Small Cap Value Report (29 Mar 2017) - GMD, ABDP, APH

Hi Graham,

I was wondering if you or any readers have any thoughts on this morning’s final results from Centaur Media (LON:CAU):

http://www.investegate.co.uk/centaur-media-plc--ca...

At first glance I didn’t thing they were too bad but the market clearly wasn’t impressed as the share price went down about 24%, although it has now recovered a bit and is down about 13%.

Perhaps this spooked the market:

The fall in high margin advertising revenues will result in a 2017 profit reduction which is expected to reverse in 2018 as the strategy to address the industry trend by monetising content and expertise materialises

At least the generous dividend hasn’t been cut (yet).

A potential disposal of part of the business has also been announced:

http://www.investegate.co.uk/centaur-media-plc--cau-/rns/potential-disposal-of-home-interest/201703290705028165A/

Gostevie

Disclosure: I hold shares in this company

Holy cow, Graham has lost the plot. Game? Didn't they crash and burn before, and the market for physical games has only got tougher. These are almost guaranteed to shrink further...

ABDP statement says: "Revenues and operating profits (adjusted to add back share option charges) for the six months to 28 February 2017 are expected to be ahead of the same period last year and in line with management expectations." Since share option charges are (probably, depending on the scheme) a cost why add them back? And can we assume that if they were not added back profits would be below same period last year and below management expectations? Otherwise why put the qualification in?

In reply to cic, post #3

Not necessarily. From last year's finals (my bold):

Our people are a cornerstone of the future success of the Company and in recognition of their ongoing efforts and performance, we implemented a new share option plan during the year. This year's results therefore include a share based payment charge of £273k. Excluding this non-cash charge provides a more accurate reflection of the underlying performance of the business, with an adjusted operating profit* of £4.65m (2015: £3.79m) representing a 23% increase on last year and consistent adjusted operating profit margin of 22.7% (2015: 22.9%).

A cynic may claim the main reason for adding back the share based payments is to cast the results in a better light, but it is also possible that the aim is to to provide a better sense of the underlying performance of the business.

Hi Graham,many thanks for your report. GMD does look very interesting,though I notice they have cut their dividend from 1.67p to 1p, do you think they are being super conservative ,? It does seem a strange move bearing in mind their EPS and cash balance.
Cheers,Graham.

In reply to ap8889again, post #2

Relax, he hasn't actually bought any... yet... game has transformed to become more of a social / plastic gift space. They just need to add a few arcade machines and a coffee shop I reckon to occupy the dads...

In reply to Graham Fraser, post #5

Hi Graham,

Well, rather than paying a super-high yield, it would make more sense to me to start buying back their shares at this level (presuming they don't think they are going into administration). That would potentially add a lot more shareholder value in my view.

But cash is likely to drain over the summer, and investors are clearly very worried about the future, so an element of conservatism makes sense to me, especially when it comes to the dividend.

Graham

Just thought I would comment on Flybe (LON:FLYB) update today since it has a history of comment from Paul.

I have held a negative view regarding Flybe for a couple of years now and today they issued another dire statement - profit warning

Net debt continuing to climb partly as a result of having to take on more ex-Republic Q400 aircraft. Those aircraft are probably only worth about 70% of what they actually paid for them. Ideally they should have done a sale and lease-back but their failure to do that should be a red flag. However this will not be an issue until some years hence.

Load factor continuing to decline (generally speaking anything below 65% herald's 'lights-out').
Capacity increasing
A new CEO that is 'excitable' but has not stamped her authority on the business; so I have little faith she will do anything substantive over her predecessor.
The start of what maybe two or three years of write-downs and ever increasing 'exceptionals'

Load factors are in fact only against scheduled flights; does anyone know the proportion of charter flights to schedule? Load factors are not such an issue on charter flights because (in theory) even if the aircraft is empty the airline gets paid albeit without seeing possible additional passenger ancillary income.

Anyway, I see little evidence of a real turnaround here; a view I have held for two years.

Today Ryanair hit the panic button: http://www.investegate.co.uk/ryanair-holdings-plc-... which will not help European airlines. Personally I think it's BS and just Ryanair grabbing headlines again to further bolster revenue. Now there's a CEO worth having....

Carcosa

Graham, hope you don't mind me posting here.

We've just released a video with Gervais Williams talking about the future investing landscape. There's a quick 3.5 mins overview, followed by another, with a fuller 30 mins presentation.

Thought it might be of interest to all here.

http://www.piworld.co.uk/videos/2017/3/28/gervais-williams-at-redleaf-breaking-the-mould-capital-markets-day

Tamzin

In reply to tomps3, post #9

Thanks Tamzin, I'm sure nobody minds. Looks interesting!

Graham

ABH, rightly or wrongly, forms part of my Inheritance Tax-free portfolio. The acquisition of Sinclairs portfolio has provided marketing access to may more countries and the benefits have yet to be fully realised. Thus, although debt is certainly a concern in the short term, its near 3% yield and international earnings seem attractive at the current sp.

Thanks,Graham, Good point.Graham.

Looks like CloudTag Inc (LON:CTAG) has gone, this was covered by Paul last December.

In reply to tomps3, post #9

Thanks for the alert Tamzin. Gervais Williams is always worth listening to.

In reply to Crusty, post #11

Hello Crusty
Just seen your reference to your IHT AIM portfolio.
I am just starting one and have only just recently accessed this website.
Any advice on building this portfolio would be appreciated.
Mrken.

GAME got game? I ended up over on Roland Head's personal blog (https://www.rolandhead.com/ a great read, of course) and his comments on GAME Digital sparked my interest, especially their ongoing rollout of new Belong arenas. So i tried to find out a little more about how the kidz are responding to this, and came across a pretty positive thread on reddit, https://www.reddit.com/r/pcmas...

A small signal by itself and i need to look into it more, including all the comments here still, but it might just mean GAME (and Mike Ashley) is onto something with their instore gaming thing. It intuitively makes sense to me - high end kit it expensive, especially VR which is only at the very start, it's fun to (physically) hang out with your buddies which you can't do at home coz you only have one computer, eSports is booming, they're setting up across-store tournaments, they cater for teenager birthday parties and so on. The other thing is, my kids who are still under 10 are growing up with games and tablets just like all the other kids, in a way they're all gamers now, it's just normal and they'd love this stuff when they're a bit older (which they can pay for out of their own pocket money, just saying). I think there's a market for this. If they can get the branding right there might even be some parallels with Games Workshop here?

Anyway, i think it's interesting, definitely a company I'm going to start keeping an eye on.