Small Cap Value Report (Mon 18 Mar 2019) - FOOT, STAR, JLH, MAI, MGR, PIP

Monday, Mar 18 2019 by

Good evening/morning.

Apologies for Friday's report being late, I was in bed with a cold. Also, there was nothing of any interest in the small caps world for results or trading updates. However, I've reviewed a few things belatedly, including the insolvency of Interserve - something that Graham and I have warned about, repeatedly, for a long time - so I'd be very surprised if any of our readers lost money on that one.

Friday's report is now finished, which is here.

Footasylum (LON:FOOT)

Share price: 81p (up 74% today, at market close)
No. shares: 104.5m
Market cap: £84.6m

Recommended cash offer

Exciting news today for shareholders in this sports footwear chain, targeting yoof, which has been a dismal performer since floating in Nov 2017. Much bigger rival, JD Sports Fashion (LON:JD.) has launched a recommended cash takeover bid at 82.5p per share. This is a very generous offer, in my opinion, given the poor outlook for FootAsylum.

Based on the large shareholding which JD already has, plus indications of support mentioned in today's announcement, then this looks a done deal - unless the competition authorities get involved in some way, in trying to block, or amend the deal. For that reason, I would sell now, banking the excellent profit, rather than risk something going wrong (scarred by my failure to bank profits at Revolution Bars (LON:RBG) after the 203p cash bid there fell through some time ago).

My opinion - this is great news for the bombed-out UK small caps market. I was having a drink in the city recently, with my main stockbroker, and another small caps specialist, and we all agreed that what this market needs right now are one or two takeover deals, at a big premium. Well here we are, that's exactly what this FOOT deal is.

I think this nicely demonstrates that (selectively, as always) there is considerable value out there in small caps. Many shares have ground down, for up to a year now, often for no particular reason. Things have not risen on good results, and have often sold off, even on OK results. Disappointments, even mild ones, have been punished heavily, and repeatedly sometimes.

All of which combines to give…

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Footasylum plc is a United Kingdom-based lifestyle fashion retail company. The Company is focused on bringing to market footwear and apparel collections predominantly aimed at 16 to 24 year old fashion-conscious customers. The Company provides a broad range of footwear, apparel and accessories for men, women and children. The Company’s own brands include Kings Will Dream, Glorious Gangsta, Alessandro, and ZAVETTI. The Company operates a multi-channel model which combines a 61-strong store estate in a variety of high street, mall and retail park locations in cities and towns throughout Great Britain e-commerce platform and launched wholesale arm (for distributing its own brand ranges via a network of partners). more »

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Starcom plc is engaged in the development of wireless solutions for the remote tracking, monitoring and protection of various types of assets and people. The Company, along with its subsidiaries, has four operating segments: sets, accessory, Web and other. The Company has two wholly owned subsidiaries: Starcom G.P.S. Systems Ltd. and Starcom Systems Limited. Starcom G.P.S. Systems Ltd. is an Israeli company that engages in the same field. The Company offers systems, including Helios, Triton, WatchLock, Rainbow, Kylos and the Online Application. Helios is an automatic vehicle location and fleet management systems. Triton R container tracking system provides ongoing monitoring of containers. WatchLock is a security padlock. Kylos is a portable tracking solution for locating merchandise assets, people and pets. Starcom Online, an online application, provides online support. more »

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John Lewis of Hungerford plc is a United Kingdom-based company, which designs, manufactures, retails and installs kitchens, bedrooms, freestanding furniture and architectural components direct to the public from its own showrooms across the United Kingdom. In addition, the Company operates an online business, under the name of Just Doors for replacement kitchen cabinet doors. The Company's offerings are classified under various categories, such as kitchens, including Shaker Kitchen, Artisan Kitchen, Pure Kitchen and Urban Kitchen; bedrooms, including Artisan Bedroom, Shaker Bedroom, Pure Bedroom, Urban Bedroom and Dressing Rooms; furniture, including Dressers, Fridges, Pantries, Tables, Chairs, Islands and Utility Rooms, and paint, including Satin Eggshell Colours, High Gloss Colours and Special Finishes and Colours. Its Specialist Rubbed Colors and Antiqued Finishes include ivory, cream, driftwood, mist, cornflower, antique blue, burgundy, sea salt and slate blue. more »

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

23 Comments on this Article show/hide all

MrContrarian 18th Mar 4 of 23

My morning smallcap tweet: FOOT holders head over heels

Footasylum (LON:FOOT), Celtic (LON:CCP), Spectra Systems (LON:SPSY)

Footasylum (FOOT) JD Sports rec offer of 82.5p, a surprising 77% premium and 185% above JD's first acquisition of Footasylum shares.
Celtic (CCP) will exceed FY market expectations.
Spectra Systems (SPSY) guides FY above market expectations.due to a G7 central bank research contract which will commence in Q2.

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fwyburd 18th Mar 5 of 23

Good morning Paul, I'd be interested in your views on Restore (LON:RST) results today. PBT 37.5m (adjusted) or 21m (statutory), dividend up 20% (covered 4 times) and debt at 111m. Its a share that's halved in value since last year's sell off - can't work out if today's price is fair or if it's undervalued.

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JohnEustace 18th Mar 6 of 23

Nice trading update from Spectra Systems (LON:SPSY) but no numbers given.

“Spectra Systems Corporation, a leader in machine-readable high-speed banknote authentication, brand protection technologies, and gaming security software, today announces that it expects its profits for the year ending 31 December 2019 to exceed market expectations. The increased profits are related to a G7 central bank research contract which will commence in Q2 of this year and is expected to extend throughout 2020.

Dr. Nabil Lawandy, Chief Executive Officer, stated: "We are very pleased that we are able to provide a positive trading update for 2019 which is reflective of an increasing product mix which allows for sustained strong profitability."

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jonno 18th Mar 7 of 23

Miton (LON:MGR) please Paul. Results look good'' slightly ahead of expectations as far as I can tell. Funds performing well, yield around 4% and cash of £25m, a little over 25% of market cap. As always the shares of fund manager groups are largely dependent on the overall direction of the market. I hold.

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DJCP 18th Mar 8 of 23

In reply to post #458888

A second for Restore (LON:RST) please.

Also announced today, is the CFO leaving in August, after 7 years, to become Finance Director of Fuller, Smith & Turner plc.

Still going through results, but although revenue increased by 14%, and adjusted profit figures increased by 20%-22%, the statutory figures doubled (there or there abouts).

Last month they sold their ink and toner recycling business, to a company more specialised in this, but retain a 40% holding of the enlarged company.

Disc: Purchased in Aug 17 at a lot higher price, mainly based upon having an 'insider' there - ok, just an office employee ! lol but I did get a positive impression of the company, ambition etc.

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davidjhill 18th Mar 9 of 23

In reply to post #458913

Miton (LON:MGR) is a great business. Just the right size in my opinion to be niche enough to be nimble and has some good fund managers.

EPS of 4.7p is a good beat. Given FUM are now 5% ahead of last years average I think something over 5p EPS for this year is easily achievable. They have circa 17p of cash as well. Strip that out and they are on 8* earnings, considerably below peer group.

I hold and expect them to re-rate at some point to between 11 & 13* eps plus cash, so 75-80p.
However, market direction will always play a part as you mention.

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iainc 18th Mar 10 of 23

Last Thursday, in response to the Superdry (LON:SDRY) management stating that any return of the founders would be extremely damaging Paul stated that "many fashion companies need the vision of the founder(s), even when they become large. It sometimes doesn't take long for outside management to kill off a great brand", I thought the testimonials on this site are extremely pertinent:

Ok, the views are biased, but there is a huge amount of feeling that the current management are utterly unsuited to running a fashion brand. I'm be very concerned if I held any shares in Superdry (LON:SDRY)

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ken mitchell 18th Mar 11 of 23

THE big problem with Superdry is their empty stores in very expensive locations, along with expanding their store portfolio even when it should have been clear that doing that was a mistake. And that happened on Dunkerton’s watch.

Online is going well so why not focus on current strategy as well as their product offering? Sort out the so obvious stores problem and Superdry profits could fast increase even under current Management.

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jonesj 18th Mar 12 of 23

In reply to post #458848

Matylda - Agreed, nothing at all special in Wagamama. I actually have more difficulty in replicating the very nice fast food at Wasabi.

As for something else I don't understand, well in Thailand & Cambodia, there are numerous restaurants where you essentially cook the food yourself on a gas hob in the middle of the table. And it's a premium offering, as the cost of the food is 5~10x that in budget restaurants or food stalls (food ready cooked in the latter).

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Camtab 18th Mar 13 of 23

In reply to post #458888

I have a mental block, the moment I see over £190m of intangibles and goodwill in a £300m bal sheet I become disinterested.Just me.

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cr2263 18th Mar 14 of 23

morning Paul,

either yourself or Graham recently mentioned a small cap in the same line as EPO. I had a look at the time, but thought I'd take another look given today's purchase of worldpay by Fidelity National.

I've had a look through the small cap reports, but cannot find any reference...... can you remind me of the company name.

Many thanks and keep up the great work

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tomps3 18th Mar 15 of 23

Miton (LON:MGR) FY results overview by David Barron, CEO.

As others have said here, a great set of results.

Average FuM - core to the business, are up 30%, with Adj PTP +34%, Adj EPS +30%, cash £25.5m. They do it very well!

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sharmvr 18th Mar 16 of 23

In reply to post #458993

Wasabi charge not that much less than wagamama without the same physical space. Bigger portions too!

The cook yourself is a hotpot - I wouldn't say overpriced given the quality of food (produce) where I went, but I think the business model of a restaurant only serving ingredients and a soup base is genius. Surely customers can't complain about the wait / cooking.

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barnetpeter 18th Mar 17 of 23

FOOT...a very good start to the week!! Lots of similar bombed out stocks must be being looked at. Quiz or RBG or Debenhams or ASOS or IQE.....who knows what stock could be next.....I am sure all readers could draw up a long list of other bombed out stocks that would probably agree a deal at the right price.

There is nothing like bids at a premium to excite the market in my experience!

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brucepackard 18th Mar 18 of 23

Surely there's something wrong with Spectra Systems (LON:SPSY) qualifying for "Ben Graham Deep Value" screen? It's on a PER of 19x and div yield of 4%. Could be a GaRP stock (Growth at Reasonable Price) but "deep value" I think not.

Again not an easy company to understand - but increased in value 5x from the start of 2017

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simonty 18th Mar 19 of 23

In reply to post #459013

Was it ESG ?

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Richard Goodwin 18th Mar 20 of 23

In reply to post #458863

I tried Domino's for the first time in years recently. Both products and service have distinctly worsened. Could this explain the share price?

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sharmvr 18th Mar 21 of 23

In reply to post #459103

Is Footasylum (LON:FOOT) not linked with JD Sports founder.
List a company for a packet and sell your stake.
Watch it get bombed and buy back down the line.

Pretty sure they're not the first and not going to be the last, but for me those spidy senses are tingling.
Never had a position in foot or JD

Rest is from Bloomberg:

The companies already have ties: JD Sports co-founder David Makin founded Footasylum in 2005, while JD Sports co-founder John Wardle was chief executive of Footasylum from 2008 before becoming executive chairman in 2015.

Barry Bown, Executive Chairman of Footasylum, said:

“The Footasylum Board has concluded that the Offer represents the best strategic option for Footasylum and its employees. It believes the Offer fairly reflects Footasylum’s current market position and prospects on a standalone basis and, as such, that Footasylum Shareholders should be given the opportunity to realise value from the Offer.”

Back to me:
Not sure if that was in the offering document

Am I alone in feeling this is nefarious or am I just exhibiting naiveté

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drvodkaquickstep 18th Mar 22 of 23

Fully agree with you on the M&A aspect Paul.

A big proportion of my portfolio has always been built with M&A specifically in mind although it seems a long time ago since my successes with £REDT, Waterman (LON:WTM), £CSG and £NCON.

My current picks that are ripe for some Corporate Action are WYG (LON:WYG) and Driver (LON:DRV) especially given they have both recently been whacked following poor trading updates. Knowing that bigger players in their peer group are actively looking for acquisitions means its a question of “when” not “if” for me.

Despite professional services business being somewhat cyclical with modest/low margins there is no doubting the prevalence of M&A in the construction consultancy space over the last 10 years and I don’t see it changing soon.

Watch this space

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crazycoops 18th Mar 23 of 23

Bruce, re: Spectra Systems (LON:SPSY) - I just saw your comment as I was about to get some shut eye (too late for me to analyse against the screen criteria) BUT you might like to consider the cash adjusted PE. I hold

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 Are LON:FOOT'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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