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

15th Dec '17 by Graham Neary

115 comments 30090 reads

Good morning!

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

Best,

Graham

(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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AnonymousUser252054

18th Dec '17

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.

Lennart

19th Dec '17

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.

Len

aflash

20th Dec '17

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.'

TamzinPiworld

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

daveinthelakes

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.

mwogan

29th Jan '18

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.

hayashi22

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

riosurfer

31st Jan '18

CEO sold to settle tax liability, I believe.

ed_miller

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.

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.

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.

Housemartin2

3rd Feb '18

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 !

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.

Albertos

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.

Phil

4th Feb '18

'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.

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!

Zipmanpeter

21st Feb '18

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,"

rhomboid1

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.

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.

Phil

6th Mar '18

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)

Phil

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

United Carpets (LON:UCG)

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Graham Neary

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