Small Cap Value Report (Fri 5 Oct 2018) - MOTR, CALL, PLA, QUIZ

5th Oct '18 by Paul Scott

12 comments 6800 reads

Good afternoon,

Drat, I forgot to put up the placeholder last night, my apologies. I blame Emily Thornberry, who worked me up into a lather, with her bullying of Isabel Oakshott on Question Time. She's a nasty piece of work if you ask me.

Anyway, it looks as if there's little for me to cover today. I'll be updating this article throughout the afternoon.

Motorpoint (LON:MOTR)

Share price: 211p (up 3.9% today, at 12:44)
No. shares: 97.6m
Market cap: £205.9m

Half year trading update

Motorpoint Group PLC, the UK's largest independent vehicle retailer, is pleased to announce the following trading update ahead of its Interim Results for the half year ended 30 September 2018.

H1 revenues expected to be up c.9%
Operating margin similar to last year
Pleased with quality & mix of current vehicles in stock
12th site, in Sheffield, is performing well
Pipeline of new sites under review

Outlook - sounds alright;

The Board continues to closely monitor customer confidence in light of the ongoing economic and political uncertainty. However, the Board is encouraged with the recent trading performance and remains confident that Motorpoint's independent and flexible model leaves it well placed to increase market share.

My opinion - it's striking how some companies are blaming Brexit uncertainty, the weather, football, etc, for poor performances. Whilst other companies are just getting on with things, and doing well. Motorpoint seems to be in the latter category.

The valuation looks attractive to me - see below - for a company with a proven formula, which is opening new sites. Could be worth a closer look, and adding to my watchlist for things to buy on any panic sell-off. The return on capital & equity look very good. It doesn't seem to need much capex. Just a piece of land with a few large sheds on it.

Flogging good quality secondhand cars to the public, at bargain prices, won't ever go out of fashion. So this is a good business.

Cloudcall (LON:CALL)

Share price: 103.5p (up 9% today)
No. shares: 24.2m
Market cap: £25.0m

(at the time of writing, I hold a long position in this share)

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5th Oct '18

Any views on the LTIP at Indigovision (LON:IND) ?

https://www.moodys.com/research/Moodys-assigns-Ba2-CFR-to-Playtech-PLC-stable-outlook--PR_389601

For those interested, Moody's report on Playtech (LON:PTEC). Seems mildly positive.

doug2500

I'm intrigued by companies like Motorpoint (LON:MOTR) (and Computacenter (LON:CCC) is another one) which look like great quality companies with good ROCE etc. but have tiny margins which I normally take to be a sign of a poor company.

I can never quite reconcile the two things in my head and tend to shy away from them. I'm always too worried that with thin margins profitability can disappear too quickly.

cholertonandrew

Hi Paul, interested if you have a view on Gfinity. Interesting RNS about them running an eSports competition for the Premier League. Problem is the cash burn is so high.

Thanks
Andrew

sharw

I would also welcome your views on the Indigovision (LON:IND) scheme. My back of envelope calculation is that they would get the maximum (20% of capital) at eps $1, currently 77p. Taking the p/e of 14 of rival Synectics (LON:SNX) as a guide that would give a share price of 1078p which would delight those currently holding at 106.5p!

Paul Scott

Hi Andrew,

As it's a quiet news day, I've had a quick look at Gfinity (LON:GFIN)

The last interim results were absolutely dire! £1.8m revenues and a £7.7m loss before tax, in just 6 months!

So it's likely to need regular fundraisings.

Personally, I wouldn't go near anything trading this badly, burning through cash so fast, and in a sector that I don't really understand. So definitely not for me!

I think Nigel Wray is involved in this, and he tends to back management that he rates highly.

Regards, Paul.

Stop press! Profit warning from QUIZ (LON:QUIZ)
I'll add a section on this once I've finished lunch.

Tortoise investor

I follow QUIZ (LON:QUIZ) closely so here's my take on their mid-afternoon RNS. I sold out a few weeks ago over the concerns about Debenhams (LON:DEB) future as QUIZ (LON:QUIZ) is heavily exposed. See here for my take on that: https://www.stockopedia.com/co...

Today they say revenues for H1 18/19 are up 19% overall and 44% online. They warn that there is flat revenue from third party websites. As you can see from previous statements, their growth is slowing:

Total revenue growth

H1 17/18	Xmas 17	H2 17/18	FY 18	H1 18/19
35.2%	31.9%	24.8%	30%	19%

Online revenue growth

H1 17/18	Xmas 17	H2 17/18	FY 18	H1 18/19
204.6%	119%	127%	158%	44%

They helpfully provide some numbers on full-year expectations, although referencing EBITDA is a bit annoying. Expected full-year revenue was £152m (and 7.95p adjusted EPS) and they are now saying it will be £138m.

"The Board anticipates that, as a result of lower than expected sales through third-party online partners in the second quarter of the financial year, the performance of our UK stores and concessions during September and the provision against the outstanding House of Fraser debt, EBITDA for H1 2019 will be not less than £5.5m, being £1.5m lower than its previous expectations. In addition, the Board has taken the prudent assumption that should the trend in online third-party sales continue during the second half of the financial year, Group revenue for the full year to 31 March 2019 would be lower than current market expectations at approximately £138m (FY 2018: £116.4m) and the Group's EBITDA for FY 2019 would to be in the region of £11.5m."

Not a disaster. But presumably EPS will now be closer to say 7p? (if one ignores the House of Fraser provision). The trouble is I am still concerned by the Debenhams exposure so I probably would still want a slightly cheaper entry point than this.

Separately I am intrigued by this: "the Group experienced a lower sales performance across its stores and concessions during September reflecting less footfall." Could this be because September has been warmer than most so maybe people aren't needing to rush out and buy new clothes? That could affect other clothing retailers too obviously.

Laughton

Bit naughty of QUIZ (LON:QUIZ) releasing that update midway through a Friday afternoon.

I don't hold any of these but I take comfort from their own website on-line sales progress as a read across to Boohoo (LON:BOO) and Sosandar (LON:SOS) where I do hold (a lot).

Re Gfinity,

Thanks Paul, that’s really helpful, I appreciate you taking a look. I guess it will be very difficult to build shareholder value near-term with those sort of losses.

The trades on Cloudcall (I hold) are intriguing- I hadn’t spotted what was going on. Be very interesting to see who the buyer or buyers are. I’m a bit surprised/worried though about likely several institutions throwing in the towel. I personally think the drivers for stronger growth going forwards are probably there and current levels of growth are decent enough.

Regards
Andrew

Gromley

Gfinity (LON:GFIN) is another of my large array of very small shorts, so the 17% share price rise yesterday was not especially welcome. But the beauty of these positions being individually so small is that a single move like that barely moves the needle.

I'm fighting a loosing battle to remain strategically ignorant about the companies in my short folio, so I am having to settle for being strategically indifferent .

Yesterday's announcement seemed pretty impressive

entered into an agreement with the Premier League to become Tournament Operator of the inaugural ePremier League ("ePL") tournament.

Gfinity will develop and execute the Online Qualification for the Tournament via its proprietary tournament management platform. It will also develop and execute 20 competitions for the Club Knockout Rounds and host the final round, to be played at the Gfinity Arena, London, in March 2019 and will be broadcast live on Sky Sports and Premier League social media channels.

Good and impressive stuff, could it be a game changer for the company?

I really don't know, it seems like a pretty cool badge of honour, but unfortunately they left out the part of the RNS that would have told us whether they will actually make any money out of this.

I'm quite happy therefore to keep my short open and ride this out. (The share price has already given back 1/3rd of yesterday's gains).

Rusty2

Had a look at cars at Motorpoint (LON:MOTR) I thought they were quite expensive and little choice, I looked on Autotrader and found one at a dealer not far from me for far less money, low mileage and in the colour I wanted, they also gave me a good trade in price. I think there is quite a bit of competition. In a recession people don't change their cars so much, so it's not one for me.

Small Cap Value Report (Fri 5 Oct 2018) - MOTR, CALL, PLA, QUIZ

Motorpoint (LON:MOTR)

Cloudcall (LON:CALL)

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Paul Scott

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