Small Cap Value Report (Mon 14 Oct 2019) - CBOX, SYS1, RNO, YGEN, SPA

14th Oct '19 by Paul Scott

15 comments 7174 reads

Good morning, it's Paul here, I'm on duty this week.

Estimated completion time today is 4pm. So please check back later for the completed report. Update at 16:40 - today's report is now finished.

I see there is another takeover bid of a UK-listed mid-cap, Sophos (LON:SOPH) - a cybersecurity group. It's being bought (for cash, in a recommended [by its Directors] deal) at a 37% premium, for about £2.84bn. It seems as if mid-caps is the most interesting area for takeover bids. Although Sophos looks very expensive, so the bidder must have been attracted by something that's not obvious from the figures.

Cake Box Holdings (LON:CBOX)

Share price: 165p (down 3% today, at 11:43)
No. shares: 40.0m
Market cap: £66.0m

Half-year trading update

Cake Box Holdings plc, the specialist retailer of fresh cream cakes, today announces its half year trading update for the six months ended 30 September 2019.

These cakes are suitable for vegetarians, but not vegans, because they use cream as a topping. I believe the egg-free cakes are suitable for Sikhs & Muslims, some of whom apparently don't eat eggs. All in all, I'm surprised that Cake Box shops are economically viable, given that the market must be fairly small & niche.

It's an in line update today;

The Group has continued to grow strongly during the period, both through its existing estate and the addition of new stores and expects to report revenues for the period up c.6% to c.£8.8m compared to the same period last year (HY18: £8.3m).

Within this, like-for-like sales* in existing franchise stores grew by 6.9%. As a result, the Board is confident that the Group will meet current market expectations for the year.

Something above strikes me as rather odd. H1 revenues are up 6%, and LFL sales in existing stores are up more, 6.9%. This would normally imply that there must have been a small contraction in the number of stores. Yet it refers to new stores having been opened. No mention is made of closures, so I wonder if some stores have closed, offsetting new openings?

Having a think about this, I reckon it could be something to do with the franchise model which means that revenues are generated from selling supplies to existing franchisees,…

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MrContrarian

14th Oct '19

My morning smallcap tweet:

Cerillion (LON:CER), Scisys (LON:SSY), Laura Ashley Holdings (LON:ALY)

Cerillion (CER) touts 'major' contract win of £2.9m but it "supports existing market forecasts."
SCISYS (SSY) £2.6m contract from Oct to 2022. It is included in existing market guidance.
Laura Ashley (ALY) CFO resigns. He is thanked.

Carcosa

Cake Box Holdings (LON:CBOX)
Cakebox half year trading update.
Revenues up 6%
LFL up 6.9%. (Stores in operation for 12+ months)
Nine new stores were added during the period. That's +8%

Would have thought revenues would be much higher given LFL + new stores (unless all the stores opened on the last day for the period!).

not a share I really follow muich so guess there is a reasonable explanation for what I would see as disappointing revenue numbers.

Not a shaare I really follow though...

rhomboid1

I’m told by SAB @River_Runner on Twitter that’s it’s because they opened 6 fewer franchises this period & they recognise the franchise fee / fit out revenue on opening

Seems counterintuitive..but

TamzinPiworld

Cerillion (LON:CER) Commented on above. Here's an investor presentation from June 18 which gives the investment case, which they outlined at ShareSoc June 18, but still has relevance today.

Urban Logistics Reit (LON:SHED) Trading Update. Portfolio valuation +3.8%. NAV up 5.2% to 145.2p per share since March 19. LTV 34.1%. Investor presentation from May, at Mello.

DWit199

A very modest trading update from System1 (LON:SYS1)

I picked up a few earlier in the year because I thought they were cheap if the AdRatings service proved a success. AdRatings is only mentioned as an exclusion or expense in this update, so presumably no real progress with the service. It's not a profit warning, so I will continue to hold.

grumpy5

Interesting re Sophos (LON:SOPH) the level of sustained and chunky director selling over the last couple of years - that would have put me off ever buying some.

doublelutz

A lot of the sales were following directors receiving nil cost options to enable the tax to be paid. I have to say that I am put off when directors keep getting nil paid options. Other sales were astutely timed a couple of years ago when they got out at a similar price to the current takeover figure prior to the drop in price! It did seem to be making a recovery over recent months looking at the chart.

Mark Carter

"Laura Ashley (ALY) CFO resigns. He is thanked."

Yes, I'm sure the shareholdsrs would like to thank him, too ... for resigning. No doubt he walks away with a handsome bonus.

Vsihv

"I think Western companies generally have been incredibly short-sighted by allowing China to gain so much power over supply chains, given that it's a totalitarian dictatorship, in case we'd forgotten, and a clear adversary of the West, blatantly stealing IP and launching prolific cyber attacks."

Seems an unfair statement, the US stole from Europe, Japan stole from US and Europe (Nuclear power), Europe then stole from Japan (manufacturing efficiency) and US (financing), China steals from the world

UK gave up naval bases for military protection, companies gave up control of supply chain for margin.

Think it is unfair to paint China as the bad guy (although admittedly the comment suggests Western myopia is the bad guy) -

Let those who have never taken a cola bottle from the pic n mix cast the first stone - I steal from John - The IRONY

Desanj

From what I have seen, Cake box does not have a unique product. In areas like Ilford (East London), there are a lot of these eggless cake providers and quite a few of them make better products then Cake box. Therefore, over the long term I do not understand how they can continue to be successful.

Brackendale

SYS1"tricky one this, needs more thought".. my immediate thought when I hit a tricky one is to bin it! Although like so many things, this seems to work well for Buffett but not so much for me!

Agreed - egg less cakes are a dime a dozen (literally) in India.
Would expect a franchise to offer something the franchisee can't do themselves (brand/marketing/supply chain) not sure what it is cakebox does (other than maybe volume buying) that the franchisee can't achieve on their own.
That said - a successful franchise operation is lucrative - we can all make sandwiches but Subway did pretty well

Anyone interested in Yourgene Health (LON:YGEN) might be interested in premaitha health, vialogy and whatever the company was prior to this.
Assuming same management, their vision of success appears to be successfully tapping shareholders for more money.
I think #bargepole

JohnEustace

I take issue with saying we stole the manufacturing efficiency breakthroughs from the Japanese.

Shigeo Shingo specifically presented his work as a gift to Western readers in return for the lessons the Japanese had learnt from Deming and others. It was a collaboration. He knew he had furthered knowledge and published his findings.

There’s no fair comparison with the Chinese theft of IP.

15th Oct '19

Fair enough - it wasn't stealing as it was knowledge sharing.
That said, lets not pretend Europe is averse to stealing.
My general point is that theft is a matter of course throughout history - people just don't like when they are on the receiving end, but less inclined to complain on the other side.

Small Cap Value Report (Mon 14 Oct 2019) - CBOX, SYS1, RNO, YGEN, SPA

Cake Box Holdings (LON:CBOX)

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Paul Scott

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