Small Cap Value Report (9 Sep 2016) - RIC, AVON, STHR, HRN, VCP

Friday, Sep 09 2016 by

Good morning!

I hope you didn't mind me taking a duvet day yesterday - but since I'd written reports all the way through my holiday in Greece, fancied a rest. Also, there was nothing of interest on the RNS, so it would have just been going through the motions on boring stocks.

Investor show tomorrow

Tomorrow it's the Shares Live investor show, at the Islington Business Design Centre - a good venue, and easy to get to (almost opposite Angel tube station).

Looking at the agenda, there are plenty of interesting talks. Our own Ed (the boss!) is doing his brilliant talk on behavioural finance. He does it once at each investor show. If you haven't heard it yet, then it's worth coming along to this show just to see it - fascinating stuff, and brilliantly demonstrated, with entertaining audience participation too.

I'll be dropping in at some point in the afternoon, to wander around and chat to people, ending up in the pub opposite no doubt at some point.

The rest of the Stockopedia team will be on the usual stand, and we all enjoy meeting members, so do stop by to say hello!

Richoux (LON:RIC)

Share price: 20.6p (down 8.4% today)
No. shares: 92.1m
Market cap: £19.0m

Interim results, 28 weeks to 10 Jul 2016 - it seems odd that the company is reporting figures for a 28 week period. I could understand 27 weeks (as opposed to the normal 26 weeks), because companies which work on a weekly reporting basis have to occasionally have a catch up week, due to 7 days * 52 weeks only being 364 days, 1 day less than a normal year, and 2 days less than a leap year.

I've been keeping an eye on this share for many years, and did briefly hold a few c.2004, but decided at the time that it was dead money, because the company wasn't really going anywhere. It's a potentially good roll-out though, of restaurants, including the rather quaint "Richoux" cafe/restaurants - there's one on Piccadilly.

However, not all retail roll-outs are good, and deserve a premium rating. This one strikes me as a bit of a muddle. Although small, it has 3 different formats - Richoux, Dean's Diners, and Villagio. To my mind, small retailers need to really focus on one format, and make that a commercial success, then roll it out nationally.…

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Richoux Group plc is a restaurant company. The Company operates over 20 restaurants in the areas of central London under the brand names, including Richoux, Dean's Diner and Villagio. The Company's business segments include Richoux, Dean's Diner and Villagio. The Company has approximately eight Dean's Diner restaurants in Chatham, Port Solent, Braintree, Fareham, Bicester, Trowbridge and Hempstead Valley. The Company has over seven Villagio restaurants in Andover, Basildon, Hammersmith, Chislehurst, Chatham, the rebranded restaurant in Port Solent and a restaurant in High Wycombe. The Company also has an Italian restaurant trading as Zippers Bar, Restaurant and Grill in Chatham. It has over five Richoux restaurants in Knightsbridge, Mayfair, Piccadilly and St John's Wood and a restaurant in Gloucester Arcade off Gloucester Road in London. Dean's Diner is a classic American diner, which offers burgers, shakes and fries. more »

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Avon Rubber p.l.c. is a United Kingdom-based technology group. The Company specializes in respiratory protection systems and milking point solutions through its two businesses, Avon Protection and milkrite InterPuls. The Company designs, tests and manufactures specialist products and services. Avon protection is the advanced chemical, biological, radiological and nuclear (CBRN) respiratory protection systems for the military, law enforcement and fire markets. The milkrite InterPuls is providing complete milking point solutions to customers across the world. more »

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SThree plc is an international staffing company, which provides specialist recruitment services in the science, technology, engineering and mathematics (STEM) industries. The Company provides permanent and contract staff to sectors, including information and communication technology (ICT), banking and finance, life sciences, engineering and energy. The Company's segments include the United Kingdom & Ireland (UK&I), Continental Europe, the USA, and Asia Pacific & Middle East (APAC & ME). The Company's recruitment brands include Computer Futures, Progressive Recruitment, Huxley and Real Staffing. The Company's other brands include Global Enterprise Partners, Hyden, JP Gray, Madison Black, Newington International and Orgtel. The Company delivers contract, permanent, projects, retained and executive search recruitment solutions. Its support and mobility services offer contracting, relocation and relevant visa support. It provides resources to support its brands with contractor services. more »

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

13 Comments on this Article show/hide all

dfs12 9th Sep '16 1 of 13

No problems with the odd duvet day. One company yesterday that didn't seem boring was Airea (LON:AIEA) - up 40% on the day! I held this one earlier in the year and sold for a extremely modest profit (excellent timing as usual!). I looked through the results at 7am and judged that although the profits had rocketed this was all old news as the company had pre-announced lots of rationalisation of their locations. Couldn't believe it when the shares just kept going up. Although I see they're falling almost as fast today. Any thoughts? No problem if not... just thought it was worth a mention. I was in Avon Rubber (LON:AVON) too until recently so that'll probably go up 40% today!

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Paul Scott 9th Sep '16 2 of 13

In reply to post #149880

Hi dfs12,

I've not looked at Airea (LON:AIEA) for about 18 months, and missed its results yesterday - looks a bit small.

A remarkable share price rise y'day, as you say. Although those micro cap vertical moves often reverse fairly quickly, as you also suggest.

I'll try to have a look at it over the weekend. Can't look now, as am off into Mayfair for a long lunch with a shares friend.

Regards, Paul.

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rmillaree 9th Sep '16 3 of 13

Ref Avon

Looking at the Graphical history bit it looks like the future profits and EPS will be dropping in the 2017 year - presumably this info is yet to update from todays news could be a reason ? but the inline nature of the statement would lead me to presume that an upgrade to 2017 may not be on the cards.

Not a company i know anything about but i am a little confused now ? does anyone know if the dip in future profits is to be expected and has a reason that doesnt affect the bull case?

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WarrantStar 9th Sep '16 4 of 13

Hi Paul. Thanks for your report. I note that the Avon Rubber (LON:AVON) current 2017 forecast eps is for a 14.4% fall. What do you make of that? It's rather putting me off the shares. Do you think the 2017 forecast is likely to be upgraded as a result of this trading update or after the 2016 results are announced?

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Trident 9th Sep '16 5 of 13

Sorry to bat on about it, as their year ends news is now several days old. Do you have any views on Joules (JOUL) the retailer. I appreciate there are not many comparative figures. Its a retailer that looking to compete in the 'sophisticated' end of the market (Boden etc). Do your retail instincts say anything about this stock?

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seadoc 9th Sep '16 6 of 13

Hi Paul,

Bought into Richoux (LON:RIC) in 2000 when it was Madisons, coffee chain with a branch in Bluewater and I think one in Bristol. Sold half in 2005 and the rest in 2914. Totally agree with your comments, it had and probably still has potential but is run for the directors, Salvatore Dilberto owns 20% and has since it was called something like City Gourmet. There is also a privately owned company with same directors at same address NW8 6NY which may be the ultimate owner. I lost about 10% a year on my "investment" and salvaged about 25% of my original money. One I wish I had avoided.

But Avon Rubber (LON:AVON) more than makes up for the loss. This I took on in 2004, soon after sold the tyres, topping up when they got out of hoses. The company is based in Melksham, and the only local businesses are dairy farms and Porton Down, which may explain the somewhat eclectic mix of products. I am well pleased with an annualised return of 21.2% and sold down my holding because it exceeded 15% of total portfolio. The dividend yield is minimal but I agree that the company seems to be able to use the profits to expand into the two chosen areas of expertise. I would be reluctant to sell any more of my shares as the masks they make for the US military at about $60-100 would sell privately for much more if, heaven forbid, there were some sort of chemical attack on a public place. Like you, I was surprised at the 10% rise today on forecasting results would in line with "market expectations" and I can only assume that Mr Market did not see a PEG of 0.61 as sustainable and was hoping to call the company's bluff.

Finally an interesting H1 from Deltex Medical (LON:DEMG) just in case you missed it yesterday, do listen to CEO on proactiveinvestors, link attached but please remove if a link is not appropriate in Stockopedia::

I know you saw nothing of note at ye2015 but I am a retired surgeon and suggest you might want to have another look.



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Desanj 9th Sep '16 7 of 13

Hi Paul
Will you be writing about Monitise? Would be interesting to see your views on it. Thanks

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TMFMayn 9th Sep '16 8 of 13

Re: Richoux

I am not sure why it reports for 28 weeks for the half year, but it has done so consistently for years. So like is being compared to like as such.

I guess the multi-format approach has been used to see which chain works in reality, and then to ultimately concentrate on that. Although it is very difficult to see whether RIC has hit upon a winner so far.

Certainly the firm has a good like-for-like comparison with Dean's Diner, Villagio and its sole Zippers outlet.

All three are located at Chatham Dockside retail outlet within about 250 meters of each other. I hope this Streetmap link works:!1s0x47d8cdbc7632bdf5%3A0x20328ecd8886346f!2m5!2m2!1i80!2i80!3m1!2i20!3m1!7e115!4s%2Fmaps%2Fplace%2Fzippers%2Brestaurant%2F%4051.4016139%2C0.5337858%2C3a%2C75y%2C12.06h%2C90t%2Fdata%3D*213m4*211e1*213m2*211sb8o968EyrWY1tfAIA0nHIg*212e0*214m2*213m1*211s0x0%3A0x20328ecd8886346f!5szippers%20restaurant%20-%20Google%20Search&imagekey=!1e2!2sb8o968EyrWY1tfAIA0nHIg&sa=X&ved=0ahUKEwjWl9LMqYLPAhUKDMAKHRIWDMwQpx8IfDAK

Anyway, Zippers is stuck out on its own away from the main retail and cinema complex at the site, and from the main car park you have to walk past Dean's Diner and Villagio (and a Mexican and a Chinese restaurant) to get there. I have been to this retail park numerous times and have never walked up to Zippers -- it is out of the way and there is nothing else in that part of the park (except for residential flats).

On the Streetmap, you can see Zippers then do a 180-degree turn and there is the Villagio (with the red parasols outside) and then to the very far left of that same large unit is the Dean's Diner. To the left of Dean's Diner is the car park.

These 3 units have been at this retail park for years and RIC must know the different revenue/cost/returns/economics of each. Presumably the returns for Dean's Diner and Viallagio are the same given the group continues to grow both brands.

What can happen with fledgling chains is that they may not have the financials to only accept the very best sites -- so they have to make the economics work for each site they can accept.

So for smaller sites for example, a limited/different menu/brand may be in order to make best use of the smaller kitchen space/dining area/footfall. I guess time spent in a Dean's Diner is less than in a Villagio, so while Dean's Diner may be cheaper, it may have a greater turnover of patrons to compensate.

I did happen to visit the Dean's Diner in Chatham some years ago and it was not a memorable experience. I think if the business ever develops some sort of record, I would perform more scuttlebutt at this retail park.

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lightningtiger 9th Sep '16 9 of 13

Hi Paul good to see VCP with good positive statements. I am already in good profit with this one.

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JohnEustace 9th Sep '16 10 of 13

On the restaurant chain theme, Comptoir (LON:COM) reported solid maiden results today and announced plans to open another eight branches.
I've eaten in the Comptoir Libanais in South Ken and at Gatwick and been impressed.

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Paul Scott 10th Sep '16 11 of 13

In reply to post #149907

Hi Desanj,

No. I won't be writing about Monitise (LON:MONI)

I think it's a failed concept stock, and just best avoided.


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WDWombat 10th Sep '16 12 of 13

I feel impelled to mention that the very first stock on which I was asked to give a recommendation, as a sell-side analyst, was in 1976 and was a stock called Avon Rubber. As you all know, Keynes reportedly said that 'in the long run, we are all dead', but these guys seem to be making a fair fist at decent longevity

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hayashi22 11th Sep '16 13 of 13

Yes the key for Avon was exiting all the automotive related stuff where they were a minnow at the mercy of events. What a performer since the low point. Wish I'd held rather than take profits.

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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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