Small Cap Value Report (23 Jan 2015) - SAL, RBN

Friday, Jan 23 2015 by

Good morning!

Spaceandpeople (LON:SAL)

Share price: 57p (up 27% today)
No. shares: 19.5m
Market Cap: £11.1m

Trading update - this niche marketing company, which manages retail & promotional space in shopping malls & other open spaces (e.g. railway stations) in the UK & Germany mainly, certainly had an annus horribilis in 2014, with two profit warnings, and a severe drop in the share price. I covered it extensively here in the past, click here for my previous articles.

Looking at the chart, the shares have been bottoming out since Sep 2014, having lost two thirds of their value from the peak in early 2014 (when profit expectations were much higher).


Things sound a lot more positive today, with the update saying;


"Upper end of market expectations" is the key phrase above. Although obviously market expectations are now much lower than they were a year ago. The range is, I believe, £0.8m to £1.0m forecast profit for 2014, pre-exceptionals (some redundancy costs mainly).

Net cash - reported at £1.5m - whilst probably a seasonal peak, it's not bad for a profitable, dividend paying company that is only capitalised at £11.1m, and that's factoring in today's share price rise.

I understand there was never any issue with solvency here, which is one of the good things about screening for adequate financial strength - you don't have to worry about companies going bust, even if something goes wrong with trading.

Forecasting - the company has learned from its experiences in 2014, when a series of problems with contracts - not renewing, being delayed, etc, lead to the original profit forecast turning out to be far too optimistic. This was a new issue for the company, as in the past it had won the business it expected to win.

Going forwards therefore, the company now has a policy of guiding the market to a base case scenario for profits, on existing levels of business. The pipeline of new business is now treated as icing on the cake. Therefore, we should from now on receive very conservative profit forecasts, and see those gradually edge upwards as the year goes on.

Strategy - as part of the recovery process from its problems in 2014, SAL had a refresh of the board, bringing in new Non-Execs who have relevant (and considerable) experience. This has helped refocus strategy on the…

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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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Robinson plc is a United Kingdom-based company engaged in the business of manufacturing plastic and paperboard packaging. The Company provides packaging solutions that specialize in injection, blow and stretch-blow molded plastic, and rigid paperboard. It serves the food, drink, toiletries, cosmetic and household markets. It operates through plastic and paperboard packaging segment. The Company has over five manufacturing facilities, which include Kirkby facility, Stanton Hill facility, Lodz facility, Chesterfield facility and Madrox facility. Its subsidiaries include Robinson (Overseas) Limited, Robinson Paperbox Packaging Limited, Robinson Plastic Packaging Limited, Robinson Plastic Packaging (Stanton Hill) Limited, Robinson Packaging Polska Sp. z o.o., Walton Mill (Chesterfield) Limited, Griffin Estates (Chesterfield) Limited, Robinson Industrial Properties Limited, Walton Estates (Chesterfield) Limited, Madrox Spolka Akcyjna and Walton Mill (Chesterfield) Limited. more »

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

21 Comments on this Article show/hide all

deucetoace 23rd Jan '15 2 of 21

SAL Management have "come through" with lots of options granted 10 days ago at 47p. Also I see the new Chairman bought a few shares less than 3 weeks ago. I am a bit surprised the company was not in a closed period at that point but no doubt that is me misunderstanding the rules on such things.

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Splode 23rd Jan '15 3 of 21

I believe this morning the board of SAL confirmed its reputation for poor communication of the status of their company. The year-end trading update is six lines long (Paul’s quotes comprise the whole thing). It includes the minimum requirements expected by Paul but I think the board needs to comment more often and more fully until it regains the trust of the market after the fiasco nine months ago when the board finally woke up and the SP dropped 40% in a few minutes.

Meanwhile, Paul believes the company has learned from its mistakes in managing last year but I believe the company needs to communicate with its owners much better. As of right now the SP is up 26% this morning but still 57% down in the nine months. High enough for now.

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Ramridge 23rd Jan '15 4 of 21

Hi Paul -

" Going forwards therefore, the company now has a policy of guiding the market to a base case scenario for profits, on existing levels of business. The pipeline of new business is now treated as icing on the cake. Therefore, we should from now on receive very conservative profit forecasts, and see those gradually edge upwards as the year goes on. "

That's a splendid way of managing stakeholders' expectations going forward. I only wish other AIM companies take a leaf from their book.

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Paul Scott 23rd Jan '15 5 of 21

In reply to post #90742

Hi Splode,

Fair points. I think the company is learning from its mistakes, and I agree that they need to communicate trading performance more frequently, as the gaps in between news are too long.
In fairness though, Xmas trading is key, so they can't update on that until all the figures are in from the traders operating the stalls in the UK & Germany. Operational gearing is high, because most costs are fixed, so the profit figure can move about a lot depending on how well the kiosk traders perform over Xmas.

They know that it's going to take time to rebuild investor confidence, but today was a pretty good start!

I thought today's statement was perfect. No unnecessary waffle, just a clear indication of what profit they're going to make. They even gave the range specifically in their last update, and have now confirmed they're towards the top of that range. What more do you want?!

Regards, Paul.

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dangersimpson 23rd Jan '15 6 of 21

In reply to post #90740

I am a bit surprised the company was not in a closed period at that point but no doubt that is me misunderstanding the rules on such things.>

The key is in the title of the RNS 'Pre-Close Trading Statement' :-)

The regs are to do with trading close to the results announcement so a lot of companies issue a trading statement beforehand indicating that they are entering a close period. It's close as in near to not closed as in not open.

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FREng 23rd Jan '15 7 of 21

If the Board knew that a positive announcement was coming, how would the issue of options and purchase of shares in such circumstances avoid being seen as insider trading?

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skyjacker 23rd Jan '15 8 of 21

I would ignore purchase of shares by the chairman as this was his first purchase since November, when he was appointed. To be fair had he bought earlier he could have got the shares cheaper. Other director purchases were made to prop share price in September after profit warning.

Grant of options is different matter, harder to justify but generally this happens in AIM so standard practice - not that I approve of it but it does happen...

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loudenr 23rd Jan '15 9 of 21

Hi Paul

Slightly off point with the report but wondering whether you have heard anything that would explain the massive fall in Flybe (LON:FLYB) today?


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deucetoace 23rd Jan '15 10 of 21

In reply to post #90760

Looking at Digitallook there appear to have been some quite recent broker downgrades of earnings for the next 2 years. They are quite significant downgrades from what I can see, Perhaps this might be the cause?

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Sully8786 24th Jan '15 11 of 21

I don't think I'll be revisiting Spaceandpeople (LON:SAL)

I remember speaking to the CEO at the time and struggled with his explanation of how things had deteriorated so quickly, sounded more like it snuck up whilst the celebrations were ongoing.

I promptly sold and glad I did as I'd still be down from that point given the rise of yesterday.

That said, there may be some much needed momentum behind the shares now. My worry is what happens when the shopping centres decide to re negotiate the contract again at terms that are not so good like last time - bit too much of an accident waiting to happen for my risk apatite these days

Company: Dave Sullivan - Talking Stocks
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John36v 29th Jan '15 12 of 21

Pity I didn't read you article about Robinson before today! Can't help thinking the shares have been oversold. Falling oil price should help the bottom line. I like the fact they have been open about the trading outlook. A case of cold comfort after a massive fall.

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brucepackard 3rd Feb '15 13 of 21

Paul - good comments on SAL. Except Edison Research. Edison is a joke. Stockopedia should have nothing to do with them - they damage your brand. Full disclosure - they fired me while I was on probation and didn't pay me. They claimed the reason that the fired me was "cultural differences" - but I suspect it was more to do with the fact that I raised concerns about the accounting at one of their corporate clients - Adler Real Estate.

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grout123 23rd Mar '15 14 of 21

Looks like we might be on for another annoys hornbills . Paul, any further thoughts ?

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dangersimpson 23rd Mar '15 15 of 21

In reply to post #95254

Looks like we might be on for another annoys hornbills. (sic)

Clearly the SP reaction today implies that some were hoping for more, however if you believe that the management have understood the issues and are adressing them the comments in the results imply a cautious optimism and a return to growth for 2015 rather than another bad year:

The 2015 pipeline is potentially much stronger and we are working hard to ensure that we are in a position to win as many new contracts as possible whilst continuing to increase the number of promotions and retailers we place into venues and improve the quality and pricing overall...

A tough year has brought focus on developing the most profitable aspects of our business, cost cuts, a new board with added dynamism and experience, new products and a realisation if you don't innovate you go backwards. That said we have managed to generate £1 million of normalised profit for the year and the Board will recommend a final dividend of 2p per share at the forthcoming AGM. The management and Board feel we have a sustainable and profitable route to growth and we are driven to improve profits in 2015.

We obviously have to wait to see if this optimism is warranted (and management didn't exactly cover themselves in glory with how rapidly the businees missed expectations) however it is probably a mistake to judge the business on the share price reaction to a set of results that we already knew were going to be bad.

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grout123 23rd Mar '15 16 of 21

Space and People, (AIM:SAL) the retail, promotional and brand experience specialist, today issues a pre-close trading update ahead of its final results for the year ended 31 December 2014, which will be released on 23 March 2015.Trading during the last four months of the year has been robust with profits for the year expected to be at the upper end of market expectations and higher than expected cash inflows with a net cash balance at 31 December 2014 of £1.5 million (2013: £1.9 million).
Matthew Bending, Chief Executive of SpaceandPeople commented: "Despite it being a difficult year I am pleased to say that the core UK and German businesses had a good return to form in the second half. The Company is making good progress with new higher margin products and we look forward to 2015 with confidence."

it is probably a mistake to judge the business on the share price reaction to a set of results that we already knew were going to be bad.

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dangersimpson 23rd Mar '15 17 of 21

In reply to post #95266

It's all about what timeframe you are looking at. they'd already halved profit forecast on 17th April 2014:

and then halved it again on 11th September:

before giving the more positive update that you refer to. So better than where the market had them after the september update but still bad in the context of where they expected to be at this time last year.

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grout123 24th Mar '15 18 of 21

In reply to post #95269

ok- Ive personally always gone on most recent company updates so that is what i base my analysis on largely - It hasn't been a bad strategy over the last 30 years of my investing career.

The January update was positive or am I missing something? Then the share price tanks this week….

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dangersimpson 24th Mar '15 20 of 21

In reply to post #95281

It's all about expectation. The results were worse or the outlook was more cautious than some expected following on from the January update hence they sold. Maybe their expectations were too high, maybe it was just a short term trade expecting further out-performance in the results that didn't materialise. If the results exceeded your expectations, you have a 30 year track record of getting these calls roughly right and the share price drops that's called opportunity!

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Impvesta 24th Mar '15 21 of 21

I was surprised by the SP reaction to yesterday's prelims. To me the accompanying chairman's and ceo's comments read very much as a "the worst is behind us and we are getting back on track" message.

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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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