Small Cap Value Report (Fri 11 Jan 2019) - HFD, DEB, FLYB, CAR, NAH, SPE, QUIZ

Friday, Jan 11 2019 by

Good morning, it's Paul here.

Before we start on today's news, I'll have a quick look back at some interesting developments yesterday

Debenhams (LON:DEB)

The AGM yesterday resulted in the Chairman, Sir Ian Cheshire, being ousted - his re-election was opposed by 2 major shareholders (Sports Direct, and one other - Brandes maybe?)

The CEO, Sergio Bucher, was also not re-elected as a Director. Very unusually though, he's staying on as CEO, but not as a Director. I can't see that arrangement lasting long.

As mentioned yesterday, I feel that DEB shares are probably worth zero now. The reason being that the company will almost certainly need to do some form of restructuring (probably a pre-pack administration) in order to shed long, and uneconomic property leases.

Halfords (LON:HFD)

Will revisit this later

Flybe (LON:FLYB)

Recommended cash offer

This is a total disaster for Flybe shareholders, unfortunately. A bid has been agreed, but at just 1p per share. The share price was 16.4p last night. What a pity for shareholders, who have woken up to a 94% loss this morning.

Flybe has been in bid talks for a while, and there were several interested parties - e.g. Virgin, and possibly BA. Press reports suggested that competition between them could result in a decent outcome for shareholders, but sadly not.

The 1p/share bid has come from a consortium of Cyrus (40%), Stobart (30%), and Virgin (30%). They will provide a £20m bridging loan, and up to £80m of additional investment.

Clearly, the financial position of Flybe must have been far worse than management had admitted to the market.

I thought the balance sheet at Flybe looked OK, given its considerable fleet of owned aircraft, being far larger than its debt. However, clearly there must be more to it than that. It looks like the working capital position must have engulfed the company.

My commiserations to anyone who has been hit by this disaster.

EDIT: I see the share price has settled (at c.9:30) at about 3.3p, over 3 times the 1p agreed bid. There must be traders betting on a higher bid being forthcoming. Given that the bid is only just over £2m, there's some logic to this.…

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Debenhams plc is a United Kingdom-based company, which is engaged in multi-channel business. The Company’s brand trades through approximately 240 stores in 27 countries. The Company's segments are UK and International. The UK segment consists of stores in the United Kingdom and online sales to the United Kingdom addresses. The International segment consists of international franchise stores, the Company-owned stores in Denmark and the Republic of Ireland, and online sales to addresses outside the United Kingdom. The Company's stores trade under the name of Debenhams other than the Danish stores, which operate under the Magasin du Nord banner. Its stores offer customers a range of services, including restaurants and cafes, personal shopping assistance, hairdressing and beauty treatments, nail bars and wedding or celebration gift services. Its Debenhams Direct ( offers a range of products and services for online customers. more »

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Halfords Group plc is a retailer of automotive and cycling products. The Company is also an independent operator in auto repair. It operates in two segments: Halfords Retail, which operates in both the United Kingdom and Republic of Ireland, and Halfords Autocentres, which operates in the United Kingdom. The Halfords Retail segment includes car parts, accessories, consumables and technology. The Halfords Retail segment's product ranges are marketed through a national network of stores and through a multi-channel offer, which combines Website promotion with direct delivery or collection from store. The Halfords Retail segment includes approximately 165,000 product lines that are available online, and over 460 Halfords stores selling motoring and cycling products. The Halfords Autocentres segment provides car service, repair and MOTs to both retail and fleet customers throughout the United Kingdom. The Halfords Autocentres segment has over 300 centers across the United Kingdom. more »

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Flybe Group PLC is a United Kingdom-based company. The Company is a shell company.

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

50 Comments on this Article show/hide all

Brookeda 11th Jan 31 of 50

I have spent some of the day reflecting on Flybe (LON:FLYB) and thinking about why in the first place I put money in. I tend to be quite conservative in my purchases and go for profitable growing companies who may not bring in the fast cash but bring me stable growth over time. In this case I guess I got greedy and saw everyone getting excited in December and threw in whatever spare cash in (about 4% of my portfolio) at 20p with the idea of making a quick profit. Lessons learnt from me are

1) Don't believe all the hype on the forums (was reading some people talking of 50-100p a share)
2) Think really hard before making purchases in loss making companies just because there's a potential takeover
3) Stick to what you do and what works (I wouldn't normally touch the airline business with the exception of Avation (LON:AVAP)

I am relooking at my portfolio again now and considering ditching the likes of GAME Digital (LON:GMD) and French Connection (LON:FCCN) who whilst much healthier from a balance sheet perspective could be put into this category.

Thankfully I've had a good start of the year so far but this has wiped out most of those gains.

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barnetpeter 11th Jan 32 of 50

Quiz...another retail disaster for shareholders. Over 200p just a few months ago to just over 20 pence at one stage today. Nearly 90 per cent down for those who backed this pile of junk. Broker Peel Hunt today cut its price target to just 25p.

Retail stocks are proving to be the fastest way for private investors to lose money at the moment. Ten a penny mining stocks look like "blue chip" by comparison.

I suspect a basket of bombed out retail stocks might reward at these prices in time; an investment trust perhaps?

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Paul Scott 11th Jan 33 of 50

I've been looking closely at QUIZ (LON:QUIZ) this morning, so will do a detailed write-up later today, as requested by several of you.

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JamesS 11th Jan 34 of 50

Hi Paul,

Yesterday you mentioned you're waiting for Brexit to occur before potentially purchasing Topps Tiles. Is this because Topps has a large exposure to Brexit or are you taking this approach with all shares/smallcaps?

Keep up the great reports


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InvestorJohn 11th Jan 35 of 50

In reply to post #435233

I had been thinking in the same way re French Connection (LON:FCCN) a low ball bid could be a possibility for it also...

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andyfwwrench 11th Jan 36 of 50

In reply to post #435193

As an illiquid microcap Lighthouse (LON:LGT) has no coverage. Thus board and the house broker expectations should be one and the same thing. As such there are not market expectations or forecasts to reference against.

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PeterW 11th Jan 37 of 50

Paul, In response to your comments yesterday I, and all my friends & colleagues love your stuff and admire your analysis, productivity and knowledge, so thanks and please keep sharing your insights.

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Reacher 11th Jan 38 of 50

In reply to post #435258

FinnCap (house broker) has the following "conservative" forecast for Lighthouse (LON:LGT)


Underlying EBIDTA in H1 was +26% to £1.65m whilst revenue growth was +5%. If we assume the split for the full year is similar to H1 then adjusted EBITDa of £3.3m would be a significant beat to FinnCap forecasts.

There has also been positive news flow subsequent to the H1 results regarding further affinity contract renewals and new affinity contracts.

I'm not sure why the share price has fallen today if the trading update states they are trading in line. Perhaps there was an expectation of beating forecasts and if that has not been mentioned then there has been some deterioration in trading?

It could be worthy of further investigation.

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LeeWilliam25 11th Jan 39 of 50

Flybe (LON:FLYB) could the current price pressure be due to a single large buyer, perhaps another airline, buying a large swathe of the vote at such a low offer?

If used in tandem agreement with another large holder nursing huge losses, such as Hosking Partners LLP this could open the door to another bidder with shareholders on their side?

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Zipmanpeter 11th Jan 40 of 50

In reply to post #435253

Unlikely a low ball bid for French Connection (LON:FCCN) will be accepted as i) now at least 4 suitors declared ii) waiting for 2-3 years will let 42% controlling stake owner Stephen Marks sell a more profitable business as loss making key store leases drop out iii) he gets paid a big salary and keeps fun, high status job in the meantime. Only if he gets ill is there pressure for him to to sell fast.

Hoping for a relatively good offer to emerge this quarter as per timeline announced (Disc Long £FCCN). My biggest fear is that Marks changes his mind and decides to wait to sell in cheerier times for retail and simply declines all offers

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LeeWilliam25 11th Jan 41 of 50

In reply to post #435288

In Flybe (LON:FLYB) 's 'Recommendation' RNS released today:

"Following the announcement of the Formal Sale Process, Flybe received a number of expressions of interest. These expressions of interest included proposals for the acquisition of Flybe as a whole and also for parts of the business or certain assets. After initial discussions with the interested parties, Flybe shortlisted a smaller number of potential offerors to conduct initial due diligence based on a range of criteria, including deliverability, financial capability and strategic fit. The selected potential offerors were asked to submit proposals for Flybe and subsequently Flybe entered into detailed discussions with a small number of parties. These discussions led to the current offer. "

So some potential suitors were dismissed after initial discussions, one or more of them could now be pursuing by more aggressive means if they're interested enough.

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Bonitabeach 11th Jan 42 of 50

In reply to post #435303

Re: French Connection (LON:FCCN)

You are hoping for a relatively good offer to emerge: the market is telling holders what to expect: 45 - 50p, but only if an offer is forthcoming. Of course the market can be wrong, I'm not betting against it on this one.

i) now at least 4 suitors declared

Does not guarantee any kind of offer and certainly not a bidding war. Sports Direct holds 27% and Ashley will look to scupper any deal that doesn't suit.

ii) waiting for 2-3 years will let 42% controlling stake owner Stephen Marks sell a more profitable business as loss making key store leases drop out

Marks has been trying to shrink this business to a "profitable core" for years and hasn't succeded yet. My own view is that a "profitable core" doesn't exist. Marks probably can't remember the last time this business turned a profit.

iii) he gets paid a big salary and keeps fun, high status job in the meantime. Only if he gets ill is there pressure for him to to sell fast.

There is very little "fun" in running an ailing company whilst trying to turn it around. What there is: long hours, hard work and heartache. Turn around a perennially loss-making clothing retailer in todays environment? Marks is 69, yesterdays' man, should have sold 15 years ago and he knows it.

Only if he gets ill is there pressure for him to to sell fast.

If a deal is not done in the next 9 months then the pressure to sell will come from those he seeks to borrow money from to keep his ship afloat. Marks is not used to being answerable to bankers and he won't enjoy the experience.

Good luck to all holders and as always DYOR.


No position.

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ken mitchell 11th Jan 43 of 50

In reply to post #435238

Are retail stocks really “proving to be the fastest way for private investors to lose money at the moment?”

Very recent gains for the following:-

BOO 155p to 190p. UP over 20%

Dunelm 480p to 680p. UP over 40%!

M and S 240p to 276p. Up over 10%

NEXT £40 to £47.50. UP nearly 20%

Superdry 360p to 540p. UP 50%!!

SOS .. flat recently but up from just 11p earlier this year to 29p, but back quite a bit from too fast gain to 47p. So with recent positive SOS update Paul Scott’s brilliant analysis was convincing imo. .

TED BAKER 1450p to 1924p. UP over 30%

Choosing the right ones seems to be  the fastest way for investors to make money at the moment!

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AnonymousUser252054 11th Jan 44 of 50

Oddly I've not been holding for the latest drop in the NAHL (LON:NAH) share price. (I seem to have been in for most of the previous ones.)  Just a couple of points:

National Accident Helpline used to have outstanding branding and made its money (with huge margins) passing customers on to firms of solicitors (panel members). That changed several years ago as legislation was being drafted to make it less commercially attractive to assist claimants - who were effectively to be left to face an insurer's solicitors on their own. Although Nahl chose not to resist and threw in the towel - cut ad spend and down-branded - this legislation has been years overdue, in part due to the obvious problem in regard to 'access to justice', a key MoJ plank, and which I believe is still being fought over by unions even now.

The alternative NAHL (LON:NAH) have been pursuing has been to partner-up and manage a portion of leads themselves, insisting that this would not threaten their relationships with other panel members.  Their largest panel member had enough of this arrangement and recently walked away. I'm surprised anyone is still with them as presumably they are left with what NAH doesn't want or can't yet manage for themselves.

As per usual there are no useful figures with the RNS. They always refer to 'the board's expectations' which are never disclosed, well at least not to private investors.

The conveyancing-referal part of the business (an acquisition) was doing OK, well, until they bought it and has done very poorly ever since. On the other hand Bush and Company, the critical care division had a wobble but seems to be doing well again (terrific margins) and is the one part of the business (another acquisition) they've not mucked up yet. In fact it could be argued the EV is justified just for this.

But for now, when it comes to NAHL (LON:NAH) while it could all eventually come together I've suffered first degree burns holding in the past and probably should be putting a claim in myself.

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barnetpeter 11th Jan 45 of 50

In reply to post #435388

No-one can pick the absolute lows after a collapse....and to make such a profit would need a serious crystal ball. Guessing the bottom of a falling knife is a recipe for bankruptcy.....G4M is still falling like a stone for instance and a few said they had bought here after the first fall.

Superdry was 2050 exactly a year ago today...its down nearly 75% in a year. Ted Baker 3300..and so on.

With hindsight we would all be rich. If only we had piled into Flybe this morning after tonight's might have but unfortunately I did not.

"Sky News has learnt that Andrew Tinkler, who is embroiled in a protracted legal row with his former employer, snapped up a stake of approximately 10% in Flybe Group during Friday's trading session".

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Fangorn 11th Jan 46 of 50

In reply to post #435033

"This not capitalism lol!"

Of course it is capitalism

They're weak - they're desperate - ie they're up the Khyber pass without a paddle - so any bidder will pay the lowest amount possible!!! And they'll succumb.

This is capitalism at it's best - weak fall, rinse and repeat.

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Phil Sprinks 12th Jan 47 of 50

Balanced, good detail and informative

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Carcosa 12th Jan 48 of 50

In reply to post #435413

'Of course it is capitalism'. But not the most efficient. The maximum amount of money should have been extracted and shareholders put first. I do not think this was the case. In fact I am dead certain it was not.

"...dont have any LHR slots - or even LGW slots now, as far as Im aware"

Well they just sold the non-existent Gatwick slots for £4.5m as announced in this Friday afternoon RNS which was seemingly ignored in the morning RNS's

Just like to point out that I said years ago that £FLYB was a lousy investment years ago on these boards. However I am happy that they will remain in business as it has no effect on Avation (LON:AVAP) where I do have a substantial position over many years. Having said that the two leased ATR's are on sub-lease to SAS so had Flybe gone bust those aircraft were more likely to be re-leased to SAS directly.

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gus 1065 12th Jan 49 of 50

In reply to post #435388

Hi Ken.

UK retail seems to be especially choppy at the moment. You could add a few others like Shoe Zone (LON:SHOE) to your list (up 33% from 164p in early Nov 2018 to 218p at yesterday’s close) of retail share price recoveries but tricky even with the benefit of hindsight to discern what if anything is a common denominator between them. Arguably they are all “quality” players and there’s a strong underlying online component to their businesses and perhaps the greedy are maybe waking up to the possibility that the fearful might have thrown some babies out with the bath water, but still seems a bit of a lottery picking the winners from the losers. Overall (i.e. taking a sector as a whole) “Speciality Retailers” seems to be one of the worst performing sectors in recent times so I’m wary of opening new positions here (although to be fair I’m probably more fearful than greedy in general at the moment).


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ken mitchell 12th Jan 50 of 50

In reply to post #435453

I forgot to include Shoe Zone.

It was the “quality” big fallers and then subsequent very big and fast gainers I was focusing on.

E.g the likes of Superdry where as barnetpeter points out the share had fallen around 80%. That fall did look way overdone bearing in mind the reasons behind their latest profits warning and the scale of the profits disappointment. And the causes, like wrong product offering, empty shops in expensive locations and Management mistakes are soluble. Whereas the problems facing Debenhams might not be.

I’ve found Paul Scott’s very informative and brilliant comment on retailers invaluable and have tended to base my own retail investment decisions on it, including BOO HOO at just 35p. I like his being so open too, including his mistakes. And some of the follow up posts are so good. I’m a Stockopedia subscriber, but it’s amazing really that such quality information is available to all for free!

It can help readers avoid losses too. 

e.g Paul Scotttt on Debenhams over the last year.

January 4th 2018. 

Share price 29p. 

“Doomed to eventual failure.” 

April 19th 2018. 

Share price 10p. 


Sep10th 2018 

Share price 10p. 

“Risk that Debenhams might tip in to administration.” 

October 25th 2018. 

Share price 10p 

“Don’t see how it can survive in its present form.” 

TODAY. January 11th 2019. 

Share price 4p 

“Share is probably worth zero.” 

With some other retailers issuing surprisingly upbeat results/trading updates, is it worth the risk punting Debenhams? 

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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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