Small Cap Value Report (29 Nov 2016) - CRAW, IGR, MYSL, CAKE

29th Nov '16 by Paul Scott

43 comments 22400 reads

Good morning!

Here is yesterday's report, which I wrote overnight, so most people won't have seen it yet. I recapped on the interesting takeover battle for Lavendon (LON:LVD) , plus tried to understand the situation at Trakm8 Holdings (LON:TRAK) after poor interim results. Also a quick look at Stride Gaming (LON:STR) .

On to today.

Crawshaw (LON:CRAW)

Share price: 24.1p (up 7.2% today)
No. shares: 79.2m
Market cap: £19.1m

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

Trading update - my heart sank when I saw this, as I assumed it would be another profit warning - given how the share price has been almost in freefall of late.

Overall though, it's actually not that bad, when you consider that the share price has now dropped by 74% in the last year. This spectacular fall from grace is because perception changed from it being a sexy retail roll-out, to being a small chain of barely-profitable butchers.

The first paragraph of today's update reassures;

Crawshaw Group plc ("Crawshaw" or the "Group") (AIM: CRAW), the fresh meat and food-to-go retailer, notes the recent movement in its share price and confirm the Group continues to trade in line with management expectation.

Sales trend - this has improved, as you can see below, but is still negative;

Previously reported on 29 Sept 2016, LFL sales;

Q1 (Feb, Mar, Apr): down 0.8%

Q2 (May, June, July): down 7.8%

Q3 (Aug, Sept, Oct) - first 7 weeks only: down 15.8%

Reported today (29 Nov 2016), LFL sales;

4 weeks ended 27 Nov 2016: down 8.1%.

Clearly, a decline of 8.1% in LFL sales for the most recent 4 weeks is still a poor performance. However, the trend is improving from the disastrous performance earlier in Q3.

The company's self-help measures appear to be slowing down the decline in sales. It emphasises today that full year results still rely on the key festive season;

The Board are confident in the actions taken so far and are encouraged by the early improvements in sales, but note the importance of this progress being maintained through the key winter and festive period to deliver full year profit expectations.

Forecasts - I've not seen any updated broker figures yet this morning. So based on the existing…

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StandardModel

29th Nov '16

Paul

I see 3 major negatives with Crawshaw (LON:CRAW)
1. "in line with management expectations" as opposed to "with market expectations" - in the comments from CRAW - are a red flag for me. In this case as with Lakehouse (LON:LAKE) it seems to invariably mean a loss (I'd welcome any examples to the contrary).

2. Whereas I freely accept your greater knowledge, Paul, when it comes to retail I am reminded here of something Hugh Hendry said. To paraphrase 'retail is easy, the stock goes up with the store roll out then down as the positive impact of increased distribution fades'. This rings true to me after a decade of selling consumer goods to supermarkets - Tesco being a case in point. CRAW seem to not even be able to achieve that and this fact presents another red flag.

3. I think you said previously that these guys don't seem to know what their business model is anymore. I agree completely.

Given the above 3 points, why are you still prepared to 'back up the truck' with this stock? Even at 15p. It seems to me that the investment thesis is gone. One to move on from?

I'm happy to be wrong on this one but I just can't see it.

crazycoops

Indeed Ramridge and on that point I have no answer!

JohnEustace

Re IG Design (LON:IGR), I was at their Richmond ShareSoc presentation in October and I'm sure I heard the FD say that they had run the numbers and found their business was neutral with regard to exchange rate movements. Seems not.

shanklin100

30th Nov '16

Hi Paul

Re CRAW, do you have any concerns that they have provided no information in relation to margins over the last 4 weeks. In LFL sales terms, they have clearly started to move the situation in the right direction but has this been at the cost of a further reduction in gross margin?

Obviously impossible to tell currently which makes their RNS far less helpful; indeed the RNS might be giving a totally false picture that some measure of progress is being made.

Perhaps there is a broker update which says more.

All IMHO.

Regards, Martin

PhilH

Hi Mayn,

Still perservering with Record?
It must be close to six years now?

When the change in the world markets was blamed for the demise in Record's business model I seem to remember asking back in the day "What if the market stays like this for a prolonged period or worse never returns to the old behaviour?"

Best of luck
Phil

spaceinvader2

See a director at Getech has just bought 300,000 shares on Monday-since the FIRST profit warning couple of years back (I have been a shareholder since well before this having got in on the way up from initial buy at 22p

iain1234

Its been said before but I suspect Crawshaw's (LON:CRAW) initial success was more to do with the Horse meat scandal rather than any business model. Now that that has started to fade in customers memories they will drift back to the supermarkets. It’s not as if independent butchers are a new idea. They’ve already left our high streets 25years ago and I can’t see any fundamental change in shopping habits now to allow them back.

Re Crawshaws-Good points doesn't look good to me but value there to an accountant at lower enough price

AnonymousUser252054

"As anticipated, the largest cost pressure this year has been National Living Wage (NLW) which had a full year impact of £0.5m. However we introduced a more efficient labour rostering method in the year which has almost offset this increase. The increase to minimum wage from 1 October 2016 will be £0.1m and we will continue to monitor and react appropriately to future increases in the NLW."

It sounds so reasonable, a 'more efficient rostering method', but I wonder what the implications have been for the waiters, waitresses and sales staff in those shops.

On the other hand hard-core investors are probably peeved it wasn't in place before?

Patisserie Holdings (LON:CAKE) is making a lot of money, the board are extremely well rewarded, couldn't the bottom line have absorbed the increase? It's nearly Christmas, and it looks like the original Scrooge-like critics of George Osbourne's NLW look like they have been proved right, the benefit would in real terms never make it through to the people who it was intended to help.

£2.95 for a small slice of cake may not be all that cheap for everyone.

Lion Tamer

Re Patisserie Holdings (LON:CAKE)
My first dumb question of the day... why does the balance sheet show trade and other receivables of £11,004,000? I could not see an explanation in the narrative or notes. It seems a lot for a business selling only products usually purchased with cash, or do they sell cakes on easy terms; pay nothing now and pay the balance over six easy to afford monthly instalments? I'm sure I'm missing something, please help!
Thanks

simoan

It sounds so reasonable, a 'more efficient rostering method', but I wonder what the implications have been for the waiters, waitresses and sales staff in those shops

I would have thought it's obvious what the implications are for staff. To be honest, I'm not really sure what your point is? I think you can find a moral problem with any business if you really want to, in terms of exploiting employees and/or customers, or should we only invest in not-for-profit charities? Have you ever bought anything from Amazon? If so, how does that square with their treatment of employees. Ever bought anything from a UK supermarket? How does that square with their treatment of their suppliers. Ever bought any clothes made in a sweatshop in India?

Probably best not bother investing in the stock market for people that get worried about such things, or buying anything from any retailer. Shit happens in the real world.

I'm not sure I understand this either. Show me a business person that says his company cannot possibly be any more efficient and I'll show you a liar. In investment terms all I want to see is companies I hold adjusting quickly and efficiently to changes in circumstances which Patisserie Holdings (LON:CAKE) seem to have done. Companies that don't make such changes make very poor investments in my experience.

As for George Osbourne, the posting guidlines of Paul's blog do not allow me to say what I think of him, but if I hear him say the words "Northern Powerhouse" again I swear I will hire a hitman :-)

All the best, Si

bestace

Looking at the 2015 accounts (note 14), the vast bulk of those receivables will be prepayments for rent and rates. Trading debts amounted to just 9% of the overall receivables figure last year.

I think one of their brands caters to businesses, which I would imagine is done on credit terms.

Thanks bestace, I did not see that! I've purchased a few today, after some top slicing elsewhere.

Beginner

"Topsliced" to buy cake! Very good!

herbie47

I bought some cake this morning as well, prices have been up and down, opened up about 10p, not sure if that was due to Paul or not but soon fell back below 270p but now back up again to around 278p. Not worried about the dividend, have concerns about the outlook once Brexit starts.

I don't think £2.95 for a small slice of cake is that cheap, last time I went in M&S it was about £2.40.

paraic84

Paul, I don't know if you noticed but a couple of newspapers ran pieces about MySale (LON:MYSL) in the last 24 hours. They are planning on launching an own-label womenswear brand called London Chic. That's encouraging. Plus I am pleased that they are finally focusing on higher end fashion labels which I think has a much better potential for them (assuming margins are still good). Some of the brands they listed before I'd never heard of! https://www.drapersonline.com/news/mysale-ups-full-year-expectations/7016351.article

andrea34l

Re. "I don't think £2.95 for a small slice of cake is that cheap, last time I went in M&S it was about £2.40" isn't it all a question of relative quality? You can probably get a piece of cake in a Sainsbury's cafe for less than £2... but it's unlikely to be half as nice an an M&S piece of cake... and I'd suggest that IMHO the quality of a Patisserie Valerie piece of cake relative to an M&S piece of cake justifies the price. It's just a different market... isn't it?

I don't totally understand why you actually bought shares if you have outlook concerns and also are skeptical of the price of the value of their product...

Dennis Ayling

Paul, any views on Digital Barriers (DGB) ? I know you had a holding some time ago.

They announced interims yesterday. Business seems to be booming but they are still have some issues about when the revenue can be booked. Would have thought they would be a huge beneficiary of sterling drop & the 'Trump' efffect but the market didn't seem impressed judging by sp slide.

Regards
Dennis.

You have got me there I have never been in a Patisserie Valerie shop, there are none in my area.

I must confess I was in two minds about buying, I think the outlook problem maybe some time off, so I have time to see how it goes, after Brexit people have many concerns but the market has taken off, a dummy NAPS of 20 shares I did after Brexit is up nearly 24%, which I don't really understand, the market does not always go the way you expect.

You never have concerns about shares you buy?

Paul Scott

3rd Dec '16

DGB looks a total crock to me!!

Small Cap Value Report (29 Nov 2016) - CRAW, IGR, MYSL, CAKE

Crawshaw (LON:CRAW)

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Paul Scott

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