Small Cap Value Report (Fri 12 April) - PLUS, GAW, BON

Friday, Apr 12 2019 by

Good morning,

Thanks for all the kind comments to start off the day - much appreciated!

The main things on my mind today are Plus500 (LON:PLUS), Games Workshop (LON:GAW) and Bonmarche Holdings (LON:BON).

Plus500 (LON:PLUS)

  • Share price: 530p (-26%)
  • No. of shares: 113 million
  • Market cap: £601 million ($790 million)

Q1 2019 Trading update

It's going to be difficult for me to avoid a triumphant tone with this one, as I have been very critical of its business model, and how it presents its results.

  • See the Stocko archives for all the SCVR comments by Paul and I over the past year.
  • See my original description of Plus500 as a bucket shop that profits directly from client losses.
  • See my follow-up article discussing various elements of its business practices
  • See my subsequent article after it was finally revealed how much customer P&L it was exposed to.

The bottom line is that it didn't explain properly how much customer P&L it was exposed to.

This customer P&L exposure makes its results inherently volatile. It is incentivised for its clients to lose money, but its clients can enjoy unlimited upside when their bets go the right way.

In 2017, for example, Plus500 lost $103 million to customer profits. Then in 2018, it made $172 million from client losses. This is possible because it doesn't run a comprehensive hedging program like other CFD providers do (its competitors do have some customer P&L exposure, but it is much smaller).

Another key element of this story is that Plus500's marketing efforts target the least knowledgeable beginners, who tend to waste their accounts quickly and then give up.

This is problematic when it comes to the EU's ESMA regulations, which are designed to protect amateur traders from using too much leverage. Last year, Plus500 bullishly claimed that 12% of its European customers "may be eligible" for professional accounts, and that these accounts were responsible for 75% of its revenues.

Today's update

Today we learn that Q1 2019 revenues (to March) have collapsed by 65% quarter-on-quarter, to just $54 million. It would have been $82 million, except for $28 million of client profits eating into the result. 

The quarter-on-quarter…

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All my own views. I am not regulated by the FSA. No advice.

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Plus500 Ltd is an Israel-based online provider of Contracts for Difference (CFDs). The Company develops and operates an online trading platform for retail customers to trade CFDs internationally over more than 2,200 different underlying global financial instruments comprising equities, indices, commodities, options, exchange-traded funds (ETFs) and foreign exchange. The Company enables retail customers to trade CFDs in more than 50 countries and in over 30 languages. The Company's trading platform is accessible from multiple operating systems, such as Windows, smartphones (iOS, Android and Windows Phone), tablets (iOS, Android and Surface), Apple Watch and web browsers. The Company conducts operations in the European Economic Area (EEA), Gibraltar, Australia and certain other jurisdictions across Asia, the Middle East and elsewhere. Its subsidiaries include Plus500UK, Plus500AU, Plus500CY and Plus500IL. 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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Bonmarche Holdings plc is a multi-channel retailer of womenswear and accessories. The Company offers clothing and accessories in a range of sizes for women through its own store portfolio, Website, mail order catalogues and through the Ideal World TV shopping channel. The Company's subsidiaries include Bluebird UK Topco, Bluebird UK Holdco and Bonmarch Limited. The Company has approximately 310 stores across the United Kingdom. more »

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

95 Comments on this Article show/hide all

Camtab 12th Apr 16 of 95

It is really nice to see the value being put on Paul and Graham's commentary, and I too think it very useful and interesting. However that said I am amazed people don't use the numbers and the quant work within Stockopedia and see more value in it. In my days of stockbroking we had the red book which was Capels analysts commenting on stocks. Stockopedia provides information far in excess of this. I would have said if you are a serious investor and doing your own research, Stocko is as good as it gets.I also don't see why the commentary is a different service to the numbers. It seems to me you take all aspects of investment to come to your final decision which is shall I buy or sell and what is my confidence level. Yours amazed.

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PJ0077 12th Apr 17 of 95

In reply to post #468551

That would appear unlikely, Gustav

In 2017 the net profit of Plus500 (LON:PLUS) rose 70%

This was the year in which Bitcoin appreciated from $900 to $20,000. If Plus500 (LON:PLUS) had been taking opposing positions to its customers in 2017, it would have surely struggled to make any money at all?!

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Snoo 12th Apr 18 of 95

It kind of does disturb me a little that the pretence earlier with Plus500 (LON:PLUS) - that they did not make any money from client positions, seems to have now totally unravelled, and charges owing to this will be common going straightforward.

It also does seem that their refusal to give any type of forward guidance at all could mean that revenues could miss on the downward side as well as the top end, although it is probably the truth. Nobody knows what might happen.

That said, I do believe the profits are real, as evidenced by the dividend payouts. But that was in a different regulatory environment. The type of mug that gave them these profits might be very difficult to acquire again, if at all.

And I do believe there will be always be a market for trading CFDs in small scale for recreational gamblers/investors as well as other purposes. And the ESMA guidelines are not necessarily permanent.

If it was under different ownership I would have thought it would be ripe for someone to acquire, which solves their problem of credibility and transparency.

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HumourMe 12th Apr 19 of 95

In reply to post #468551

Plus500 is interesting. The only warning signs from the headline 'fundamental' numbers yesterday would be the forecast EPS change. On most other valuation and quality measures (except PBV), it looked like a screaming buy:


All the figures, apart from the chart and current price are based on yesterdays close.

e.g.: % vs 52 week high


Another example that if you are riding the momentum wave then you have to be prepared to hop off sharply. Of course, based on yesterdays figures, this was classified as 'contrarian value' - but you would have still been betting against the forecasts.

If you had been following the forecast EPS as a cue, around October was when it went negative and might have been syanora time. Hindsight is wonderful. Even better, when it gives us clues to future potential behavior.

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tic_tac_toe 12th Apr 20 of 95

In reply to post #468491

If I can echo this one.
Thank You, Paul and Graham!

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mrosbiston 12th Apr 21 of 95

In reply to post #468616

i think Ed's piece on "anatomy of a profit warning" was the perfect for warning against bottom fishing (warnings rarely come in ones). I believe this should be held as a text book case.

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PJ0077 12th Apr 22 of 95

mr obsiston

Plus500 (LON:PLUS) has a Quality rank of 99

So it's not definite that the Stockopedia ebook "The Profit Warning Survival Guide" would have helped investors after the previous profit warning as one of the key takeaways (p58-59) was:

"Only consider buying, or continuing to hold after a profit warning if the shares are of the highest quality - preferably a Quality Rank greater than 75"

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kenobi 12th Apr 23 of 95

In reply to post #468461

Me too, I've subscribed in the past but found I hardly used the data service, so thanks to Paul, who I have followed for 20 years or more since his days on the motley fool, I'm sure I'll subscribe at some point in the future, but after a significant house purchase, I find that my portfollio is now quite small and hard to justify subscribing just for the news letter. Many thanks for all your help over the years, I still remember buying new look from back then, when Paul said it should be on a higher PE and I had to google what PE was ! It's been taken private and relisted since then, as has debenhams. Anyway, thanks for all your help, I've learnt a lot,

Best wishes to you all


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mrosbiston 12th Apr 24 of 95

In reply to post #468631

might be an opportunity to reread the guide

also - if the team could revist the document. It would be amazing if we could get quarterly updates on profit warnings.
list them out - simple performance analysis and Quality Rank assessment - and whether there is a preceding warning or a following warning.

personally, i don't believe the Quality rank would save me. If a stock warns, i am out straight away - it has saved me considerably. If there is data out there that refutes this strategy - then i'd love to see it.

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herbie47 12th Apr 25 of 95

In reply to post #468531

Surprised Plus500 (LON:PLUS) are only now down 26%.

Profits warnings, according to Stockopedia article says it is rare there are more than 1, something like over 80% are just one warning in their time frame which was over 3.5 years.

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herbie47 12th Apr 26 of 95

In reply to post #468631

Indivior (LON:INDV) also had high QR for many years even though it is now it is down over 90% from 52 week high. Still has QR over 80.

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simoan 12th Apr 27 of 95

In reply to post #468646

personally, i don't believe the Quality rank would save me. If a stock warns, i am out straight away - it has saved me considerably. If there is data out there that refutes this strategy - then i'd love to see it.

I couldn't agree more. The Quality rank is backward looking, being largely based on the Piotroski F-score. A profit warning is in the here and now and makes the concept of the Quality rank irrelevant. As Paul has pointed out many times, not all profit warnings are the same but as a general rule it makes sense to sell first and ask questions later.

All the best, Si

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Trident 12th Apr 28 of 95

Didn't Neil Woodford's fund have a big position in Plus 500?

If that's true could put in another round of people deserting his fund, which may mean more selling of stock in AIM companies. Generally not good for small cap investors (other than bargain hunters), as creates market overhang, or dumping of shares to provide liquidity

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gus 1065 12th Apr 29 of 95

In reply to post #468581

Hi Pj0077.

Agree to an extent, but Bitcoin was a honey trap to many first time punters that saw it as a one way bet and got suckered into taking bigger and bigger positions as confidence grew only to lose the lot and more on the way down. Plus500 (LON:PLUS) was/is notoriously sticky for letting punters take funds out so sooner or later even the apparent big winners ending up giving their money back to the house. Just as much money to be made on Bitcoin by shorting on the way down as can be made on the way up.


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Edward John Canham 12th Apr 30 of 95

In reply to post #468651

Plus500 (LON:PLUS)

Agree Herbie although they were down nearly 45% close to the start - can only think that consideration is being given to the cash balance - although I suspect this might be dwindling.


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Gostevie 12th Apr 31 of 95

I too would like to say a huge "thank you" to Paul and Graham for the SCVRs and also to the many others who have added such useful input in the comments section. Like some others above, I can't really justify paying for Stockopedia's data services which to be honest I would very rarely use so shan't be subscribing but totally understand the reasoning for putting these reports behind the paywall.

With very best wishes to all.

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LeoInvestorUK 12th Apr 32 of 95

As I've said previously (as leoleo73), I'm very sorry to see the likes of Clitheroekid, DJCP, dgold, ap8889again, apad, Fabrizzio, tic_tac_toe and all the others lose access to read and post to this site / column. I'll say again that their loss reduces its value. Even those who never posted had the potential to add an insight or a key piece of missing information in the future.

I'll admit to being somewhat bemused by the decision to build a paywall that keeps people out and don't see how the statistics quoted in the announcement support it from a medium-term business point of view. However, Ed and the team will have made the decision after looking at far more detailed analytics and more important is the matter of longer term brand positioning and creating the kind of site and business they want to run. I respect that.

Also as previously stated I cannot justify posting to a closed forum for free and so excluding people for no reason. Therefore I have created a mini blog and started posting all substantive content there as well. Related to this, long before Stockopedia's announcement I had been thinking about using twitter more this was the trigger to take the plunge. As I have multiple interests and twitter legitimately allow multiple accounts, I chose the handle "LeoInvestorUK". I am in the process of unifying my online identify for investment purposes under this handle (rather than leoleo73), including for Stockopedia.

Blog: LeoInvestorUK
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Snoo 12th Apr 33 of 95

In reply to post #468681

Yes, extrapolating this Q1 figure for Plus500 (LON:PLUS) I think they might be looking at quite a big chunk of cash going out.

Also depends on the outgoings, they are remarkably capex-light. The vast chunk of their selling and marketing expenses was commissions and advertising - some of these costs I will not reoccur because they cannot (for example bonuses to users).

Payroll costs are also relatively small. It could be a beautiful thing if it could be scaled upwards successfully, although there has to be massive question marks from many angles whether this is possible or not.

Also potentially on the horizon are disruptors coming into play. Stuff like Freetrade also threatens share-dealing operations and perhaps ultimately CFDs one day.

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LeoInvestorUK 12th Apr 34 of 95

Posted earlier on my blog:

Bonmarche Holdings (LON:BON) – Response to offer

Bonmarché have recently had a very bad run of trading in their shops, burning through their cash and putting their future existence into material doubt.

BM Holdings, of Sun Capital Partners, the private equity firm that took Bonmarché to market back in 2013 and still held over 50%, recently sold out Spectre (a Philip Day vehicle) at around a 40% discount to the then prevailing share price and a 95% discount to their first day’s closing price back in 2013. This required them to make a takeover offer for the remainder of the company at the highest price paid (in this case, the only price paid).

In today’s statement Bonmarché say that the offer materially undervalues the company and advise shareholders to take no action, as is customary. What is more interesting is that:

  • It took 8 working days to produce a holding statement.
  • They have been unable to positively engage with Philip Day in the meantime, implying that he has little confidence / interest in their turnaround plans.

This share is now a gambling chip rather than an investment, with many unknowns. But what we do know is that:

  • BM Holdings were willing to sell out at 11.445p. They may have been willing to sell for less. We may suspect they were a distressed seller, but importantly they now have no more shares to sell.
  • Spectre was willing to buy for 11.445p and may have been willing to pay more. Since they have more to buy this is of more relevance.
  • The price cannot fall below 11.445p during the mandatory offer period.

Therefore there is clearly an asymmetric upside from 11.445p, e.g. in the event of a sudden improvement in trading or an increased takeover offer. However for me, the current 15p price already reflects this.


I do not currently own shares in Bonmarché.

Blog: LeoInvestorUK
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sharmvr 12th Apr 35 of 95

In reply to post #468546

I too am looking forward to thoughts on Games Workshop (LON:GAW)

I took the plunge today, having watched it rise for a long time waiting for a pull back with none forthcoming (or at least none back to my original anchors).

Reasons for my purchase - yet another ahead of expectations update (which has been consistent since I have followed), I make full year 2019 ROCE to be approaching 100%, and while I do not like the valuation on a relative sector basis, I think on an absolute basis there are far more expensive stocks without the same quality.

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 Are LON:PLUS's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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