Small Cap Value Report (29 Aug 2014) - CSG, ZOO

29th Aug '14 by Paul Scott

5 comments 7693 reads

Good morning! I apologise for today's report being somewhat later than usual. This is due to me attending a delicious "salted karamel"-flavoured vodka (Stoli) evening in North London last night, and unfortunately one thing lead to another, and I nodded off this morning whilst reading the RNS. It's always a mistake to drink on a school night - unfortunately I don't have a medium setting - it's all or nothing I'm afraid.

Incidentally, I discovered a real hidden gem of a hotel yesterday on High Holborn, called the Rosewood - absolutely stunning place, very highly recommended. Although it was £40.20 for three gin & tonics, so very much a place to soak up the ambiance & admire the decor, for one round only.

Sweett (LON:CSG)

Share price: 39.7p
No. shares: 68.7m
Market Cap: £27.3m

There's an upbeat-sounding trading statement today from this quantity surveyor. The key part of today's statement says;

...the Group continues to trade well and gain market share... I am pleased to report that the business is trading in line with expectations.

It looks very good value, and reasonable quality on Stockopedia's usual graphics;

So on the face of it, this would definitely be something I would research further, based on the graphics above - which are an excellent way to quickly dig deeper, or jettison a stock idea - very useful when you have 500+ stocks to cover, as I do!

Unfortunately, the shares are uninvestable for me unless & until the major issue of investigations by the US Dept of Justice, and the UK's Serious Fraud Office are concluded. This issue arose when the Wall Street Journal published bribery allegations last year, suggesting that a former employee of CSG had behaved improperly. Of course it would hardly be the first time that a potential bribery situation arose in the Middle East!! However, you can't have this type of thing hanging around you, when you're a Listed company.

It could drag on for a long time, and could potentially be disastrous in terms of costs/fines, etc. Therefore I cannot go near these shares at the moment, but am watching from a safe distance - there are enough risks with normal small cap investments, without taking on unnecessary & unquantifiable risks.

Zoo Digital (LON:ZOO) - I've had a quick look at final…

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bsharman

29th Aug '14

I like both Home Retail (LON:HOME) and Kingfisher (LON:KGF) and both are on the watchlist. I cannot decide between them, although comparing them side to side I believe Kingfisher (LON:KGF) wins, due to the better valuation.

Hutch_Pod

Ha, I did wonder where your report was :)

Paul Scott

Hi,

Indeed, I also like Kingfisher (LON:KGF), and bought some shares in it recently after the poor Q2 update, and plunge in share price. It looks excellent value now, especially considering that it has a wonderful Balance Sheet, stuffed full of freeholds. So it's really a retailer & property company rolled into one. There's a good dividend yield too. It's also a geared play on a recovery in the French economy, which has to happen at some point one imagines, when they finally tell the Germans where to go, in terms of imposed austerity.

Home Retail (LON:HOME) also has a wonderful Balance Sheet, with all their own in-house customer loans sitting on the Balance Sheet. I'm sure something much more creative could be done with their financial services arm, turning it into a challenger bank or something.

I find that Argos is excellent for buying day to day items that are not really available anywhere else on the High St these days. Their click & collect service is superb in my view, and I like the new format stores, tried one today on Cheapside, London. The link up with Ebay is a great idea too, and I've noticed "collect at your local Argos" coming up as a delivery option on things I've bought on Ebay recently.

The best thing about Argos vs Ebay, is that you know the product quality will be acceptable from Argos. Whereas often things bought on Ebay are terrible quality. Argos need to focus on this in their advertising - as it's a key unsung competitive strength of theirs.

I was greatly impressed by the new CEO of Argos when he gave a presentation at the AGM I attended a couple of years ago. It seemed obvious to me at the time that he outshone the former CEO, who was overpaid and lacked fresh ideas in my opinion.

Regards, Paul.

It does indeed look as though Argos have turned themselves around. The tie up with Ebay is a good strategy because as you say it means the customer can rely on quality and also collect from the nearest store, rather than buy from the numerous cowboys who trade on ebay. The established players in the food retail sector are really struggling at the moment due to increased competition from low cost overseas operators. Could we see the same thing happen in the home retail / DIY market? Have a good weekend!

jonesj

I've had some shoddy products from Argos in my time. Then the returns queue was 40 minutes long.

However, they used to have a clear advantage with diversity of product and a catalogue which enabled one to find products which might take a long time to track down anywhere else.
Now Amazon and Ebay have well and truly exceeded the Argos product diversity, often with much sharper pricing.
However, as an investor, I've clearly missed out on the Argos recovery to date and it seems they benefit from better websites, apps and the like.
There are more opportunities though. For a start, when in store, why not have the facility to check stock and add stuff to your basket at the catalogue tables? (catalogues could evolve from paper to touchscreen).
Then if the automated payment devices took cash, all the tills could be abolished, reducing queueing or reducing labour costs.
From a competition point of view, might Tesco ever turn their Tesco Direct operation into a serious competitor? There appears to be no immediate threat, as Tesco have just lost it in many areas.

Small Cap Value Report (29 Aug 2014) - CSG, ZOO

Sweett (LON:CSG)

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Paul Scott

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