Small Cap Value Report (Fri 5 Apr 2019) - TET, MOTR, CREO, TCN, LWB

Friday, Apr 05 2019 by

Good morning, it's Paul here.

My plan today is to set aside some time to catch up on a few things that I missed earlier in the week. In addition to reporting on today's news too, of course.

Move to subscriber-only editorial

Most readers here are subscribers. We got one or two negative, and inaccurate reader comments yesterday, complaining about the move to put all editorial here behind the pay wall, w.e.f. next Saturday.

To prevent any more misunderstandings, Ed explains here why this decision has been taken. It's worth a read, as he also updates us on other improvements to Stockopedia.

A couple of small acquisitions are announced;

Begbies Traynor (LON:BEG) is acquiring a profitable, small firm of chartered surveyors. The deal looks sensibly structured, with a 3-year earn-out on stretch targets. I like BEG's strategy of developing its property services division. This generates some growth, which is lacking in its core insolvency division.

Scientific Digital Imaging (LON:SDI) is acquiring a small but profitable, complementary business here. Again, not material.

Treatt (LON:TET)

Share price: 392.5p (up 1%, pre-market open)
No. shares: 58.8m
Market cap: £230.8m

Trading update

Treatt, the manufacturer and supplier of innovative ingredient solutions for the flavour, fragrance, beverage and consumer product industries today publishes a trading update for the half year ended 31 March 2019 (the "Period").

Nothing madly exciting here, it's an in line update (right at the end, in the outlook section);

... the Board, therefore, continues to believe that profit before tax and exceptional items will be in line with its expectations for the financial year ending 30 September 2019. 

Other points sound reassuring overall;

  • H1 revenues up 7%
  • Encouraging opportunity pipeline
  • New $14m US facility, completed in Mar 2019, will be fully operational by June 2019
  • UK relocation, costing £35m, due to start summer 2019, occupancy due to begin in summer 2020
  • Forex hit of £0.6m - doesn't really matter, as it's swings & roundabouts

My opinion - there could be a good opportunity here. It's not cheap, on about 20 times forecast earnings, but that doesn't include upside from the major new production…

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Treatt PLC is a United Kingdom-based ingredients manufacturer and solutions provider to the flavor, fragrance and consumer goods markets. The Company's geographical segments include United Kingdom, Rest of Europe, The Americas and Rest of the World. The Company's products include Essential oils, Citrus, Treattarome, Functional ingredients, Chemicals, Organic essential oils, Vegetable oils and Treatt brew solutions. Its Essential oils include Amyris Oil, Angelica Oil and Aniseed Oil. Treattarome products include Pineapple Treattarome, Honey Treattarome and Cucumber Treattarome. Its Citrus products include citrus oils, CitrustT, TreattZest and Citrus add-back range. Its Functional ingredients include beverage specialties, fragrance ingredients and sugar reduction products. Its chemicals include aroma chemicals, natural chemicals and Treatt Flavour Wheel. Its Vegetable oils include Borage Oil and Baobab oil. Its organic essential oils include Organic Aniseed Oil and Organic Lime Oil. more »

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Motorpoint Group plc is an independent vehicle retailer in the United Kingdom. The Company's principal business is the sale of vehicles, of which are approximately two years old and which have covered over 15,000 miles. The Company sells vehicles from brands representing vehicle sales in the United Kingdom, with models from Ford, Vauxhall, Volkswagen, Nissan, Hyundai, Audi and BMW. The Company operates from over 10 retail sites across the United Kingdom. The Company has a national contact-center dealing with online enquiries. In addition to sales of vehicles, the Company operates, a business to business online auction platform for vehicles. The Company also offers ancillary products to customers, including customer finance packages, vehicle guarantees, insurance products and vehicle protection treatments. more »

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Creo Medical Group plc is a United Kingdom-based medical device company. The Company focuses on the field of surgical endoscopy. The Company focuses on the development and commercialization of minimally invasive surgical devices, initially in the area of gastrointestinal (GI) surgery and lung cancer. The Company has developed CROMA, which is an electrosurgical platform that can deliver microwave and bipolar radiofrequency through a single accessory port. The Company's surgical system CROMA combines bipolar radiofrequency for localized cutting and microwave energy for controlled coagulation, which provides physicians with simplified and controlled surgical solutions. The Company's pipeline portfolio of instruments is targeted at three therapeutic endoscopic specialties: lower GI; lung/bronchoscopy and upper GI. more »

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

32 Comments on this Article show/hide all

PeteB 5th Apr 13 of 32

Hi Paul - a bit off topic, but have you any insight into why Sosander is sliding down at the moment?
Thanks, Pete

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alexdonnelly 5th Apr 15 of 32

Ref the Small Cap Value Report
Its hosted on Stockopedia's servers
Its written by Stockopedia staff or people related to the company

If they want to put it behind their firewall and only available to subscribers they can, its their report

Also no one should abuse the writers for their opinions

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Wimbledonsprinter 5th Apr 16 of 32

There has been in past months quite a lot of comments on here about the cost of returns to online retailers. The below BBC article states ASOS will start blocking "serial returners".

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jonesj 5th Apr 17 of 32

In reply to post #466351

I would think there are all sorts of pricing variations that could be used to deter moderately excessive returners, such as variable price discounts & shipping charges according to previous customer behaviour.
Some simple software should be able to calculate all this.
Obviously the ones who completely take the mick would still need to be banned.

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Camtab 5th Apr 18 of 32

In reply to post #466256

Hi PeteB, in the past when I have asked similar questions, nice contributors within our community tell me Paul doesn't tend to comment on share price movement. He responds to company announcements. The point being that sellers and buyers tend to affect short term price movements and who can predict those? Hence I am passing that kindness on, and affordng you the courtesy of a response.
My best wishes

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threeputt 5th Apr 19 of 32

In reply to post #466246

"When I was growing up, people used to laugh when I said I wanted to be a comedian. Haha They're not laughing now!"

Paul, so pleased you picked that one as it's my favourite one of all time, there was one other (not by Bob) but I've forgotten it lol.
Bob Monkhouse - one of the wittiest standups of all time

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Richard Goodwin 5th Apr 20 of 32

In reply to post #466106

My biggest failure was a car supermarket called Car Group. If a low margin business finance stock with debt then any sudden dislocation in the market kills the firm stone dead. In my case it was a dramatic move of the euro: sterling exchange rate which suddenly led to the UK being flooded with cars from the confident. This depressed the value of stock and slowed stock turnover. Moral of the story is with high debt low margins, don't underestimate black Swan risk as the firm has nothing to fall back on and will go bust.

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Zipmanpeter 5th Apr 21 of 32

Any catch up thoughts on £G4M trading update from earlier this week. My notes from update were

* Revenue +37% organic growth to £109.9 on LFL 12month basis (+33% UK, +41% ROW)
* Active customers +53% and website conversion rate up again (to good 3.4%)
* Own brand up more than branded in last half - good sign for margins in the long term
* Ger/Scand dist. centres now fully up and running and with headroom - no news on (final?) Euro hub in S Europe
* UK fulfilment capacity increased by new efficiency measures - delays need for more UK warehouse CAPEX
* £5Mn in cash and less debt "than expected" at year end

Chiefly lower margins than prior year (but recovering H1 27.5, H2 28.5% attributed to
* "Competitive pressures" (not sure if these will ever go!)
* Cleared some excess and slow moving stocks during period
* Courier and distribution cost inflation, allegedly now partly reversed and /or mitigated by using Euros centres
* Promise of focus and initiatives to push up % GM again going forward eg focus on higher margin lines

I bought in (too soon as ever!) a few months ago and intend to hold for 4 or 5 years. On this timeframe, if sales can double from here to £250Mn pa, or 5% market share on their market size data, I am very optimistic about a good return.

Short term, a recession and a sterling devaluation would hurt progress badly as it would require reductions in the marketing spend which is key to slowly building scale across UK/Europe and a bit of a brand moat in the segment they target (which in my view is undemanding entry to mid level hobbyists).

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Trident 5th Apr 22 of 32

When die I want to go peacefully like my grandfather did- in his sleep. Not like his passengers did, yelling and screaming!

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Zipmanpeter 5th Apr 23 of 32

In reply to post #466376

Re balancing online sales vs stock returns (comments 16 and 17) - been thinking about this a lot.
I agree that once the market settles for these down (returns at this scale and with AI/data analytics is still relatively new ), we should expect differences to emerge by (fashion) retailers as they use data to understand segment their customers better. High returns are not going to go away once purchasing via physical stores shrinks.

However, rReturns will also become recognised as environmentally harmful (, costs and footprint of packaging and delivery vans etc). This will become a big negative as planet-conscious younger consumers become a bigger share of purchases. It will also favour those businessed with structurally advantaged models to cope with high returns.

This includes in my view
i) high basket value/high margin products ( eg Sosandar (LON:SOS) )
ii) multi-wear clothing (since I hear v, cheap, one use clothing is simply binned on return eg £NEXT
iii) quality brands where other reasons are minimised (picture/descriptor show it correctly, fit is consistent, quality is high (£SDRY)

I wrongly thought N Brown (LON:BWNG) with its mail order background would manage this well but it seems it was not quality 'born online' but rather historic success in focusing on formerly underserved markets (old & plump) now much better served

Losers will be :
ii) cheap brands (I think Boohoo (LON:BOO), PLT etc are very vulnerable to environmental shaming)
iii) one wear clothing ( Boohoo (LON:BOO), QUIZ (LON:QUIZ) )
iv) mis-described items ( Boohoo (LON:BOO), PLT ???)

Disc. I hold NEXT and SOS and have just exited BWNG (sadly at great loss)

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leishylegs 5th Apr 24 of 32

Courtesy of the brilliant Tim Vine:

I had a dream last night that I was cutting carrots with the grim reaper. Felt like I was dicing with death.


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purpleski 5th Apr 25 of 32

In reply to post #466351

Re BBC report ASOS returnd. Interesting (if true, I am not sure how much the BBC gets right). I find Julie Lavington’s (at £SOS) approach (as outlined to Paul at much more refreshing. The living room is the changing room and as customers get more use to sizes, returns will drop. I think if you are getting it right, then serial returners should be a very small part of your customer base. Obviously if they are returning items with sweat marks (or worse!) that is different matter.

I worked in a department store in London many moons ago and this lady came in complaining that the sweater she had bought, had shrunk when she hand washed it. It was obvious that it had either been tumble dried or machine washed. We sent her away with a flee in her ear!

I hold a very small position in Sosandar (LON:SOS) pending more research.

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rhomboid1 5th Apr 26 of 32

In reply to post #466231

Hi peter

I’ve spoken to the company

I’ve tweeted a synopsis but to your point he’s not an EBT benificiary...& I’m ok with the rationale for the transaction...he’s played a blinder but with benefits for all holders imho

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DJCP 5th Apr 27 of 32

If I may join in on the ASOS (LON:ASC) returns topic.

I've pointed out to many friends/family that if they didn't over-order, then the prices could come down - simple economics (obviously, the companies may not reduce prices, and just make more profit ! lol)

I do deal with Amazon quite a lot, and a while ago they bought in a 'seller-tool' being a 'auto no-return refund'. Basically, by a seller agreeing to this, if a buyer wanted a return/refund, then they'd automatically be refunded without having to return the item ! I can imagine once scam-buyers had worked out who had this facility in place, they would have quickly shared the seller's details with all their other scamming associates !

Sellers are now sharing many more details about scammers and their tricks, trying to keep one step ahead. i.e. finding buyers on Facebook who've posted images of their items (clothing, laptops (>£1,000 !), etc.) and trying to get a refund for non-delivery. Apparently, couriers now take images/videos of items being delivered.

With regards to the sizing, there was a website I recently found, that would allow a buyer to input their measurements, and it would then advise on the best size to purchase from each of the main online retailers. On Amazon, their shoe dept., give approx. cm sizes (foot width and lenth) within their size guide(s).

I imagine these online returns will lessen as buyers become more aware of what they actually need, realise they're being monitored if they abuse the system (Fraud Watch etc.) and are generally more sensible with their purchasing.

Disc: Big % of folio in Boohoo (LON:BOO) and very small punts in Sosandar (LON:SOS) & French Connection (LON:FCCN)

Happy weekend Stockopedians :o)

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mwardceng 5th Apr 28 of 32

In reply to post #466246

hi Paul
Bob looking back fondly on his childhood
"...on a Sunday evening after dinner, all the family would gather round the piano.....wishing one of us could play"

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paraic84 6th Apr 29 of 32

In reply to post #466256

Pete- Sosandar (LON:SOS) on a racy rating (6x next year's sales) and has lost momentum, plus backdrop of retail uncertainty. Such shares tend to be volatile. Simple as that I think! I have held off from buying them before but 3x expected 2020 sales is not an absurd price to pay if it keeps up the performance - Boohoo (LON:BOO) is on 2x 2020 sales and a more mature company now. So it could be a good entry point.

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AnonymousUser556694 6th Apr 30 of 32

Paul - Thanks & Goodbye
So there is no free lunch and with other non-subscribing 'lurkers' my daily 5 minutes free scan of amusing analysis and comments is over.
You guys did get up and write the stuff and Somero (SOM) was added to my watch list so thank you for your efforts and may you grow rich and enjoy spending it.
Back in the day the Motley Fool was a great site to 'lurk' and Stephen Bland (PYAD) was a big influence (though I never had a farm to bet) and in the FT John Lord Lee wrote more sense than most. Also read Nassim Taleb (Fooled and Black Swan) also Peter Bernstein 'Against the Gods' - the story of risk
Read and inwardly digest investing of yesterday (Wiley Investment Classics) in particular 'Where are the Customers’ Yachts?' and 'Reminiscences of a Stock Operator'
I have always lost my own money by which I mean I never paid someone else to lose it for me. - never found a share analysis site that could show me their customers’ Yachts – though I think the site owner may have had ‘ a good living’
Lastly before you buy or sell a share get a line chart showing at least 5 years history (more years better) overlay two SMA's 200 day and 500 day then look at the right hand side (latest price) - stand back and think about the 'story' in front of you. As the Merchant of the City of London once told me "buy cheap and sell dear"

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paraic84 7th Apr 31 of 32

One other point about Tricorn (LON:TCN) - the major shareholder is a 72-year-old NED with 33% of shares. He's surely going to want an exit soon. So I think there is a bigger chance of a decent sale here rather than a de-listing.

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samanddee 11th Apr 32 of 32

Good to hear Lord Lee is well and active. The WB of the UK.

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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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