Small Cap Value Report (4 Aug 2017) - FRP, OnTheMarket, YOU, SUS

Friday, Aug 04 2017 by

Good morning and happy Friday!

Fairpoint (LON:FRP) (suspended)

This should be the last time we mention this legal services / debt management firm.

Last time I covered it, I said it was hard to imagine the equity was worth anything. £20 million in bank debt had been sold off to a sector specialist, who was continuing to finance the subsidiaries.

Those selected subsidiaries continue to trade, but the holding company (i.e. the company which some of us bought shares in) is entering administration:

...ongoing support for the Group's subsidiaries outside of the Legal Businesses is made more difficult due to the existence of the onerous lease on the Group's head office which has an annual commitment of c£1m per annum for a further 4 years. As a result, and following detailed discussions and the evaluation of a number of options, the Board has concluded that the holding company of the Group, Fairpoint Group plc, is no longer able to continue trading as a going concern and has filed notice of intention to appoint administrators.

People should have mentally written this down to zero some time ago, in my opinion.

I haven't sold anything short in a good while but this is an example of where, if the shares had been still trading up to this point, it might have been a good idea. You only need a limited number of people to think that the shares are not worthless for the share price to remain at a level greater than zero, and for a 100% negative return to be achieved!

Additional comment from Paul:  I agree with Graham that Fairpoint has been a terrible mess. I've certainly learned a lot from this one, which we've discussed here before.

I'd just like to come back to Graham on the point of possibly shorting this type of thing (Fairpoint). DON'T! It's way too risky. There are a number of issues. Firstly, when the shares are suspended, the Spread Bet or CFD provider will usually increase it to 100% margin, on your original transaction price. This can suddenly swallow up a load of funds on your account, which are now effectively frozen. It can take months, and sometimes even years, for the stock to be valued at nil, and hence to get your funds unfrozen. So what seemed like a win, soon…

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All my own views. I am not regulated by the FSA. No advice.

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Fairpoint Group plc is a United Kingdom-based company, which provides consumer professional services, including legal services, claims management services and debt solutions. The Company has four segments: claims management, legal services, individual voluntary arrangements (IVA) and debt management plans (DMP). The IVA segment consists of the subsidiary company, Debt Free Direct Limited, which is an IVA that consists of a managed payment plan providing both interest and capital forgiveness. DMP services segment consists of the Company's subsidiary, Lawrence Charlton Limited, which provides DMP for consumers. Claims management segment provides a range of claims management services, including reclaiming payment protection insurance (PPI). The legal services segment provides a range of consumer-focused legal services with lines, such as family law, complex personal injury, personal legal services, and a legal processing center focused on both personal injury and conveyancing work. more »

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YouGov plc is a United Kingdom-based data and analytics company. The Company's segments include Custom Research, Data Products and Data Services. Its suite of products and services include syndicated data products (YouGov BrandIndex, YouGov Profiles, YouGov Pulse and YouGov Reports); data services, including the YouGov Omnibus, and Custom Research. The YouGov Cube, its connected data library, supports all of its products and services. YouGov BrandIndex is a daily brand perception tracker. YouGov Profiles is its tool for audience profiling and segmentation for use by brand owners and the agencies. YouGov Pulse is its real-time online and mobile behavior tracker. YouGov Pulse enables brands and agencies to capture real-time and actual online consumer behavior across laptops, smartphones and tablets. YouGov Report showcases its connected data. YouGov Omnibus finds out people's opinions, attitudes and behaviors. YouGov Custom Research conducts quantitative and qualitative research. more »

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S&U plc is a United Kingdom-based company engaged in providing motor finance and specialist lending service. The Company is focused on the specialist motor finance market. The Company's subsidiary, Advantage Finance Limited (Advantage Finance), is engaged in the motor finance business. Advantage Finance offers motor finance to over 100,000 customers in the United Kingdom. more »

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  Is Fairpoint fundamentally strong or weak? Find out More »

34 Comments on this Article show/hide all

andrewdb 4th Aug 15 of 34

In reply to Graham N, post #6

There are ways for niche players to get in

rightmove - where 80% of all properties will be - for 1% ers - for 10% ers

... or if you can get content that is not on Rightmove - but why would an estate agent do a deal like that?

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Ramridge 4th Aug 16 of 34

In reply to andrea34l, post #5

Hi andrea341 - I had missed this IPO this morning so thank you for the post.
Just finished reviewing the admission document and on balance I am not keen for the following reasons.

- their latest 2016 results are not encouraging. Profit before tax and net profit have almost been wiped out, going from £1.9m to £0.2m . It's worse if you include capitalised development costs of £2.7m in 2016.
- staff costs in 2016 have nearly trebled from 2.4m to 6.8m, accounting for the steep fall in profits
- on the positive side, revenues have gone up by 57% in 2016, so they have possibly good products in SmartVault and Virtual Cabinet
- however, they have stiff competition and I cannot see any moat

Overall I am not keen on investing in a loss making IPO. The big ramp up in fixed costs in 2016 also bothers me. So all in all, not for me.

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andrea34l 4th Aug 17 of 34

In reply to Ramridge, post #16

Thanks Ramridge - it's obvious now why they only talked about revenue and not profit or costs in the RNS announcement.

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ridavies 4th Aug 18 of 34

Adding to the 'have you heard' and 'what do you think' element of this very useful part of Stockopedia!
Strix are intending to have an IPO on AIM with trading expected to start next Tues, 8th at 0800. They are a kettle sarefty control giant HQ in the Isle of Man, been herhe for many years.Placing 190m shares at 100p, not surprisingly expeting to raise £190m!Ticker will be KETL; Zeus Capital are the NOMAD.Established in 1982 and taken to worldwide prominence by entrepreneur Eddie Davies (also former owner of Bolton Wanderers FC). Hopefully a better investment - in Strix - than in the FC! Apparently strong institutional demand shown already.
Any thoughts Paul or Graham, or others?

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herbie47 4th Aug 20 of 34

In reply to Ramridge, post #16

It has a very wide spread, over 10% at times. I try and avoid spreads over 5% if I can.

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monions 4th Aug 21 of 34

In reply to ridavies, post #19

Strix could be interesting. Looks like a global leader in this space, and I'd expect the demand for kettles to stay constant or increase slightly going forward - certainly recession proof. However, that may be the issue - where is the growth going to come from unless they are really going to diversify.

Having said that with an MCap of 190M, the PER is around 8-9x. It's been around for more than 50 years so has a long track record. It could be a nice boring stock to put in an ISA/SIPP and sit on. It does say they plan to have 7% dividend. That's nice, but I am a little wary of new issues promising high dividends.

Will take another look on Tuesday.

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pj8 4th Aug 22 of 34

Re the builders and the housing market. There is a shortage of housing of a certain type - social housing and affordable housing. That's where the building needs to be. This shortage is being used as an excuse by builders to build all other sorts of housing. The argument for scrapping the Help-to-Buy scheme is that it distorts the very market that it's supposed to be helping people to enter and it seems that the Government understands this. But that's not the only way in which the market is currently distorted. A couple of weeks ago, the Investors Chronicle published ten ways to create a housing shortage - draw your own conclusions!

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ridavies 4th Aug 23 of 34

In reply to monions, post #21

Re KETL. Where did you get the financial information please?

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ridavies 4th Aug 24 of 34

In reply to ridavies, post #23

Re KETL. Sorry, just found this myself, thank you.

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prem14 4th Aug 25 of 34

Regarding SUS, is this comment accurate? " have to make a balloon payment at the end of a PCP contract if you want to buy the car, which is worth nearly 100% of the car's estimated value at that time."
I understood at the end of a PCP contract there is a "guaranteed future value" of your car. Isn't that why they are popular?

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monions 4th Aug 26 of 34

In reply to ridavies, post #23

I've only found some basic information in the original intention to float RNS -

I couldn't find anything at all on the company website. As it's a private company, there should be more information at 'Companies House' but I've not looked there yet - will take a quick look on Monday.

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Graham N 4th Aug 27 of 34

In reply to prem14, post #25

Hi Prem, the guaranteed minimum future value is an estimate of what the car is worth at the end of the PCP. If you want to own the car, you have to pay it.

The positive element of this for the customer is that they don't have to pay it, and the GMFV is usually set low enough so there is some small cushion between it and the true market value. So the customer gets a little bit of equity to play with.

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Richard Goodwin 4th Aug 28 of 34

In reply to gsbmba99, post #7

I believe that Rightmove's origins were not disimilar to this.

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kenobi 4th Aug 29 of 34

The thing with on the market is that's it's owned by agents, and has only got anywhere by giving shares to agents and implementing a one other portal rule. This has meant that many agents have stopped using zoopla and use rightmove and otm. Astonishingly, while imposing this rule on other agents some founding agents have flaunted it. Eventually someone took them to court, but incredibly they won
they are in fact allowed to contractually insist that their customers list their property on only one other portal. Of course this means that they don't go on zoopla. When they list, they'll get rid of this rule, of course they will, because otherwise the agents will sell their shares and go on the other two!!! I think this is the third horse in a two horse race ! It will be interesting to see if they're profitable, and if the estate agent owners will stick with it or cash in their chips. My bet would be that they'll blow the 50M, get no where near zoopla, and remain a the third portal. If you're looking for a house, why would you go there ? how many homes are there that aren't on rightmove and zoopla ?

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Nicholas Woolard 4th Aug 30 of 34

In reply to monions, post #26

It's a Manx company so there will be nothing much at Companies House. Which also means you won't find too much in the Companies Registry in the Isle of Man! However, this is a very highly regarded business in the Island and I'm sure the shares will race ahead on commencement of trading. I wish I'd been able to get in on the placing! That 7% yield is very enticing.

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ANDY1861 4th Aug 31 of 34

I have just purchased a second home and in the process of selling our current property both have been listed on rightmove. I did check onthemaket but for the whole of Bolton it has 9 listed, rightmove has 1,694!! They are going to have to spend every penny of the £50m and cant see them getting near zoopla either.

Am looking to buy into Strix on Tuesday but maybe small holding, its makes profits but UK growth looks limited and based on infromation from the admin doc they are looking for overseas growthth etc.

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Paul Scott 5th Aug 32 of 34

In reply to ANDY1861, post #31

Nobody should be buying 2nd homes, when many people don't have 1st homes. Sell those 2nd homes.

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ANDY1861 6th Aug 33 of 34

In reply to Paul Scott, post #32

This not so much a second home in the tradtional sense just a temporary situation, property came up at short notice and used savings to purchase.

Current home just sold this weekend used traditional estate agents for the job and was listed on rightmove but no other site. Nowhere near that rich be able have second home but appreciate many cant afford one. Took many years of saving so just the one but have upgraded to something with a garden.

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runthejoules 7th Aug 34 of 34

I am looking forward to hearing Paul / Graham's views on Telit Communications' massive drop this morning - wondering if I should have picked some up, down as low as 40%, now at -34%...

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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