Small Cap Value Report (Fri 15 Dec 2017) - UCG, LUCE, FUL, BOTB, CVR

Friday, Dec 15 2017 by

Good morning!

Apologies for the break in service over the past couple of days.



(Please note that I hold shares in UCG)

United Carpets (LON:UCG)

  • Share price: 8.6p (unch.)
  • No.of shares: 81.4 million
  • Market cap: £7 million

Half-year Report

I thought I might briefly mention this chain of carpet stores as it's something I've held a position in for a while, and it might be relevant to those of you interested in Carpetright (LON:CPR), SCS (LON:SCS) and others in this sector.

The market cap is very small here, only £7 million, and it's a tiny company, so I'm certainly not suggesting that anybody else should buy shares in it.

Fortunately, the like-for-like revenue performance remained stubbornly resilient, up 2.9%. This is despite overall revenues falling, as the mix of stores became a little bit more heavily weighted towards franchisees rather than corporate-owned stores, compared to a year ago.

It earns a higher return on franchise stores, so that doesn't bother me at all.

To support its growing online activities and the Beds operations, there was a slight increase in distribution and administrative expenses.

Overall, then, operating profit reduced by about 7.5% to £590k.

Outlook statement is very nice. It acknowledges the extent of economic uncertainty which prevails, while also noting that like-for-like performance continues to improve:

Trading in October was similar to the first half before improving strongly in November. Like for like sales for the 10 weeks since the period end to 7 December 2017 show further improvement on the first half performance. 
We have started the lead up to Christmas well, which places the Group in a good position for the year. The market remains unpredictable and so our focus will continue to be on protecting our position through maintaining margins and focusing on our delivery of quality and value to our customers. We do see incremental opportunities to expand the business looking ahead into 2018 through the addition of new stores and development of new trading formats but fundamentally the focus is on good execution across our existing business.

My opinion

While not totally relaxed about it, I'm a happy holder here.

It has net funds of £1.6 million, so…

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

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United Carpets Group plc is engaged in carpet and bed retailing. The Company is also involved in franchising of retail outlets. The Company's segments include Franchising and Retail, Warehousing and Property. The Franchising and Retail segment receives income from its franchise activities together with the results of its corporate stores. The Warehousing segment reflects the Company's in-house cutting operation, which services the franchised and corporate stores and a small number of third parties. The Property segment leases properties from third parties and sublets those properties to the store network. Its advice categories include caring for beds, carpet care, caring for flooring and free fitting. The Company offers a range of floor coverings, such as carpet, laminate and vinyl flooring. It offers a range of carpets, such as wool, kids, striped, patterned, berber loop, twist pile and plain. Its backing types include waffle, gel action and felt. It operates approximately 60 stores. more »

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Luceco plc offers a range of brands, including Luceco, BG Electrical, Masterplug and Ross. The Company's products include Luxpanel, Epsilon and ambient lighting. Luceco light emitting diode (LED) lighting provides commercial and domestic lighting solutions. BG Electrical is a wiring accessory manufacturing brand, which serves electrical trade and specifiers. BG Electrical's products include White Rounded Edge, Nexus Flaplate Screwless, Nexus Metal, Nexus Storm, Nexus Grid and Metal Clad. Masterplug supplies portable power equipment through do-it-yourself (DIY) outlets and street retailers. Masterplug offers products under various categories, including indoor power, such as plugs and adaptors, sockets, chargers and cables; outdoor power, such as case reel, weatherproof box and extension leads, and workpower, such as trailing sockets, inline connectors, cassette reels and cable reels. Ross offers a range of audio visual and home entertainment products. more »

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The Fulham Shore PLC is engaged in the management and operation of The Real Greek, Franco Manca and Bukowski restaurants in the United Kingdom. The Real Greek food centre serves dishes of Greece and the Eastern Mediterranean. Franco Manca serves Neapolitan sourdough pizza, which is baked in a wood burning brick oven. Bukowski is a London-based, charcoal-grill restaurant and bar, serving breakfasts, burgers and grills. The Company operates 45 restaurants, comprising 32 Franco Manca, 12 The Real Greek, and one Bukowski Grill franchise in Soho. The Company’s subsidiaries include Kefi Limited, FM6 Limited and Souvlaki & Bar Limited. more »

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  Is United Carpets fundamentally strong or weak? Find out More »

100 Comments on this Article show/hide all

Dogon 15th Dec '17 81 of 100

United carpets does look cheap but also fairly exposed to cyclical consumer discretionary slowdown. I'd like to better understand resilience of business and operating leverage. Roughly speaking it looks like gross profits only have to decrease c.10% for business to be barely break even operating profit given admin. costs. In a real recession I would expect gross profits to fall a long way below that. Cash buffer obviously helps but I'd be interested to see real stress testing scenarios.

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mammyoko 15th Dec '17 82 of 100

Hi Simoan

It would be a shame to lose your insightful comments so please don't absent yourself from the blog.

I am a significant holder of Luceco (LON:LUCE) and have spent the day trying to work out where I went wrong. If Hornby is a crook, then he isn't a very competent one. He still has 31m shares so is down £31m on the day. Ok, so he managed to shift 2m at 234 on 24th November - one month after his lock-in expired. But, it should be noted that Hornby only sold 1.2m shares at IPO. Not exactly exiting at the top. Brand, the EPIC guy, only sold a third of his holding at IPO and still holds 8m. EPIC still hold 24% of their pre-IPO 57% holding. All are down a good amount on the day.

I don't believe for one moment that the reason given is the actual one. Like others, I suspect that Hornby knew something if not all. Curiously, the Group FC, Ian Pritchard resigned from Luceco PLC on 24th September - well before this RNS and before Hornby's sale. You can see that from the Companies House filing.

I think the problems here are down to the increase in the copper price (which affects the wiring accessories business which is 47% of the total), the (smallish) movement in the USD/CNY from 6.84 to 6.60 (with a nastier dip to 6.47 in September) and a write-off of obsolete inventory. I have to admit that of these three reasons, I should have been aware of the latter - the stock to sales ratio had gone up to 29%, but it had been that high in previous years. I don't follow the copper market or the USD/CNY rates so I am hot holding myself responsible for missing those red flags.

If Hornby can be believed (and I admit there are a few reasons why he may not be, including most obviously the seeming conflation of the resignation of the Group FC with this 'discovery'), then this remains a fast-growing company with sales growing at an annual pace in excess of 20%. That leaves plenty of room for PBT to grow if the copper price and the exchange rates stabilise.

The latest forecasts from Numis are for 8.5p FY17 and 10.5p FY18. If sales hold up and there are no further balance-sheet write-offs, then I think FY18 could be up to 11.5p. On this basis and (perhaps generously) ascribing a p/e ratio of 15 to recognise the potential growth, then a fair value would be closer to 175p.

Of course, any further information or continued market froth-evaporation could mean that it is some time before it reaches fair value. Maybe naively, I see this as incompetence rather than manipulation. Ultimately, they sell widgets so there are a limited number of moving parts. It isn't a complicated business and there are no revenue recognition funnies.

The sell-off today is easily explicable - the share was looking expensive, the communication was unexpected, clumsy and not entirely credible, the market is thin before Christmas and this now looks ex-growth. The RSI is down at 12.26 on Stocko, so perhaps over-sold?

This may test today's intra-day lows depending on who wants out but don't beat yourself up about not spotting the red flags as I don't think they were very prominent in this case.



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sharmvr 15th Dec '17 83 of 100

Graham, since I didn't include a please on my request for Luceco (LON:LUCE) and Fulham Shore (LON:FUL), I will say thank you now for the coverage. Have exited Fulham Shore (LON:FUL) today. Painful, but it was in the richer half's account! Might need to buy some flowers on the way home!
On Luceco (LON:LUCE) - others know company better than me but I feel this is a one off. Having been an auditor, have seen plenty of exchange rate errors in my time and can happen. Given PE ownership, I would think the financial management is generally quite strong - taken a small position to (richer half's account :)). Thanks again for the excellent analysis and have a fantastic weekend

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Brigra 15th Dec '17 84 of 100

In reply to purpleski, post #55


You could;
- Run your screen in Stocko
- mark all stocks and transfer them to a temp folio
- click the news tab and hey presto!

It sounds like a faff but would take seconds to run once setup..

btw Google finance is still around;

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purpleski 15th Dec '17 85 of 100

In reply to Brigra, post #84

Hi Briga

That is pretty clever. Thank you. I think that will work.

I am still surprised that one can not filter by Mkt Cap or other criteria on services that provide RNS's.

Thank you,


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gus 1065 16th Dec '17 86 of 100

In reply to purpleski, post #55

Hi purpleski.

It may not be exactly what you’re after, but if you set up a simple Stockopedia portfolio with the market cap parameters you’re looking for (screen for the stocks you want then copy into a portfolio rather than individually select stocks one by one) and then look at the “news” tab at about 7.30am or so every morning this will give you inter alia the RNS headlines for the day for that list of companies. The timeliness of the RNS news feed seems to have improved quite a bit in the last year or so and you can usually view relevant releases well before the market opens. It also offers comment from some other news sources as well.

Not sure if there’s a limit for the number of companies you can hold in a single portfolio but I have one with about 150 stocks in it and this works fine.


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purpleski 16th Dec '17 87 of 100

In reply to gus 1065, post #86

Thanks Gus. Will have a look at this idea.

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gus 1065 16th Dec '17 88 of 100

In reply to gus 1065, post #86

Sorry - my bad. Didn’t read the entire thread down to Brigra’s suggested fix in #84 (which I duplicated). Blame the jet lag ...


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Arturo82 16th Dec '17 89 of 100

In reply to Weasel, post #66

Yes and IDOX is another of several recent SCSW tips that have crashed and burned. I have cancelled my subscription. Much better to do my own research instead of paying SCSW to lose money for me. I have learnt my lesson the hard way.

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LovelyLovelyGorgeous 16th Dec '17 90 of 100

In reply to mammyoko, post #82

Re Luceco (LON:LUCE) - Searching at Companies House I see no resignation filing - the Company number shows as 05254883 - is that correct ?


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rhomboid1 16th Dec '17 91 of 100

In reply to LovelyLovelyGorgeous, post #90

Financial Controller is non board level, one notch down from FD so no reporting requirements

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dahokolomoki 17th Dec '17 92 of 100

In reply to leoleo73, post #44

yes, I agree I haven't been able to find out the real reason why the United Carpets (LON:UCG) controlling shareholders are happy to put up with the listing expenses and faff for such a small market cap share.

But they have been listed since 2005, and have a good record of paying dividends in the last few years.

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ed_miller 18th Dec '17 93 of 100

In reply to shine66, post #20

Re Luceco (LON:LUCE) suspicious share sale by CEO, does that ever happen: i.e. investigation by AIM Regulation, FSA & the Met Police Serious Fraud Office)? Doesn't seem to - case in point: current Telit Communications (LON:TCM) CEO, Yosi Fait, though the question needs to be asked in this case. (I have no position in either company.)

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ed_miller 18th Dec '17 94 of 100

In reply to matylda, post #17

Re Luceco (LON:LUCE) suspicious share sale a few weeks ahead of profit warning, okay, I take your point, but 4.7 million quid is a lot more than pocket money to most of us. He sold in the knowledge of the FC's resignation, which he ascribes to the FC's exchange-rate error and hence late warning of reduced profits. That being so, he should not have extracted nearly £5M play-money ahead of coming clean to the market. How can that be justified? Seems more than sufficient grounds for investigation by the police and financial authorities to me.

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ed_miller 18th Dec '17 95 of 100

In reply to simoan, post #32

Re Luceco (LON:LUCE) Simon - Am not sure Herbie's comment implies gloating, merely that £4.7M is a lot more than merely play-money for most of us, and the Luceco (LON:LUCE) CEO should not have made any sale ahead of the profit warning, given that he did so in the knowledge of the FC's resignation weeks earlier (which he subsequently ascribes in the PW to the exchange-rate error). I agree with you, in general, hold-or-sell decisions are difficult when the CEO only sells 10% of his holding, and ordinarily that would not necessarily sound alarm bells since there are many reasons he might want cash (buying a house; a divorce settlement etc), but he should not have made any sale ahead of the PW.

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shine66 18th Dec '17 96 of 100

In reply to ed_miller, post #93

I came across a response from the FCA in 2016 to a freedom of information request on the subject. Their own figures show a whopping two convictions per year on average for insider trading.

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Lennart 19th Dec '17 97 of 100

In reply to timarr, post #77

Best Of The Best (LON:BOTB), Best of the Best. The management should have known about the tax changes. If it was a surprise the quality of the management is questionable.


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aflash 20th Dec '17 98 of 100

In reply to runthejoules, post #18

If you agree with this, please promote the idea.
Nobody will read it, as this is a few days behind from California and you post regularly.

Why not make matylda and MrContrarian 'official'? They have automatic scans for RNS announcements.

To my mind they provide a useful service, drawing subscribers' attention to news. In depth analysis could follow on an officially irregular basis.

There is too much dependence on Paul and Graham.

Investors on a DYOR need to make their own decisions.

Sure the SCVR tribune is extremely useful but 'No one can do your push-ups for you.'

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tomps3 20th Dec '17 99 of 100

In reply to daveinthelakes, post #73

Creightons (LON:CRL) did not have business with Palmer and Havey, so that is not a concern.

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daveinthelakes 20th Dec '17 100 of 100

In reply to tomps3, post #99

Many thanks

I didn't buy any more and the have gone up about 20% since Friday but it doesn't take many buyers/sellers in a company this size to move the price.

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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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