Small Cap Value Report (27 May 2016) - RTN, NGR, CFYN

Friday, May 27 2016 by
52

Good morning!

Several people have pointed out to me that a Director buy at Restaurant (LON:RTN) (announced today) could indicate that the company may not be in bid talks. I've decided to play it safe, and sell half my shares. That's locked in a smashing 31% gain from when I flagged up this share as good value at the UK Investor Show just 4 weeks ago. Why can't they all work out like that?!

Also, someone else spooked me a little in the comments here, saying that the price could crash again if they put out another profit warning. I worked out how much money I'd lose if the shares tanked by say 30% (as has happened in the past). The resulting figure frightened me, which is a sure sign that the position is too big. Hence another reason to sell half.

It's a great discipline to look at each position in turn, in your portfolio. Then work out how much you would lose if a 30% fall occurred due to a profit warning. If that figure is horrifying, then it's probably best to trim the position size somewhat, to reach a more comfortable figure. It depends on your conviction on the company though. Smaller companies often hit bumps in the road, it's the nature of things. So panic selling on every profit warning wouldn't get you very far.

I had an enjoyable afternoon in the City yesterday, and ended up at a Mayfair watering hole, chatting about shares with some experts (brokers & PE guys). A lot of interesting discussions were had. One chap caused amusement by pointing out that the market cap of Fevertree Drinks (LON:FEVR), the purveyor of premium tonic water, is now greater than Enterprise Inns (ETI)  and Punch Taverns (LON:PUB) combined! At some point FEVR is probably going to make a cracking short.


There are hardly any results or trading updates today in my universe of about 500 stocks. I've had a quick look at results from serial disappointer NATURE (LON:NGR) which is the biggest % faller today. It's down 24% to 5.6p, for a market cap of only £4.6m.

The company has reported a loss for 2015, but says it has restructured, so makes more positive…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Nature Group PLC is a holding company. The Company is engaged in providing reception and treatment services for oily and polluted wastewaters, the ownership and application of intellectual and proprietary rights related to such treatment, and the provision of reception and treatment plants for oily waste in onshore and offshore locations. It operates through two segments: the reception and treatment of maritime waste, both liquid and solid in onshore locations (maritime), and the provision of offshore treatment modules (oil and gas). Its maritime operations are based in Gibraltar, The Netherlands, Malta, Portugal, Spain, the United States and the United Kingdom/Jersey. Its oil and gas operations are based in Norway. The Company's subsidiaries include Nature Environmental Technologies Limited, Nature Environmental Solutions Limited, Nature International Slop Disposal BV and Nature Oil & Gas AS. more »

LSE Price
3.15p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a

The Restaurant Group plc is a United Kingdom-based company, which operates over 500 restaurants and pub restaurants. The Company operates through operating restaurants segment. Its portfolio covers a range of categories, including table service, counter service, sandwich shops, pubs and bars. The Company's principal trading brands include Frankie & Benny's, Chiquito and Coast to Coast. The Company's Frankie & Benny's brand offers classic American and Italian style food and drinks. The Chiquito menu offers a range of authentic Mexican and Tex-Mex dishes. The Coast to Coast offers classic American food, such as double burgers, stone-baked calzones, distinctive steaks, amazing seafood dishes and South-West American specials. The Company also operates a concessions business, which trades principally at the United Kingdom airports. The Company's concessions business develops partnerships to deliver catering solutions that meet the needs of its clients and clients' customers. more »

LSE Price
230.8p
Change
4.8%
Mkt Cap (£m)
442.8
P/E (fwd)
10.3
Yield (fwd)
6.4

Caffyns plc is a motor retail and aftersales company in the southeast of England. The Company is engaged in the sale and maintenance of motor vehicles, including the sale of tires, oil, parts and accessories. The Company is engaged in new car sales and offers used cars for sale, corporate sales car servicing, car repairs, wholesale parts, Motability and accident repair. The Company is operated and managed on a dealership-by-dealership basis. The Company operates from its own freehold properties, which offers long-term returns. It focuses on approximately three key areas, including used car sales, used car finance and aftersales. The Company represents a portfolio of six franchises, comprising Audi, Seat, Skoda, Vauxhall, Volkswagen and Volvo. The Company operates through approximately seven franchises. The Company offers deals on various cars in over 10 locations across the southeast of England. The Company provides fleets to companies across Sussex, Kent and Hampshire. more »

LSE Price
405p
Change
 
Mkt Cap (£m)
10.9
P/E (fwd)
n/a
Yield (fwd)
n/a



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


45 Comments on this Article show/hide all

purpleski 27th May '16 26 of 45

In reply to post #133286

I do hope that Fevertree Drinks (LON:FEVR) will not be taken over any time soon. I want the value to accrue to me and other shareholders not to Coke or Pepsi or A N Other!!:-)

And nobody has taken over Nichols or AG Bar both similar Mkt Cap companies with good margins etc

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herbie47 27th May '16 27 of 45

In reply to post #133322

That is true but I think Nichols and AG Bar are different, what are their brands? I don't think its margins, its about buying brand names, happened quite a lot in the brewing industry.Yes it is annoying when you own shares in some companies and they get takeover has happened to me a few times.

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timarr 27th May '16 28 of 45
1

I like Fevertree but I really, really don't get the economic moat. Any company that can generate growth like this will also generate competition, it's inevitable. So how do they defend their earnings: is their brand really strong enough?

The trouble with companies like this, on high ratings, is that the odds end up skewed against you as an investor: sometimes it turns out that you're looking at an ARM or an ASOS and they really do have some kind of defensible position. But mostly it's purely a matter of time before competition drags down the margins.

In truth, if I'd been smart or lucky enough to invest earlier I'd be hanging in there. But I would be a bit nervous ...

timarr

P.S. Nichols = Vimto, AG Barr = Irn Bru. Dreadful drinks, wonderful companies. Taste isn't everything.

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herbie47 27th May '16 29 of 45
1

In reply to post #133328

I can see why they did not get taken over, I bought some Irn Bru once had a hell of a job shifting it, good job it was only 1 case.

Had a  quick look at A.G.Barr (LON:BAG) and theres hardly any growth, I believe Irn Bru is a rather niche product, think its popular in Scotland. Also Nichols (LON:NICL) has some steady growth but nothing spectacular, their main brand Vitmo I have heard of but I don't think I have ever tried it, can't see it being that attractive to buyers, just another soft drink.  Of the soft drink companies I would have thought Britvic (LON:BVIC) would be more of a target with their brands but they are quite a bit larger.

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ridavies 27th May '16 30 of 45
1

In reply to post #133310

Take your point but BDO has just been dropped by Benchmark yesterday. Good reasoning? This is the announcement.
Benchmark announces that it has appointed KPMG LLP as statutory auditors to the Company, replacing BDO LLP. The appointment is effective from 26 May 2016 and will apply in respect of the Company's half year results for the period ending 30 March 2016. The Company intends to put the appointment of KPMG as auditors to a vote of shareholders at the Company's next Annual General Meeting. The Board's decision to review auditors was made in light of the Company's growth, with a view to implementing best corporate governance practice regarding auditor independence and the split of audit and non-audit work. The appointment of KPMG follows a formal tender process. BDO acted as auditors to the Company for over 15 years, and the Board of Benchmark would like to thank the team at BDO for their significant contribution throughout that period. In accordance with section 519 of the Companies Act 2006, BDO has deposited with the Company a statement confirming that there are no circumstances in connection with its resignation as auditor that should be drawn to the attention of the Company's shareholders.

Is this very different? Are we reading too much into the resignation? Does it really mean there is something to hide at £INL? I would be interested in comments.

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rhomboid1 27th May '16 31 of 45

An auditor change is not an issue, the timing of it may be. Iirc inland had an issue over delayed year end acts to recognise additional sales in Beaconsfield , that to me was a red flag as they should have been agreeing their approach with their auditors seamlessly, a public embarrassment like this delay should never occur imho . Maybe this RNS is the end result?

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Paul Scott 28th May '16 32 of 45
2

Fevertree Drinks (LON:FEVR) - it's a total fad!

Fizzy water, with daft people paying too much for it.

I sampled it today, and I could not tell the difference at all between any other tonic water.

The clever people are selling their shares to the gullible.

What a load of nonsense! Good luck to the people who got this up to £800m mkt cap! Tonic water. Brilliant!

PP.

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Paul Scott 28th May '16 33 of 45
2

In reply to post #133214

Dear Ian,

"Hello Paul, Do you still hate KOOVS?! Thanks for the brilliant job you do! Kindest regards, Ian"

KOOVS is a speculation.

It might work, or it might not.

Happy gambling. Doesn't interest me. Goodbye. Try advfn for a level of discussion which you may enjoy.

Paul.

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Paul Scott 28th May '16 34 of 45
4

I had a big glass of G&T tonight.

The Fevertree Drinks (LON:FEVR) tonic water made no difference whatsoever! It tasted exactly the same as every other G+T I've ever had.

It's an £800m fad - I can't wait to short it!

Regards, Paul.

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apad 28th May '16 35 of 45
1

This is fun. My local yacht club has half a dozen gins on display and only serves one tonic, without asking customers.
And, Mr. Paul, this is not about your deficient taste buds - it's about a brand!
apad
ps
I have you to thank for my holding in BOO, because of your peerless analysis of the company. I'll buy you a G&T anytime - you choose the gin and I'll choose the tonic:-)

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rhomboid1 28th May '16 36 of 45
2

I like the odd G&T and prefer to avoid both Gordon's and Schweppes Tonic, if you look at the ingredients the big difference is FT don't use artificial sweeteners , thus it is much higher calorie but avoids the chemical taste of artificial sweeteners. If even my crude and unsophisticated palate can taste the difference then nearly everyone should be able to.

Still agree that is very richly valued though...but a risky short.

Cheers
PS Paul was your taste test pre or post Peroni?!

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leishylegs 28th May '16 37 of 45
3

I am, sadly, not a holder but there is an interesting and very recent review of Fevertree by Phil Oakley. For anyone who hasn't seen it, the link is:

http://www.sharescope.co.uk/philoakley_article100.jsp

Richard

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herbie47 28th May '16 38 of 45
2

I agree with Paul that its a fad and like all fads its good to get in early, not sure how long this has to run probably a while yet, the PEG is not that high. I think buying into fads is a good thing rather tired old brands.

Like all shares its about timing, if you bought Boohoo.Com (LON:BOO) at launch you will have a different view than if you bought it at 23p.

Not a G&T man so I will bow to Paul's greater knowledge. Maybe he should my local gin Adnams they won the best Gin international award, also they won the best Vodka. Their beer is not either.

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apad 28th May '16 39 of 45

Buy my calculation, BOO's Price/FreeCashFlow ratio is half as big again as FEVR :-)

The Oakley article is peerless - a must read.

Odd how deficient taste buds can affect one's investment decisions! There is no doubt that Schweppes makes all the fancy gins taste of artificial sweetener.

apad

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FREng 28th May '16 40 of 45

In reply to post #133337

Thanks for the reply. The Benchmark announcement is a model of clarity and explains why BDO resigned (i.e. to get or retain more profitable non-audit work). If Inland Homes (LON:INL) had said the same, I would not have been worried.

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muckshifter 28th May '16 41 of 45
2

I notice Paul still considers Caffyn to be family controlled in his appraisal above, but hasn't the Caffyn family effectively lost control of the company in terms of voting rights in the event of a potential takeover? The company had to disenfranchise the preference shares in the event of "any significant transaction which is a class 1 transaction as set out in listing rule 10", which I assumed covered a takeover offer. The family trust, together with individual family holdings dominated the share register and voting rights largely by its ownership of preference shares, IIRC.
Hope my assumptions about "rule 10" are correct (and would welcome any explanation from a knowledgeable accountant), as it might just encourage a takeover offer!
Regards.

PS If I'm right the change occurred in January.

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Beginner 28th May '16 42 of 45
4

In reply to post #133331

Vimto of Nichols (LON:NICL) has a massive market in the Middle East, believe it or not! It also sells well in the Grim North. Try a hot one on a winter's day. Cracking! Irn Bru is the biggest selling soft drink in Scotland. It outsells Coke there, making Scotland the only country in Europe where Coke is not the top selling mineral brand. It is widely used as a bar mixer up north, especially with vodka. No hangover guaranteed!
A.G.Barr (LON:BAG) and Nichols (LON:NICL) are cracking companies maintaining massive sales in their locales. There is little growth, but their market is not shrinking either. Nichols (LON:NICL) has licensed out the Vimto brand to a confectionery maker (perhaps in league with a dental firm!!). A.G.Barr (LON:BAG) also own a number of brands serving the UK immigrant market, especially KA Punch and Rubicon juices, and may well be acquiring central European brands soon. They also have Strathmore water, the leading bar bottled water in much of the UK, and let's not forget the Appe-Tizer!
Both companies also produce 'cheap pop' under names such as Panda Pops for the corner shop market. The mark up is good here. There was a proposed merger between these two a few years back, but it fell on the oversea's rights to the Vimto name, which the Nichol family sought to retain. A.G.Barr (LON:BAG) then approached Britvic (LON:BVIC) but that also fell apart.

Fevertree Drinks (LON:FEVR) is massively overpriced, as the figures show. One profit warning will come, the price will crash, and it will be taken over by a larger preditor. (Had to vote you down lads, sorry, but fancy not appreciating a hot Vimto or a Stolly and Irn Bru!!!)


I should also mention NATURE (LON:NGR) as I am a holder, and nobody else has bothered.  The company should be safe from going bust for a while.  It has freehold property In Gibraltar to sell, and owns a ship and some engineering stock.  It said in its statement it would seek credit against equipment holdings if it needed to.  Effectively it is retreating to the Rotterdam and Gulf Coast operations, and will continue manufacturing pollution control equipment.  Two sales of the latter would push the company back into profit, and the Gib sale would provide, hopefully, cash for the war chest.  I don't think this one is as bad as it may look, he said clutching at the dwindling straws.  Not worth buying yet, but genuinely something worth keeping an eye on I think.

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muckshifter 31st May '16 43 of 45
2

I have an unfortunate habit of asking questions here on SCVR just after everybody "leaves". So I'm more or less repeating a question in the hope that a kind accountant who knows the answer will enlighten me.

In the case of CFYN, I believe that the family may have lost their absolute control of the company's destiny because of changes which were introduced early this year. These changes disenfranchised the 2 million second preference shares (totally owned by the Caffyn family) if my understanding is correct. The terminology which I assumed meant this said that these prefs lost their vote  "in the event of "any significant transaction which is a class 1 transaction as set out in listing rule 10" . Does this mean that a takeover occurs once more than 50% of the ordinary shares are obtained, which is what I thought it meant, and if so are the prefs subject to compulsory purchase by the acquirer?

Regards.

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Modform 29th Jun '16 44 of 45

Paul, FEVR makes around £270,000 profit per employee, it's very unique imo

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Paul Scott 5th Jul '16 45 of 45

PS Paul was your taste test pre or post Peroni?!

I can't remember lol! Probably post :-/

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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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