Love, the chairman of SCISYS (LON:SSY) is chairman here at Dillistone (LON:DSG). I'm long in SSY and have attended several investor lunches with the board - they all seem sensible and very unlikely to take risks, so I view Mike's role here as positive.

hornbeam1

7th Feb '17

Re DX.
Chickens have come home to roost here this morning.
You have saved me a whole load of grief Paul, because having read your ' living dead' piece as above I promptly sold out my holding.
Don't always agree with your views but with DX. & SIV [also timely sold out] you have been spot on.
Thanks & keep up the good work.

Small Cap Value Report (21 Sep 2016) - SWP, WINE, EGS, DX., DSG

Profit warnings

SWP (LON:SWP)

Majestic Wine (LON:WINE)

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Paul Scott

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