Small Cap Value Report (Mon 14 Jan 2019) - QUIZ, RBG, XPP, RST

Monday, Jan 14 2019 by
103

Good morning, it's Paul here.

This is a dual-purpose report - partly for today's news, also to catch up from Friday, in particular with my thoughts on the latest profit warning from "omni-channel" fashion retailer, QUIZ (LON:QUIZ) .

Revolution Bars (LON:RBG) is reporting its peak period Christmas & NYE trading today. As this is my 2nd largest long position, I'll be heavily focusing on that, once I've got the Quiz section out of the way.




QUIZ (LON:QUIZ)

Share price: 24p (down 33% on Friday, at market close)
No. shares: 124.2m
Market cap: £29.8m

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

Christmas Trading Update (profit warning)

Quiz calls itself an "omni-channel" (meaning physical stores, concessions, online, and international) fashion brand (mainly womenswear, with a focus on garments for special occasions, rather than basics).


AIM Admission

  • Floated on AIM in July 2017, by Panmure Gordon, at 161p per share
  • Raised £9.4m (after fees) for the company, from issue of 6,583,851 new shares
  • 100% family-owned prior to float, 54% after float
  • Family trousered cash of £89.8m (after fees) from selling 46% of the company in the float
  • Share price has since lost 85% of its value, in 18 months

The float was very polished, presenting the company as an exciting growth story, achieving a high valuation. I attended a presentation shortly before the float, and was impressed with management. The online growth seemed to offer the potential for this to become something like Boohoo (LON:BOO) in the long run. Thankfully, I gradually lost interest in it, as it became clearer to me that the float price had been set too high, and that online (the bit that interested me most) was only a smallish percentage of total revenues. Also, from looking at product, I began to have doubts about the quality of the product designs.

As you can see from the share price chart, the wheels really came off in Oct 2018, and it's been downhill ever since;


5c3c28b78ace8QUIX_chart.PNG



Oct 2018 profit warning - there was a nasty profit warning, which I reported on here. Low footfall was blamed,…

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QUIZ plc is United Kingdom-based global women's wear brand company. The Company is focused on providing occasion wear and dressy casual wear primarily for 16 to 35 year olds and offers clothing, footwear and accessories. The Company’s occasion wear provides maxi and mini dresses, matching tops and bottoms, and footwear, bags and other accessories that are designed to complement a particular outfit. The Company’s dressy casual is designed to provide the latest on-trend clothes, shoes, bags and accessories that have a glamorous edge. In addition, the Company’s products includes denim, playsuits, shirts, tops and skirts. The Company also provides a range of outerwear such as faux fur jackets, parkas and biker jackets. Footwear offers dune River Island, missguided and ASOS. The Company’s brand operates in 19 countries through 65 international franchise stores, concessions and wholesale partners. more »

LSE Price
16.85p
Change
0.6%
Mkt Cap (£m)
20.9
P/E (fwd)
41.6
Yield (fwd)
n/a

Revolution Bars Group plc is a United Kingdom-based operator of bars. The Company has a trading portfolio of approximately 60 bars located predominantly in town or city high streets, which operate under the Revolution and Revolucion de Cuba brands. The Company's bars focus on a drinks and food-led offering, and typically trade from late morning, during the day and into late evening. Revolucion de Cuba bars are characterized by their 1940s Cuban-inspired style, with dark woods, traditional bar counters, antique tiles, vintage furniture, Havana-style ceiling fans, and original Cuban artwork and photographs. Its bars are located in various places, such as Cambridge, Ipswich and Norwich in South East; Bath, Plymouth and Southampton in South West; Birmingham, Derby, Leicester, Loughborough and Milton Keynes in Midlands; Cardiff and Swansea in Wales; Blackpool, Chester and Huddersfield in North West; Sheffield, Sunderland and York in North East, and Edinburgh and Glasgow in Scotland. more »

LSE Price
63.4p
Change
-0.9%
Mkt Cap (£m)
31.7
P/E (fwd)
9.1
Yield (fwd)
8.8

XP Power Limited is a United Kingdom-based developer and manufacturer of critical power control components for the electronics industry. The Company provides power solutions, including alternating current (AC)-direct current (DC) power supplies and DC-DC converters. The Company's segment include Europe, North America and Asia geographical. It designs-in power control solutions into the end products of blue chip original equipment manufacturers, with a focus on the industrial, healthcare and technology sectors. Its product categories include high efficiency/convection-cooled, chassis mount/open frame, configurable, external, encapsulated and printed circuit board (PCB) mount, DIN rail, baseplate-cooled, through hole mount, surface mount, light-emitting diode (LED) drivers and distributed power/hotswap. more »

LSE Price
2470p
Change
2.1%
Mkt Cap (£m)
475.1
P/E (fwd)
15.2
Yield (fwd)
3.5



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


91 Comments on this Article show/hide all

betjeman 14th Jan 52 of 91

Sparkjler,

as a regular reader who hardly ever posts - I am interested and confused as to the motive behind your post. All experienced investors including Paul should be very interested to hear alternative views on specific investments BUT your post is simply having a cheap shot from the sidelines. On the rugby pitch you are the back who runs in to push and shove a forward but when it all kicks off and there is some serious action has quickly left the scene of the crime. You can prove me wrong by producing a verifiable record of your own investments over the past 5 years.

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ValuableGrowth 14th Jan 53 of 91
7

In reply to post #436008

Well said Andrew L - particularly re the echo chamber. I saw the same thing on Motley Fool by the people posting comments, not the original posters. Its almost like they don't want any critical discussion in case the golden goose gets the hump and flies away.

Website: www.ValuableGrowth.com
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actsofvolition 14th Jan 54 of 91
7

In reply to post #436073

While it was fairly rude, it wasn't ad hominem or full of bad language, which is where we should draw the line? Saying you think someone's portfolio is good/bad (and why) is arguably the point of this forum?

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Zipmanpeter 14th Jan 55 of 91
2

Re QUIZ (LON:QUIZ): Every stock has a price and I have just bought at 23p. and I believe there remain strong prospects for this share 2 years out as its online grows, stores shrink until profitable and with international treading water. Net revenue may only be up another 30% but that will be enough to deliver an EPS >5p/share.

At the moment there is a perfect storm for it: Brexit sapping consumer confidence and sterling; a shift to online, staffing and teething trouble as it goes a bit more corporate and grows in scale. Maybe Paul is right and the product is a bit off this season.

However, the fundamental brand offer of "glamourwear" is distinctive and likely to remain a "destination" purchase; product reviews have historically been good enough (for the price); and the business has an established and cost effective supply chain. Its only that it (somehow) IPO'd at 161p just 18months ago that casts such doubt and disappointment. This simply proves to me how sharp is Mr Ramzan who trousered £90Mn !!

My biggest concern is thus that he takes it private again as Paul suggests. Together with his family/friends he has >50% shares. If he offers 30p/share, is this enough to force a buy out of minority shareholders or is a higher threshold required? eg a 70% shareholder agreement.

Obviously, if another bidder enters ift might drive the price back up but I this this is really a private company style of operationat the moment, reliant on a core loyal to CEO. If these left, the business would tank. So less attractive to be bought by a complete outsider.

Any advice from experienced investors on this, please

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andrea34l 14th Jan 56 of 91
1

Having sold out of XP Power (LON:XPP) a while ago I would now be wary of getting involved again until I saw:

  • Whether the falling order intake this quarter is a one off or a more worrying trend.
  • The reason for the huge spike in net debt, which I find oddly not explained in this update.

There is a good update from Gamma Communications (LON:GAMA) this morning, stating "that EBITDA for the year ended 31stDecember 2018 is anticipated to be at the top of the range of market expectations, with revenue and adjusted EPS growing in line with consensus expectations, and significantly over the previous year"

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rmillaree 14th Jan 57 of 91
3

In reply to post #436033

Halfords (LON:HFD)

I have held halfords previously, i liked the niche aspect of the business and their decent margins. My worry at present though is that they are have eroding margins due to the online competition - also as we get closer towards electric car sales becoming mainstream - could the autocentres be struggling in 4-5 years time too if there are more electric cars on the road where there is less work needed or that work is more likely to be done in house.

I am guessing their cost base is reasonably inflexible too - this would make me worry that any further margin or sales reduction could affect the bottom line numbers materially - is this a value trap i don't know - previously anything below p/e 10 and i was a buyer whereas now even with a p/e below 8 i am wandering if in 2 years time the profits will be lower again making this not the bargain it appears to be. Looking at the operating margin numbers per stockopedia these have gone from over 8% to 6% to now 5% - this may purely be autocentres related but the trend aint great in this regard. It all seems such a struggle in retail at present that does one need to take the risk here ? that they might be trending towards the others that have probably struggled more than halfords.

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crazycoops 14th Jan 58 of 91
7

In reply to post #436128

Re: XP Power (LON:XPP) the increase in debt is due to the Glassman acquisition which completed in May 2018

https://www.stockopedia.com/share-prices/xp-power-LON:XPP/news/xp-power-ltd-acquisitions-urn:newsml:reuters.com:20180510:nPRrAEDE5a/

Blog: Share Knowledge
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mmarkkj777 14th Jan 59 of 91
4

In reply to post #435868

Hi Sparkler,

Whilst I feel that people should have the right on here to express their opinion (in order to have balanced debate) what I don't get is the personal nature of going into the Author's records and dishing the selections with all the benefits of hindsight).
Paul's analysis, in my opinion, is good and we should take from it what we want and make our own selection and timing decisions. He is not a fund manager.

You say DYOR and as a SPARKLER you should know if you still hold after the fun stops, you get your fingers burnt!

As a former investment manager (with, as you say, ongoing success) why not post with constructive comments and critique so we can all benefit from your rounded experience?

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David Bagley 14th Jan 60 of 91

Re G4M - share price plummeted again today by around 16%. There is a rather curious RNS announcement relating to "Auction price monitoring extension" which I have not come across before. Can you shed any light? What does it mean? Is it something to be concerned about? It looks like market indigestion but I may be wrong.

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mmarkkj777 14th Jan 61 of 91
3

In reply to post #436173

Hi David,

Often when there is too much rapid price movement in a particular share the market will suspend trading in a share for a short period of time to all allow the market to catch up with price and for supply/demand to cool off slightly. It then restarts trading normally.

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rmillaree 14th Jan 62 of 91
9

In reply to post #436128

andrea34l
XP Power (LON:XPP)
I would now be wary of getting involved again until I saw:
The reason for the huge spike in net debt, which I find oddly not explained in this update.

errrr - but there is no huge spike in net debt - debt is up 3.2 million 

Net debt was £49.3 million at 30 September 2018 and per todays news is now 52.5 mill. This is also in the context of order intake being up 10% yoy and the supply issues, generating longer lead time and higher working capital needs - this was fully flagged up by the company in october, and they advised it would be 6-9 month before inventories would drop back down XPP has been an excellent cash making machine so i have zero worries in this regard, even if i was hoping that the debt might have drop by now. Note they paid £33 mill cash for Glassman acquisition this year so that explains the large spike in debt that happened earlier in the year. Ref order drop - yes this is not good but one 3 month period does not make a year - the rest of the year was good and they said today we expect further revenue growth in financial year 2019. That's good enough for me and i will continue to hold.
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Wimbledonsprinter 14th Jan 63 of 91
5

In reply to post #436123

Zipman

Re: take out risk. My knowledge may be a bit out of date but I believe the following is correct. Briefly (it is always more complicated), there are effectively two ways in the UK to do a squeeze out of minorities.

1). Scheme of arrangement, where the bidder needs 75% of those voting at a special EGM. Also the company is calling the EGM, so this can only happen when the board of directors recommend the scheme (and conflicted directors should not be voting - so this is really down to independents. 100% of shares are then cashed out/ exchanged as approved at the EGM.

2). Obtaining 90% of the shares through a bid. Then the <10% minorities can be squeezed out at the same terms as the bid.

An alternative would be for the majority holders to propose just to delist the shares (with or without a bid for the minorites). (I believe, but please check, that would also need approval at an EGM.). For the private minority investor, this might better (not necessarily forced out at a low price) or worse (no bid, no liquidity when unlisted, difficult to hold unlisted shares in a nominee account, no protection from listing requirements), depending on yout point of view.

Over the last few months I have looked quite closely at 3 companies: UP Global Sourcing Holdings (LON:UPGS) QUIZ (LON:QUIZ) and Warpaint (W7L). They all have in common: IPOed in the last few years by founders who have become wealthy through selling stock in the IPO, the founders are still the dominant shareholders and are still managing the company and the shareprice has fallen a long way in the last 12 months.

Of the three, it was interesting that Warpaint has in place a “relationship agreement”, which puts limits on the founders using their voting rights to remove independent directors, delist from AIM, or change the articles (without the consent of a majority of the independent directors). I thought this was a useful protection, although obviously only as good as the quality and courage of the independents. As far as I have seen, neither QUIZ (LON:QUIZ) nor UP Global Sourcing Holdings (LON:UPGS) has this protection (DYOR).

(I don’t hold any of the three stocks currently - but until recently held, short-term,UPGS. I think QUIZ and W7L are interesting and I am thinking of buying QUIZ).

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Andrew Mitchell 14th Jan 64 of 91
1

Revolution Bars (LON:RBG)

Keith Ashworth-Lord still positive: topped up to just under 19% a short time ago.

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DWit199 14th Jan 65 of 91
1

In reply to post #436188

QUIZ (LON:QUIZ) is registered in Jersey. Does that affect the rules?

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Wimbledonsprinter 14th Jan 66 of 91

In reply to post #436198

DavidWithers

Good spot. Yes Jersey registration will affect the rules for QUIZ (LON:QUIZ) - but how exactly is well beyond my expertise. From my notes on the company (which I would have taken from the Admission Doc), I see that it is subject to the UK Takeover Rules (some protection) and I noted that Jersey domicile can limit who can bring a claim against the directors.

Below is the section from the Admission Doc (p48):

"The rights afforded to shareholders will be governed by Jersey law and by the Articles, and these rights differ in certain respects from the rights of shareholders in typical UK companies. In particular, Jersey law significantly limits the circumstances under which shareholders of companies may bring derivative actions and, in most cases, only the Company may be the proper claimant or plaintiff for the purposes of maintaining proceedings in respect of any wrongful act committed against it. Neither an individual nor any group of shareholders has any right of action in such circumstances."

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mojomogoz 14th Jan 67 of 91
8

Chin up Paul and push on through. Thank you for all the great write ups.

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DJCP 14th Jan 68 of 91
1

Paul,

Re : the concessions - questions as opposed to constructive comment, I'm afraid.

If Debenhams (LON:DEB) does disappear in it's current form, what are the other large stores that offer concessions ?
Will companies such as QUIZ (LON:QUIZ) be more wary of trading in this format, now and in the future ?
Could/should these concessions ask for their funds to be ring-fenced in some way, so safe(r) in the event of a liquidation/Mashley ?

Regarding the 'main' non-share topic today ! - I recall many years ago, investors on another BB commenting that written posts, can rarely convey their 'tone', even with the use of emoticons :o)
I wouldn't make my portfolio as public as Paul has done, because most readers would be split between the 'horror story' or 'comedy club' camps ! lol

Finally, @mojomogoz (#67):
"Chin up Paul and push on through. Thank you for all the great write ups."
Agreed, but I also hope that is a freudian hint for you to comment on GYM (LON:GYM) trading update tomorrow ! lol ... Please :o)

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Damian Cannon 14th Jan 69 of 91
9

In reply to post #436193

He certainly does seem keen on Revolution Bars (LON:RBG) and I've no idea why! I'm reading through his excellent book at the moment and his focus is on companies with a solid moat which produce lots of free cash and have a high ROCE (because capital requirements are low). Looking at the metrics for Revolution Bars none of these things appear to be true - especially the lack of a moat.

So I've no idea why he's loading up within the Buffettology fund - does anyone have a clue?

Damian

Blog: Ambling Randomly
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timarr 14th Jan 70 of 91
6

In reply to post #436248

So I've no idea why he's loading up within the Buffettology fund - does anyone have a clue?

Hi Damian

If you go back to the original purchase in May 2016 he said:

“... seen its share price fall from over 720p to under 275p following three profit warnings. It generates 20% return on equity, converts over 100% of accounting earnings into cash earnings, has £108m of freehold properties and only a small amount of debt. Many times I have seen similar businesses stumble only to be snapped up by private equity ... if management is incapable of reinvigorating the offering I expect a similar outcome here”.

Broadly the metrics still look OK, so I assume he thinks a bid must be coming.

I don't always find his rhetoric and the outcomes aligned - I can't quite get my head around their most recent purchase of Experian (LON:EXPN), although it's a lot closer to a typical Buffetology stock than Restaurant (LON:RTN).

EDIT: And he voted against the Wagamama purchase too, just to add more noise to the picture ...

EDIT: And there's this, from Stocko in 2016:

I revisited all my forecasts and all my spreadsheets, taking into consideration no growth or perhaps low growth and what private equity might be prepared to pay for it. I was coming up with fair value of between £4-5 per share. The shares had come down from over 700p to 280p, and I felt that was all the margin of safety that I needed. It wasn’t going to go bust and that’s just the sort of value investment proposition I like.

https://www.stockopedia.com/co...

timarr

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Deeping 14th Jan 71 of 91
3

In reply to post #436263

You are talking of Restaurant Group rather than Revolution Bars?

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 Are LON:QUIZ'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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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