Small Cap Value Report (26 Feb 2016) - SPD, TSTL, VLX, AN., FFY, ZZZ, ZYT

Friday, Feb 26 2016 by

Good morning!

I'm running a bit late today, as there was nothing much of interest when I did my usual iPad review of the RNS in bed at 7:30 this morning. So I tend to have a lie-in on Fridays, if there's no news which is particularly stimulating.

Update to yesterday's report - I had a second wind last night, probably brought on by the surge in blood pressure from listening to Dianne Abbott (again!) on Question Time! Anyway, I reported on 3 more companies - Molins (LON:MLIN), Ceres Power Holdings (LON:CWR), and Idox (LON:IDOX) - with 2 out of those 3 going onto the Bargepole List! Click here to see yesterday's updated report.

Looking at today's announcements, one that did make me chuckle, was the latest debacle from Sports Direct (SPD). Founder & controlling shareholder Mike Ashley just seems to create chaos whatever he does - the Donald Trump of the investing world?!

Stung by criticism of numerous aspects of how he runs the company, he's thrown his toys out of the pram;

Since May 2014, Sports Direct International plc ("the Group") has financed its capital requirements through a revolving credit facility ("RCF") with a number of banks. The RCF recently has been increased to a capacity of £788 million. Under the terms of the RCF, the interest rate payable by the Group increases if it is more than one third drawn (i.e. more than £263 million). Previously, when the Group has required borrowing in excess of this amount, it has utilised its £250 million loan facility ("MALF") with Mike Ashley/Mash Holdings Limited. The rate of interest payable on this facility is c.50% lower than that payable on the RCF, and does not attract arrangement fees or commitment fees. Accordingly, although an unusual arrangement for a public company, using this facility in this way has been of significant benefit to the Group, over time giving rise to a saving of over £1 million.

In the coming months, the Group expects that its borrowing requirements will be consistently in excess of the £263 million level. The Group, however, has been subject to unjustified criticism over related party transactions, including incorrect press coverage of the benefits of the MALF. It has been decided that it…

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Tristel Plc is a United Kingdom-based manufacturer of infection prevention and contamination control products. The Company's technology is a chlorine dioxide formulation. The Company operates through three segments: Human Healthcare, Animal Healthcare and Contamination Control. The Human Healthcare segment is engaged in the manufacture, development and sale of infection control and hygiene products, which include products that are used primarily for infection control in hospitals. The segments products are marketed under the brand, Tristel. The Animal Healthcare segment relates to manufacture and sale of disinfection and cleaning products into veterinary and animal welfare sectors. The segments products are marketed under the brand, Anistel. The Contamination Control segment addresses the pharmaceutical and personal care product manufacturing industries. The segments products are marketed under the brand, Crystel. Its manufacturing facility is located in Newmarket, Cambridgeshire. more »

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Sports Direct International plc is a sporting goods retailer, and it operates a portfolio of sports, fitness, fashion and lifestyle fascias, and brands. The Company's segments include Sports Retail, Brands and Premium Lifestyle. Its Sports Retail segment includes the results of the United Kingdom and international retail network of sports stores along with related Websites. Its Brands segment includes portfolio of various brands, such as Everlast, Lonsdale and Dunlop. Its Premium Lifestyle segment includes the retail businesses, such as Cruise, Flannels and USC. In Sports Retail, it offers a range of sporting apparel, footwear and equipment through Its Fitness Division comprises over 30 gyms located across the United Kingdom. Its channels include standalone stores and multi-fascia retail spaces, concessions within department stores and online. Across its Sports Retail fascias, it has over 700 stores, and across Premium Lifestyle fascias, it has over 83 stores. more »

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Volex plc is a supplier of power cords and cable assembly solutions servicing a range of markets, including consumer electronics, telecommunications, data centers, medical equipment and the automotive industry. The Company's segments include Power Cords, Cable Assemblies and Central. The Power Cords segment is engaged in the sale and manufacture of electrical power products to manufacturers of electrical/electronic devices and appliances. These include laptop/desktop computers, printers, televisions, power tools and floor cleaning equipment. The Cable Assemblies segment is engaged in the sale and manufacture of cables permitting the transfer of electronic, radio frequency and optical data. These cables range from universal serial bus (USB) cables to high-speed cable assemblies, and are used in a range of devices, including medical equipment, data centers, telecoms networks and the automotive industry. It is also engaged in contract manufacturing service and product development. more »

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33 Comments on this Article show/hide all

imranawan 26th Feb '16 14 of 33

In reply to post #122459

Just to add - that they also re-iterated their intention to grow the dividend by 10% which would equate to a dividend of around 6% at the current level.

I don't hold currently but did sell out in the New Year. I just wish companies would provide clearer guidance in terms of revised PBT in terms of a range - as this allows PI's to do come calculations and try to determine the level of miss against forecasts.

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ACounsell 26th Feb '16 15 of 33

In reply to post #122459


Yes was aware of strange timing of announcement - bit pointless as only delaying inevitable share collapse until trading opened following day! After working through some numbers have pretty much come to same conclusion assuming similar PE rating and as you say a lot of uncertainty in announcement over 2H in mobile division. Stock up c. 10% today so maybe might be a degree less pessimism but it doesn't look good overall.

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doug2500 26th Feb '16 16 of 33


Everyone here seems happy with the management and are prepared to call it a clumsy share option scheme.

What do you think of the allegations that they held back trading information around the turn of the year to keep the sp high to trigger the options? It seems likely to me that had they updated the market at Christmas (as normal) the sp would have dropped and the options would not have converted.

Doug (not a holder so no axe to grind)

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jimbobjames2002 26th Feb '16 17 of 33

Hi Paul, I've liked Fyffes (LON:FFY) for a while, but reports of bananas potentially dying out (horrible thought - I love em!) has put me off investing:

Cheers, James

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underscored 26th Feb '16 18 of 33

In reply to post #122528

This is not new news. However the media seem to have run with this recently....

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Paul Scott 27th Feb '16 19 of 33

In reply to post #122528

Hi jimbojames,

I have always assumed that the occasional scare stories about bananas dying out, were simply marketing ploys to make us buy more of them. It worked too, as a few years when I heard on the news that bananas may die out, I definitely began consuming more.

I had one today actually. Bananas are majestic fruit. They make such wonderful milkshakes too. They're wonderful dried too. Life without them is unthinkable.

Regards, Paul.

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Paul Scott 27th Feb '16 20 of 33

In reply to post #122516


I'm pragmatic about shares. I want to make money from shares.

So with Tristel (LON:TSTL) I think that the share option issue is a massive clanger. Worst case scenario, if you want to look at it like this, mgt nicked about 2% of the market cap off shareholders (£1m of a £50m company). The share price dropped by about 30-35%-ish.

Therefore, buying the shares at a substantial discount is a good deal for me, so I bought them cheaply. The market has violently over-reacted, it seems to me, and given pragmatic investors a buying opportunity.

It seemed to me that the shares were unlikely to fall much further when they got to say 95p. So risk:reward is now in your favour. It's a proper business, profitable, and on a sensible valuation at that level. So what do you do? Spit feathers, huff & puff about how bloody awful everything is? Or take a deep breath and press the buy button when the shares have hit a low?

If you want to make a profit from shares, then I suggest the latter is the better course of action.

Regards, Paul.

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kalkanite 27th Feb '16 21 of 33

A stonkingly good SCVR today.

These reports are great references when researching stocks. When I am looking at a new share that I may be interested in buying I first look at the Stockopedia's stock report for the fundamentals that are important to me, if this passes my criteria I then go to the "discuss" tab and drill down to the latest SCVR report from Paul to get his overview.

The SCVR is the second screen for me, it's full of useful information and investment wisdom that saves me so much time. If the stock passes this test then I feel comfortable spending the hours that I need to research the company properly.

With so many stocks to investigate, judicious neglect when researching saves so much time and allows you to focus on what is important. Paul's SCVR reports help to do just that. With 3,729 reads (as I write) and only 26 "likes" (less than 1%), if you think that Paul's or any other Stocko authors articles are well written and informative, could I urge people to take the time to click the like button to show their appreciation and help encourage Paul and others to keep these great articles coming?


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jjis 27th Feb '16 22 of 33

In reply to post #122477

Hi Imranawan On Alternative Networks (LON:AN.) yes I saw that & forgot to mention it. Guess it will / has provided some support but the cover will be quite thin. So they will need to return to growth if they are to continue with their ambition of 15% dividend growth in the medium term.

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tomps3 27th Feb '16 23 of 33

In reply to post #122447

James RH here's the Photo-Me - PHTM presentation filmed at Mello 15 February 2016:

(We try to film all the Mello presentations but it rests on the company approving it to go out - that can take a time).

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tomps3 27th Feb '16 24 of 33

Here's the Tristel presentation at Equity Development, referred to by Paul:

(Just taken from Equity Development's website, not sure if you need to register to view - but it's free if you do).

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jonno 27th Feb '16 25 of 33

In reply to post #122549

Paul, to endorse what others have said I attended the Tristel presentation to private investors by Paul Swinney and Liz Dixon on Thursday evening and without wishing to sound too glowing, they could not have been more engaging or accommodating, after what must have been an arduous day. Paul Swinney very kindly and unprompted gave me an open invitation to visit their head office at Newmarket. There is I think a valid point that had the Company been more forthcoming on revenue at the December trading update that the share price would have less erratic! However Tristel has done very well for investors over the last couple of years and is likely to continue to do so. I would rather be invested in companies like Tristel and Zytronic where the management is open and accessible than one or two others that shall remain nameless. As you say one has to be pragmatic.

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cig 27th Feb '16 26 of 33

In reply to post #122546

There is some science behind the scares though a replacement variant may still be found or  developed should there be a problem with the current ones.

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herbie47 27th Feb '16 27 of 33

In reply to post #122576

you maybe interested to know there are about 1,000 different varieties of bananas:

Note this scare story was talking about export bananas, if the Cavendish variety was wiped out it could be replaced with another, ok it would take a few years to do.

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seadoc 27th Feb '16 28 of 33

Tristel (LON:TSTL) webinar on Youtube as well:

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mothy9 29th Feb '16 29 of 33

Does watching Diane Abbott teach one very much about investing?

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xxx 1st Mar '16 30 of 33

Thanks Paul, your analysis of AN. pointed up the issues that I had struggled to locate ! [no posn]. 

Any comment on Phtm mentioned above?

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ed_miller 1st Mar '16 31 of 33

In reply to post #122675

I doubt it.

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Paul Scott 2nd Mar '16 32 of 33

In reply to post #122696

Photo-Me International (LON:PHTM) is well above my usual £300m mkt cap threshhold, so I've not looked at it for some time.

I've got over 500 companies on my plate already, just with small caps!!!


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herbie47 15th Mar '16 33 of 33

In reply to post #122528

I like bananas also, have one everyday. Ive held Fyffes shares for many years, if you are worried about bananas then have a look at Total Produce (LON:TOT), that was split away from Fyffes some years ago and is doing rather well. I'm surprised how much Fyffes (LON:FFY) has fallen in the Stockopedia ratings.

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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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