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 LON:UCG fundamentally strong or weak? Find out More »

115 Comments on this Article show/hide all

shine66 18th Dec '17 96 of 115

In reply to post #255898

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 115

In reply to post #255113

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 115

In reply to post #254588

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 115

In reply to post #255078

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 115

In reply to post #256783

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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mwogan 29th Jan 101 of 115

Is anyone revisiting LUCE LN at this level (~70p) ? FY18 P/E 8.5. It looks like it may have fallen too far, yet it keeps falling. Apart from the disaster mistake in December which they have been honest about, I can't see why it keeps getting punished....? - not a holder at present.

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hayashi22 29th Jan 102 of 115

There are three main rules when listing.
Rule 1 is :don't disappoint by having a warning just after listing
Rule 2: Don't use the listing to sell off shares and then have a profits warning
Rule 3: See rule 1

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riosurfer 31st Jan 103 of 115

In reply to post #256093

CEO sold to settle tax liability, I believe.

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ed_miller 31st Jan 104 of 115

In reply to post #307428

Re Luceco (LON:LUCE) CEO share sale just prior to the company issuing a profit warning: could he not have waited a few weeks till after the profit warning? If not, it seems appropriate that the company bring forward their trading statement and profit warning. It seems most unlikely they were not aware of their deteriorating outlook, even if they were unaware of the accounting error. Thus I struggle to see this as forgivable. To me this seems an outrageous, under-hand act by a CEO with contempt for shareholders. If I am wrong in this I would have expected a full explanation from the company as to why this wasn't the insider trading it looks like.

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riosurfer 31st Jan 105 of 115

In reply to post #307438

I think the abrupt firing of the financial controller suggests this was quite a sudden event. The company took action as soon as it was uncovered. Think Tesco accounting scandal - financial black holes are often very sudden events in my experience! I really doubt the CEO would sell with that knowledge because it would be so likely to invite investigation.

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ed_miller 31st Jan 106 of 115

In reply to post #307473

Re Luceco (LON:LUCE) perhaps you are right that there was no funny business, though I am sceptical that the threat of investigation is a serious deterrent since we hear from shine66 (comment 96 above) that FCA figures show there are an average of only two convictions per year for insider trading despite it being widely acknowledged among City workers that it is a perpetual and widespread problem. Also, surely the Company knew at the time of the CEO's sale that the trading outlook was deteriorating? Maybe the CEO has done nothing wrong other than account for his actions and explain how there was nothing at all under-hand or contemptuous of shareholders? I can't know for sure - obviously I'm speculating, but I think it looks bad and should have been fully explained (and I speak as a LUCE shareholder), though you are welcome to take a different view of course.

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Housemartin2 3rd Feb 107 of 115

In reply to post #307503

Re Luceco (LON:LUCE) I am inclined to agree with riosurfer. In my experience of these things - and I have been an accountant and auditor - the company explanation rings true and the sequence of events seems understandable. A stock valuation problems caused by failing to unpdate standard costing for currency valuation changes would be both a significant effect and a surprising bombshell. The effect would be quickly evaluated.

Taking this on board, I felt the reaction was too severe for what was a 20% (ish) hit to bottom line and by my analysis, a one off. I backed up my belief and bought in. Unfortunately I caught the falling knife (what again ?), so I am still underwater.

I think we are due an Operational Update RNS any time now (maybe Friday's, completely not insider trading, price action was related to this ?) so I will be interested to see if I was lucky or naïve !

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ed_miller 3rd Feb 108 of 115

In reply to post #309228

Re Luceco (LON:LUCE) you may well be right, particularly with regard to the stock-valuation issue. However, is there still not a case to answer, or explain, with regard to deteriorating trading outlook and worsening exchange rates? If it were really necessary to sell so close to releasing a trading statement, I haven't seen the explanation as to why it was indeed necessary, and I still don't see how or why the Company's outlook changed materially between the time of the sale and the day of the trading statement. If there has been nothing untoward, and given that the sale looks to be either merely a matter of chance and unfortunate timing or else illegal, I would have expected a detailed explanation from the Company as to why it is the former, not the latter. Instead I am left wondering what new information the Company had during this period that made their trading outlook (the stock-valuation issue notwithstanding) deteriorate markedly in the short time following the sale.

That said, clearly I am a little conflicted over Luceco (LON:LUCE) since, despite my reservations over the CEO's share sale, I felt, as you did, that the fall in share price following the profit warning was over-done (particularly if the CEO's share sale was simply due to unfortunate timing) leaving a company earning high margins and high returns at a much nicer price, and I bought in for that reason. If nothing else, I thought there might be opportunity for a short-term trade, even if I were suspicious of management, though I hope to be able to take long-term positions with such small stuff. Anyway, my cunning plan (and yours) is yet to bear fruit, or look as though it might do. I hope we both end up pleasantly surprised by this one, but I'm glad I have other plans too.

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Edward John Canham 3rd Feb 109 of 115

Luceco (LON:LUCE)

The big mystery to me is why the CFO is still there - has he no responsibility for what happened on his watch?

Adds credence to the profit warning/ share sale issue.


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hayashi22 4th Feb 110 of 115

In reply to post #309248

'Unfortunate timing'- very fortunate if you ask me. So shortly after listing this company has blotted its copybook and probably permanently. That said the sell off looked to be overdone and seems linked to a fund exiting.

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ed_miller 4th Feb 111 of 115

In reply to post #309433

Re Luceco (LON:LUCE) 'unfortunate timing' of CEO's share sale: Ha, ha, yes I quite agree, hayashi. We're a pair of irredeemable cynics, are we not?!

Funny how experience in the stock market - and particularly the way company managements treat outsiders, and private investors in particular - does that to you!

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Zipmanpeter 21st Feb 112 of 115

In reply to post #309348

Re Luceco (LON:LUCE)

From RNS on 20th Feb ......the CFO gets the push (several months after the Fin Controller). No further restatements or trading updates recently so it looks as if this may be a functional Finance issue vs a business wide issue. Looks as if CFO search started before Xmas and the CEO can now move with replacement on hand. New guys CV looks good and relevant although CFO is a step up.

Now at <2/3rds original IPO price(78p vs 130p), Luceco (LON:LUCE) look good value bet for the mid to long term . Long term customer contacts through powercords plus LED factory set up and LED sales building in a good market. Will probably take 18 months to recover so probably I will be too early if I buy today!

"The Board of Luceco, the manufacturer and distributor of high quality and innovative LED lighting products, wiring accessories and portable power products, announces today that David Main has stepped down as Chief Financial Officer and from the Board to pursue other opportunities and that Matthew (Matt) Webb has been appointed Chief Financial Officer with immediate effect.

Matt joins from FTSE 100 listed multinational building materials distribution company Ferguson plc,"

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rhomboid1 21st Feb 113 of 115

In reply to post #328278

I agree it’s an attractive valuation GARP stock now, the risk is ‘Matt’ gets in & discovers other ‘one off’ issues , you can bet he’ll have the drains up looking for them as from now on he owns any’issues’ himself.

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Edward John Canham 21st Feb 114 of 115

In reply to post #328278

Will be interesting to see if the final accounts contain a prior year adjustment or whether the issue all relates to 2017.

As rhomboid notes there is also now a risk of a bit of kitchen sinking going on.


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Edward John Canham 6th Mar 115 of 115

In reply to post #328278

Luceco (LON:LUCE)

New CFO hit the ground running.

"The shortfall relates primarily to continued margin pressure and the treatment of certain costs which had been earmarked for capitalisation but are now being taken through the profit and loss account".

Hope that's it - what do they say about profit warnings coming in threes? There does seem to be something going on with LED - Dialight (LON:DIA)


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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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