Small Cap Value Report (Mon 13 Nov 2017) - FISH, Beeks Financial Cloud, ZOO

Sunday, Nov 12 2017 by

Good morning!

This is the placeholder article, published the night before, to enable early comments and suggestions from readers.



Fishing Republic (LON:FISH)

  • Share price: 22.75p (-40%)
  • No. of shares: 37.9 million
  • Market cap: £9 million

Trading Update and Board Changes

This retailer today falls below our £10 million limit but I certainly need to cover this trading update given it's one that Paul and I have been commenting on.

Paul has been a long-term bear on it (kudos to him!), whereas I previously thought it had some potential to be a winner for shareholders. Though I did have some big concerns about the recent interim results  on 25 Sep, when gross margin collapsed from 50% to 36% and own-brand sales declined. At the time, I said it looked like the company might need another placing, given that cash had fallen to less than £700k.

The collapse in gross margin was a huge red flag, but the company justified it at the time by saying:

To support the new openings, we utilised discount offers to promote high value capital items. This led to a negative mix effect in the period as the balance between higher margin consumables and lower margin capital items changed.

Furthermore, the company anticipated moving back into profitability for the full year, so shareholders were still being guided that things were more or less on track.That was on 25 Sep.

The last seven weeks have apparently been terrible:

Since the Company last updated the market in September, the Group has seen a significant deterioration in trading.  This reflects a substantial increase in price competition as major competitors and independent stores have aggressively sought to maintain their market share, particularly at the end of the main fishing season.  As a consequence of this change in market conditions, for the first time this year, monthly like-for-like store sales reduced, with a decline of 13% in October.  This is in contrast to like-for-like sales growth of 16% experienced in the nine months up to the end of September.

If you can excuse me for using the phrase, I think the 16% LfL sales growth in the first nine months of the year might be a bit of a red herring! Since I think at least a quarter of the stores being measured…

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All my own views. I am not regulated by the FSA. No advice.

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Fishing Republic plc is a fishing tackle retailer in the United Kingdom. The Company's principal activities are the retailing, production and wholesaling of fishing equipment. The Company operates through the segment, being that of the retail of fishing tackle and equipment. It operates from a chain of retail outlets principally located in the North of England and online. It caters for various types of the anglers, such as coarse, carp, game and sea fishing, and supplies a range of products, including brands. It also offers consumables, such as bait, lines and hooks; clothing, and luggage products. The Company's product offerings include a range of own-brand ranges, such as Klobba for clothing and Theseus for carp fishing products. Its stores are located in Barnsley, Doncaster, Hull, Manchester, Rotherham, Sheffield and Sunderland. Its subsidiaries include Fishing Republic Trading Limited and Fishing Republic Retail Limited, which are engaged in the retail of fishing equipment. more »

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ZOO Digital Group plc is a holding company. The Company's principal activities include provision of a range of services to allow television and movie content to be subtitled in any language and prepared for sale with online retailers, and research and development of productivity software in those areas. The Company operates through two segments: Software solutions, which includes development, consultancy and software sales, and Media production, which includes localization and design. The Company offers services, including subtitling, captioning, dubbing and digital distribution. The Company offers services through its cloud computing platforms, including ZOOsubs, which offers subtitling and captioning services; ZOOcore, which is a workflow management platform; ZOOstudio, which is a self-service distribution platform for ordering, tracking and delivering digital content packages, and ZOOdubs, which is a dubbing process management platform. more »

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  Is Fishing Republic fundamentally strong or weak? Find out More »

26 Comments on this Article show/hide all

Isca 13th Nov '17 7 of 26

Wonder if you could shed any light on the suspension of STM today and their announcement to buy Harbour pensions ltd.

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FREng 13th Nov '17 8 of 26

Fishing Republic (LON:FISH) qualifies for the Beneish short selling screen.

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Nick Ray 13th Nov '17 9 of 26

In reply to Aislabie, post #5

Wrt Fishing Republic (LON:FISH) I have to feel a tiny bit sorry for the deposed CEO Steve Gross. He's a keen fisherman who has been selling fishing tackle since he was 13 and built up the business. And now, about two years after floating it he is gone, (replaced by people who understand business rather than fishing tackle I suspect.)

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browndogwork 13th Nov '17 10 of 26

In reply to Aislabie, post #5

Trawl for opportunities - very good!

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Graham N 13th Nov '17 11 of 26

In reply to Aislabie, post #5

Thanks for mentioning Fishing Republic (LON:FISH), you've summed it up well. Trawling for small carps is indeed hazardous. A reminder of the dangers of bottom-fishing.

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paraic84 13th Nov '17 12 of 26

I see a lot of growth/momentum shares seem to be falling again lately. Even today e.g. at time of writing today: £G4M -3.4% Innovaderma (LON:IDP) -6% Purplebricks (LON:PURP) -3.8% On The Beach (LON:OTB) -3%. (Although Innovaderma (LON:IDP) , having almost halved over the last few months, is now at around a fwd p/e of 20 which is much less crazy). I am wondering whether the recent momentum bull market rally is at an end? I suppose the counter argument is some high growth/momentum type shares like dotDigital (LON:DOTD), IQE (LON:IQE) and Cloudcall (LON:CALL) have still done well off the back of recent trading updates. Any wider views on whether we're seeing a shift? I am certainly being much more cautious about investing in high growth shares on eye-watering valuations than I was at the start of the year.

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FREng 13th Nov '17 13 of 26

In reply to paraic84, post #12

I share your nervousness, though I note that Blue Prism (LON:PRSM) (which I hold) is up today ahead of its trading update on Wednesday.

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herbie47 13th Nov '17 14 of 26

In reply to paraic84, post #12

Yes I'm seeing a bit of a pullback also. Flowtech Fluidpower (LON:FLO) are down 8% today, H & T (LON:HAT) were down 5%, Ferrexpo (LON:FXPO) down 5%, Learning Technologies (LON:LTG) down 4%, Vitec (LON:VTC) down 4%, GB (LON:GBG) down 5%. Think it's profit taking and some market jitters due to UK political situation, Europe is also down, will see how the US market reacts. Ab Dynamics (LON:ABDP) still going up, results out Wednesday.

Fevertree Drinks (LON:FEVR) are down about 20% from peak, even though the trading statement was excellent with "anticipates that results for 2017 will be materially ahead of current market expectations"

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davidjhill 13th Nov '17 15 of 26

In reply to paraic84, post #12

not limited by any means to growth/high valuation businesses.

plus500, GVC, Bank of Georgia to name 3 all heavily down despite trading on lowly current year PE's and having very strong balance sheets. Same with house builders despite Taylor Wimpey saying trading is good.

Seems to me that there is general nervousness around the UK government as well as forthcoming Brexit talks and this is having a large risk off effect. FTSE100 propped up by GBP currency moves.

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barnetpeter 13th Nov '17 16 of 26

Look at the ftse250 today...tanking away. Have been a net seller recently and don't feel any need to buy anything except special sits. PM May looks to be in trouble and Brexit looks a disaster daily.

The big worry is the huge amount of personal debt in the UK. Lloyds/Halifax has just raised its authorised overdraft costs by a substantial amount...treble in many instances...and it is debiting accounts daily. A first? So people in debt are getting hit twice.

Mkts just seem so high .....any sharp pullback on Wall Street and the mkt makers wont want to take on stock except at a big discount. Dangerous out there!

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ddinksdadd 13th Nov '17 17 of 26

Think I can add to the rather gloomy feeling today around growth/momentum stocks.

I actually noticed last week my stock struggling to rally but falling back after a feeble effort, basically every day last week was like that, this week there hasn't even been a feeble attempt at a rally. I notice the 250 and AIM diving for the bottom and not finding it today.

I offloaded a few items myself today ...twitchy fingers? we will see.

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FREng 13th Nov '17 18 of 26

In reply to herbie47, post #14

I noticed when checking FISH that Fevertree Drinks (LON:FEVR) also qualifies for the Beneish short selling screen.

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herbie47 13th Nov '17 19 of 26

In reply to FREng, post #18

Yes I noticed that also. Believe Burford Capital (LON:BUR) were on a while ago. Seems to pick up some high growth shares. Not convinced by that screen, overall performance is flat.

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Graham N 13th Nov '17 20 of 26

In reply to phoenixnight, post #1

PheonixNight, thanks for that... I have now covered Zoo Digital (LON:ZOO).

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matylda 13th Nov '17 21 of 26

Thanks Graham as always - I may be being a bit thick here but what is "Small Cap Growth Report"

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Graham N 13th Nov '17 22 of 26

In reply to matylda, post #21

Hi matylda. It's a joke... it doesn't exist.

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matylda 13th Nov '17 23 of 26

In reply to Graham N, post #22

It's what I figured but had to ask :)

Sticking with the Fishing Republic (LON:FISH) theme you got me hook line and ...

Maybe someone should start one.

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HumourMe 13th Nov '17 24 of 26

In reply to paraic84, post #12

I see a lot of growth/momentum shares seem to be falling again lately.

About 40% of my portfolio got stopped out today. Not much of a surprise after last week took them near to trailing or entry stops. The remainder lie 1-8% away. The few 'Buy stops' are getting further and further away.

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runthejoules 13th Nov '17 25 of 26

It's not all been doom & gloom on the growth stocks - IQE (LON:IQE) up to 170 today and Frontier Developments (LON:FDEV) remaining high. BTFDing Wey Education (LON:WEY) like Paul would have done you good. Ruing my decision to buy more IDP a while back though. Still it's in the lifetime ISA so I should probably give it... a lifetime...

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Julianh 14th Nov '17 26 of 26

In reply to Graham N, post #22

Ah but there really is a Small Company Share Watch. And they did a write up on ZOO recently and liked it.

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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