Small Cap Value Report (Mon 12 Nov 2018) - CARR, RTN, NTBR

Monday, Nov 12 2018 by

Good morning, it's Paul here.

I've got a clear diary this week, so will be able to focus entirely on the SCVRs, after last week's rather poor coverage - my apologies for that.

Political chaos continues. It seems that Mrs May's bizarre plans for EU withdrawal in name only, are finally unravelling. What surprises me so much, is why she was given free rein for 2 years, to pursue a negotiation strategy that seems to please nobody! I read the "Chequers" white paper, and it's total nonsense, from start to finish. Perhaps it's been a deliberate strategy, to sabotage Brexit?

Anyway, all that matters for the purposes of these reports, is to what extent all this chaos has been baked into share prices already? Normally when news is widely known, then the market discounts this into valuations.

As previously mentioned here, I pruned my portfolio back over the summer, to leave just my large, high conviction holdings (which you can see here in BMUS). I'll hold these through any future volatility. Unless something goes wrong with the company fundamentals of course. All the political stuff will get sorted out, one way or another, it always does.

In the meantime I'm noticing a buyer's strike in many small caps that I follow. That's understandable really. After all, why buy now, with so much uncertainty around? There has to be a compelling reason and/or attractive valuation, to make me buy anything at the moment. One benefit of this, is that I've noticed the market is almost overlooking some good results statements. There could therefore be pent-up demand in those stocks, which could rise strongly when political problems get resolved. So I am searching for buying opportunities at the moment. If some investors/punters are panic or forced sellers, plus inaction after good announcements, this can all produce buying opportunities, selectively.

Anything that is rising in current market conditions, is worth looking at. If investors are prepared to buy now, then this suggests to me something good is probably going on at the company concerned.

Market timing - I don't try to time the ups & downs of any stocks in my portfolio. It's not possible to move in & out of small caps in any significant size, so market timing is impossible, unless your position sizes are very small. Plus, the spread is ridiculously wide in many small caps, when…

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Carr's Group plc is engaged in the agriculture and engineering activities. The Company's segments are Agriculture and Engineering. The Agriculture segment includes the sale of animal feed and feed blocks together with retail sales of farm equipment, fuels and farm consumables. The Engineering segment includes the design and manufacture of bespoke equipment for use in nuclear, oil and gas, and petrochemical industries. Its products include manipulators, robotics, specialist fabrication and precision machining. The Company's agriculture division develops and supplies a range of branded animal nutrition products into the livestock industries, as well as services the United Kingdom farming and rural communities through a network of retail stores and fuel businesses with manufacturing locations in the United States, United Kingdom and Europe. It is focused on the design and manufacture of pressure vessels and steel fabrications. more »

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The Restaurant Group plc is a United Kingdom-based company, which operates multi-brand casual dining restaurants, pubs and Concessions business. The Company operates over 500 restaurants and pub restaurants. The Company's principal trading brands include Frankie & Benny's, Chiquito, Coast to Coast, Brunning and Price, TRG Concessions, Firejakcs, Garfunkel’s, Joe’ Kitchen and Wagamama. The Company's Frankie & Benny's brand offers classic American and Italian style food and drinks. The Chiquito menu offers a range of authentic Mexican and Tex-Mex dishes. The Coast to Coast offers classic American food, such as double burgers, stone-baked calzones, distinctive steaks, amazing seafood dishes and South-West American specials. The Company also operates a concessions business, which trades principally at the United Kingdom airports. more »

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Northern Bear Plc is engaged in providing specialist building services. The Company operates in the support services sector. The Company's segments include Roofing activities, which provides a range of roofing services, including slating, tiling, leadwork, felting, refurbishment and maintenance for domestic, commercial and public sector properties; Materials handling activities, which includes supply, service and maintenance of fork lift trucks and warehouse equipment both on hire and for sale; Building services activities, which provides services, including fire protection and asbestos removal, and Corporate and other activities, which provides head office activity and consolidation items. The Company also provides services ranging from general building work, asbestos surveying, fork lift truck sales/hire, and health and safety consultancy. The Company's subsidiaries include Isoler Limited, Springs Roofing Limited, Wensley Roofing Limited and Jennings Properties Limited. more »

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

29 Comments on this Article show/hide all

Aislabie 12th Nov '18 10 of 29

In reply to post #418029

I quite like Northern Bear (LON:NTBR) but it does look likely to be a xslow mover:
1. The market pays up for growth: NTBR has only modest growth
2. The market pays up for high ROCE: 11.1% is not high
3. The market pays up for a cash rich balance sheet: NYBR has a small net debt
4. The market pays up for being in high potential markets: Industrial roofing is sound but not ame changing and it is cyclical
5. The market pays up for a well presented story: NTBR never tell their story to anyone.
6. The market pays up for a possible takeover: Maybe, but with only 50% free float te decision is not with the public shareholders
7. The market does not pay much for a good dividend yield but NTBR's perfectly satisfactory

I do not hold but still like steady well managed boring businesses that will probably be around for years, but the current direction does not seem to indicate a sharply growing shareprice

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HornBlower 12th Nov '18 11 of 29

any comment on Restaurant (LON:RTN) would be helpful, just about makes small cap limit pre rights. interesting rights entitlement date not until 26 November and massively dilutive rights placing at 35% discount to TERP

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Julianh 12th Nov '18 12 of 29

I know you don't look at financials Paul so maybe Graham can put this one on his list for when he next takes over the keyboard. And maybe some of the other readers will have a view. 

AFH Financial (OFEX:AFHP) have issued another positive trading update. Everything they say sounds positive:

* in line with current market expectations
* strong revenue and underlying EBITDA growth
* a nice simple business model based on acquiring small financial planning / wealth management businesses and generating additional profits by integrating them with their own systems
* no comments given on real profit levels
* of course Revenues and adjusted EBITDA should be growing. An acquisition based business that excludes amortisation of acquisition expenses from its reporting cannot fail to do well
* maybe they haven't seen the recent report from the FRC specifically criticising the use of EBITDA and other adjusted measures (when not reconciled to real profits)
As always thanks for the great work you both do. Very much looking forward to seeing you at Mello London

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runthejoules 12th Nov '18 13 of 29

I'd like to second a look at Mission Marketing (LON:TMMG) if possible ta. I hold.

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andrea34l 12th Nov '18 14 of 29

In reply to post #418069

I'd be interested in Northern Bear (LON:NTBR) too please Paul (I do hold). Aislabie makes a number of good points... though I though a ROCE above 10 was supposed to be generally quite reasonable? A PER of less than 7 for over 10% growth seems a bit undervalued, even if I realise they will never set the market on fire. Perhaps the lack of broker coverage/forecasts is also an issue that doesn't prop up the share price...?

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Zipmanpeter 12th Nov '18 15 of 29

Re Restaurant (LON:RTN) - the new strategy, following the proposed rights issue and Wagamama takeover ?

"We will focus on the new bright shiny pebbles (Wagamama) that we, as the new Mgt team, have just paid over the odds for plus seeking more new pebbles like those that we found shiny when we first looked around the business (Posh Pubs/Concessions). Indeed, the latter especially offers the opportunity for overseas trips and interesting meetings to investigate if we can beat the odds and take our restaurant brands international.

As a consequence, we will need to neglect and talk little about the hard, difficult and, let's be honest, a bit boring job of properly fixing the existing troubled restaurant brands like Frankie&Benny by strategically re-working menu value & appeal whilst fixing labour cost structures and rent agreements. We will instead show our strategic focus and skills by decisively writing these branded outlets off/down through exceptionals whilst we can still plausible blame previous Mgt, albeit after repainting some as shiny new pebbles. We will slowly starve the remainder outlets of innovation and our focus until we can again show our decisiveness by disposing of them as a 'non strategic' rump.

Our financial strategy to deliver this plan is to first milk the existing shareholders via deeply discounted rights issue.
This will reward the always nice to work with M&A guys with fat fees and require us to discuss how things are going with them at important but distracting strategic meetings which are then to be cemented with relationship building dinners together (not in RTN restaurants, of course).

This will need to be complemented by us taking on lots of new debt, contrary to our corporate history and just as the interest cycle is turning. This will of course prevent us from distributing dividends at previous rates but we will obscure this with promises of 'more accretive jam tomorrow'.

If, however,events turn against us - since operating such a huge restaurant group will leave us very distant from consumers in a rapidly changing market - after 3 years of pleasantly rewarding failing (and 6 months of real pressure when the Chm realises it is him or us), we will turn in our identity cards and retreat to somewhere nice and warm. Our successors can then repeat a similar cycle

Disclosure: cynical long term Restaurant (LON:RTN) holder pondering the least evil choice in the rights issue

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Paul Scott 12th Nov '18 16 of 29

In reply to post #418054

Hi thejh,

Yes, I intend revisiting the following stocks this week;


Tracsis (LON:TRCS)

Gattaca (LON:GATC)

Probably won't be today though, as I got bogged down in looking at CARR.

Also I'm busy this afternoon, visiting a new gym - after last week's debacle, have decided I need to have a healthier lifestyle when I'm in London - spending time in a gym, rather than pubs!

Incidentally, I happened to walk past a BELONG format GMD store in Soho over the weekend. So I dropped in & had a look round, and had a chat with a member of staff. It does look a good format, with potential. The BELONG area was in the basement, which is low rent space, and about a third to half of the available gaming stations were being used by customers.

More later this week.

Regards, Paul.

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neils 12th Nov '18 17 of 29

If you are circling back to last week Paul - Urban Exposure (LON:UEX)  Urban Exposure trading statement please.

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paraic84 12th Nov '18 18 of 29

In reply to post #418119

Note that the £50m revenue was a beat on previous broker estimates from August (of c.£44m). I see broker estimates on Stockopedia are now saying £75m revenue next year, so this share continues to grow strongly.

Some might not like this share because it's acquisition led but they are tending to buy out the financial equivalent to "mom and pop" type businesses on the cheap.

I bought some more this morning as this share continues to do well and flies under the radar of a lot of investors.

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Mark Carter 12th Nov '18 This post is under review

May should have done what my dad suggested: declare "we're out, what are you going to do about it?"

The whole idea of "negotiating" was a bit of a non-starter anyway, as the EU has a simple position: "whatever you want the answer is 'no'."

May's days as PM must surely be numbered.

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tony mchale 12th Nov '18 20 of 29

Hi Paul,
Will you be covering Flybe (H1) Results this week due on Wednesday? . My worst investment ever.
Very much a small cap now at an astonishing £23 million.

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kenobi 12th Nov '18 21 of 29

but it is a bit bizarre the way she's gone about it, David Davis, was negotiating a trade deal on the Canada +++ model, then without telling him, she came up with a completely different deal, a "in a shadow market" type deal to allow frictionless trade. but that means we have to take all their regulations, isn't that a substantial downside ? wouldn't it be worth a bit more friction in order to be allowed your own rules ? and couldn't we negotiate a fast pass customs, to allow car parts and other such urgent things through, and perhaps inspected on site at source/destination ? Lets assume that the French choose to make it difficult, at least in the first instance, as our friends may well. How long do you think they'll be willing to put the effort in to inspect alternators heading to Sunderland ? and if they do, the obvious thing is to put more traffic via other ports outside france, in the long term it will calm down and go back to normal surely ?? customs times for transactions outside the eu are very low, ok they can choose to inspect, but that's less than 1%, and if you have trusted customers/ suppliers like nissan why would you inspect at all ?

The EU have consistently said that there was the best trade deal they had ever done for the uk, when may went off on this chequers thing, I assumed she'd discussed it with france and germany and they had given the nod, but not a bit of it, they hate it too, as do remainers, leavers, and half of her cabinet.

I can only assume that to calm things at first, she gave undertakings to car companies and others that there would be frictionless trade, and that the eu found out about it and now they have her on the hook negotiation wise, and they can demand whatever they want in return for this.

Perhaps I'm wrong, perhaps when the deal is presented it will be better than people expected, and then we'll all be relieved, and it'll sail through ? perhaps the low expectations will help,

the whole backstop idea is crazy, we'll negotiate a deal but if it's not finished in 2 years it'll default to this deal that suits us. Well that gives us little to negotiate with as you can just talk and talk and you're happy to take the backstop, and why would you do a deal unless we offer you something better than the back stop ? I've got an idea, the backstop is WTO rules, then we both have incentives to work for something better ?


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alpha2 12th Nov '18 22 of 29

In reply to post #418144

Couldn't agree more. Even worse the prats at RTN will think that they can squeeze a bit more out of Wagamama units and in the process destroy all the philosophy and operational integrity which has seen them post growth whilst their competitors have floundered.

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FREng 12th Nov '18 23 of 29

I see that Thompson Reuters' brief on Carr's (LON:CARR) is upside down too. Are they written by an algorithm that has gone wrong?: The headline says profit down, the figures say profit up. And the percentage figure is way off. How can this happen?

BRIEF-Carr's Group FY Adj. Pretax Profit Down About 13.3 Pct
Thomson Reuters Mon 12th November, 2018 7:31am

Nov 12 (Reuters) - Carr's Group PLC CARRC.L :

Source text for Eikon: ID:nRSL9710Ga
Further company coverage: CARRC.L


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browndogwork 12th Nov '18 24 of 29

In reply to post #418184

+1 - I would be interested to hear Paul's views on the balance sheet vs the market cap. It seems an awful lot of company for £23million

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sharw 12th Nov '18 25 of 29

For Restaurant (LON:RTN) Peel Hunt have produced a brilliant list of questions for the company. I particularly like:

How do you achieve £22m of synergies with Wagamama being run autonomously?

Does management believe it can simultaneously integrate Wagamama, integrate pub acquisitions, invest in new digital channels, expand Wagamama in the US and franchises internationally, and not be distracted in the attempt to turn around Frankie & Benny’s, Coast to Coast and Chiquito?

Full list here:

(I thankfully no longer have a position here but I can't grumble - I bought in 2000 at 50p and sold the last tranche in June).

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nicobos 12th Nov '18 26 of 29

Ouch - IQE (LON:IQE) already 15% down today just issued a profit warning  (during market hours!) leading to a "material reduction in its performance in the current financial year".

Not sure if an announcement 10 mins before the bell gave anyone a chance to exit cleanly whilst there was clearly a leak given the share price action this morning. Will be interesting to see where this opens tomorrow morning and if it goes straight into auction.

Too much jam tomorrow (and complex tech risk which is difficult to understand !) in IQE (LON:IQE) to make it investable imho.

Value largely underpinned by future earnings which are difficult to predict and highly volatile (as proved by today's statement). 

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JohnEustace 12th Nov '18 27 of 29

In reply to post #418249

The IQE (LON:IQE) warning follows a warning given by Lumentum in the US. The assumption is that it is Apple that have cut back their orders hard. This follows them saying in their results that they would stop reporting iPhone volumes, so the market was already spooked by that. Lumentum are down 30% as I write.
So I guess IQE (LON:IQE) just had to say something as soon as they could.

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Trident 12th Nov '18 28 of 29


Blimey, proof of the Stocko view of this share as a sucker stock.

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sharw 12th Nov '18 29 of 29

Well, Paul, if you went to this gym you could try the Wagamama 3 doors away:


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 Are LON:CARR'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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