Small Cap Value Report (6 Jan 2017) - CRAW, ZYT, G4M

Friday, Jan 06 2017 by

Good morning!

Many thanks to Graham for his excellent report yesterday. I was mainly in bed, with mild man flu (OK, a cold!). I'd recovered enough by the evening to append some brief comments to Graham's report, on IGR, IMO, and JSG.  So here's the link for yesterday's slightly enlarged full report.

I'm covering today's news, so just one report here today. Graham might possibly append some comments of his own later, to this report.

First off though, a little rant on economists & how useless most of them are.

Economic forecasting

I see that the latest UK PMI data has been very positive, again confounding all the gloomy economic forecasts. There's an interesting article in today's Telegraph, with the respected Chief Economist for the Bank of England, Andy Haldane. He admits that economic forecasters have (so far) got it completely wrong. Also, almost all economists failed to foresee the GFC (great financial crisis of 2008).

Alastair Heath (an excellent financial journalist) has been saying similar things for a while now - i.e. that economics is a failing profession, unable to even vaguely forecast what is likely to happen in the real world.

Sir Mervyn King has an equally damning opinion of economists, urging them to stop pretending that they can forecast things with any degree of accuracy, or at all actually, in his excellent book, "The End of Alchemy" (highly recommended, if you haven't already read it).

This reminds me of my youth. I absolutely loved Economics at O and A levels, and had a fantastic teacher called Dave Lines. We thought he was the coolest dude ever, and he even managed to pull off carrying a handbag (or manbag, as he called it) for his keys & cigs - this was before the days of mobile phones of course, so nobody had to worry about carrying those, as they hadn't been invented.

I enjoyed Economics at school so much, that I was considering going on to do an Economics degree at LSE. Mr Lines persuaded me not to. He said that beyond A level, Economics descended into irrelevance. The academics had at some point got mathematics envy, and decided they had to super-complicate Economics with unfathomable mathematical equations. None of this was any use in the real world, said Mr Lines, so don't waste your life going down an academic cul-de-sac. Very wise words from him, and thank goodness I listened &…

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Crawshaw Group Plc is a United Kingdom-based company, which operates a chain of meat-focused retail food stores. The Company has approximately 40 stores, which are located across Yorkshire, Lincolnshire Nottinghamshire, Derbyshire and the North West. The Company's product range is categorized into approximately two distinct areas, such as Traditional raw meat, and Hot and cold cooked food. Under the Traditional raw meat category, it offers various products sold either loose in a serve over counter for the traditional experience or as multi buy packs on supermarket style multi deck counters, which have all been cut and packaged in store. Under the Hot and cold cooked food category, it offers freshly prepared roast chickens, gammon and pork joints, hot roast sandwiches, shop cooked curries and casseroles, chicken and chips, as well as other traditional deli products. Its stores include Arndale Centre in Arndale; The Arcades in Ashton Under Lyne, and Fresh Meat Factory Shop in Astley. more »

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Zytronic plc is involved in developing and manufacturing of touch sensor products. The Company is also engaged in the development and manufacture of customized optical filters. Its geographical segments include Americas (excluding USA), USA, EMEA (excluding UK and Hungary), Hungary, UK, APAC (excluding South Korea) and South Korea. Its products incorporate an embedded array of metallic micro-sensing electrodes. Its technologies include projected capacitive technology (PCT) and multi-touch mutual projected capacitive technology (MPCT). PCT touch sensors can be constructed from one, two or three layers of laminated, toughened glass. Its sensing products offer touchscreen solution for applications, such as leisure, digital signage, retail, surfaces, banking and industrial applications. Its touch sensors are used in video jukeboxes and slot machines. The PCT touch sensors are used in a range of workplace applications, from medical diagnostic equipment to oil field machinery controls. more »

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Gear4music (Holdings) plc is engaged in the online retailing of musical instruments and equipment. The Company sells its own-brand musical instruments and music equipment alongside with other brands. The Company offers over 1,500 products, which are sold under approximately eight brands, including Gear4music; Archer, which offers string instruments, such as violins, cellos, violas and double bass; Redsub, which offers bass guitar amplifiers and pedals; SubZero, which offers guitars, amplifiers, mixers, speakers and audio electronics; Minster, which offers digital pianos; Rosedale, which offers woodwind instruments, such as clarinets, flutes, oboes and piccolos, and Brass Instruments, which offers trumpets, trombones, tubas and French horns. The Company has developed its own e-commerce platform, with multilingual, multicurrency and responsive design Websites covering approximately 19 countries. more »

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  Is Crawshaw fundamentally strong or weak? Find out More »

77 Comments on this Article show/hide all

Julianh 6th Jan 58 of 77

In reply to xcity, post #50

Re G4M in reply to posts 47 and 51:
This is one of the great things about this blog - as well as Paul's excellent, incisive and usually correct analysis we also get some really interesting feedback from readers. Posts 47 and 51 are really interesting on G4M. If the customer service or the products delivered are not up to scratch then they will have no advantage of their competitors. Amazon's land grab has been based on very low prices and excellent logistics and customer service. Boohoo sells largely own brand products and seems to know what their target market want and how to sell it to them (social media influencers).
So I had another look at customer responses to G4M's products and customer service. On Amazon (they also sell through their products get mainly 4 or 5 stars with very few negative reviews. And TrustPilot ( gives them 5 stars with a score of 9.6 out of 10 and lots of excellent reviews. Which leaves me unclear about how to weigh these excellent reviews against the negative feedback reported by posts 47 and 51. Any more information on this would be really valuable.
In the meantime I will continue to hold (I am long G4M), enjoy the price rise (if it continues) and monitor with care. And today's trading update was most impressive.

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Sully8786 6th Jan 59 of 77

For me Crawshaw (LON:CRAW) became almost uninvestable when they released the first profit warning.

I think that it probably can turn itself around, but I think I'll be waiting to see some evidence of this first.


Dave S.

Company: Dave Sullivan - Talking Stocks
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Howard Marx 6th Jan 60 of 77

If I could ask Crawshaw (LON:CRAW) one question it would be this: "Why are you central costs so ludicrously high?"

Last year Crawshaw's SG&A / Sales ratio was a whopping 46%.

Part of the answer must be due to (a lack of) scale. At Tesco, for example, SG&A costs account for less than 4% of their Sales base.

But there must be other factors too. When comparing with other small retailers, Crawshaw's cost base does still appear to be bloated e.g. McColls & Majestic Wine both have SG&A costs accounting for around 24% of their respective Sales.

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Howard Adams 6th Jan 61 of 77

In reply to Paul Scott, post #32


Many thanks for your clarification.

I apologise if I inadvertently made a request too far. Sorry.


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Paul Scott 6th Jan 62 of 77

In reply to Howard Adams, post #61

No apology necessary, Howard!

Have a good weekend :-)


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Kelvin Prescott 6th Jan 63 of 77

In reply to ACounsell, post #51

Good questions, which I also asked when considering whether to invest (I did). Some personal factors affect my assessment, which may be useful for others. I've played in a number of bands over the years, and am a bit of a magpie when it comes to financial information... so I have data on how much I spend on what sort of musical gear and why for - well - a long long time.

Historically... most high street music shops made their money from
- consumables and accessories : 33%
- small volume, high value instruments & repair work: 33%
- starter musical instrument kits, mostly sold at Christmas: 33%

Put them together and you got a sustainable business. Subtract any one element and its not viable to run a standalone shop any more and you have to shut down.

But the customer base is very different: professional and semi-professional musicians (I'm in the latter category) buy lots of consumables and high value instruments. Mums and dads buy starter music kits for their kids. There are lots of mums and dads out there, but they only buy once a year. Regular musicians buy all the time. Although mums and dads are important, its a mistake to think that they dominate the market. By value, its professional and semi-professional bands that spend the most money. Their purchasing decisions dictate how the market works.

What has happened is that the first third of spend - consumables and accessories - has been largely eliminated by internet/mail order. By way of example, over the last 5 years, my band has spent £10,797 on this stuff, with an average order size of £188 and 96% of it bought over the internet from a range of sources including G4M as well as other e-tailers. We know what we are looking for, demand very specific items and are price sensitive. An e-tailer can hold this sort of stock and ship it far more cheaply than a high street retailer because instrument leads and Shure SM-58's don't have a shelf life.

The second third of spend - high end instruments, continues to be serviced by really specialist shops. is a good example of this kind of business, which doesn't really sell any instrument with a list price less than £1,000 (and most things much more), but which is an Aladdin's cave for serious musicians. Its worth the drive to get there. They have taken another 8,500 of my money in the last (cough) 3 years, and will take a fair chunk more when I next find myself passing near Warwick.

So, when you subtract two thirds of the revenue, traditional high street music shops have been unable to survive. They can't stock enough high end instruments or sell the low end accessories cheaply enough to attract "serious" musicians, and mum and dad only buy starter kits at Christmas. A number of local shops that I used to frequent say 10-15 years ago have gone this way.

That's why e-tailers like G4M invest a lot in customer video's and educational material. Its easier to persuade occasional buyers like mum and dad to buy over the internet than it is to persuade a regular buyer like me to pay more for an XLR lead.

So... that's my little bit of micro-perspective.

On an incidental note - Paul/Graham's commentary in the main article suggested that G4M was now the leading music retailer in Europe. Nothing could be further from the truth. is, by a long distance, the largest and best music retailer out there. In this market, Thomann is the Coke to G4M's Barr's Irn Bru. Sadly, you can't buy shares in Thomann as its privately held. However, both are excellent businesses.

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bestace 6th Jan 64 of 77

In reply to Kelvin Prescott, post #63

Some interesting insights, thanks for sharing.

So if I've understood you correctly, £G4M can compete in the first and third segments but not really in the second. In the first segment they are selling products which are commoditised and fungible, so difficult to compete on price (without cutting margin too low) or on product quality, and they won't have the scale of an Amazon or maybe even a Thomann to keep prices at rock bottom.

Which essentially leaves the seasonal business of selling little Jimmy's first drum kit at Christmas, where they are dependent on marketing internet savvy to win sales over the likes of Amazon.

That doesn't sound like a particularly enticing investment proposition to me, but then again it doesn't seem to stack up against the vertiginous growth rates £G4M have experienced thus far, and it doesn't seem to stack up against Thomann's history either.

I would see it as a good thing that Thomann is way out front as market leader because it presumably shows what G4M could become if they play their cards right: Thomann, primarily as an e-tailer, has grown from revenues of less than €10m 15 years ago to more than €500m now with 1,300 staff and 8.2m customers, so it shows what is possible.

Irn Bru will never turn into another Coca Cola, but do you think there is there any reason why £G4M couldn't one day turn into another Thomann?

Finally, when you refer to £G4M as an excellent business, are you talking in your capacity as a customer or as a shareholder?!

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janebolacha 7th Jan 65 of 77

There are some really interesting and very useful contributions here on £G4M, particularly useful to someone like me (one of those rather sad Radio3 listeners!) who knows nothing at all about popular music or about its mechanics and economics. Thank you!

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Carey Blunt 7th Jan 66 of 77

In reply to bestace, post #64

I think maybe the key points for £G4M in terms of it as an investment thesis from my point of view are....

I see G4M taking away business from traditional small shops which are on the decline for the reasons Kevin puts so clearly in his post (unable to compete in areas 1 and 3). I think it can grow and be a fantastic investment just from that alone. It doesn't need to cover area 2 to be a really good business. It can do volume in the other areas and do well.

It doesn't need to compete or overtake Thomann to be a really good investment. It doesn't have to be a single dominant player to be a good business worth me investing in, it just has to be good enough to grow while I am invested until the point I think the growth is done. I don't care if it's the next Thomann just like I don't care if Barr of Nichols are the next Coke. I just care if it's a good enough business on its own merits.

I only have a small holding so far but it's nicely up and I plan to buy some more soon and run it for a while.

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Kelvin Prescott 7th Jan 67 of 77

In reply to bestace, post #64


I think that the high end instruments over the internet will only ever be an incidental part of G4Ms business. They operate a physical shop in York, and will stock and sell there. The same is true of Thomann which has a spectacular German shop cum warehouse. However, it will only make up a minority of sales.

So, you are left with commodity items and own brand - which I would agree doesn't sound that sexy. But the numbers don't lie. G4M and other similar businesses like BOO seem able to get the supply chain, stock and marketing formula right, and simply outcompete all of the smaller operators.

The area I'm uncertain of is how big G4M can get within what is a relatively small overall market. However, time will tell

On you r last question: I think G4M is a good business both as a customer and in financial terms. Between it and Thomann they seem to have the best stock, price and service.

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purpleski 7th Jan 68 of 77

In reply to Paul Scott, post #37

Thanks Paul. I barely drink as if I do it wakes me up at 4:00 every morning trouble is January and February are the most stressful time for (business wise) so being completely dry is tough.

Best of luck though for Jan/Feb.

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Paul Scott 8th Jan 69 of 77

In reply to Kelvin Prescott, post #63

On an incidental note - Paul/Graham's commentary in the main article suggested that G4M was now the leading music retailer in Europe.

I've never suggested anything of the sort, so I've got no idea how you came to that erroneous conclusion!

What I've said is that G4M reckons that it's now the market leader in the UK only.

Clearly its European sales are miniscule, as you can see from the figures quoted in the article above. My comment underneath the European sales table is this;

Remember this is all organic growth, so pretty spectacular in Europe (albeit coming from a low base)

You are correct that Thomann is the European market leader.

Thanks for your other interesting points. My brother & his direct family are professional musicians, and they still like specialist retailers for their more high end instruments. But they're happy to use G4M for consumable items. My brother commented that some of G4M's own brand stuff is fantastic value, for beginners.

I asked some music students about G4M, and they'd all heard of it and/or used it.


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Chris Hart 8th Jan 70 of 77

Not all economists have got it wrong on the big issues such as Brexit aftermath and the Great Financial Crisis (GFC). Some correctly predicteded the GFC. Ann Pettifor for example,actually wrote a book in 2006 predicting it ( see links below).

The vast majority of economists did indeed get it wrong, and will continue to do so, because they subscribe economic models that do not work. There are models out there that are more accurate - do some research of your own to find them.

I disagree with your opinion of Allister Heath; he and his ilk are part of the problem as they rely on economic models underpinned by neoliberal dogma. These are the models that have been found to be suspect.

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Bonitabeach 8th Jan 71 of 77

In reply to Chris Hart, post #70

Hi Chris,

You are quite correct.

Not all economists have ever got it wrong on any issue, big or small, - there are far too many of them prophesying far too frequently for that to ever happen. They tend to be like a stuck clock, right for two minutes in every 1,440.

As my grandfather used to say about every listed stock, "somebody's tipping it"; the same applied to every horse in a horse race; consequently somebody could always claim to have got it right.

With any given set of economic conditions the economists' forecasts will vary from armageddon to eternal sunshine, everything in between, and somebody will be correct.

I have learned to trust my own instincts, experience and intuition far more than the latest economic forecast trumpeted by the media. I would suggest others with the confidence to do so follow suit and the latest economic forecast is confined to the horoscope page.

I don't have an economic model or theory to prove it but my instinct tells me Britain trains and rewards far too many economists (and lawyers) and not enough doctors, nurses, plumbers, designers, engineers..............  Perhaps some economist will devise a model to demonstrate the fallacy of my contention?

Bonitabeach  B.Sc. (Econ)

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Kelvin Prescott 8th Jan 72 of 77

In reply to Paul Scott, post #69


apologies, you're quite right. I read the two separate lines on UK and Europe and conflated them. The perils of reading on a mobile...


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AlanJenkins2 8th Jan 73 of 77

In reply to Bonitabeach, post #71

Bit off-topic here,but wondering whether anyone tipped Foinavon to win the Grand National ?

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Paul Scott 8th Jan 74 of 77

In reply to Kelvin Prescott, post #72

Hi Kelvin,

Phew, that's a relief! I was worried that I'd given the wrong impression re G4M's nascent European operations.

Thanks for coming back to me.

I noted that the microphone you gave a code for (I had to google it, out of curiosity!) was almost 10% cheaper elsewhere online, than G4M - google gives a price comparison automatically. So I wondered why anybody would buy it from G4M, when they could get it cheaper elsewhere? I think the answer might be the outstanding customer service which G4M claims, and which is backed up by its TrustPilot feedback.

The CEO of G4M said to us, at a broker meeting, that product availability & reliable next day delivery, are absolutely key to G4M's success. So perhaps once customers have used G4M, and found it to be fast & reliable, they go back to it without bothering to shop around for a keener price (but perhaps longer wait to get it delivered)?

This was one of the key reasons for opening the Sweden & Germany hubs - it would then give the company the ability to do next day delivery across Northern Europe.

This is clearly a competitive marketplace, but I reckon G4M has got the key bits right - i.e. effective marketing, wide product range, excellent customer service, very good IT, logistics & fast delivery.

The only products where fast delivery is not available, is the very slow moving lines, where G4M makes the supplier hold the stock. I'm all for that. It also confirms that G4M is run on fully commercial lines. Whereas some competitors are perhaps run by enthusiasts, who sometimes may have a tendency to buy the stock they like, rather than maximising gross margins & stock turn!

Regards, Paul.

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JollyBiologist 8th Jan 75 of 77

In reply to AlanJenkins2, post #73

My father. He was a keen Scottish hill climber and backed any horse named after his favourite mountains. Foinaven, Arkle and, much later, Ben Nevis.

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purpleski 8th Jan 76 of 77


On the subject of economists you might find this article by Robert Skidelsky interesting:

He ends by calling them the "calling them idiot savants" of our time!


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cig 10th Jan 77 of 77

In reply to RichardK, post #56

Under simple efficient markets, strong balance sheets should be priced in and offer no advantage. That safety seems to be often underpriced in practice is curious, though by now also a big topic among economists (a relative of the "low volatility anomaly”).

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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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