Small Cap Value Report (Fri 13 Oct 2017) - PFG, DNLM, FLO, BWNG

Friday, Oct 13 2017 by

Happy Friday 13th everyone!

I see very few updates on the RNS this morning that are of relevance to usual coverage here, so I thought I'd throw open the comments thread straight away for suggestions. Maybe there are stocks which could have been covered earlier in the week, which you'd like me to catch up on now? Let me know.

Best wishes,


Provident Financial (LON:PFG)

  • Share price: 869p (+10%)
  • No. of shares: 148 million
  • Market cap: £1,288 million

Trading Statement

One of the interesting stories which did come out today was this trading statement from Provident Financial.

Provident is a Yorkshire-based "doorstop lender" which also offers subprime credit cards, subprime vehicle finance, and short-term loans.

The share price crashed in August when it was revealed that changes it made to its sales force had effectively resulted in chaos, with both employees and customers jumping ship as a result.

Today's update has been well-received. I'll quickly summarise what it says:

  • Consumer credit division is still heading for an £80 million - £120 million loss before exceptions.

This is the problem division. A former MD has returned to head up this division, the operating model has been fixed to give back some of the flexibility which it had before the changes this, and headcount has been significantly increased again to help customers.

These are the key numbers:

Collections performance in September was 65%, up from 57% in August, whilst sales were approximately £6m per week lower than the prior year compared with £9m during August. Home credit receivables ended September at £316.3m, down 33% from June 2017 (June 2017: £471.7m, September 2016: £489.2m).

As you can see, it's a much smaller business now than it was last year: more than a third smaller!

While losses this year can be taken for granted, the question is whether and how long it might take to return to profitability. I would assume that returning to its former size is impossible in the short-term, but I would expect it to return to core profitability quickly, once the exceptional costs associated with hiring and firing staff, and the recent poor collections experience, are out of the way.

  • Satsuma (short-term loans) are up 28% over three months, and more than doubled compared to last year. Expected to produce a small loss this year, but…

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

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Provident Financial plc is a United Kingdom-based non-standard lender. The Company's divisions include Vanquis Bank Limited (Vanquis Bank), Consumer Credit Division (CCD) and Moneybarn. Its segments include Vanquis Bank, CCD, Moneybarn and Central. The Company serves non-standard credit customers with a range of products from credit cards and car finance, to home credit and online unsecured, and guarantor loans. Vanquis Bank is engaged in the provision of credit cards. CCD is engaged in home credit business in the United Kingdom and Ireland. CCD includes Provident, which offers home credit loans; Satsuma, which is an online instalment loan product, and glo, which is a guarantor loans product. Moneybarn is engaged in the provision of vehicle finance. Its subsidiaries within CCD are Provident Financial Management Services Limited, Provident Personal Credit Limited and Greenwood Personal Credit Limited. Its Central segment includes its subsidiary, Central Provident Investments plc. more »

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Dunelm Group plc is a United Kingdom-based company, which operates in the homewares market. The Company operates through the retail of homewares in the United Kingdom segment. The Company specializes in soft furnishings and other homeware. The Company also owns Dorma brand. The Company is a homewares retailer, which provides a range of products to its customer base, under the brand name Dunelm. The Company, through its platform, offers furniture, curtains and blinds, bedding, rugs and decors, and lighting. The Company's business operates from approximately 152 out-of-town superstores, approximately five high streets, and provides multi-channel convenience through online, mobile, catalogue, telephone ordering and reserve and collect propositions. The Company's online store features approximately 24,000 products. Dunelm (Soft Furnishings) Limited is the Company's subsidiary. more »

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Flowtech Fluidpower plc is a United Kingdom-based distributor of technical fluid power products. The Company operates through two divisions: Flowtechnology, which is geographically split into Flowtechnology UK (FTUK) and Flowtechnology Benelux (FTB), and Power Motion Control (PMC). FTUK and FTB focus on supplying distributors and resellers of industrial maintenance, repair and operation (MRO) products, primarily serving urgent orders rather than bulk offerings. The PMC division is engaged in the design and assembly of engineering components and hydraulic systems, which are managed by component supply along with a service and repair function. Its business is focused on its distribution offering in over three categories: Pneumatics (products that enable the use of gases to provide mechanical motion), Hydraulics (products that enable the use of fluids to provide mechanical motion) and Industrial (products and accessories that act as conduits for gases and liquids). more »

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  Is Provident Financial fundamentally strong or weak? Find out More »

32 Comments on this Article show/hide all

peterg 13th Oct '17 13 of 32

In reply to MrContrarian, post #4

I'm not sure that PFG is quite a small cap - even after recent attempts by management to get it there, Mr C!


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David Batten 13th Oct '17 14 of 32

Echoing Derek's comment, a view on N Brown (LON:BWNG) trading statement yesterday would be great.

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AMD55 13th Oct '17 15 of 32

I would also welcome views on FLO. THANKS 

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Zipmanpeter 13th Oct '17 16 of 32

In reply to peterg, post #13

However, whilst Provident Financial (LON:PFG) has become smaller, the whole sub-prime space is interesting and an area close to Graham's area of interest (see his notes and position on on £HAT). I am personally long on Non-Standard Finance (LON:NSF) and thinking of going bigger as I think it is only its lack of history (that holds its quality score back on Stockopedia) which preventing it moving significantly higher.

Perhaps Graham could could a few words of wisdom on how he sees the whole UK consumer debt position playing out with Brexit/Interest rates etc and its interaction with the small cap sub-prime players. On a quiet day, is it time to think more macro/thematic.

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HOLL&SMITH 13th Oct '17 17 of 32

I would also be interested in how Grahams sees "the whole UK consumer debt position playing out"

Also, is the *2.Optional* feeling rating (Bull/Bear rating) at the bottom when submitting a comment get used? Is it published on the site somewhere?

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Graham N 13th Oct '17 18 of 32

In reply to valueman, post #8

Thanks for all the suggestions on Dunelm, I'm covering it next.

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Graham Ford 13th Oct '17 19 of 32

Blue Prism (LON:PRSM) Disclosure - I hold a long position.

May be interesting for Stocko readers. Graham - interested to have your thoughts if you have time.

Blue Prism (LON:PRSM) are up around 31% since 29th of October. A couple of news pieces that may be influencing this.

Collaboration with Microsoft

Strange no announcement on the Blueprism website or RNS about that. Hard to know how significant that is.

Alliance with KPMG

It is on the Blueprism website as just a head line at the moment. Stocko doesn't seem to have updated so far.

Also Old Mutual increased their holdings substantially recently. They have a very strong record with their UK Smaller Companies, Mid Cap and UK Dynamic Funds. So, it is a vote of confidence from an investment house that has performed well at this end of the market cap spectrum.

A mate of mine in IT said don't bother with this company, you can do the same with scripts near enough. But.........

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leishylegs 13th Oct '17 20 of 32

Hi Graham,

Please may I throw my tuppence in to also ask for your view on FLO if possible.

Many thanks


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Graham N 13th Oct '17 21 of 32

I will certainly cover FLO due to all the requests, and probably 1-2 others, a little later this afternoon.

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matylda 13th Oct '17 22 of 32

In reply to Graham Ford, post #19

Emmm - PRSM - Almost £800m Mkt Cap and not yet even forecast to make a profit even on forecast revenue doubling in 2 years - Strange one for me for sure - Would surely welcome an update from Graham if he has time.

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JK Dublin 13th Oct '17 23 of 32

Hi Graham, great update on provident Financial , would it be a big ask for a comparison between
a. Provident Financial
B. Non Standard Finance and
C. Morses Club
Your thoughts would be very much appreciated?
Many Thanks


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phoenixnight 13th Oct '17 24 of 32


If it's not too late in the day, any views on the FirstRand Bank potential offer for Aldermore (LON:ALD) at a likely 313p per share? Aldermore (LON:ALD) shares are up 19% on the day. Note from the Board says that they are minded to recommend the offer.

Do you see any read across to any of the other challenger banks?

Thanks for the great service both you and Paul provide.


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the0ni0nking 13th Oct '17 25 of 32


It's not clear to me that they Provident Financial (LON:PFG) have actually got a handle on the entirely dire situation that they got themselves into.

Regarding the HCD, their comment that they are increasing the number of "part time" staff significantly but not actually reverting back to the previous model of self-employed agents that was successful previously. Also, I don't think imposing additional tiers of management is actually going to result in a continued improvement in collections (in my mind they're going OTT on the oversight) and not enough of understanding who their HCD operated successfully in the past.

Separately, I remain convinced that ROP will not only result in a fine but also significant remediation as it is simply an alternatively named version of PPI and will be treated as such by the regulator.

I may be wrong on both fronts, but I remain nervous of investing.


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andrea34l 13th Oct '17 26 of 32

In reply to Graham N, post #21

Regarding the latest FLO announcement (acquisition), I notice that it says:

The Board of Flowtech remain very encouraged about the future and remain confident that the Group's current performance will deliver another year of solid progress.

There's that dreaded word solid again (low growth)

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smenry 13th Oct '17 27 of 32

Graham, any views on MBH? (Michelmersh Brick Holdings) It has jumped in share price today, but not connected to any RNS that I can see.



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jamesdougal 13th Oct '17 28 of 32

In reply to phoenixnight, post #24

I second that request :)

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leoleo73 13th Oct '17 29 of 32

I see that eve Sleep (LON:EVE) have suspended production due to a cancer scare from a materials supplier. Only currently being reported in The Telegraph at this time: No significant share price reaction and I have been unable to short.

Given the silliness of the entire EVE concept, any adverse publicity could be a trigger that significantly affects the brand and/or share price.

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xxx 13th Oct '17 30 of 32

Hi Graham, you covered an asset manager earlier this week and said that they tend to trade around 2.5% of AUM. I saw the update from MAN group :EMG today and note that this is a bit higher and wondered why. Thanks

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Graham N 13th Oct '17 31 of 32

In reply to derekft, post #10

Hi derek, I've covered N Brown. Thanks for the suggestion! Apologies to those whose suggestions I didn't get around to.


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Mancman 15th Oct '17 32 of 32

It looks to me as if PFG will survive. I think some of its debt now looks good value. The 2020 7% is trading around 98.5.

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About Graham N

Graham N

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 and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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