Small Cap Value Report (5 Jul) - MCB, CHH, ATUK

Friday, Jul 05 2013 by

Good morning. Looks like it will be a short report again today, not because I overslept or had IT problems, but just because there are few relevant announcements this morning. Although that does give me time to take a more in-depth look into companies reporting, rather than the usual cursory glance.


McBride (LON:MCB) prove that profits warnings do not always come in threes, with an in line trading update this morning. As you can see from the 12-month chart below, there was a mild profits warning on 21 Mar 2013, and as is often the case, that has damaged sentiment ever since, leading to McBride shares significantly under-performing the Small Caps Index (the beige comparative line on the chart).


It's really striking just how much the Small Cap Index has risen in the last year, and how little correction there has been recently. This has really been a roaring bull market for small caps in the last year, so if our portfolios are not strongly up (30-40%) in the past year, then we've actually under-performed!

It looks to me as if, based on this morning's statement, McBride shares should now start to narrow some of that gap, if you accept that the starting valuation was correct.


So far so good. Looking at valuation, based on future earnings, which is my main preferred way of at least initially valuing companies, providing the earnings are sustainable, broker forecasts for McBride for the year ended 30 Jun 2013 average around 7.8p to 8.8p, and this rises to around 11p for the following year (which has just started).

So at 117p that puts the shares on a historic PER in the range 13 to 15.

The forecast PER for 2013/14 drops to 10.6, which looks good value if you think 11p forecast EPS is achievable.

The valuation is supported by a very good dividend yield, with 5.3p expected to be paid out for 2012/13, yielding an attractive 4.5%. Bear in mind that dividends should contain inflation protection too, as they are likely to rise over time, which in many ways makes decent yielding equities highly attractive relative to other assets, especially things like Gilts, where the yield is not only very low, but usually fixed too, so will be eroded by inflation.


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McBride plc is a provider of private label household and personal care products. The Company is engaged in developing, producing and supplying its products to retailers across Europe. Its segments include Household and Corporate. The Household segment consists of UK; North, including France, Belgium, Holland and Scandinavia; South, including Italy and Spain, and East, including Germany, Poland, Luxembourg and other Eastern Europe. The Company's brands include Surcare, Clean and Fresh, McBride Direct, Limelite and Ovenpride. Its Surcare product range includes Surcare Sensitive Capsules, Surcare Sensitive Non-Bio Powder, Surcare Sensitive Non-Bio Powder and Surcare Sensitive Fabric Conditioner. The Company operates approximately 18 manufacturing sites in over 12 countries. more »

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Churchill China plc is a United Kingdom-based manufacturer and distributor of tabletop products to the hospitality and retail sectors across the world. The Company's customers include pub, restaurant and hotel chains, sports and conference venues, health and education establishments, and contract caterers. The Company's segments include Hospitality and Retail. The Company primarily offers ceramic tableware. The Company also manufactures and sources product sold through Retail customers for consumer use in the home, in various markets across the world. The Company offers Churchill branded manufactured products. The Company offers various types of products, such as accessories, beverage pots, bowls and dishes, cake stands, cookware, cups, mugs, cutlery, dip pots and sauce dishes, glassware, jugs, melamine items, plate towers, plates, saucers and wooden items. Its collections include Alchemy Fine China, Churchill Super Vitrified, Art de Cuisine, Sola Cutlery and Lucaris Glassware. more »

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cloudBuy plc is a provider of an integrated software platform for e-procurement and e-commerce for the trading of goods and services between purchasers, such as public sector bodies and their suppliers, along with the analysis and coding of spend and product data. The Company's operating segments include Company Formation Services, Web and ecommerce services and Coding International Limited. It also provides services to new businesses, including incorporation, company secretary services and filing annual returns, using its software platform. Its solutions include e-commerce Marketplaces, e-commerce Websites, Purchasing Portals, SpendInsight and Company formations. SpendInsight service provides regular analysis of any company's historical spend data. It offers a range of Website packages from templated solutions to Intranets and global business-to-business (B2B) e-commerce sites. The cloudBuy platform enables rapid extension of its solutions and development of new applications. more »

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

11 Comments on this Article show/hide all

it_trader 5th Jul '13 1 of 11

Excellent blog today Paul. Even if you know this stuff it;s always a good reminder to keep you sane.

Have you any thoughts on the recent drop in French Connection (LON:FCCN), and the money owing from the Nicole Farhi administration?

Before that it was moving up nicely.

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Bruaich 5th Jul '13 2 of 11

I enjoy your reports very much. As well as investing ideas, I find your commentary on the Stockopedia very useful because I am somewhat new to Investing, and certainly don't have an accounting background. A minor suggestion - as you go along could you point out where to find the various supplementary data, in this post's case the "P&L" (it is disconcerting to confess ignorance, but how much stronger the person who says "I don't know"!!). Thanks for all you entertaining, informative and shrewd comments.

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Paul Scott 5th Jul '13 3 of 11

In reply to post #74908

Hi it-trader,

Thanks for your comments, in particular I agree with you when you say;
Even if you know this stuff it;s always a good reminder to keep you sane.

That was my feeling precisely when I attended the London Value Investing Conference. There was very little said in the speeches that I didn't already know, in terms of general principles, but having been reminded of all the important things, I came away feeling like a battery that had been charged up!

As regards French Connection (LON:FCCN), no I hadn't really given any thought to how the Nicole Farhi Administration might affect them. It's not owned by FCCN any more of course, but as you say, it might possibly be a bad debt if FCCN had supplied them with goods. I doubt it would be material to FCCN's overall losses, as Farhi only had a few shops, but I don't know for sure.

Regards, Paul.

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Paul Scott 5th Jul '13 4 of 11

In reply to post #74911

Hi Bruaich,

Absolutely - always ask if you need something explaining, although also a quick Google search is usually my first port of call when I read an acronym I'm not familiar with. Although in this case, I see that Googling P&L might have led you to believe I meant "Performance & Luxury", "Production & Logistics", or my favourite, "Peace & Love"!!

At some point I'll put together a Glossary of terms & abbreviations used frequently in my reports, so thanks for the suggestion.

Cheers, Paul.

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bobdouglas 5th Jul '13 5 of 11

"You can please all of the people some of the time but you can't please all of the people all of the time." Either way suits me just fine - certainly today's coverage is not long-winded just more detailed. I find it quite interesting to read how you analyse a company and then arrive at a conclusion as to whether it holds up as an investment which meets your own criteria.

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andrewr 5th Jul '13 6 of 11

Thanks for the post Paul. I like your approach of more detail so don't worry it is not long winded. I am gaining a lot of insight from your investment approach and how you appraise an opportunity.

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rick 5th Jul '13 7 of 11


It is nice to see this level of detail, and you demonstrate you really know your stuff. My feeling is that it is "horses for courses". On a really busy day it is helpful to get the coverage (and less detail) on a slower news day then more detail is very much appreciated. However, it would be good if (possible) you covered one or two companies in more detail on a busy day if you see an interesting/outstanding investment case.

Overall I find your comments very insightful and you often alert me to red flags that I have missed (...and brokers never tell you about) so thanks!

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Jardine 5th Jul '13 8 of 11

Paul, I'm fairly new to Stockopedia but not new to investing, like you I'm a FCA. I enjoyed your more in depth approach today which helped me to understand more about how you use Stockopedia to make your investment decisions. I think though that, after a while, regular readers would soon learn your modus operandi and it could become repetative. Perhaps it is an approach to use on "slow news" days. I enjoy your comments on a wide range of stocks, as announcements are made, because they can include some I already hold. Your comments are often thought provoking and a good source of new ideas. Thanks, Andrew

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Funderstruck 5th Jul '13 9 of 11

Excellent notes, I concur with the above positive feed back. It is incredibly instructive to see how you dissect the fundamental info' & then draw a conclusion as to whether or not there is value. Also the pointers as to where to look and probe to get to the true figures.

I certainly would like to see more of these detailed analysis blogs ,when you have the time.

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Paul Scott 5th Jul '13 10 of 11

In reply to post #74923

Hi Jardine,

Just to clarify, I'm not a qualified Chartered Accountant, and have never claimed to be.
I did the full 3 year training contract with Price Waterhouse, but flunked my finals exams. Didn't bother resitting, as shortly afterwards I got a job as Head of Finance (i.e. de facto FD) for a clothing retailer, which we gew from 16 shops to 150 shops, so 8 years in that role meant that I'm considered QBE (qualified by experience) & meant that I was already far more senior in my job role than a newly qualified accountant anyway (I used to employ 5 part & fully qualified accountants within my team of 25 finance & admin staff).

So by that stage the formal qualification was completely irrelevant to me.

Many thanks for the kind comments. I agree with you that more in depth reports are something I'll do on slow news days, and when I find a particularly good stock idea. 

Cheers, Paul.

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Nick2008 6th Aug '13 11 of 11

Hi Paul,

Thanks for covering @UK (LON:ATUK) and their AGM statement.

@UK (LON:ATUK) has issued an encouraging trading update this morning (6th Aug). Key message in the trading update is that in Dec-2012 they had loss of £850k but now they are in net cash position with surplus cash for international expansion. This says that they can grow significantly within a short period of time. With VISA partnership, the mgt may actually deliver that £50m in 3-5 yrs.

Link for Trading Update (Surprising the trading update news is not available on Stockopedia, so putting the advfn link)

Also, Reuters Insiders released an interview with the CEO of @UK (LON:ATUK) where CEO explains how the Visa Partnership may yield £50m in the next 3-5 yrs. The link is here Or use this link

Recent revised Broker Note -

I do extensive research on this stock and regularly post on my ADVFN thread. Please do have a look at my thread here As usual, I'm not advising to buy or sell this ATUK stock. Please do your own research and take your own decision.

Nick (Disclaimer - I own ATUK shares and it forms a considerable portion of my portfolio)

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 Are LON:MCB's fundamentals sound as an investment? Find out More »

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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