Small Cap Value Report (Fri 8 Mar 2019) - Mello, DEB, GOAL, BST, REDD

Friday, Mar 08 2019 by

Good morning, it's Paul here.

Mello London

David Stredder's team have been working hard to put together 2 events, back to back, in May 2019. The location is in Chiswick again, which was an excellent venue last time.

Mello Investment Trust & Funds - this should be an excellent one-day event on Wed 15 May.

The line-up of speakers & exhibitors looks superb - lots of very interesting insights, I imagine.

Mello 2019 - the main, 2-day Mello event is back (also in Chiswick) on Thu 16 & Fri 17th May. Previous attendees will know how well-organised, friendly, and interesting these events are. As usual, Graham and I will be in attendance, chatting to all & sundry about shares! Hope to see you there.

Debenhams (LON:DEB)

Share price: 3.06p
No. shares: 1,227.8m
Market cap: £37.6m

Series of announcements

Let's recap on the situation with this struggling department store chain.

Trading update (profit warning) - earlier this week, on Tuesday, the company issued a profit warning. To summarise it;

  • LFL sales still negative, at -5.3% in H1
  • Discussions ongoing to restructure balance sheet (i.e. equity/debt fundraising)
  • Statement from 10 Jan 2019 that trading in line with expectations is no longer valid (it didn't seem credible to me at the time)
  • Still expecting to close c.50 stores in the medium term
  • Needs support of landlords & local authorities, to reduce rent & rates liabilities - this is the crux of the situation, and I don't see any alternative to a CVA or administration - hence it's very difficult to see any value in the existing equity.

Sports Direct statement - major shareholder, headed by Mike Ashley, has put in a requisition to sack almost the entire board. Bizarrely, Ashley has offered to take over as CEO of Debenhams, on a full-time basis - i.e. relinquishing his role at Sports Direct.

It's difficult to take this seriously, since Ashley seems to be doing so many deals at the moment, buying up various struggling retailers, that you wonder how he could possibly take on a role as big as running Debenhams on top of everything else.

It also brings into question the massive conflict of interest. Presumably he wants to buy Debenhams and merge it with House of Fraser. The only realistic way to…

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Debenhams plc is a United Kingdom-based company, which is engaged in multi-channel business. The Company’s brand trades through approximately 240 stores in 27 countries. The Company's segments are UK and International. The UK segment consists of stores in the United Kingdom and online sales to the United Kingdom addresses. The International segment consists of international franchise stores, the Company-owned stores in Denmark and the Republic of Ireland, and online sales to addresses outside the United Kingdom. The Company's stores trade under the name of Debenhams other than the Danish stores, which operate under the Magasin du Nord banner. Its stores offer customers a range of services, including restaurants and cafes, personal shopping assistance, hairdressing and beauty treatments, nail bars and wedding or celebration gift services. Its Debenhams Direct ( offers a range of products and services for online customers. more »

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Goals Soccer Centres plc is a United Kingdom-based company engaged in the operation of outdoor soccer centers. The Company operates in the United Kingdom and United States, and operates in the operation of soccer centers segment. The Company offers 5-a-side soccer centers across approximately 50 centers in the United Kingdom and one in Los Angeles, the United States. The Company's centers are in locations, including Aberdeen, Beckenham North, Beckenham South, Chingford , Coventry, Sheffield, Norwich, Sunderland, Teeside, Bexleyheath, Birmingham (Perry Barr), Birmingham (Star City), Black Country (Wolverhampton), Kingston (Tolworth), Bradford, Bristol North, Bristol South, Glasgow South, Wimbledon, Plymouth and Heathrow, among others. The Company's subsidiary includes Goals Soccer Centres Inc, which is engaged in the trading business. more »

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Big Sofa Technologies Group PLC, formerly HubCo Investments PLC, is a holding company for Big Sofa Limited. The Company is a business to business (b2b) technology company that provides video analytics, serving both brand owners and market research agencies. The Company has built a platform developed in the Ruby language and using the Rails Web framework. Its platform enables users to ingest, manage, search and perform detailed analysis of video, images and audio content. It enables consumers to upload unstructured video content to its cloud-based analytics platform. The platform then transcodes and transcribes the data into a structured and downloadable archive of content. The platform can be used on a software as a service basis or in conjunction with its account teams. In addition to the analytics platform, the Company has developed a range of ancillary services for brands, agencies and consumers to upload video into the core platform. more »

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

79 Comments on this Article show/hide all

sharmvr 8th Mar 60 of 79

Redde (LON:REDD)
I can't say I am too happy with this, especially since I thought long and hard about selling on interim announcement, but thought I would wait to pick up that 5p divi! Also my sale would have been a short term trade with the intention to buy back.

I am sanguine about comparables since we can't have hysteria from Siberia every year.
The company has a concentrated customer base and therefore this was always going to be a risk if you hold this company.
Perhaps it is a little easier to be sanguine, since I have held since 2013 / about 33p and sold half the position near the tops.
For me the concern is:
as per Paul's note, competition and the reasons as to why they lost the contract (and that there maybe more), mitigated somewhat by the fact that if their pipeline is strong, it would make sense for competition to have strong pipelines too
They expanded their fleet invested in IT in anticipation of new business, and therefore their balance sheet efficiency and by extension quality will take a hit. Fleet utilisation is what they would call it I believe.

On dividend cover, think their strategy has been to pay the bulk of profits / operating cash flow out in dividends, basically maintain cover on or around 1x and the reduction has been the cost of acquisition related adjustments.
I would fully anticipate a cut to the final dividend given the current results, but at current price, the yield would remain healthy.
Assuming there are no other contracts to be lost, I would suggest operating profit of 35m, with Op Cash slightly higher, most of which drops to free cash and EV of 360m, it is not looking bad.

I continue to hold and will give some serious consideration to adding at this level, but will likely wait for more news / monitor the price action before making any final decision.

Good weekend all.

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fwyburd 8th Mar 61 of 79

In reply to post #456213

Thanks Timarr.
Re: Ramsdens Holdings (LON:RFX)
Looks like City sold their entire holding yesterday as per this RNS out just now:

have a good weekend

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sparkler 8th Mar 62 of 79

In reply to post #456263

According to Alistair Osborne's 'business commentary' in The Times on Wednesday, Mr Alexander was quoted as saying that the current GVC share price was "a blip" and "dramatically undervalued". Today both he and the Chairman ditched 75% of their holdings. Trust the actions, not the rhetoric!

I would also be mightily surprised if the buyer of the shares turned out to be a potential bidder for the company. Management are rarely known for selling out just before takeover interest emerges. SELL

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timarr 8th Mar 63 of 79

In reply to post #456283

Hi Collector

RE: GVC Holdings (LON:GVC)

I'd expect it be a single broker but probably not a single buyer. Does happen though.

Generally I'm quite sanguine about director sales - they're terrible at valuing their own companies. But coordinated director selling is another thing entirely. The last one I remember was Plus500 (LON:PLUS) and that didn't work out so well ...

Best of luck, though. It's all guesswork, none us really know the future!


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Collector 8th Mar 64 of 79

Am feeling slightly chastened here in speculating a broker would not want £20m of GVC stock on his books so would have a buyer in mind, but looking back at the volumes traded they started spiking up from tuesday through to obviously today, so the brokers have probably done nicely out of these this week.
Never considered a potential bidder but thought a trade sale could have been possible.
Am neutral about them but picked up a few this morning near their lows but am now worried my timeframe should have been today rather than a week.

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FREng 8th Mar 65 of 79

In reply to post #456303


It's all guesswork, none us really know the future!

I have long thought that the existence of markets (and other forms of gambling on future outcomes) are good evidence of the impossibility of time travel.


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jonno 8th Mar 66 of 79

In reply to post #456213

Contrary to what might have been expected Ramsdens Holdings (LON:RFX) shares have been strong performers over the last two sessions and have appreciated by 6% or so, closing at 180p. Possibly a delayed reaction to the Money Shop acquisition. I also notice today's RNS that BNY Mellon Trust as Trustees to City Financial Absolute Equity Fund have sold 9.73% of Ramsdens Holdings (LON:RFX). The rise is therefore more likely to be the result of the stock overhang being cleared? I hold.

All the best


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davidjhill 8th Mar 67 of 79

To be fair I originally mentioned GVC Holdings (LON:GVC) more as a tool to highlight what I considered to be an interesting paradigm. That of market reaction to large director sales, compared against sales brought about by an IPO.

Getting dragged into a debate as to the merits of investing in them wasn't my intention but since I have then if people are genuinely interested I would first point people to the following link

It is an interesting hour on results, strategy, direction and current market conditions by CEO and CFO.

In it they are both pretty bullish about the current and future trading and cash generation (even the retail UK estate apparently). They believe the debt to take on Ladbrokes will peak at 3* EBITDA this year and fall at 0.5 every year from then on. The JV in the US this year is staffed and already generating $100m run rate revenue and projected to be close to b/e this year. Confidence shown through a commitment to increase dividend by 10% p/a.
The rationale for Ladbrokes was scale. They believe gambling markets should be regulated and with scale plus their tech/know how consider themselves as the winners. Are taking market share everywhere they operate.

Now in the past 5+ years this team has always under promised and over delivered. I rate them very highly. They hint at doing so again with the obvious caveats and clearly know their onions.

So that is all great and on record as you can see and elsewhere they have talked about the shares being dramatically undervalued.

So I, like many others, are a bit perplexed and somewhat unhappy about the scale and timing of the share sales.

Granted, close periods give a limited window so, directors often do this in clusters. Also fair to say that taking some cash out is a sensible personal thing to do (I know a number of people at Lehmans and Bear Sterns who had their entire wealth locked up in their employers stock and lost everything). There may be other circumstances we don't know about - purchase of a large property etc and the CEO at least has £7m worth left in, so he won't be in a hurry to depreciate it.

However, it does look odd and is certainly contradictory to their statements over the last week. I therefore get why people may prefer to follow the money and cash out. The statement accompanying the announcement could have been better too. Great that they won't sell any more, great that they will stay at the helm but think they should also have said why.

Disclosure - from a personal perspective I added a few at 560p as a trade. In the absence of fraud (and I caveat as I guess we have learnt you can never rule that out completely) trading is strong and they do look to be in a prime position, so on balance I sense they will drive back up over the coming weeks as the dust settles. This is the only time management have blotted their copybook but we will see.

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Edward John Canham 8th Mar 68 of 79

GVC Holdings (LON:GVC)

Directors are a very special breed of people ring-fenced from the rest of society.

They are not allowed to diversify their holdings, which every PI is advised to do.

They are expected to hold their shares until they die or senile enough not to have any influence on the board they left 20 years ago.

I'm pretty sure there has been a study on this which came to the conclusion that directors buys and sells were not statistically relevant. "Tribal knowledge" remembers those times when they are and forgets those many when they are not.

Someone also said (WB?) that there are many reasons to sell but only one to buy. Even this is not particularly helpful, going from memory there was one trust set-up to track director buys and it soon changed course after poor performance.

Playing the Devil's Advocate ....... ish.


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Stevenlondon3 8th Mar 69 of 79

In reply to post #455973

We have only a month to the end of this tax year.
Who knows what could happen over the next tax year 2019/2020.
- Marginal income tax rates could rise significantly under a Labour.
- Labour could introduce draconian betting industry regulations.
I am surprised more company directors are not cashing in their chips before the end of March.

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timarr 8th Mar 70 of 79

In reply to post #456328

Directors are a very special breed of people ring-fenced from the rest of society.

Hi Phil

Completely agree. But with GVC Holdings (LON:GVC) this has been coordinated and planned. It doesn't prove anything, but if you're even mildly allergic to corporate governance issues you'd have to be running for the hills.

Directors always have an asymmetric advantage over normal shareholders when it comes to selling. The ones that divest well are - IMO - the ones that announce in advance what they're going to do, and do it over a number of years.

The directors here have given an indication they'll stay in post for a number of years so there's no obvious reason that they wouldn't have staged their sales over the whole period. Given that they've been publicly bullish over the prospects of the company then you'd want them to back up their statements with actions.

As I say to my kids - listen to what people say, look at what they do and then judge them on the difference.

Just sayin' ...


P.S. No position, and no interest in one :)

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Paul Scott 8th Mar 71 of 79

In reply to post #456268

Hi clarea,

Just wondered if you had heard any rumours re the possible French Connection (LON:FCCN) sale.

Sorry, Graham & I don't peddle rumours. We only deal with facts & figures here at the SCVR, and then give personal opinions, based on the facts available. Sometimes we're right, and sometimes we're wrong.

The last information we had from FCCN was that they had 4 interested parties. Plus several other "conversations" (which I imagine would include Sports Direct). 

FCCN couldn't have chosen a worse time to sell the company, given the political uncertainty. Therefore it's logical to expect some delay.

I've no idea what will happen.

My view remains the same - this share is a nice each-way bet, for the patient investor. It has a great balance sheet, and is about to close some heavily loss-making sites. So it should move into profit this year. Alternatively, someone could buy it - the licensing revenues are very valuable, especially if that side of the business was properly developed.

Regards, Paul.

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DJCP 8th Mar 72 of 79

Paul, A few topics if I may (a ramble as usual then !), as it's after hours on a Friday, and I have more time to read/post once the week is over.

1) Re your comment about Peel Hunt being closed to 'normal' private investors which I presume is to do with MiFID (is it pronounced "Miffed" ? lol)
I'm not sure if any/many companies do this, but BigDish (LON:DISH) IR provide their Brokers Research Reports online. Not invested in this company, but am watching with interest to see how they're getting on (btw, are you in/near Bournemouth? - if so they cover that area) - Align and Hardman reports available from drop down at top of screen.

2) On Wedneday re Cambria Automobiles (LON:CAMB) you said "Apparently some dealers or brokers have been given flexibility to change interest rates charged to different customers. That sounds potentially ominous, given the possibility of fines being levied."
Today re Goals Soccer Centres (LON:GOAL) "Riskier lending gives banks the opportunity to hike up interest charges, and fees."

These appear contradictory when reading in the clear manner you put them - Those in charge (Govt.?) are ok when it comes to fleecing a company, but against similar to individuals (their voters) is the way I'm looking at it.
I recall in both used-vehicle sales and mortgage broking, clients were 'charged' according to the risk of commission being clawed-back.

For example, Mr Sensible would be placed with Scotty-Bank for his loan (at a reasonable % rate), whilst Mr Overspend would have little option but to use Globo-Bank (and their excessive %). The seller would received less commission in Mr Sensible's case but would be more likely to keep it. Risk/Reward scenario etc.

One excessive practice was to roll-up 30(?) monthly endowment payments into the mortgage, and pay the insurer upfront so there could be no commission clawback ! Obviously no one had even thought of mis-selling in the 80s ! lol

3) Revolution Bars (LON:RBG) - "The reason for that, is because some institutions have a rule that they can only invest in shares which pay divis. So stopping the divis altogether could push those holders into becoming forced sellers."

Does anyone know if these institutions have to sell within a certain timescale ? i.e. Can they wait 6 months to see if the divi is reinstated, or is it a near immediate sale ? On the the other side, companies that have announced a maiden divi could see their SP rise if being purchased by these IIs

4) @barnetpeter (#42) and Mirriad Advertising (LON:MIRI)
Apologies for not being able to credit you when I mentioned this earlier :o)
Having read many of your posts, I didn't expect to see this :
"... and I am aiming for a zero cost stake in a company I know nothing about."
So much for DYOR ! lol (only joking, and well done on your canny 'investment')

5) Quick edit as I see Paul's mentioned French Connection (LON:FCCN) - YE results are out on Tuesday I think, so will hopefully get an official update on the sale progress (or not).

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skinner66 8th Mar 73 of 79

my view debenhams is a sinking ship same as woolsworths was. you can keep throwing money doesnt make it work,, just back from spain today and ryanair never again so many extras ,what they get wrong i pre booked seats without speedy boarding then they cant get your seat, thats where trouble starts as no reservation on seats then you have to explain to people ive pre booked, organised badly, as for in flight prices well total joke half pint beer £5. thats without thinking we gunna crash land on the way. even though conditions was good whole plane went awww.. jet 2 include all prices and luggage hence only gunna use again.

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Paul Scott 9th Mar 74 of 79

In reply to post #456363


I totally agree! I almost created an international incident, when an aggressive couple on Easyjet told me that I was a despicable person, on a flight (because his over-sized black suitcase with wheels, did not fit into the overhead locker).

A very unpleasant brou-haha ensued, with me suggesting that he did something unpleasant, but richly rewarded, to himself, and he suggested that he would never fly with such an appalling person as me, ever again.

Cheap flights - no thank you!

Best wishes, Paul.

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carmensfella 9th Mar 75 of 79

For any readers who would like to attend Mello2019 as highlighted by Paul in his introduction...there is a 40% discount to ticket prices if you enter the following code in the box when ordering....Stocko40

Look forward to seeing you all there.....we have a great line up of speakers, panel sessions, presentations and of course 60 good quality companies often discussed here will be exhibiting.

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Paul Scott 9th Mar This post is under review

you bastard!!!!

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simoan 9th Mar 77 of 79

In reply to post #456178

I completely agree Fanghorn, such unnecessarily aggressive posts have no place here. 

Hi Francis,

Obviously, it's nice to know you have my back and will quite happily support a post containing a personalised against another subscriber, which as far as I understand it is against the posting guidelines on Stockopedia, as long as it supports your own agenda. Obviously, it's particularly nice to see 21 other people have currently given it a thumbs up? They must think I care, bless them! BTW it is not me that has reported the post in question because it says more about the poster than it says about me I'm perfectly happy for it to remain. Anyway, I'm chuffed to bits that our friendly UKIP Member enjoys attacking me at every opportunity - I find it a complete honour to be opposed to such people and what they represent!

I'm sorry if my use of the word "crappy" made you feel my post was aggressive - that was not the intention or how I was feeling when I wrote it. I'm sorry I sometimes find it hard to hide my working class origins and posting at work means I sometimes write short and quite direct posts, but that doesn't mean my intentions are aggressive. I can't see any other reason why it could be construed as aggressive unless you read it with some in-built bias against me - sometimes you should just read the words without superimposing your own interpretation or second guessing someones motives. 

It's also re-assuring to see that you are happy to condone a complete misquote of what I wrote. The fact is that GVC has not made a net profit for the past three financial years. I did not say it had never made a profit (as quoted by our dear friend) but then let's not let the truth get in the way of achieving your aim - the very essence of UKIP! :-)

As for the debate about GVC Holdings (LON:GVC), I think it was entirely merited to post about an FTSE100 company falling 18% as it did this morning. So thank you Rmillaree and Davdjhill for your observations. Personally, I had this on my watch list and thought this was worth a trade today so picked up some stock this morning at £5.6. Not sure if i'll hold for long but it might be worth holding on for the 16p dividend next week and hopefully make a nice gain on the bounce as well. 

I'm sorry if my thoughts about GVC run contrary to your own, maybe this is why you viewed my post as aggressive. I realise negative posts about a company you just purchased a few hours earlier can be upsetting to the equilibrium but that does not mean they are not allowed on this blog or should be labelled as aggressive. I wish you well with your investment but as you can imagine I believe your investment thesis is deeply flawed (polite, non-aggressive version).

All the best, Si

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clarea 9th Mar 78 of 79

In reply to post #456353

Thanks Paul have a good weekend

Regards Clarea

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Fangorn 11th Mar This post is under review

In reply to post #456418

Anyway, I'm chuffed to bits that our friendly UKIP Member enjoys attacking me at every opportunity - I find it a complete honour to be opposed to such people and what they represent!"

Attacking you at every opportunity??

You jest!

This was the first time I've engaged in ANY DISCOURSE with you whatsoever in MONTHS!!!!

I'm not a UKIP member, falsehood one you're peddling as Remoaners are want to do!
Secondly, nor have I taken every opportunity or most opportunities to attack you as I haven't engaged in any discussion with you in months!

So why lie and try to give the impression I have been?

" I find it a complete honour to be opposed to such people and what they represent!"

Makes you a very sad individual then as I believe in fairness - meaning you clearly don't.
I also believe that Hard work should be rewarded, again you clearly don't in that case!
I also detest "greed" which means, yes, that you must therefore condone such.

Have a nice day sunshine.

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 Are LON:DEB's fundamentals sound as an investment? Find out More »

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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