Small Cap Value Report (Fri 31 August 2018) - RTN, WTB, FFI, ESG, Wonga/HAT

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31st Aug '18 by Graham Neary

52 comments 11948 reads

Good morning!

While the main article is being written, feel free to comment and share your thoughts on whichever small-caps you think are most interesting today.

Incidentally, this is my last SCVR for a while. Britain's top share blogger makes his return next week, while I head south by 24° of latitude to enjoy some late summer sunshine. Cheers!

Graham

Our interesting stories today include some big-caps:

Restaurant (LON:RTN) - interim results
Whitbread (LON:WTB) - sale of Costa to The Coca Cola Company
FFI Holdings (LON:FFI) - annual results
Eservglobal (LON:ESG) - half year results
The collapse of Wonga has provoked some commentary on the implications for H & T (LON:HAT) (where I have a long position) and other lenders.

Restaurant (LON:RTN)

Share price: 287.6p (+4.5%)
No. of shares: 201 million
Market cap: £578 million

Interim Results

The market is pleased with these numbers despite use of the phrase "broadly in line" with respect to adjusted PBT expectations for the full-year.

Rather than focusing on a potentially minor PBT downgrade, investors are instead focusing on a sturdy like-for-like sales performance (+2.4%) over the past six weeks, since the World Cup ended.

As a reminder, RTN operates Frankie and Benny's, Chiquito and other restaurant brands, pubs and concessions.

The results presentation includes a chart illustrating the progress in like-for-like sales. It excludes the World Cup period:

So we do have evidence that the company has been making improvements to the customer experience, compared to last year, e.g. by upgrading menus and increasing options.

One of the big disclaimers we must attach is that margins have been getting worse. Price cuts are a big factor in this.

The H1 performance itself is nothing to shout about: like-for-like sales down 3.7%, EBITDA margin down by 1.6 percentage points, and EBIT down 21%.

The company deserves credit for the clarity of its disclosures. This is one of the advantages of big-caps: they often give you really detailed information, so you don't have to guess as much compared to small-caps.

For example, cost pressures are broken…

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mammyoko

31st Aug '18

Re Restaurant (LON:RTN) - this is a profound and quality statement

'To be honest, I've mentally written off this entire sector. That could be a mistake but I just can't visualise restaurants (or pubs) as quality compounding businesses over time.

I could only see that happening if their brand names were so compelling to customers that competition somehow became less intense. For as long as they are competing on price against anyone with a little bit of capital, a work ethic, and an idea, I don't want to participate.'

Nicowilson

Thanks Graham for your excellent articles. Enjoy the break.

JohnEustace

I think Whitbread (LON:WTB) should have stuck by Costa. Perhaps spun it off and retained a majority ownership. Coffee is a hot area at the moment and the Costa brand has a lot of international growth left in it so provided they don’t mess it up I think Coke have the better of this deal.
I usually agree with Elliott and have done well following them into investments but this time I think short termism has won out.

More positively I’m intrigued by the Strix (LON:KETL) move into the coffee market and I’ve bought an initial stake there.

john2

Sorry to be niggly - the Costa price was £3.9 billion, not £3.9 million.

Laughton

Re Whitbread (LON:WTB) - Hi Graham, I'd like to add my name to the already long list of those who have really apprecitated all your work over the past weeks.

One little typo though - I think that's 3.9 billion not million. If not then I'm going to start a whipround amongst your fellow readers to raise the cash - I'm sure we can get enough interest to raise the offer to £4 million.

dscollard

@graham-neary before your hols correct the typo on the Costa sale - that would be £3.9bn not million... that would have been a bargain

reminiscent of Dr Evil

jonesj

Thanks for the high quality analysis during the summer Graham.

As for Costa, well with Coca Cola behind them, I can only see fairly aggressive global expansion for the Costa brand now.

Graham Neary

Lol! Thanks for that. G

No, it's good to be niggly - it's the only way I can correct errors and typos. Thanks! G

Foolish Pat

Thanks Graham for all your insight over the summer. Much appreciated

AlanJenkins2

Have a nice holiday,Graham !

wildshot

Thanks for the great coverage over the summer Graham, you've done a sterling job. This is always a first port of call for stock ideas to research further. Your and Paul's analysis help me quickly identify what might be worth my time to look into and what to barge pole.

You deserve a fabulous holiday. I hope that you come back refreshed and ready to share more of your wisdom with us.

I can't reply individually but I greatly appreciate all the kind wishes - thank you all so much! It means a lot to me. Graham

dfhscgfsd

Thanks for your time Graham

ken mitchell

I know it’s getting repetitive but it shows how appreciated your daily updates are Graham. It’s been a Herculean effort. Thanks. My reaction to the Costa news was similar to yours. otoh their Premier Inn chain is very successful and trip advisor and other reviews are excellent. AND the chain comes top in “Which” surveys, beating far more expensive chains too. Now they can focus on European and possibly other foreign expansion, and if their standards there can be as good as here, Premier could go from strength to strength.

jules2k6

Most gold miners are down at the moment. The fall may just be down to sentiment on the sector.

herbie47

Also many other miners are down, such as Central Asia Metals (LON:CAML) -37%, Ferrexpo (LON:FXPO) -50%, Griffin Mining (LON:GFM) -35%, Pan African Resources (LON:PAF) -53%.

Julianh

1st Sep '18

Great final report until you return fresh and enthusiastic after your so well earned break.
I do like the dry wit - “It’s amazing how unlucky fresh IPO’s turn out to be”. I avoid fresh IPO’s on principal:
* the sellers know so much more about the company than the buyers
* as you say, recent history has been littered with optimistic IPO’s followed by profits warnings
And thank you for founding CAMRE (the campaign for Real Earnings). An RNS that highlights adjusted earnings, EBITDA, “adjusted EBITDA”, etc. Is a big red flag unless a prominent and clear reconciliation to real earnings is also given.
Lots of good wishes to you for your well earned break and looking forward to your return when rested.

DJCP

A belated thanks to Graham for his Sterling work in Sharing his views/analysis with us all - He may already be relaxing, beer in hand, and turning lobster-red as I type !
Also, a pre-re-launch welcome back to Paul :o)

In addition to the above, I'd like to share a trick I've just found on Stockopedia - Many (all?) of you may already be aware of this. I've been DYOR on a few shares, and was searching the SCVR archives for any Paul/Graham analysis.

If a share has changed name/ticker, it's still searchable - as per this example.
Searching the SCVR for Yolo Leisure and Technology (LON:YOLO) gives this report :
https://www.stockopedia.com/content/small-cap-value-report-6-may-2014-pps-mtc-pen-blnx-ppr-83162/

Yolo Leisure and Technology (LON:YOLO) were called Pentagon Protection (the PPR from that link).

BLNX are also in that particular report, and a search for their new name RhythmOne (LON:RTHM) brings up that report too.

Not rocket-science, but a clever little Stockopedia extra :o)

btw. The report above is from 2014, and I'm amazed that Paul hasn't aged AT ALL in the past 4 years, when comparing his pictures ! lol

runthejoules

3rd Sep '18

Wot no Monday placeholder? :-(

Small Cap Value Report (Fri 31 August 2018) - RTN, WTB, FFI, ESG, Wonga/HAT

Restaurant (LON:RTN)

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Graham Neary

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