Small Cap Value Report (Fri 26 July 2019) - GOR, SPD, SFE

Saturday, Jul 27 2019 by

Good morning, it's Paul here!

Thanks to theresa34l for pointing me in the right direction of interesting figures from Gordon Dadds (LON:GOR) - it looked too good to be true, and it IS too good to be true - I found the catch, after spending a couple of hours sunning myself, reviewing the figures.

In a nutshell, the catch is "deferred consideration". More on that later. It's an absolute ton of debt, basically.

Anyway, the figures are nowhere near as good as they initially look.

As always, with clever lawyers, who do you think is going to come out best - them or you?!

What a nightmare, I've just completely re-written this section from scratch, and lost it all. Arrgghh! Memo to self- must make backups.

Sports Direct

A flurry of late announcements after the market closed on Friday, should make for an interesting week ahead.

Final accounts - worth having a read of this, just for the entertainment value. There's a long belly-ache about how badly the Debenhams situation was handled. This is just posturing in my view. Mike Ashley's decision to invest in Debenhams was just a really stupid decision, and then he threw good money after bad. Even humble bloggers could see that DEB was not viable in its existing form, due to long & onerous lease commitments. Yet a retailing guru apparently failed to spot that.

The comments on SPD's stake in Goals Soccer Centres are also hilarious;

Based on the lack of engagement in this key matter, alongside our general concerns on the pervasive nature of irregularities, we as the biggest shareholder elected to vote against all resolutions including the reappointment of board members. The result of the AGM was in favour of the status quo despite our opposition and the evidence before the market's eyes, however the foul mouthed tirade and aggressive posturing of Chris Mills to the Sports Direct representative, attending the AGM and asking completely legitimate questions, was extremely unprofessional and unbecoming of a listed business to any representative let alone one from its biggest shareholder.

Pot & kettle, is the phrase that springs to mind!

SPD also has a stake in French Connection (in which I hold a long position), and comments as follows;


We continue to have an arms-length supplier/retailer relationship with French Connection,…

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Gordon Dadds Group plc, formerly Work Group plc, is a United Kingdom-based holding company. The Company provides legal, accounting, financial services, consulting and pensions advice services. The Company operates through two business segments: legal & professional services and independent financial advisory services. The Company’s services include corporate & commercial, private wealth, commercial property, litigation & dispute resolution, betting & gaming, residential property, divorce & relationship breakdown, mediation, and wills & succession planning. The Company’s subsidiaries include Culver Limited, White & Black Limited and Metcalfes Solicitors LLP. more »

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Sports Direct International plc is a sporting goods retailer, and it operates a portfolio of sports, fitness, fashion and lifestyle fascias, and brands. The Company's segments include Sports Retail, Brands and Premium Lifestyle. Its Sports Retail segment includes the results of the United Kingdom and international retail network of sports stores along with related Websites. Its Brands segment includes portfolio of various brands, such as Everlast, Lonsdale and Dunlop. Its Premium Lifestyle segment includes the retail businesses, such as Cruise, Flannels and USC. In Sports Retail, it offers a range of sporting apparel, footwear and equipment through Its Fitness Division comprises over 30 gyms located across the United Kingdom. Its channels include standalone stores and multi-fascia retail spaces, concessions within department stores and online. Across its Sports Retail fascias, it has over 700 stores, and across Premium Lifestyle fascias, it has over 83 stores. more »

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Safestyle UK plc is a United Kingdom-based company engaged in the sale, manufacture and installation of replacement un-plasticized poly vinyl chloride (PVCu) windows and doors for the United Kingdom homeowner market. The Company's segment includes the sale, design, manufacture, installation and maintenance of domestic, double-glazed, replacement windows and doors. The Company has over 30 sales branches and approximately 10 distribution depots located throughout the United Kingdom. Its product range includes EcoDiamond WINDOWS, EcoDiamond UPVC DOORS, EcoDiamond BI-FOLD DOORS, EcoDiamond REPLACEMENT CONSERVATORIES, GuardDoor, Pavilion and Inspire. It has manufactured over 279,000 frames and carried out approximately 60,000 installations. The Company's subsidiaries include Style Group Holdings Limited, Style Group Limited and HPAS Limited. more »

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

30 Comments on this Article show/hide all

jwebster 26th Jul 11 of 30

In reply to post #497506


Big fan of 3IN sensible infrastructure investments, good dividend policy, high level of institutional investors, likely to hold up through the next downturn.

But, after making a profit on their last run up I did sell them recently as the share price had become a bit rich at 300p, too far above the NAV of around 234p

I would buy again if price resets closer to NAV as a long term hold

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laurie 26th Jul 12 of 30

Both Mercia Asset Management (LON:MERC) and Burford Capital (LON:BUR) have Woodford as a major shareholder. The last publicly available information is that Woodford holds 9% of Burford and 25% of Mercia. There has been major recent selling, so I doubt that those percentages are still accurate.
I don't know the rules considering the timeliness of sales/purchases, but I have observed that most are published within a few days.

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xcity 26th Jul 13 of 30

In reply to post #497546

There aren't many shareholders that big. Woodford is the obvious seller, but it would still leave him with a long way to go.

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HornBlower 26th Jul 14 of 30

any comment on Mothercare (LON:MTC) would be helpful

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JohnEustace 26th Jul 15 of 30

In reply to post #497471

Paul clearly has a better head for numbers than names.

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fwyburd 26th Jul 16 of 30

In reply to post #497501

I have no idea why Elviron deserved the two down votes. Seemed like an innocuous comment to me. Unless the pedants here noticed the french inaccuracy - it should of course have read "tout (no 'e' at the end) de suite".

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MrContrarian 26th Jul 17 of 30

In reply to post #497541

I know that there are different grades with huge a price range.
AFAIK Versarien (LON:VRS) does not have a grade of graphene that isn't available elsewhere.

Even if it did, graphene for clothes is unlikely to be a very expensive grade.

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andrea34l 26th Jul 18 of 30

In reply to post #497441

Re Begbies Traynor (LON:BEG) placing... potential buying opportunity on retrace? Price was at 83p soon after the results, which looked superficially good to me.

Crumbs, HUGE fall for Mercia Asset Management (LON:MERC) after those sales at 30p... though there are quite a few other sizeable sales going through, although perhaps these are automated sales triggered by stop losses after the recent rise...

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Camtab 26th Jul 19 of 30

In reply to post #497541

I continue to struggle with VRS having taken a small holding. It seems to me that whilst there is little immediate revenue the prize seems huge. On the otherhand many a slip between cup and lip. They do seem to be doing a lot right though including using the UK Govt to promote them. Surely something Boris will be keen to do?

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mattgws 26th Jul 20 of 30

as a relative newbie to investing I had a look a couple of days ago and was scared of by a mention of ‘motivational payments’ to some of their people which was quite subjective and sounded like an excuse to pay themselves whatever they liked. I could be wrong but at my stage of learning it was an element that I couldn’t understand how revenue was going to be distributed so I dipped out. 

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elviron 26th Jul 21 of 30

In reply to post #497631

Hi Francis,

Argh, I'm annoyed with myself; I stand corrected - tout de suite. It was indeed a genuine comment.

Perhaps I got a couple of early thumbs down based on past comments of mine that have been preceived as "negative". Happy clappers who think that people are binary: all positive or all negative ("haters").

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xcity 26th Jul 22 of 30

Thoroughly enjoyed reading the Sports Directresults and statement.
Wouldn't be surprised if some of the delay was down to legal opinions.
I've noticed mention of a bizarrely massive Belgian tax bill, which I didn't notice in the accounts.
I don't hold, but I do have some sympathy with MA's opinions re managers and regulators.

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Snoo 26th Jul 23 of 30

In reply to post #497801

Yes, that was quite a good read.

I do wonder how the market will take it considering removal of FY20 guidance, like trying to avoid formalising a profit warning. It does sound like the future will be littered with exceptional costs related to the House of Fraser takeover.

IMO I would think the HoF thing might produce some change in Ashley, if he isn't wanted there is no real point. He can go on about Debenhams destroying shareholder value, but medium term SPD holders might feel the same way about him. There has been a series of acquisitions and the share price has gone backward even with buy-backs and there are no dividends. The large department stores have been in trouble for some time, so why should it be a surprise that this model isn't going to work?

Allied to the tax bill shenanigans I do think this will be sold off on Monday, but depending on price I think this could be a very good buying opportunity. I wouldn't say Ashley is my cup of tea, but the core Sports Direct business is a very good one, owns quite a few low-end, clapped out brands which nevertheless have quite a bit of international recognition (ie Dunlop, Slazenger). The Malaysia results says to me that this type of business is quite easily to replicate around the world.

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xcity 26th Jul 24 of 30

Agree it may reach an attractive price on Monday.
I don't mind Ashley's apparent gambling and impulsive purchases - I think the good in SD has come from that as well as the bad. Sometime it pays off, sometimes it doesn't, but his instincts have been more right than wrong in the end. So far. The problem I have with investing there is that I've never been able to persuade myself that he would be working for me.
I think not forecasting 2020 is a good idea. Far too many ideas for even the management to have confidence n their crystal ball.

Also think that they don't just have low-end brands. There's a fair number of niche high-end ones too.

I doubt if HoF is that much worse than he imagined. I think the problem for him is that his whole strategic concept (whatever that is/was) required that he also get Debenhams. So that leaves him with all the exceptional costs but only part of the hoped for gains.

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Cisk 27th Jul 25 of 30

In reply to post #497861

Never have the words “caveat emptor” been better applied than to buyers of sports direct stock.

So many red flags and yet people still would back Mashley. With so many other bargains around - including plenty in retail - why would anyone chose SPD over anything else?

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simoan 27th Jul 26 of 30

In reply to post #497876

So many red flags and yet people still would back Mashley. With so many other bargains around - including plenty in retail - why would anyone chose SPD over anything else?

I totally agree, but what's worse is the amount of column inches wasted on Ashley and Sports Direct while quality managers and their companies go totally ignored. I have no idea why people waste so many words on someone like Ashley. You only have to see how he runs his football club to know how cheap he is - doesn't give a monkeys about his staff or customers.

All the best, Si

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Johns54 27th Jul 27 of 30

Thats it?

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Effortless Cool 27th Jul 28 of 30

In reply to post #497916

So it would seem, but it's worth 38 thumbs up apparently, so who are we to complain?

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gmtrader 27th Jul 29 of 30

In reply to post #497471

GOR - This snippet taken from the recent broker report

"We reiterate our PT of 300p to put the
shares on an unambitious 12.5x FY20 P/E. Conviction Buy."

Conviction Buy - wasn't that Woodford's strategy?

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xcity 28th Jul 30 of 30

For me, the most interesting thing from the Sports Direct announcements was the statement that the Sports Direct business, the main profit driver, is in decline as consumers are trading up. This would explain his concerns about supply from the big brands and the attempt to upgrade stores and possibly his interest in the department stores. Possibly also the interest in Game Digital as a source of footfall. And the irritation about HoF having sold its brands to its Chinese parent. He says he's a blunderbuss guy - some things work and some things don't. I can see that, but there's no guarantee that there's a way of successfully transforming his original business. Though he's probably the one to find it if there is.

This might be less urgent, but it is, in my view, a much bigger issue than HoF or Belgian tax.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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