Small Cap Value Report (9 Nov 2015) - GOAL, REDT, LMI, DQE, BOO

9th Nov '15 by Paul Scott

23 comments 19409 reads

Good afternoon!

Apologies for my running late today, but there are plenty of interesting things to report on, so here goes.

Goals Soccer Centres (LON:GOAL)

Share price: 133p (down 13% today)
No. shares: 58.5m
Market cap: £77.8m

Profit warning - checking the archive here, I reported on 9 Sep 2015 here when GOAL shares dropped 20% on a profit warning. The company publishes a range of estimated current year profit, which is extremely helpful, and something that all companies should do. It takes the guesswork out of their profit warnings.

So, last time the company indicated that calendar 2015 was heading for the £9.3m to £9.8m range, for profit before tax. Today this has been lowered again;

As previously reported at the Interim results on 9 September 2015, trading in the UK business over the summer holiday period had been challenging.

Whilst we have made progress since 9 September, delivering week-on-week sales improvements, the speed of this recovery has not been at the level anticipated. In view of this, the Board now anticipates that profit before tax for the current financial year will be in the range of £8.2m to £8.6m, predicated on the absence of adverse weather conditions.

The mid-point of the profit ranges given, has fallen 12.0% from £9.55m to £8.4m. Whilst that may not sound a huge amount, bear in mind that most of the year has already gone. So it's rather concerning to see another material drop in forecast profits this late in the year.

My opinion - last time I reported on this share, at 155p per share, I was beginning to get interested, but it was actually the discussion with readers in the comments section below that article which put me off, so it's worth recapping on those comments here.

It's all very well blaming the weather all the time, but this is Britain - we have erratic weather.

GOAL remains nicely profitable cash generative, so it's worth a look I think. There's also the takeover potential. The main downside seems to me that expansion is so capital-intensive, and slow. Also possibly the popularity of this service may be waning somewhat? Two profit warnings in rapid succession suggests that all is not well, but the shares have come down a lot in price, so maybe disappointment is now in the price, and it could be a good…

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brucepackard

9th Nov '15

Hi Paul,
Agree on your points about the commentary Red24. I would just add particularly that the hedging loss of £100k is also really annoying. Red24 have their operating costs in South Africa (rand) but earn most of their revenue in dollars! what are they playing at!!! Strong dollar/ weak rand ought to be best conditions from them, but they have taken a hit trying to be too clever.
That's most of the "miss" - and I wonder if that really is the source of the disappointment?...it is crazy. Really disappointed with the management. That said I bought at 7p - so mustn't grumble too much.

Fangorn

Webcast for Red24
"Red24 - Interim results"

http://www.brrmedia.com/event/140682/maldwyn-worsley-tonks-chief-executive-officer

danyou

Regarding Inland Homes, Simon Thompson wrote a detailed review today valuing it on basis of current assets etc at being worth around 80-100p

I think we need more explanation around what future losses might come from the "hedge", what is the nature of it? If the rand continues to weaken, is that going to hit profits again? Maybe that explains the hesitancy about current year profitability. Company management get sold these terrible forex and interest rate products by banks, and it is the shareholders that suffer.

ed_miller

Paul - Thoughts on Redcentric (RCN), interims out today, please?

I hope you like RCN - I hold shares!

Regards,
Ed Miller

Will Marsh

Dear Paul, With refrence to GOAL I would be concerned that that value attached to the vast majority of the clubs is in leases which would imply that in the event Goal needed to get rid of them they would have to be assigned under their current use which is quite specialist, or in default the reversion (with all the infrastructure put in by goal) would revert back to the Landlord. Unless they as tenant had the right to redevelop (sports Pitches etc) to higher value uses such hope value would in part vest with the landlord. In any event realising full book value in difficult circumstances here could be interesting to say the least.

Would want to see a lot more freeholds to make this investable

Source

Many thanks Paul - Will do.

Regards,
Source.

Paul Scott

Hi Will,

Good points. Although I think Goals Soccer Centres (LON:GOAL) is not in any financial distress. It's still a highly cash generative business, and the level of debt looks manageable. So they could stop opening new sites, and then just let it be a cash cow, and pay down the debt over say 5-10 years.

I agree though, to make it a comfortable investment, some freeholds would be necessary, but think I'm right in saying that all, or substantially all of the GOAL sites are long leases.

I vaguely recall a Canadian pension fund sniffing around one of these football centre shares. It might have been GOAL, or at one point there was a competitor also listed, I think. At the time, the multiple was quite high, so the potential takeover value here might be more than we think perhaps? That's one aspect which is making me consider taking a small position in GOAL shares, although I haven't pushed the button yet, and may not do so, haven't decided yet.

Regards, Paul.

cig

Dunno if it was a badly structured or pricey hedge here, but in general it's normal that a hedge costs something when things apparently go your way, that's the very basis of the deal: you relinquish the upside in exchange of protection for the downside of the thing being hedged. Hedges are not free insurance.

FREng

Paul

Thanks for your views on Red24 (LON:REDT).

Mark Carter

Eros International (LON:EROS) is so similar to DQ Entertainment (LON:DQE) it makes me shudder.

"I'm fairly sure they've said things like this before".

I seem to recall that Geong International (LON:GNG) continually spun out the line that they had someone "watching" the payment collections. It's all just empty words.

Thanks Cig. I would suggest that if a "hedge" results in a 25% hit to profits, then it is not insurance. Reminds me of those gold miners Ashanti and Cambior who almost went bust because they had sold forward their production at the wrong price....
Similarly, if I buy a company that has costs in rand and revenue in dollars, I don't expect a profit warning from their "hedge" when the rand weakens. Very frustrating that management of Red24 shooting themselves in the foot.

awhawh

Regarding BooHoo (Lon:Boo)

Could you ask to the following questions, if you think they are relevant?

Is the £60 million in cash likely to be used to buy back shares or do they intend to reinvest it in the business?
How aggressive is their marketing strategy in the U.S. and the likely costs comparable to UK spend?

Thanks

Adam

jonesj

Goals full year guidance is based on the presumption there will be no adverse weather conditions.

Well we've had a cool summer and a very mild autumn, with lots of dry weather. If the business is that sensitive to weather, an above average autumn should have resulted in good trading. Or maybe the weather comment is a way of getting their excuses in before the third profit warning ?

dangersimpson

I think the comments in the Red24 (LON:REDT) results statement are sightly confusing.

If you read the cashflow statement then the 100k apears to be a non-cash charge since the FX impact is a positive 4k to the company. So it looks like the 'hedge' has done exactly what it was meant to and retained the vaue of the cash and cashflows in stering terms despite a weakening rand.

I suspect that the non-cash charge is a fair value adjustment of the other assets in the south african subsiduary taken as a charge to the income statement. However I am in no way an IAS21 expert so I would bow to the understanding of someone who is!

Either way I don't think the management statement explains it very well.

iwright7

10th Nov '15

3 minute Red24 (LON:REDT) CEO interview here: http://www.brrmedia.com/event/140682/maldwyn-worsley-tonks-chief-executive-officer
Revenue lumpy, but lots of new activity to boost sales.

Hi jonesjeff,

I had to laugh about Goals Soccer Centres (LON:GOAL) basing their trading statement on no further adverse weather conditions in the rest of this year - the Telegraph front page on the same day basically said, "UK to be lashed by worst ever storms, for the next 3 months continuously" on their front page LOL!!!

Regards, Paul.

DarwenLad

11th Nov '15

I am a fan of Boo but have concerns about their Burnley warehouse, which has been greatly expanded recently. I am not a logistics expert but having visited the site on several occasions (during visits to my dentist), it seems far from ideal for a company that wants a national distribution centre. The warehouse is situated some way from the M65 motorway, which goes nowhere after Burnley, and trucks have to go through Burnley to get to access the motorway.

When I asked Kamani about this I found his comments revealing. He said that he had bought the Burnley warehousing site because that was all he could afford at the time. He gave the impression that he had wrung a very good deal out of Trevor Hemmings, a savvy property developer in this neck of the woods.

I found this a bit worrying since Hemmings normally comes off best in any deals, and Kamani said that he would have no difficulty persuading the local council to build an access road to the motorway if Boo’s business really took off. Given the distance from the warehouse to the motorway and the size of the residential development in between, I found this hard to believe.

Please treat my comments with caution, since I am not an expert in internet retailing stocks or a logistics expert..

On balance I came away with a gut feeling that beneath all the initial hype about Boo being another Asos, which then collapsed after a disastrous profit warning at the start of the year, Boohoo.com is a real business and not just another boom and bust internet story stock.

stock_Hunter

Paul,
Regarding BOO.. Please ask management they have any plan to improve product quality ?

ridavies

A belated comment from you on EAS which reported interim's today. I thought they were very good, and had been interested in them some time ago at 440p. They seemed to stick there for a long time then I became disinterested. Then as so often happens they rushed up to 620p for some good reasons - growth, acquisitions etc. Then for no apparent reason they came down to around 450p and I by accident found them in one of my Watch portfolios last Friday, with interim's on Monday! So I bought some on Friday. I thought the interim's were rather good, even better than the earlier Trading Update after the first quarter. They have put on about 10% versus my buying price of 470p. Comments on future SP potential please?

Small Cap Value Report (9 Nov 2015) - GOAL, REDT, LMI, DQE, BOO

Goals Soccer Centres (LON:GOAL)

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Paul Scott

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