Small Cap Value Report (29 Jun 2016) - IGR, BRAM, ZZZ

Wednesday, Jun 29 2016 by

Good morning!

Thanks for all the positive feedback about yesterday's report - it's good to know that people find these reports useful.


There has been far too much partisan nonsense about this issue, which I largely ignore, because it's at best a waste of time, or worse still, misleading. So for me, it's now all about listening to experts, and trying to work out what is most likely to happen next.

There was a fantastic programme on Radio 4 yesterday, where 3 professors in law discussed how Brexit might work out in practice. It also clarifies some of the complex issues, which I found extremely helpful. Highly recommended - the iplayer link is here.

A consensus seems to be developing that the most likely outcome is for the UK to go down the Norway route - i.e. full access to the single market, for a fee. I'm not interested in discussing the rights or wrongs of this. The only issue for our purposes here, is how it might affect our shares.

Going down that route would undoubtedly be positive for shares, and I think this is what's driving the current rally - i.e. a realisation that the world is not going to end, and business will probably continue pretty much as normal.

Set against that, as I mentioned yesterday, the economy is likely to slow down in H2 of this year. So plenty of profit warnings to come, for UK-focused companies I think. If the market thinks that a prolonged recession is likely, then the price drops will be brutal. However, if the market thinks a slowdown might be short-lived, then it will start to look through poor current performance, and factor in a recovery next year. We'll have to keep monitoring events closely to determine which is happening.

IG Design (LON:IGR)

Share price: 163.5p
No. shares: 59.3m
Market cap: £97.0m

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

Results, y/e 31 Mar 2016 - I read these numbers on my iPad in bed earlier, and was impressed - a good solid set of figures, and reasonable outlook comments too.

Adjusted fully diluted EPS is up 15% to 13.2p.

The PER is 12.4 which seems reasonable to me.

We have to be very careful with PERs at the moment. Since there is considerable economic uncertainty, we cannot just assume that earnings will continue rising…

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IG Design Group plc, formerly International Greetings plc, is engaged in the design, manufacture and distribution of gift packaging and greetings; stationery and creative play products, and design-led giftware. The Company's geographic segments include UK and Asia; Europe; USA, and Australia. The Company sells its products in over 150,000 stores across approximately 80 countries. It also offers a portfolio of licensed and customer bespoke products suitable for sale through multi channel distribution. The Company's products include crackers, pens and pencils, stickers, single cards and gift wrap. The Company offers its products under the brands A Star, B Stationery, Papercraft and Pepperpot. Its subsidiaries include Artwrap Pty Ltd, International Greetings UK Ltd, International Greetings USA, Inc, International Greetings Asia Ltd, The Huizhou Gift International Greetings Company Limited, Hoomark BV, Anchor International BV and Hoomark S.p.z.o.o. 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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Snoozebox Holdings plc is engaged in investing in the development of accommodation solutions for existing and new vertical markets. This includes investment in developing prototypes of new V1 type accommodation, V2 second generation accommodation together with developments for the medical and social housing markets. The Company's segments are Events and Semi-Permanent. The Events segment includes all activities providing short-term hotel accommodation at events and festivals. The Semi-Permanent segment includes all activities in relation to the provision of long-term managed hotel solutions. Its geographical segments include United Kingdom, Other European countries and Rest of the World - South Atlantic. It has possession of and access to approximately 570 V1 containerized rooms and over 18 V2 rooms on trailers for deployment to generate Semi-Permanent revenues. more »

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

52 Comments on this Article show/hide all

shanklin100 29th Jun '16 33 of 52

In reply to post #140213

Thank you Tads

So long as they generate sufficient cash to fund the roll-out, I am happy to continue to hold.

Clearly there will be ups and downs in trading caused by issues such as the weather, as reported today.

Cheers, Martin

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tads 29th Jun '16 34 of 52

In reply to post #140219

Each new shop costs £250k. All funded from cash flow.

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purpleski 29th Jun '16 35 of 52

In reply to post #140186

Oh good. Finally good news though only a small part of my portfolio.

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purpleski 29th Jun '16 36 of 52

In reply to post #140195

Yes that is correct. I have downloaded countless accounts for free

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kenobi 29th Jun '16 37 of 52

Sorry to go on about the Brexit situation, but, we had a referendum and there was a small majority for leave.

That's not a mandate to leave at any price.
It seems to me the EU are planning to give us a kicking to deter the others from ever trying to leave. They seem to be demanding that if we want access to the free market, we have to accept free movement.

If we have to accept free movement, it's quiet possible that a second referendum would result in a remain result. Infact, remain/brexit is a difficult choice to make if you don't know the terms of Brexit.

I'm feeling that, as usual, the UK are following the rules, and doing as their told, when other countries don't.
I think we're going to have to toughen up if we're going to get out of this mess.

First, no more oh dear I'm so sorry we voted leave. It is a matter of fact that a lot of people's wages have been compressed by unlimited flows of people from poorer countries.

Is there any other trading block in the world where free trade is predicated on unlimited free movement of people ?
Is there any free movement of people area where the richest and the poorest individual countries are as widely spread as in the EU ??

(I am thinking the answer to both is no. Would the US form a eu type thing with mexico and south america and then let them have subsidies and free movement ? hell no ! , and the mexican president has suggested it recently)
Now this hits the UK harder than most, because 1) we're at the top end of wealth, and in recent years economic growth, so people coming in are likely to come to the UK, as they're more likely to get a job.
2) we're a relatively small nation, especially if you consider that vast numbers of the people coming in are coming to the south east of england, almost certainly the densest populated part of europe.

So to me it seems like this is being used as a stick to beat the UK with, and throw them out. As soon as we invoke article 50, there will be no way to reverse it, and the EU can string us along for 2 years and then say take it or leave it. Not a prospect I relish.

I think we should say, look we've had a non binding referendum, which suggests there's a small majority for leave, but not at any cost. We need to know the terms of exit and take it back to the people, so no article 50,
lets see the terms, and we'll go back to the people.

In the meantime, we're members, we pay, and have all the commitments so we want all the benefits, so no meetings that we're not invited to, and if you think we're going to allow any new countries into the eu, you might want to think again. Ever closer union is out of the window, and unless you co operate with us, we won't play ball with you.

There seems a lot of people wanting to kick us out so you can get on with a closer union. That's fine if we can agree on amicable terms.

What possible reason is there for free movement ? if we leave, and don't accept it, (and I'm telling you now we won't), Where do you think that the people now coming to the UK will go ?

Surely the other rich countries in the EU, france and germany, other norther european countries.
Is that what you want ? (because that's wall it'll happen - Harry Enfield eat your heart out. ).

The free movement issue is just a function of relative wages. I personally would have no issue with free movement with "old europe" even if in the short term that would mean Spanish and french people coming because of the situation in their countries. I don't even know where you'd draw the line on the map,
Certainly any new joiners from very poor countries need to be looked at . Perhaps there's the basis of some compromise there ? Perhaps based on gdp per person or average earnings or something ? I'm not suggesting no migration from these countries but perhaps there are some controls / point system based on that ?

The gist of what I'm saying is, We're shouldn't be pushed about, if we have to stay until we finialise a deal (which I want before activating article 50), then we'll stay. We won't be deliberately hostile, but we'll stand up for our interests. When we have a deal, we'll go back to the country to reconsider.

Perhaps other countries should consider getting a mandate for eu membership themselves too ?


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Velo 29th Jun '16 38 of 52

Best joke I heard yesterday.

The Tory's are searching for a new leader who'll be, talented, experienced, and above all else show great expertise in getting the country out of Europe.

They've been informed Roy Hodgson is available.

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nigelo 29th Jun '16 39 of 52

My view on dilution, specifically executive share options, is that it is the agents taking the upside for themselves to the detriment of the shareholders. In my opinion senior managers should be in the same employee share schemes as any other employee.

I find it best to look at adjusted basic earnings per share but when considering forecast earnings to take account of dilution and to avoid companies where dilution is very high.

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herbie47 29th Jun '16 40 of 52

In reply to post #140240

I agree, one company that is very bad for potential dilution is IMImobile (LON:IMO). Pity because otherwise it seems a good company.

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dgold 29th Jun '16 41 of 52

In reply to post #140234

Yes, surely UK can force reasonable terms by not invoking article 50 and then being thoroughly awkward about all other business in the EU that needs unanimity unless and until it is treated fairly i.e. EU agrees to negotiate and agree fair trade terrms before article 50 is invoked (i.e. variation on Norway deal with some limits to migration). This would be difficult for the EU and I think they would have to be reasonable.

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ap8889again 29th Jun '16 42 of 52

Well I added Galliford Try (LON:GFRD) today, doubling my holdings of housebuilders. Whether we get immigration from EU or Rest of World, I can't see the population falling. The Telegraph described the housebuilders as a value trap, but I think they are so oversold right now that they should come good in time.

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JohnEustace 29th Jun '16 43 of 52

Re IG Design (LON:IGR), I would suggest that they look to place some of their purchase contracts in GBP rather than USD. There's no rule that says you have to buy from China in USD.

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LovelyLovelyGorgeous 29th Jun '16 44 of 52

In reply to post #140183

please post on a brexit board

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Owen001 29th Jun '16 45 of 52

In reply to post #140234

Hi Kenobi

We hold a ref. & you are not happy with the result - therefore we need a second ref. ????????
Sth. Korea have ALREADY said they will ask for a trade deal with the UK. I suspect Japan & their manufacturing industry will jump at the chance of a trade deal with the UK, if they could get the German automotive share of car sales it would be like Christmas or their equivalent. The Common Wealth will agree trade deals. I would not be surprised if a deal was agreed with USA/Canada/Mexico quickly - not 7 years & still no agreement with the EU.
I genuinely believe the UK will prosper outside the EU - just think which country has 3 of the top universities in the world the UK. For example 20 of the 21 F1 teams are based in the UK - because of the UK's engineering prowess. Please have some confidence in YOURSELVES & YOUR COUNTRY. While you may not like B Johnson , he was correct in saying that all the remain side offered was fear of failure, not of determination & ability. Finally Kenobi I am not british but I sure as hell appreciate this country

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dgold 29th Jun '16 46 of 52

Paul, I may be missing something and am not an accountant but I believe that it is NOT right to strip out share option charges even if using diluted eps.Even if you are using diluted eps surely this will only reflect the share options which have already been agreed i.e. the amount of shares that will be issued say over the next few years. But this will not reflect the fact that the share option charges will be ongoing indefinitely, or in the absence of share option payments employees would have to be paid more cash in the future. Actually it probably makes sense to INCLUDE the share costs but use undiluted eps.This will give a different, lower and more accurate result than using diluted eps with share costs stripped out. When calculating forecast eps for future years then you also have to use the number of shares that you expect to be in issue then, after new shares have been issued as well as the expected share option cost for that year. Does this make sense or have I confused something?.

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kenobi 29th Jun '16 47 of 52

In reply to post #140282

Hi Owen,
I'm not unhappy with the referendum result, I'm looking at what might happen from here.

No prime minister is going to take us out of the EU regardless of future trading terms.
Hasn't Boris been quiet since he won the referendum, isn't it curious that he's not been hitting the tv shows trying to calm fears and telling us what he would do next and why he should be leader.

I'm starting to wonder if he wanted to win at all, or if it was all a stunt to put him in a better position to win the leadership when Cameron left.

Forget what you and I think, what will the next PM do ? If he could get a deal with free access to the single market, and limit immigration, then perhaps he'd just do that. But it's sounding pretty unlikely at the moment, and unless the new leader is an argent anti european, surely if he gets a luke warm deal, it will make sense to put it to the country before leaving ?

It's one thing to leave, but if the result is marginal, it would be a brave PM who takes us out without checking. I wouldn't be surprised if this has been discussed behind closed doors.

I don't know, but it seems that one option the EU has is to make leaving the EU so unappealing that it's not an option.

I hear what you say about F1 teams, that's what we've always been good at, technical challanges, what we've always been pants at is running manufacturing businesses. That's why despite have 20 out of 21 F1 teams based in the UK, it's worth nothing in Car manufacturing terms. And ALL the car manufactures in the uk, without exception (even those formerly british ones like jaguar, landrover and mini), are foriegn owned. And why if they woke up one morning and found they now had to pay 9 or 10% tarrif to get into europe, they might start moving manufacturing to eastern europe.
(especially the japanese cos, they might do a deal with us, but the manufacturing plants here, are here as a entry point to the eu).

If the EU play hardball about this (we could loose many many jobs), or about banking/services access (ditto),

Can they make it so unappealing that no government would take the deal without a referendum ?
The margin was close, and many people already seem to be having some doubts.

My opinion is neither here nor there, I'm talking about what's likely to happen.
Remember the EU have form on either re running referendum's when they don't like the results, or changing the game and ignoring them.


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tomps3 30th Jun '16 48 of 52

IG Design (LON:IGR) CEO Paul Fineman comments on the FY results (from yesterday), their ongoing strategy, and the outlook in light of Brexit.

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simoan 30th Jun '16 49 of 52

In reply to post #140294

IG Design (LON:IGR) CEO Paul Fineman comments on the FY results (from yesterday), their ongoing strategy, and the outlook in light of Brexit.

This is my one grumble with the company - why on earth did they rename themselves or why couldn't they have chosen a different name? The ticker was close enough to IG Group (LON:IGG) already and now they've made the name almost the same. If you hold both (which I do) it will not be that much of a surprise when you accidentally trade the wrong share. Be careful!

All the best, Si

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herbie47 30th Jun '16 50 of 52

In reply to post #140312

Has your broker not converted the old ticker over to the new one? I don't really see your point they are the same company?

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simoan 30th Jun '16 51 of 52

In reply to post #140327

Has your broker not converted the old ticker over to the new one? I don't really see your point they are the same company?

I don't see a "smiley", are you joking? One is a FT250 spread betting company and the other is an AIM small cap that makes gift bags for Tesco's!! The ticker for IG Design Group has not changed, just the name. I hate companies that change name for no apparent reason. they probably paid some "branding consultant" a fortune too...

All the best, Si 

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herbie47 30th Jun '16 52 of 52

In reply to post #140333

Sorry I misunderstood, I see what you mean. But this happens quite a lot with tickers, such as FLO and FLOW. Yes I agree about branding but maybe it works?

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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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