Small Cap Value Report (Fri 4 Dec 2020) - DBOX, NANO, WSG, MCB, SBTX, HUNT, SMRT, TPX, IGE, EVE

4th Dec '20 by Paul Scott

75 comments 15340 reads

Good morning, it's Paul here with the SCVR for Friday.

I didn't plan it this way, but today's report turned into a nano cap special.

Timing - update at 16:31 - I'm winding down for the weekend now, so today's report is now finished.

Agenda - firstly a few tiddlers left over from yesterday;

Digitalbox (LON:DBOX) - Trading update (profit warning)

Nanoco (LON:NANO) - Trading update

Westminster (LON:WSG) - deeply discounted fundraising & more jam tomorrow promises from this serial disappointer

Mcbride (LON:MCB) - Positive trading update

Skinbiotherapeutics (LON:SBTX) - Final results - with zero revenues

Hunters Property (LON:HUNT) - potential takeover approach

Smartspace Software (LON:SMRT) - Trading update with no figures in it, and tells us almost nothing about trading!

Panoply Holdings (LON:TPX) - Interim results from Monday this week

Image Scan Holdings (LON:IGE) - Final Results from this nano cap

Eve Sleep (LON:EVE) - Trading update

Retail carnage continues with Bon Marche going into administration, for the second time in just over a year (Oct 2019 previously). 225 stores under threat. It's so tough out there, but this is (sadly for the people involved) a necessary thinning out of weaker, not very relevant brands. Capitalism’s process of creative destruction has to force the weak out of the market, to leave greater market share (of a smaller market) for the survivors

People are buying so much online, that we just don’t need as many physical retailers. Harsh but irrefutably true. Let's not be hypocrites about this - you can't be on first name terms with your local Amazon delivery drivers, and lament the demise of the High Street at the same time. We're causing it, because it's easier to buy lots of stuff online.

Here are quick comments on some micro caps from yesterday, so I can reduce the number of open tabs on my computer screen;

Digitalbox (LON:DBOX)

5.6p - mkt cap £6.4m

Quite an interesting, tiny company. It makes the satirical website & TV show, The Daily Mash, and Mash Report, which can sometimes be quite funny. It’s profitable, so superficially attractive. However, I quickly sold my shares in it some time ago, when I realised that the…

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Snooker2020

4th Dec '20

Thanks for the comments. Also thanks to readers who commented. My view, the catalogue is actually not great quality and not v current.

ezlifeme

Hi Snooker2020 - Hipgnosis Songs Fund (LON:SONG) - You mean there is nothing from Paul's Disco Bunny era?

Momoko Miyamoto

Re: Panoply Holdings (LON:TPX)

Thanks for nice overview of this oddly named company with an odd business model. Highly acquisitive with many of them overseas so fair bit of operational risk. CEO talks a good talk but sometimes this is a bit of a flag.

abtan

Hi Phuntt

Following on from your post about clothes bought online not fitting, I think there was a Japanese company that tried body mapping a couple of years ago too, but that also failed to take off (the clothes that arrived still didn't fit properly).

In any case my understanding is that for single brand sellers it's easy for a customer to know what their size is once they have tried it once.

I imagine it's harder for an online player such as Asos (LON:ASC) which is essentially a marketplace for several brands, each with their own slightly different interpretations of what a size 10 is.

In response to your last question - "Anyone know of any others in the public sector who might be worth a look?" - I'd like to suggest SFIX (Stitch Fix).

It's certainly not an idea that I ever thought would work, but they're booming right now. The advantage they have over traditional online sellers (is that a term yet?) is that they know:

what you like, and;
your exact size.

It's a very powerful tool, with high conversion rates and reduced returns, driving higher margins and sticky customers.

The only other player I know who are now trying the same thing is...Amazon.
I see this is as a good thing, because clearly Amazon sees something in the model too.

Results for SFIX are out this Monday. I don't hold yet, but it's very high up my watch list.

Cheers

JohnEustace

With Nile Rodgers as one of the Hipgnosis Songs Fund (LON:SONG) founders I suspect Paul's Disco Bunny era is well covered.

Paul Scott

Hi Momoko,

I know what you mean. Every time I listen to management of Panoply Holdings (LON:TPX) presenting, I think they come across as very smart people, fluent, clearly ambitious, and it all makes a lot of sense. But I can't shake off an uneasy feeling that it's all being hyped up a bit too much.

On balance therefore, I'm probably just going to keep a watching brief, and see how it develops.

Regards, Paul.

Rusty2

Was that UNIQLO, they do go into more detail about sizing. Not very large in the UK but popular in Asia.
Yes if you know the brands then sizing should not be such an issue.

No, it wasn't Uniqlo.

Just found it - the Zozo suit.

This is behind a paywall but you can read just enough to see that the body suit idea didn't take off.

https://qz.com/quartzy/1539036...

GTrader

That's OK. They have some best in class tech but overly focussed on gaming has been there current drag. If they can gain material/profitable volume in another area, i.e. industrial displays or newer growing concepts i.e. restaurant table top ordering or fast food self orders, then they may turn around. But they need a bigger sales hitter at director/sen man level to refocus on new areas.

"...by the marketing agency that passes for our government", that comment absolutely made my day. I am going to use that. Brilliant

I should point out I voted from that marketing agency in case I am labelled red.

Rodgers63

Thanks Paul, you covered an incredible amount of ground today, brilliant effort. Hope Paddy's stable...

Phuntt

Thanks for reply Abtan. I listened to great interview with Katrina Lake from Stitch Fix during the summer - https://podcasts.apple.com/gb/... if interested. I never invested because I don’t like the box model (although their return levels are best in class).
To be honest, I’m still pretty sure Amazon are going to end up dominating this space. Can you imagine a world where all their customers (which is most of the western world after lockdowns) are perfectly sized into every item of clothing on their site and customers can look at themselves in catalogs of the clothing before purchasing? They would quickly dominate the clothing world and with AWS they have the spare computing power to make it happen like no one else. That’s what I see as the main competitive threat to retailers like Boohoo (LON:BOO) unless there is a viable option for them.

Boon

I am staying away from Mcbride (LON:MCB)

Debt and pension. Low margins. If you look at the broker forecasts graph, they were declining every month until covid started.

Covi ssaved this company, as suddenly there was a huge surge in demand for hygiene products. Even better, supermarket own brand was flying off the shelves as they were the only retail stores open. This boosted revenues and margins for Mcbride.

But could they be a post-covid loser next year? Very likely.

Wilbraham

There's a helpful Hipgnosis Songs Fund (LON:SONG) results powerpoint https://static1.squarespace.co...

Rather more upbeat than the webcast. Should have enough info (p 21) to allow you to substitute your own preferred discount rate or estimate the mean term of projected revenue streams. Personally I'd prefer to see a projected revenues chart (from existing catalogue) as obviously very many assumptions go into this, eg royalties inflation (if any) and rate of decline as songs fall out of favour. A slight red flag is that two of MM's family have key roles - General Manager and Chief Creative Officer. (Remember the Burford CFO scandal?)

To me, some key risks are:

Do they overpay for assets, in their catalogue landgrab and the Kobalt acquisition?
Does emerging competition give them even more incentive to overpay?
Has streaming benefited unduly from the WFH epidemic and will tail off as people go back to work?
Although copyright currently appears stronger than ever (and there should be less royalty leakage in a digital world) there must be a risk that new technology will provide a loophole (I don't remember how all the P2P file-sharing apps were finally stamped out - perhaps it's just that all-you-can-eat streaming is so cheap that it's not worth people trying to circumvent copyright).

But I bought in as a pure income play so it's pleasing to see potential for revenue growth. At the end of the day, it's little different from a traditional REIT but with IP not physical assets so different risks and potential opportunities.

jonesj

Uniqlo have their own piece of sizing stupidity, as they now stock men's jeans with only 34" inside leg in the UK.
Their argument is that they do a free alterations service, so these can be shortened.
That's OK if they can fit in the order when required AND the customer has time to pop back later.

Even fast growing successful retail businesses make mistakes.

A doddle! Solid pair of scissors and a reel of that iron-on hem tape will do the trick, speaking as a short-legged dude.

Thanks Rodgers63. I thought it would make sense to cover lots of companies, but do shorter sections today.

I thought we were going to lose Paddy this time last week, but he seems to be on the mend somewhat. He's been in doggy hospital now for a few days, they're dressing his wounds every day, and he's had treatment on a drip. Seems crazy for a dog really, but he means so much to us, that he's part of the family, and we had to try to save him, even though it will end up costing a few thousand quid. Lucky timing, as the markets have been good to us recently!

The vet will decide if he needs another operation to graft some skin over the wound, but I'm more than 50% hopeful he should recover, which is lovely! At least I've been able to focus properly on work, now he's recovering, and is in good hands.

Have a lovely weekend.

Best wishes, Paul.

SaarfLondon

Good post.

Stevenlondon3

5th Dec '20

I am becoming a disillusioned holder of £SONG. Looking at the NAV bridge from116.7p to 125.4p during the six months, the "strong fair value uplift" only contributed 0.6p. The reduction in discount rate from 9.0% to 8.5% added 10.5p. Haven't the foggiest what a reasonable discount rate should be but the Group probably is looking to further reductions to fuel NAV rises.

Announcing the possibility of further share issues is also a good way to dampen short term demand for the shares.

Gabriela Cherciu

6th Dec '20

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Small Cap Value Report (Fri 4 Dec 2020) - DBOX, NANO, WSG, MCB, SBTX, HUNT, SMRT, TPX, IGE, EVE

Digitalbox (LON:DBOX)

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Paul Scott

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