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

11th Jan '19 by Paul Scott

50 comments 14308 reads

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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Brookeda

11th Jan '19

Its all about Flybe (LON:FLYB) this morning. Offer of 1p per share from Virgin/Stobart compared to last nights closing price of just over 16p.
BOD justifying it based on the poor cash generation they are facing, surely the landing slots and LHR are worth more than this if they just sell them off?

Carcosa

Flybe (LON:FLYB) RNS announcement saying cash offer at 1p/share valuing the airline at just over £2m. Am I reading this RNS correctly???

FLYB shareholders would have been better served to sell their routes and owned aircraft??

This not capitalism lol!

Edit: Just seen your post Brookeda.. guess we think along the same lines!

Tortoise investor

Would be great if you can cover QUIZ (LON:QUIZ) today Paul. Although the RNS is worded negatively, the business is still experiencing decent growth and grew store sales - the results are much better than the current pre-open share price would suggest!

paduardo

Hi Paul would you mind having a look at QUIZ (LON:QUIZ) with a profit warning today. Looks mild and in the price but means company has gone effectively ex growth h1 to h2. Strong balance sheet though. Thanks

simonty

Paul, can you comment on LGT. Their trading update inline with “Board” expectations......which tells us nothing. A little rant from you might get noticed by the Company. Why can they not reference market expectations ????

Surely there's every chance this will get rejected and they'll go into Administration?

MrContrarian

My morning smallcap tweet: Virgin spends a penny on airline.

Flybe (LON:FLYB), Starcom (LON:STAR), ATTRAQT (LON:ATQT), NAHL (LON:NAH), Carclo (LON:CAR), QUIZ (LON:QUIZ)

Flybe (FLYB) 89% off! Recommended offer from JV of Stobart and Virgin at 1p. Shares have climbed from 10 to 16.2 after news of possible offer. Obviously board thought they were fecked w/o a rescue.
Starcom (STAR) warns FY EBITDA only b/e despite rev slightly above market expectations of $5.9m. Potential Nomad still doing due dil.
ATTRAQT Group (ATQT) guides FY rev marginally ahead of expectations and EBITDA to be slightly better than break-even.
NAHL Group (NAH) warns FY adj EPS 5 to 10% below Board expectations. Blames heightened competitor activity in the PI division plus Residential Property division continued to be impacted by the state of the housing market. I hold.
Carclo (CAR) guides FY significantly below its previous expectations. Says "short term operational growing pains continued longer than we had anticipated as demand grew [for low volume products]" = PRbollx for "we screwed up".
Quiz (QUIZ) warns Xmas sales below exp. Guides FY rev £133.0m, gross margin falling to 60.5% from H1's 62% and EBITDA £8.2m. Rev f/c range £133.9m - 138m.

Snoo

Feel a little cheated by Flybe (LON:FLYB) - how can the board of directors justify this? I would bet that the CEO has a nice position lined up after the takeover.

I am fairly sure a better outcome for shareholders would be to break up the company and sell off the parts.

Peter Walsh

Hi Paul. It would be great if you could run your eye over QUIZ (LON:QUIZ). Mild profit warning but the price is absolutely bombed out. It could be a good buy at this level.

rmillaree

Flybe (LON:FLYB)

Feel a little cheated by Flybe (LON:FLYB) - how can the board of directors justify this?

This was always going to be a binary gamble to a certain degree.

There is a point where the directors have a duty not to shareholders but to creditors, one quick look at the balance sheet of Flybe should be enough to make once conclude that any good exit route for shareholders was based on hope that someone would want to pay something for the shares - other than that the the company looks worthless although without knowing the value of their landing slots its hard to pass full judgment - has the company gone to the trouble of advising shareholders what these would be worth?. If these slots had value the company should have sold them before now so it wasnt in the position that they will run out of cash in 12 months which looks like it is the case

at 30/9/2018 liabilities were £482 mill - thats alot of cash that needs to be handed over - would you give credit to Flybe under these circumstances

Items like the following lay out clearly how poor a position this company has been in for some time.

Since September 2018, the Group has provided partial collateral to its two main card acquirers. As at 13th November Flybe has provided £16.2m total cash collateral thus lowering unrestricted cash available to the business.

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

Debenhams (LON:DEB)

Flybe (LON:FLYB)

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Paul Scott

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