Small Cap Value Report (7 July 2017) - PMP, DIS, QRT, PHD

Friday, Jul 07 2017 by

Portmeirion (LON:PMP)

  • Share price: 925p (-3.4%)
  • No. of shares: 10.8 million
  • Market cap: £100 million

Trading Statement

Good morning - Graham here, and I'm kicking things off today with this homeware manufacturer and distributor.

It has a heritage dating back to the 1960s and has been listed on the stock market since 1988, so in theory that should make it a relatively safe place to invest.

2016 was difficult for it, however, as sales suffered in South Korea, India and at home in the post-referendum UK. Pre-tax profit declined from £8.6 million to £7.8 million despite the impact of a home fragrances acquisition (£17.5 million deal size).

But management insisted that the outlook for 2017 was positive, and that the challenges would be overcome. Which brings us to today's first-half update (six months to June).

PBT forecasts for the full year remain in line with market expectations:

The Group is pleased to announce that total Group sales are up 16% for the six months ended 30 June 2017 relative to the same period last year, although 2016 only included two months of Wax Lyrical sales from its acquisition in May 2016.  Excluding sales from Wax Lyrical, on a translated currency basis total Group sales are 3% ahead of last year and on a constant currency basis, excluding Wax Lyrical, total Group sales are 1.9% down on last year.

1.9% like-for-like, constant currency sales shrinkage is perhaps a little disappointing, and so the share price is down a few percentage points.

Edit: Martin in the comments has helpfully pointed out that these H1 numbers are noticeably worse than numbers given for the first four months of the year in the AGM statement. So trading looks like it has softened on a comparative basis over the past two months.

As you can see from the Stocko charts below, analysts have been forecasting net profit and EPS to increase this year, after the dip in 2016, with the help of the Wax Lyrical acquisition.


Note also the PE ratio range; so far this year, the share price has produced a PE ratio range of 12.3x to 16.6x. 2013 and 2014 had somewhat similar ranges.

The current PE ratio is just below 14x, close to the middle of the range, and with like-for-like sales growth being where…

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

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Portmeirion Group PLC is a United Kingdom-based company, which is engaged in providing ceramic tableware, cookware, giftware and tabletop accessories. The Company has five brands: Portmeirion, Spode, Royal Worcester, Pimpernel and Wax Lyrical. The Company's segments include UK and US operations. Portmeirion offers tableware and gifts with collections, such as Sophie Conran for Portmeirion and Ted Baker collection. Spode brand includes Blue Italian, Blue Room and Christmas Tree. Royal Worcester is engaged in providing porcelain tableware and cookware collections. Pimpernel provides placemats, coasters, trays and accessories. Pimpernel also includes Wrendale Designs collection, which includes placemats, coasters, trays, ceramic and melamine gift sets. Wax Lyrical offers fragranced candles and reed diffusers. The Company caters to markets, such as United States, the United Kingdom, South Korea, India, Taiwan and Thailand. more »

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Distil Plc is a United Kingdom-based holding company. The Company is engaged in marketing and selling of Blavod Black Vodka, Blackwood's Gin and Vodka, Blackwood's Limited Edition Vintage Gin, Diva Vodka, Jago's Vanilla Cream Liqueur and RedLeg Spiced Rum domestically and internationally. The Company markets and sells its brands in various international markets, including the United Kingdom, the United States, Germany, Spain, Australia and Russia. RedLeg is a premium Caribbean rum, infused with spices. Jagos is the vodka-based cream liqueur with a vanilla cream flavor made with whole cream. Blavod is made using grain vodka, triple distilled and double filtered. The Company's subsidiary is Distil Company Limited. more »

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The Quarto Group, Inc. is an illustrated book publishing and distribution company. The Company is engaged in creating content and publishing books from a diverse portfolio of imprints. The Company operates through segments, including Quarto International Co-Editions Group; Quarto Publishing Group USA; Quarto Publishing Group UK, and Quarto HK. The Quarto International Co-Editions Group segment creates illustrated books that are licensed and printed for third-party publishers for publication under their own imprints. The Quarto Publishing Group USA segment creates and publishes illustrated books in North America and sells co-editions of them internationally. The Quarto Publishing Group UK segment creates and publishes general non-fiction and illustrated books in the United Kingdom market. The Company’s books are sold in approximately 50 countries and in 39 languages. more »

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

15 Comments on this Article show/hide all

martinthebrave 7th Jul '17 1 of 15

#PMP Graham, have at look at the 25th May AGM stat. It quotes End April (4 month) sales +26% (now +16% after 6 months) & constant currency sales excluding Wax Lyrical as flat (now -1.7%). Quite a dip in 2 months even though the "in line" forecast is maintained. Must have been a poor last two months. As a result I sold at the bell.

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Ramridge 7th Jul '17 2 of 15

Hi Graham. Proactis Holdings (LON:PHD) 's acquisition announced this morning is pretty meaty, reverse takeover?
Hate to use this over used word, but could be transformational.
Any views?
Cheers. Ram

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Graham Neary 7th Jul '17 3 of 15

In reply to post #198195

Thanks for that Martin,

I will update the article to reflect


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Howard Marx 7th Jul '17 4 of 15

In reply to post #198207

Re the Proactis Holdings (LON:PHD) reverse takeover, transformational is indeed the correct term in the sense that Proactis are acquiring £30m of turnover (compared to the £20m of sales they had in the last reported year).

The Admission Document reveals Perfect Commerce was profitable at the EBIT line last year but had a high interest charge - no doubt today's HSBC loan will allow a re-financing. The announced cost savings of £5m reveal why the deal will enhance earnings in the first year. For me, it's all a question of scope for cross-selling opportunities as well as the assessing the calibre of the new CEO.

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daveinthelakes 7th Jul '17 5 of 15

Hi Graham ,
Real Good Food (LON:RGD) was taken off Paul's bargepole list a couple of years ago and appears to have seen a decent turnaround through organic expansion and acquisition. It came to my attention around three weeks ago topping a small cap value screen In an IC article.

I only noticed last night that a major announcement was made on 29th June regarding a very large expansion and capital raise.

.Expansion Plan and Capital Raising

In a private placing Downing are to take a 10% stake at 35p and provide finance of up to £7.5M. The two largest shareholders who hold over 60% are providing a short term loan of £4M. Downing's partner in charge of public equity, Judith MacKenzie,has been appointed to the Board.

I believe this is a major growth opportunity in the somewhat unexpected area, that of ingredients for dessert food manufacture and home baking!

The shares can be bought at 35p, the same price Downing are paying and I shall be pleased if you could take a look at it. I have taken a position this morning with a view to a 12/18 month hold.


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Graham Neary 7th Jul '17 6 of 15

In reply to post #198207

Hi Ram,

I've made an effort to cover this



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Ramridge 7th Jul '17 7 of 15

In reply to post #198231

Many thanks, Graham. In particular I will ponder on your last statement.

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mojomogoz 7th Jul '17 8 of 15

Quarto Inc (LON:QRT) 's net income as a detailed extrapolation of FY16 results may be up to $6m less than you think. $3m from one-off royalties and $3m from becker&meyer acquisition (they report $1.9m as profit for the 4 months they owned but notes disclose if they owned it for full year they would have lost $1m as - backend when they sell, front end is when they invest). There was a hefty share payment charge (from memory $1-1.5m above normal) which mitigates some of above for FY17.

Add in what seems to be implied in frontlist versus backlist sales and they look like they have a problem in their backlist which traditionally drives the FCF. They are making really good first year returns from their "frontlist" with a return of 1.5x what they invest for the year (so near $60m revenue on near $40m investment pa). That's 50% higher than they would have a few years back. However, even allowing for some erosion in last couple of years from Antipodean business, the fact that profits and FCF are not meaningfully higher from this front end investment suggests some struggling older assets.

What's changed? They have bought and developed more children material. Maybe this is the year that the backlist from that comes alive. In which case Quarto could be considered a sort of special situation recovery play with a new FCF developed that can pay down debt.

I owned it buying sub 200p for similar reasons to you. However, I have become simultaneously more bearish markets in general and a little bit more free time on my hands which has made be dig through my holdings. In the circumstances I am looking for either idiosyncratic risks or very cheap more conventionally exposed risks. Quarto would be the latter if its business was operating robustly. IMO the odds are that they struggle in 2017 to reach even current expectations and that some form of equity issue or takeover occurs. But if childrens books are fantastic I could be needs to be quite fantastic as they are only approx 30% of revenue. So I sold a few months ago (lucky).

Note here -

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Collector 7th Jul '17 9 of 15

S.Korea is a very important market for PMP and N.Koea has some 20,000 artillery pieces aimed at the south most of which within the range of Seoul. Considering the latest rumblings if I lived there buying more crockery would not be a high priority at the moment.

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Paul Scott 7th Jul '17 10 of 15

I think Portmeirion (LON:PMP) could become a takeover target, especially from a USA suitor - as we're seeing, there are lots of takeover bids for UK companies coming from USA right now - partly because of weak sterling, but also because M&A is the main way highly rated US companies can achieve the growth that they need to justify high share prices.

Bear in mind that PMP's best-selling line is the "Christmas Tree" range, which sells very strongly in USA, and is a very well known, classic, design, which many Americans collect, buying new pieces each year, or exchanging them as gifts.

So, with a reasonable valuation, I could see PMP being snapped up by an American buyer, sooner or later.

Regards, Paul (long PMP)

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Trident 7th Jul '17 11 of 15


Yes if those 20,000 artillery pieces go off that 's an awful lock of broken crockery to be replaced!

...Sorry, it's Friday


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narp 7th Jul '17 12 of 15

Market volatility to come:

Jeremy Corbyn is scheduled to meet Michel Barnier, the European Union's chief negotiator next week, ahead of which the Labour leader said he was ready for snap elections.
It is understood that the meeting with Barnier on 13 July would provide Corbyn the platform to "outline what our issues are," he said in an interview with Bloomberg Television in London on Thursday.
The meeting was requested by Corbyn, according to an EU official who confirmed the meeting.
The announcement, it is believed, pointed to confidence that Corbyn - an old-school Socialist - could exploit the weakness of his Conservative rivals and come to power on a call to end austerity.
Mujtaba Rahman, Eurasia Group’s managing director for Europe, said in an email quoted by Bloomberg: “He is trying to create the impression of a prime minister in waiting.
"It sends a terrible signal to the EU about the U.K.'s overall stability and the government’s mandate and survivability. It suggests Corbyn is going to play dirty and use his presence in parliament to disrupt the Article 50 negotiations."

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jonthetourist 8th Jul '17 13 of 15

In reply to post #198215

I am struggling with this deal. Proactis is my biggest holding and I have long seen it as a safe growth story. Whatever the merits of the deal it inevitably as a lot of execution risk, so I think a reducing of my position may be necessary.

Having already trimmed a lot of my holdings this year I don't really want to be in a lot more cash, but I am not seeing any competing opportunities. Plus there are serious CGT consequences of cashing in. I could really have done without this deal.

Hey Ho

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Howard Marx 8th Jul '17 14 of 15

In reply to post #198339

I hear your concerns Jon but thankfully I think they're misplaced in this instance.

Mergers and acquisitions can be a common source of execution risk as (in order to gain whatever synergies are expected) it is necessary re-structure and integrate businesses. But with this particular acquisition, the operational execution risk appears limited re p18 of the Admissions Document "PROACTIS and Perfect Commerce businesses have complementary solutions and technology which are provided to customers in territories and sectors with minimal overlap"

This lack of overlap suggests low operational execution risk. For me, the risks (as revealed by the targeted cost savings at the bottom) are twofold:

* rationalisation of IT operations - saving £1.7m p.a., this appears to be a major project

* off-shoring of customer support

Outside of these, my key question regards the calibre of the new CEO, which could be upside or downside risk.  However the Board don't see a problem here & have irrevocably undertaken to vote in favour of the Resolutions to be proposed at the General Meeting in respect of a of 21.1 per cent. of the Shares.

The key attractions of Proactis 2.0 remain for me unchanged:
(a) it is a growth company both organically & from M/A cross-selling opportunities
(b) 80%+ of it's revenue is recurring year to year
(c) it ought to be counter cyclical given it's customers desire to lower procurement costs

Net anticipated annualised cost savings (p25 of Admission Document)
? Senior management rationalisation: approximately £0.6 million;
? Relocation customer support (off-shore): approximately £0.3 million;
? Rationalisation of IT operations: approximately £1.7 million;
? Finance and administration: approximately £0.7 million;
? Sales and account management: approximately £0.9 million; and
? Other general operational efficiencies: approximately £0.8 million.

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jonthetourist 10th Jul '17 15 of 15

Thanks for this Howard. You would hardly expect them to offer anything but a positive spin on the deal. I certainly hope goes brilliantly, but a slice my holding went to cash this morning sweet 195p. I paid 32p so happy to bank a win. It's still my biggest holding, so will be paying close attention.


PS Synergies. A word often preceded with the expression "We thought there would be . . ." ;)

Easier to analyse and plan than deliver, in my experience.

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About Graham Neary

Graham Neary

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, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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