Small Cap Value Report (25 Nov 2016) - VCP, CHT, BRAM, FJET, MJW

Friday, Nov 25 2016 by

Good morning!

I'm planning a bit of a catch up this afternoon, so intend looking at the following shares;

Victoria (LON:VCP) - results which I missed a couple of days ago

Majestic Wine (LON:WINE) - again, results from a few days ago

Fuller Smith & Turner (LON:FSTA) - have been meaning to look at this for ages

Then a few brief comments on other stocks.

Victoria (LON:VCP)

Share price: 327p (up 9.0% today)
No. shares: 91.0m
Market cap: £297.6m

(at the time of writing, I hold a long position in this share)

Interim results 26 weeks ended 1 Oct 2016 - these results were published 3 days ago, so I'm not sure what has caused the 9% share price rise today. It's possibly a delayed reaction to analyst & Institution meetings with management? Also, this share is surprisingly illiquid given its market cap - as shares are tightly held.

I met the charismatic Exec Chairman, Geoff Wilding, about 3 weeks ago, and reported on it here. It's a fairly straightforward buy & build - Mr Wilding is an experienced investment banker, who has done buy & builds before. So far he seems to have done an extraordinarily good job at Victoria - it almost looks too good to be true, but I can't see anything wrong with the figures.

The headline figures from the P&L for the half year look terrific;

  • Total revenues up 45.3% to £153.4m - this is mainly driven by acquisitions
  • Organic revenue growth of 8.0% (4.9% at constant currency)
  • Underlying operating profit of £14.4m is up 82.3% - the adjustments don't look particularly aggressive to me, so I'm prepared to take this at face value.

Balance sheet - I'm less happy with this part of the accounts.

Working capital is absolutely fine - with a healthy current ratio of 1.76.

However, in my view the long-term creditors look too high, at a total of £120.6m - this figure includes a £9.7m pension deficit

Overall, NAV is £73.4m, but this includes a lot (£91.1m) of intangibles. NTAV is negative -£17.7m. Normally I don't invest in companies with negative NTAV, however in this case I've made an exception because the business is performing so well, and strongly cash generative.

I raised this issue of the balance…

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Victoria PLC is a designer, manufacturer and distributor of flooring products. The Company's principal activities are the manufacture, distribution and sale of floorcoverings. Its segments include UK and Australia. It manufactures wool and synthetic broadloom carpets, carpet tiles, underlay and flooring accessories. In addition, it markets and distributes a range of luxury vinyl tile (LVT) and hardwood flooring products produced by third-party manufacturers. Its product offering in the United Kingdom ranges from both crafted, woven Wilton carpets to Tufted carpets in a myriad of fashion colors and styles. Its stock range offerings cover saxonies, tonals, velvets, twists and natural loop pile styles for residential use. The Company supplies its products to the mid to high end residential market and contract sector both in the United Kingdom and overseas. Its subsidiary, Munster Carpets Limited, is engaged in the manufacture and distribution of floorcoverings for the contract market. more »

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Constellation Healthcare Technologies, Inc. is a healthcare services organization providing outsourced business services to the physician market. The Company operates through three operating segments: Revenue Cycle Management (RCM), Practice Management (PM) and Group Purchasing Organization (GPO). The RCM segment offers medical billing and collections, practice management, and other related services to hospital-based and office-based physicians, allowing them to focus on patient care in specialties, such as pathology, anesthesiology, radiology, cardiology, family practice, internal medicine, orthopedics, neurology and emergency medicine. The PM segment provides business and practice management services to support the needs of primary care and subspecialty pediatric practices. The GPO segment provides for eligible physicians to participate in discounts for vaccines and flu shots offered by various pharmaceutical companies. more »

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Rubix Group International Limited is a United Kingdom-based supplier of industrial maintenance, repair, and overhaul (MRO) products and services. The Company is a authorized distributor for branded MRO products and its portfolio includes transmission and automation, fluid power, machining, assembly, tools and protective equipment. The Company serves various industries, such as automotive, cements and aggregates, chemicals, glass, food and beverages, power and utilities, industrial engineering, metals, recycling, pulp, paper and packaging and transport. more »

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

28 Comments on this Article show/hide all

tads 25th Nov '16 9 of 28

In reply to post #159821

Yes..completely unloved at the moment, although it is being reported that the shops are very busy and the CEO has been putting himself around. Numbers coming in January but some reassurance would be welcome in the mean time.

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Tanglands 25th Nov '16 10 of 28

Paul many apologises for the FCA comment! You are so right about your observations of exam qualified and then next to useless, seen and worked with a few. An irrelevance in any event as insight common sense and technical knowledge is working well for you (and me! ) so far . Hope to buy you a beer one day!

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Velo 25th Nov '16 11 of 28

VCP chairman is certainly charismatic. 

"The very large dividend paid in July 2014 has led to the decision that a final dividend will not be paid this year. However the Board would like to send a clear signal to shareholders of the Company's commitment to paying dividends as part of its plan to create wealth for shareholders and it is intended to recommence dividends next year."

Next year (and to date):


"So, in the medium term, we expect Victoria to be capable of paying an attractive dividend. However in the short term, as mentioned earlier in this statement, it is the Board's view that we will create the most wealth for shareholders by deploying the free cash-flow generated by the existing businesses within the Group towards acquiring other high quality flooring manufacturers.

 Therefore we have resolved not to pay a final dividend for FY15."

Yep a clear signal :)

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Paul Scott 25th Nov '16 12 of 28

In reply to post #159866

Hi Tanglands,

Paul many apologises for the FCA comment!

No apology necessary at all. People often assume that I must be an FCA (chartered accountant), so I always put them right & explain that I did the full training contract, but flunked my finals exams. It's not a problem at all, and has not held back my career in the slightest. I'm the lest "corporate" person imaginable, and hated paid employment, so being self-employed since 2002 has worked out great for me (with a few fairly major bumps in the road along the way! All part of life's rich pageant!!)

Regards, Paul.

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Cleeve 25th Nov '16 13 of 28

Any thoughts on Norcros Paul or have I missed it

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Paul Scott 26th Nov '16 14 of 28

In reply to post #159875

Hi Cleeve,

I only normally report on results & trading updates, not share price movements.

My last report on Norcros (LON:NXR) results was here:

As a general reminder, please can people mention the ticker or company name in every post. Otherwise it's not clear what company your comments relate to. Many thanks!

Regards, Paul.

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andrewdb 26th Nov '16 15 of 28

"Naked Wines - I think the jury is out on this. Is it a good business or not? It's difficult to tell."

here is my attempt

From what I remember, as a customer it was excellent but there were early signs that the concept would not scale well - when you have 600 cases of something nice (600 being most of that small growers production) to sell, publicise it at 6pm, it is all sold out at 6.15. There are 600 happy people but 10,000 others unhappy on having missed out.
They do have a core listing with more depth of supply to be fair, but even those ran dry sometimes.

My point being that at a certain size of membership it all worked really well (I was a member 2010-14) and it was great in '10, left '14. my ex-oh is still a member.
At scale they need larger supply.
If the supply is larger, it is not supporting small growers anymore, it is just another Laithwaites.

The concept also makes v.v. good use of social media - that have a sort of facebook/linkedin for booze.
This also treads a fine balance between the room being empty and being too full of people, some of them a bit weird.
A good practical example is this site and the scvr comment thread, it seems to hover around 15-60. If it was consistently 5, it would drop further as no--one is watching, if it regularly went over 100 it would also suffer as we would start to want a mod system of some sort and you would start to see weird people (for whatever value of weird annoys you).

The point I am trying to convey is that some businesses have a 'natural optimal size' and NW has got past that imo, and that is to my sorrow.

I have the feeling WIV Wien International AG sold to Majestic at about the right time.
The fact that the owner - Wien International - is mentioned just once and Rowan Gormley was mentioned frequently illustrates the tension between the personal (that NW trades on) and the corporate that changes as companies grow, and how there is a disconnect.

oh, moving on to money :
"On a pro-forma basis for the 12 months to 31 March 2015, Naked Wines sales were £80 million and EBITDA loss reduced to c.£2 million."
"... Adjusted EBIT was £1.0m, representing a maiden profit for the division since the launch in the USA and Australia.
608k EBIT - but there are a lot of 'unallocated costs'

So, my answer is

It was a good business and yes, it is difficult to tell ('unallocated costs').

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Trident 28th Nov '16 16 of 28

I see there are some discussions for a furtherpotential competing cash offer for Lavendon

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Fangorn 28th Nov '16 17 of 28

Hi Andrewdb,

Just to add to your interesting comments above on Naked Wines - I've tried to take up their "complimentary offer",received through the post, not once but twice now. Each attempt at checking out online has failed, the complimentary reference number not being accepted!

Not good enough really.

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dahokolomoki 28th Nov '16 18 of 28

On Fastjet (LON:FJET), the worry has to be that Stelios (the Easyjet founder) will put a spanner in the works of any fundraising with his 12% shareholding. He's already had a spat earlier this year, trying to oust the board. And he does have the upper hand - his vehicle is licensing the Fastjet brand to Fastjet.

One can imagine him playing hardball to back FJET management into a corner, unable to raise further funds, and then pick up the pieces cheaply. If FJET goes to administration, I presume the Fastjet licence goes back to him and he can pick up the remnants of the company for cheap and make it a go himself with 100% ownership.

The equity is therefore almost worthless in my view, with such a hostile major shareholder who is also the licence holder.

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jraitt 28th Nov '16 19 of 28

Hi Paul,
Wonder if you thought it might be worth a bit of praise for SOU whose placing was at nil discount but also gave PI's opportunity to partake on same terms as Institutions with on-line access. Their conference call today to PI.s had 600 attendees. Wish more Companies were as committed to their PIs.

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maxwright 28th Nov '16 20 of 28

In reply to post #159887

I agree fully about Naked Wines, they are now often "Out of stock" of many of the most popular lines and you have to wait for the next vintage, which may not be as good as the last one!

Personally, I think it should have remained as a niche player, not sure what the advantages are of being part of Majestic.

On a different subject, Rowan Gormley is reported as looking at ways to improve sales and profitability through the stores, I know personally that I have approached him with a good idea on how he could do that, but he is not interested and sticking to his guns!

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Richard Rodgers 28th Nov '16 21 of 28

Paul, great article as ever - might be worth a look at Kainos (KNS) who released interim this morning? Richard

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bobo 28th Nov '16 22 of 28

Majestic already had great staff and well trained. I think the real process that MAJ has undertaken is destroying the 12 and now the 6 bottle limit, but to make it work they now have crazy prices for just single bottles which quickly fall to reasonable prices for 2 bottles or more. I suspect this change has driven the T/O growth.

Naked wines was a disaster, with cheap wine being sold at high prices. I purchase a range on three seperate occasions and carried out detailed sampling, as we say in Yorkshire "they were rubbish" and I got my money back each time.   Majestic's range is begining to weaken, wth some un-interesting wines being sold at above average prices. I see a bail out will be required in the future. A pity really as after Oddbins fell there are few brands left in good wine.  I was amazed when NW reversed into Majestic with an unproven CEO leaping to the top job.  I suspect someone had been sampling in the morning.

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peterthegreat 28th Nov '16 23 of 28

One point I would make about Majestic is that it has been around for about 35 years and has a proven ability to compete with the supermarkets so, even taking account of the change in strategy implemented by the (relatively) new CEO, I don't really think it can be described as a speculative business. Naked is hovering around profitability and the extent to which Naked can expand on an international basis will, I think, be a major determinant in how successful the company is in the future. My guess is that the Naked concept will go down quite well in the entrepreneurial culture of the USA. I think it also chimes well with the increasing consumer interest in artisan type foods and drinks. The CEO will just need to be careful how he spends the marketing money and I am expecting some hiccups along the way.

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Golspie 28th Nov '16 24 of 28



Does the recent price increase represent a long term re-rating or possibly more in your view? Yield is good and SP increase is a bonus. I know its tightly held.

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andrewdb 28th Nov '16 25 of 28

In reply to post #159974

not sure what the advantages are of being part of Majestic.

... well, the advantage for MJW is because MJW needed a USP - what does it do that the supermarkets don't?
In the case of NW it is the online community, I forgot to mention that the growers also post messages and answer queries. Waitrose/M&S etc make no attempt to do this and it is clearly important (to those who post).

From NW's pov, they never made a profit until owned by MJW (but mind the 'unallocated gap').

For me it is an interesting commentary on (dis)economies of scale and social media/the internet.

A supermarket buyer needs a min order of C cases to make it viable to stock (even if you only send the stock to some sites)
An MJW buyer needs a min order of B cases to make it viable to stock (even if you only send the stock to some sites) and as MJW has fewer sites, I presume B A NW buyer needed a min order of A cases to make it viable to stock, A
The thing that NW has found is that as the number of members grow, you need to order a lot more than A to meet demand (but the vineyard is a fixed size) and if you cannot, customers are upset.

Now they are owned by MJW, you can put those small batches in a few shops and if it runs out no-one notices.

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123cjo 28th Nov '16 26 of 28

Re Majestic

Mr Gormley refers to better customer service, well not in my experience. I think a good test of any company is how they react when something goes wrong. I had a problem last week with a delivery and spoke to their "Happiness team" ( can you think of anything so naff to call customer service?). Last Monday at 6pm I was promised a call back. Not had it yet!
Had Majestic on my watch list. Not anymore.

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EDWARD FORT 28th Nov '16 27 of 28

Re Majestic

Surely the big problem for Majestic Wine is that all of their product is imported. That means they are going to have to jack up prices next year, by about 15% I reckon. And that is going to hit demand. 

They may be just about able to make money at current exchange rates, but they are very vulnerable to any future weakness in the GBP, which I think is likely.

On the positive side the company isn't worth very much. Only £208m market cap. So maybe next year's lower volumes and margins are already in the price.

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hayashi22 28th Nov '16 28 of 28

I used to buy beer from Majestic -until I realised that it was cheaper to buy in the supermarkets which also offer greater range. However, I do like the ability to taste wines on offer at Majestic -the branch near me allows you to sample the wines it is promoting so you can try before you buy.

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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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