Small Cap Value Report (Mon 17 Sep 2018) - W7L, FIF, CTG

Monday, Sep 17 2018 by

Good morning,

Today's report is taking ages to get going, so timing will be a bit later than usual, but I'm on the case.


These events are great fun. Please note that the next StockSlam is scheduled for Wed 24 October, evening, in central London.

At this stage, 15 presenters are needed, to do quickfire 3 minute pitches on your favourite shares. Then pizza & beer afterwards, networking & shares chat. Why not have a go, and apply to do a quick spiel about your favourite share? Click on the header above for more details.

Warpaint London (LON: W7L)

Share price: 250p (up 5.3% today, at 12:04)
No. shares: 76.7m
Market cap: £191.8m

Interim results

Warpaint London plc (AIM: W7L), the specialist supplier of colour cosmetics and owner of the W7 and Technic brands, is pleased to announce its unaudited interim results for the six months ended 30 June 2018.

  • Revenues have grown strongly, up 38.7% to £18.4m
  • This growth has mainly come from an acquisition on 30 Nov 2017, of "Retra"
  • Today's statement is admirably clear, also showing the organic revenue growth of 7.3%
  • Adjusted profit is down though, which is not good;
Adjusted Profit from Operations of £2.8 million* in the half year (before exceptional Items, depreciation and amortisation costs) (H1 2017 £3.1 million)

Outlook - this is the key bit, which reassures;

"The additional revenues in the second half, particularly from Christmas gifting, are expected to result in overall revenue being two thirds weighted to the second half of this financial year and with a fixed cost base that is evenly spread over the full year, we expect to deliver overall Group earnings in line with management's expectations.

It's good to have the seasonality clearly explained. Let's hope the company does manage to double H2 revenues over H1 - a steep increase.

Valuation on a PER basis looks about right to me;


Note that the quality scores are high.

Balance sheet - looks excellent, with a very strong working capital position.

Although both inventories & receivables strike me as a little high - perhaps there are not tight enough controls over working capital?

Net cash of £4.6m is healthy.

My opinion - it looks quite interesting. It would…

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Warpaint London PLC is a United Kingdom-based company engaged in color cosmetics business. The Company sells color cosmetics in the United Kingdom and overseas, principally under the W7 brand. The Company operates through two divisions: close-out and own-brand. The own-brand division consists primarily of the Company's flagship brand, W7. The W7 brand contains over 500 items, which are sold into high street retailers and independent beauty shops across the United Kingdom, Europe, Australia and the United States. The W7 brand focuses on the 16-30 age range. more »

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Finsbury Food Group Plc is a United Kingdom-based bakery manufacturer. The Company is engaged in producing a range of cakes, bread and bakery snack products for retailers and the foodservice channel. The Company's segments include UK bakery, Overseas and Group Operations. The Company's UK Bakery segment manufactures and sells bakery products to the United Kingdom's multiple grocers and foodservice sectors. The UK bakery segment primarily includes the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd, Campbells Cake Company Ltd, Johnstone's Food Service Ltd, Fletchers Bakeries Ltd and Nicholas & Harris Ltd. The Overseas segment is engaged in the distribution of the Company's product manufactured in the United Kingdom along with the sale of third party products primarily to Europe. Kara is the Company's foodservice brand. Its licensed brands include Disney, Thorntons, Weight Watchers, Vogel's, Village Bakery and Cranks. more »

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Christie Group plc is a provider of a portfolio of professional business services for the leisure, retail and care sectors. The Company operates through two operating segments: Professional Business Services, and Stock & Inventory Systems & Services. The Professional Business Services segment is engaged in business valuation, consultancy and agency, mortgage and insurance services, and business appraisal. The Stock & Inventory Systems & Service segment covers stock audit and counting, compliance and food safety audits and inventory preparation and valuation, hospitality and cinema software. The Company's subsidiaries include Christie & Co (Holdings) Limited, Christie Group Central Services Limited, Pinders Professional & Consultancy Services Ltd, RCC Business Mortgage Brokers Ltd, Orridge & Co Ltd, Reedwall Limited, Vennersys Ltd, Venners Ltd and Venpowa Limited. more »

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  Is LON:W7L fundamentally strong or weak? Find out More »

27 Comments on this Article show/hide all

InvestedGeordie 17th Sep '18 8 of 27

Good morning Paul,

I wonder if you might have a look over Christie (LON:CTG) half-year report? An interesting transformation is afoot!



Disclosure: I hold shares in Christie (LON:CTG)

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LeoInvestorUK 17th Sep '18 9 of 27

In reply to post #399099

Boohoo (LON:BOO) - Interesting. The pay package appears to be providing guidance that, given the current valuation and growth prospects, they expect future share price growth will be somewhere between 10 and 23%pa compound.

Blog: LeoInvestorUK
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Howard Marx 17th Sep '18 10 of 27

In reply to post #399149

The incoming CEO will have a huge headwind achieving such share price growth in a prolonged bear market.

Incentive Plans should be relative, not absolute.

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drvodkaquickstep 17th Sep '18 11 of 27

Another request for Christie (LON:CTG) please Paul. Great reading HY report under new Chairman. Refreshed website and it seems the various business segments are firing on all cylinders including International. Thanks!

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DJCP 17th Sep '18 12 of 27

Not a request for analysis, as £10m Mkt Cap is a bit too low(?) for SCVR, but any comments from holders/watchers would be appreciated. July 18 IPO, so nothing much to go on yet.

BigDish (LON:DISH) RNS - UK Launch and Fourth Quarter Strategy - "the company which operates a yield management platform for restaurants, is delighted to announce its beta launch in the UK today"

They're trialing 70 restaurants in Bath/Bristol to ensure App etc. works properly.
Migration of Table Pouncer to BigDish platform (seated 126,122 diners in Bournemouth in 2017)
Fourth quarter sets the stage for aggressive rollout across the UK in 2019, targeting up to 6,000 restaurants

This is on my watchlist, not so much as an investment (although a punt is possible), but to learn from - e.g. "I didn't think it would succeed - saved some cash.", or "Multi-bagged as I thought - retirement time! lol".

One concern is that one of the more established 'eating'-related companies muscle in, and with their larger presence, push BigDish into terminal decline. The other side of this is that they may view BigDish as a viable add-on and buy once more established/working.

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Silver Moon 17th Sep '18 13 of 27

In reply to post #399109

Re Mirada, with a magician’s wand Ernesto Tinajero is set to completely reverse the Free Float. Now 77%, soon to be 13%.

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FREng 17th Sep '18 14 of 27

Another request for MJ Gleeson (LON:GLE) and Tern (LON:TERN) please. I hold both and at first look both sets of results seem more positive than I had expected.

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JohnEustace 17th Sep '18 15 of 27

In reply to post #399099

I sold out of Boohoo (LON:BOO) after the FT expose of conditions in the factories in Leicester. I seem to remember Paul doing the same.
My suspicion is that they have had to pay more to their suppliers resulting in a squeeze on their own margins, and will now be looking to increase foreign sourcing.
Disposable fashion has it's price.

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hawkipa 17th Sep '18 16 of 27

I know its not your area, so won't request it but thought I'd mention that I can't help but be impressed by the clarity of the results from City of London Investment (LON:CLIG) It's balance sheet looks fantastic and whilst it is obviously a geared play on both EM and general markets, I feel this update presents a very good excuse to continue holding. The likelihood of a special dividend has to grow over time, especially as I can't see such a well groomed CEO changing his approach to acquisitions. Furthermore, with the CEO moving to Chairman means I just can't believe that their general strategy will change too much with new leadership.
The natural concerns have to be continued weakness in inflows, sub benchmark performance and a possible further strengthening of GBP, along with fee income pressure. However, what's to stop a consolidator seeing value in the current operation, especially the cash rich balance sheet and relative 'cheapness' to other asset managers eg Ashmore along with the potential to extract significant cost savings. Their cost base could easily be reduced substantially by a bigger player.

If anyone has any thoughts on it, I would especially be most grateful to hear the bear case as I wonder if I am risk from falling a little in love.

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Trident 17th Sep '18 This post is under review


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andrewdb 17th Sep '18 18 of 27

In reply to post #399174

This strikes me a another thing like purplebricks / justeat / airbnb / rightmove

This is introducing intermediation in the internet age when the idea was to disintermediate.

There will always be someone else who can do it (whatever that is cheaper)

The only defense is to
(a) get so much of the market you become the market (rightmove)
(b) create a new market (airbnb sort of )
(c) add value that is not easily replicated (stocko!)

'book via app' is easily replicated (as is purplebricks / justeat) if it was my money it would stay in my pocket.

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paraic84 17th Sep '18 19 of 27

In reply to post #399239

City of London Investment (LON:CLIG) is a great company. I particularly love how transparent it is with regular updates outside of RNS announcements about its funds under management on its website. See here:

I guess the bear case at the moment is about the negative sentiment towards emerging markets. As they say today, only 18% of funds are for non-emerging market assets. But I see the July & August funds are holding up.

I've tended to buy into this share on dips and I've been wary of going back in recently due to emerging market sentiment plus it feels like the wrong part of the financial cycle to be buying investment management companies. It's trading around a p/e of 10 and a very good dividend so maybe a good time to buy back in? I don't hold currently.

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runthejoules 17th Sep '18 20 of 27

In reply to post #399159

Not sure plans should be relative rather than absolute Howard, surely absolute payment plans are there to ensure the company doesn't pay out money it isn't earning, as much as anything else? Am in favour of longer plans though, 5-10 years to smooth out cyclical effects.

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cojode 17th Sep '18 21 of 27

Hi Paul and welcome back (belatedly). OT is your twitter account OK? I cant access, though I have no trouble with others.

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MarkOR 17th Sep '18 22 of 27

In reply to post #399254

I also quite like the company. I hold a small amount having bought in recently at 380p. The management team are well aligned with shareholders and they seem to communicate without any bluster or bravado. They are investors themselves, communicating to investors. Quite refreshing.

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Paul Scott 17th Sep '18 23 of 27

In reply to post #399264

Hi cojode,

My Twitter account is set up so that all Tweets spontaneously combust within 24 hours.
It's much easier that way!

Regards, Paul.

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Paul Scott 17th Sep '18 24 of 27

Tern, MJ Gleeson, and CLIG, are not the sort of things that I usually follow or report on. Sorry about that.

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dahokolomoki 17th Sep '18 25 of 27

In reply to post #399249

And yet you fail to mention that Just Eat (LON:JE.) which is just an intermediary platform, by your definition, has a market cap of £4.8bn now.

Can BigDish (LON:DISH) succeed? There are still many obstacles to a billion pound valuation, but potentially if the execution is right. 

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DJCP 17th Sep '18 26 of 27

In reply to post #399139

@rbf post #7

I've got a comparison spreadsheet set up for Inland Homes (LON:INL) v MJ Gleeson (LON:GLE) and although it still needs some work, as it only compares P&L, Balance Sheet and Cashflow figures, but would be better comparing ratios. If I remember I'll see if I can put Inland Homes (LON:INL) figures in on Thursday and see if it's of any interest (don't mind a nudge if I forget ! lol).

Looking at last year Inland Homes (LON:INL) v this year MJ Gleeson (LON:GLE) on the P&L throws these margins up:
INL - 21.5% Gross - 29.0% Operating - 21.6% PBT
GLE - 33.2% Gross - 18.7% Operating - 18.7% PBT

So, although wild swings in the first two, the Profit Before Tax margins are quite close.

I do wish ALL companies adhered to EXACTLY the same wording and format/layout of their results. It would make life SO much easier ! lol

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matylda 18th Sep '18 27 of 27

In reply to post #399324

Based on my limited exposure to friends who are restaurant owners.

The problem with Just Eat (LON:JE.) and similar companies (intermediaries) is that the restaurants just don't want to use them because they make so little after the intermediary takes their "bite" (so to speak).

In fact, the owners I know, ask the driver to mention - Next time call us direct for 10% off instead of using (insert intermediary name). This has happened to me when ordering from a restaurant not associated with a friend. I just don't see this as good long term business sense.

As an addition, same said friends involved in the industry hate Groupon and always tell people to just come and ask for a discount next time (hows 25%). They use Groupon as a "marketing ploy" and actually usually make only a small return on the not included wet sales.

Limited experience, just sharing.

Blog: Briefed Up
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 Are LON:W7L'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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