Small Cap Value Report (8 Dec 2014) - CUP, GAW

Monday, Dec 08 2014 by

Good morning! It's quiet for results today, so a quick whizz through what little there is.

Cupid (LON:CUP)

This dating website group has thrown in the towel, and annouces today that it is selling its remaining business and turning itself into a cash shell.

The company says it will become a "well capitalised cash shell with approximately £18m...". I assume that means after the company has received the deferred consideration from the previous disposal, which has been accelerated in return for a partial write-off.

At 19p per share currently, the market cap is about 25% below that £18m figure, so if you're prepared to hold the shares for a year, and assuming there is no other bad news in 2015, then there could be a bit of upside from here. It also hinges on management doing something sensible with the cash shell.

I've never liked this company, it had a bad smell around it. Also, it simply didn't look a viable business at all in the last year. It's amazing how quickly things change with internet-based businesses. In the case of Cupid, it seems to have been a rapid switch of customers to mobile devices which scuppered Cupid's traditional websites, and they seem to have left it too late to catch up.

So maybe as investors we should reconsider paying high multiples for innovative or technology-based companies, and instead put them on price discounts to reflect their brief life cycle?

Games Workshop (LON:GAW)

Shares in this quirky retailer of action figures are down about 6% today to 510p, on a mild profit warning. This means reported operating profit for H1 will be about £1m lower than last year's H1, although the company points out that this is due to adverse currency movements.

Broker consensus forecast is for 38.7p EPS this year ending 1 Jun 2015. So it now looks as if the company might achieve perhaps 30-35p EPS, by my back of the envelope calculations. Therefore at 510p they are certainly not screaming cheap to me.

The dividend yield is attractive here, but only just covered about 1 time by earnings, so in other words it's not necessarily sustainable at that level perhaps?

I can't get excited about this company. Where is the growth going to come from? Will trading improve? I'm not sure. It doesn't appeal at a PER now…

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IDE Group Holdings PLC, formerly Coretx Holdings PLC, is a United Kingdom-based specialist managed service provider. The Company provides a broad portfolio of information technology (IT) services and technology solutions. Its services include cloud and hosting, network and connectivity, collaboration, cyber-security, managed services and device management. Its cloud and hosting services include co-location, private cloud, public cloud, hybrid cloud and cloud migration. Network and connectivity services include multiprotocol label switching (MPLS) network, cloud connectivity and wireless. Collaboration services include hosted telephony and unified communications. Cyber security services include security operations center, endpoint and threat protection. Managed services include remote monitoring, systems management and engineer field services. Device management services include procurement, build, deploy, manage, refresh, redeploy and retire. more »

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Games Workshop Group PLC designs, manufactures and sells fantasy miniatures and related products. The Company's segments include Sales channels, Product and supply, Central costs, Service centre costs and Royalties. The Sales channels segment includes Trade, which sells to independent retailers and includes magazine newsstand business and distributor sales from its publishing business (Black Library); Retail, which includes sales through retail stores, its visitor center and global exhibitions, and Mail order, which includes sales through its Web stores and digital sales. The Product and supply segment designs and manufactures products and incorporates production facility in the United Kingdom. The Central costs segment includes its overheads, head office site costs and costs of running Games Workshop Academy. The Service centre costs segment provides support services and undertakes strategic projects. The Royalties segment includes royalty income earned from third-party licensees. more »

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7 Comments on this Article show/hide all

FREng 8th Dec '14 1 of 7


Any views on Jelf (LON:JLF) results today and on their plan to incentivise management to sell the company by giving them 25% of the premium?

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FREng 8th Dec '14 2 of 7

Audioboom (LON:BOOM) price has dropped 14% this morning - no visible news ...

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Henry Walpole 8th Dec '14 3 of 7

Hi Paul, are you still maintaining your placingwatch website? If so I wondered if you had any thoughts on the APC placing today? As a holder I was pretty miffed at the dilution and the discount as well no Open offer. The fact the funds are just for working capital makes it even worse!

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Mark Carter 8th Dec '14 4 of 7

There has been a lot of controvesy about Cupid (LON:CUP) in the past, with allegations that there were people paid to feign interest in free registrants in order to induce them to take out a subscription. As far as I recall, the company has vigorously denied this, although it did call in auditors to assess its "business practises".

Cupid (LON:CUP) has been a bit of a joke on the interwebs, with trolls setting up fake IDs to bait responses. The fake IDs usually set up personnas of fat ugly men with health, hygene and personality problems. The respondents were completely unphased by all this. It was a good laugh for the trolls, and they were keen publicise the interactions; although it seems that they were unaware of the true dynamics of the site.

There's a moral here: never invest in companies that you think are consumer (or investor) scams. As sure as eggs is eggs, the moment you invest is the moment that the company will go into freefall from some controversy. Companies like: HomeServe (LON:HSV), CPPGroup (LON:CPP) immediately spring to mind, and there are many others to choose from.

Another company worth mentioning is International Personal Finance (LON:IPF), International Personal Finance, a company that does door-to-door loans in Poland, Czech Republic, and suchlike. Yikes! The very notion sends a chill down my spine. It was a top holding by a top-rated growth fund manager (I don't remember who it was). I remember thinking at the time that he was likely playing with matches, though.

If you had bought International Personal Finance (LON:IPF) 1 year ago, you would be down 20%. In December 2013, it posted an RNS stating that "the Polish Office of Consumer Protection and Competition stating that the way it calculates APR amounts to a collective infringement of consumer interests and subjecting it to a fine of around PLN 12,000,000 (approx. £2,400,000)."

And that's another lesson: never, ever, invest a company where your judgement says "avoid", regardless of the pedigree of a bull. As Jim Chanos reminds us, plenty of value traps have famous investors backing them. The flipside of that is that if a top fund manager is bearish on a stock, then you should probably consider the matter seriously.

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Ramridge 8th Dec '14 5 of 7

And that's another lesson: never, ever, invest a company where your judgement says "avoid",

I think you need to consider both sides of the coin. Instances when you followed your judgement to avoid investing and you were proved correct, and also where you instinct told you to avoid but the shares went on to become big winners if not multibaggers. Basically a ratio of potential winnings/ potential losses. Let's call it Instinct Index. In my case it would probably still be less than 1. But short of keeping a daily diary, can't say for certain.

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dangersimpson 9th Dec '14 6 of 7

In reply to post #88564

Cupid (LON:CUP) has been a bit of a joke on the interwebs, with trolls setting up fake IDs to bait responses. The fake IDs usually set up personnas of fat ugly men with health, hygene and personality problems. The respondents were completely unphased by all this. It was a good laugh for the trolls, and they were keen publicise the interactions; although it seems that they were unaware of the true dynamics of the site.

Maybe trolls were doing this as well but the one I'm aware of is John Hempton of Bronte Capital via his blog. He did with the specific intention of finding out the true dynamics of the site. For me it was a great reminder of how good money mangers think. While a lot of people simply trade on rumours or look for second hand info it's often very easy these days to become a customer of a business and test out first-hand how businesses treat customers and if rumours are true. All it takes is a little bit of time and a little bit of ingenuity.

Book: Excellent Investing: How to Build a Winning Portfolio
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Mark Carter 9th Dec '14 7 of 7

In reply to post #88619

Danger, yes, it's quite possible that I was misremembering who was doing what.

There are plenty of sites dedicated to OK Cupid trolling, though, having such gems as "adulthood means getting so black out drunk on a Wednseday night that I stumble back to my apartment with one of my guy friends who paid for all of our shots and we pass out in my bed and the next morning I wake up and wonder why I'm wet".

Some people like posting to the Quindell boards, others to OK Cupid.


I put on my robe and wizard hat.


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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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