Small Cap Value Report (Mon 21 Sept 2020) - SDRY, CRW, AUG, FCAP

21st Sep '20 by Paul Scott

87 comments 11805 reads

Good morning, it's Paul here with the SCVR for Monday.

Timings - after a leisurely start today, I'll be writing here until about 3pm. Sorry, I was too tired to write any more, after watching the Beeks Financial Cloud (LON:BKS) results webinar after lunch. See tomorrow's report for a catch-up session. Today's report is now finished.

Today's agenda

Superdry (LON:SDRY) - ridiculously late results, which have taken 5 months to be published. Covering the 52 weeks to 25 April 2020

Craneware (LON:CRW) - Final Results for FY 06/2020

Augean (LON:AUG) - Interim results to 30 June 2020 - see tomorrow's report

Finncap (LON:FCAP) - AGM trading update - see tomorrow's report

For general interest - initial report from the FRC on the collapse of Carillion.

Superdry (LON:SDRY)

Share price: 137p (down 10% today)
No. shares: 82.0m
Market cap: £112.3m

Final Results

I've been itching to see some numbers from this fashion brand retail/wholesaler, and have been having a vigorous debate with a friend who is bullish on it, and me being bearish. My view is that SDRY was only trading around breakeven before covid struck, so with a lot of expensive flagship stores, it's probably been losing money hand over fist in recent months during the shutdown. Also, will its wholesale customers be willing or able to pay their invoices?

The founder, Julian Dunkerton, returned as CEO, in an attempt to restore the brand to previous glory, after a period of poor management by hired hands. It's interesting how brands often lose their way, once the founder exits, and no longer has that oversight of everything.

The statement today is headed;

Performance materially impacted by Covid-19 disruption. Cash and liquidity remain strong

Brand reset continues with the launch of AW20 collection

The company has certainly been unlucky with timing. Not only is it having to deal with covid/lockdown, but also it's trying to "reset" its brand by focusing the product ranges (getting rid of things like kidswear which devalue the brand), and trying to re-establish full price sales instead of heavy discounting. Brand resets are very difficult to pull off successfully, because once a brand is damaged, it tends to remain damaged because the sparkle has gone, and the brand has become old…

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MichaelFBS

21st Sep '20

Boohoo (LON:BOO)

Hope somebody can enlighten me. I received an invite from Research Tree:

"Zeus Capital is organising the following Roadshow Meeting for the following company(s): boohoo group Plc"

I cannot attend because it is only for institutional investors. (though I only discover that once I have clicked through!)

I am a shareholder in Boohoo (LON:BOO) and while only a minute portion of the company it is a 10% holding for me.

How can some information be available to certain shareholders and not to others. Surely the information should be either insider information and not for release or not and available to all.

Otherwise it means that certain individuals are trading at an advantage to others and I cannot see how that can be right.

I know it is legal but I do not understand why.

Searching for enlightenment!

Regards
Michael

Terry Dickens

OK, thanks for that. I have just reread it and now understand with your explanation - Thank again

andrea34

Its the usual indiscriminate panic selling. Even companies that have very recently announced ahead of expectations updates are being battered, such as Chemring (LON:CHG) and Spectra Systems (LON:SPSY)

mort1980

gush

Luthrin

Michael,

Out of courtesy to the Stockopedia management I wouldn’t normally sing the praises of another data supplier, but you’re doing SharePad a massive disservice by claiming that it can’t handle news filtering by sector, market cap or subject (it can filter for a great deal more, but those were the criteria you gave).

SharePad’s newsfeed is first class in my opinion – split pane view, instantaneous response from the server over a fast broadband connection, customisable coloured subject highlighting, inclusion/exclusion text and news code filtering, plus filtering by numerous metrics in a similar manner to Stocko’s screening tools.

Invaluable as they may be to Stockopedia subscribers, the daily SCVR posts from MrContrarian and HollandSmith don’t impart anything that I’ve not already quickly and efficiently absorbed from SharePad’s newsfeed first thing in the morning. I’d happily pay the subscription for the news service alone.

Tombholliday

Did you give up on Augean and Finncap?

ed_miller

Re Craneware (LON:CRW) FY results ending June 2020, capitalised intangibles amount to $9.5M vs amortisation of $2.5M charged against these items arguably over-stating earnings by $7M. Not as profitable and cash generative as it pretends?

(No position.)

MrSmallCaps

Annual and interim reports are here https://www.augeanplc.com/financial-reports/

robinleggate

Thank you Berksbee for bringing that article to my attention. I think it is the most important thing I have learnt about the virus since it all started.

I have been arguing with my doctor over whether or not I should get a PSA test. He says, too high a FPR, but I wanted one anyway. I'm beginning to think he may be right after all!

abtan

Augean (LON:AUG)

This might now be smallest holding, but I am minded to top up. Some thoughts:

Sales are down vs last year, but the company still managed to generate +£10m of cash in 6 months when activity was significantly subdued.
There is a supposed 2nd half weighting (as per last year) so let's assume this year will generate +£20m of cash after Capital Expenditure.
With a Market Cap / EV of £168m this is impressive.
Debt has almost been completely eliminated, sort of...
For followers, you'll be aware that the company has advanced £40m to HMRC for disputed unpaid landfill tax up to 2017.
What might be less obvious is that the company has not been paying the same tax for 2018 and 2019. If HMRC chase them for this, then the company will need to pay up.
By my calculation, based on tonnes of waste produced and included in the annual reports, this amounts to an underpayment of £17.5m over these 2 years.
So debt is sort of gone, unless you include this potential liability.
(for reference, this reduces the £20m annual cash generation I mentioned in 1. to c £14.5m by my calculation)

There seem to be a lot of potential surprises here, so why am I interested in topping up?

Well, in my mind there are 4 different scenarios:

SCENARIO 1 - HMRC WIN, THINGS DON'T RETURN TO NORMAL

The company will still be generating c £15m a year in cash.
For me this is still reasonable for a growing company with an EV of £168m + £17.5m = £186m.

SCENARIO 2 - HRMC WIN, THINGS RETURN TO NORMAL

The company will be generating >£20m a year in cash and be in growth mode.
For me this is cheap for a growing company company with an EV of £168m + £17.5m = £186m.

SCENARIO 3 - HRMC LOSE, THINGS DON'T RETURN TO NORMAL

The company will get back their £40m and be generating >£20m a year.
For me this is now very cheap for a growing company with an EV of £128m.

SCENARIO 4 - HRMC LOSE, THINGS RETURN TO NORMAL

The company will get back their £40m, so have an EV of £128m, and be generating >£20m a year in cash after capex. This would make the company super duper cheap at current levels.

I'm comfortable with all the above eventualities at the current price.
For reference I personally believe #4 will be the likely outcome.

If there is one thing putting me off, it's the lack of company updates, as someone else pointed out in the comments today. It's quite ridiculous how little information has been provided by the company this year and the longer the periods of silence, the more wary I become.

It would be interesting to hear the thoughts of other holders on my thoughts above.

Cheers

Jeffvshepherd

I think it's the markets catching up with economic reality. Regardless of the reason though, I've taken some money off the table and am waiting to jump back in.

dscollard

good discussion on RNS, genuinely excited by the suggestions given that similar to Gromley, I have done a bit of work in this space and have been doing a lot lately given the opportunities offered by the volatility of recent markets

I have been interested in the opening price action as a function of RNS for a good few years and aggregate these daily. I tend to focus more on the quantitative response of price to the catalyst rather than attempt to interpret the qualitative value of that catalyst (on a simple premise that price is truth .. or at least .most of the time)

I've been doing a lot of work lately to aggregate and integrate different catalytic data sources such as RNS, FCA daily short interest etc and relating this to the opening price action . I've also been characterising the gaps that result and then looking at how they perform over time to simplify some quantitative rules on trades to take as a function of volume, gap size and technicals (moving averages , volatility breakouts etc) as well as providing a basis for deciding the best execution mechanisms given liquidity, volatility and spread (CFD, versus SB versus shares). Data can be queried by MCAP, Index, Sector, Volume , ATR , MAs etc

It is still work in progress but given the richness of the above discussion, thought I would gauge interest as I intend to offer something live in the coming weeks and will provision a trial to anyone interested.

Below are a few visuals from one of these reports: the actual reports are relational and interactive so can be queried, analysed and structured. They are not really fit for mobile and don't reproduce well here as JPEGS so apologies for the formats below but hopefully you get the gist.

visit my website at https://runprofits.com and sign up if you are interested ....

sharw

MrSmallCaps - thanks for the link to the Augean (LON:AUG) annual report. It does prove my point - I was looking for it in the Investors section of the website. Silly me! I should have known that it was in the 'Information Centre' subsection of the 'Duty of Care' section!

There are a number of other things required by AIM rule 26 such as details of board members and committees or list of key advisors that I cannot find.

Thank you Lutheran.

No disservice intend. I will investigate further.

I like Sharepad a lot but nothing on the interface seems intuitive. It is almost as though they like hiding their abilities under a bushel! I just don’t see how you would come across the abilities of Sharepad without taking a degree in it.

Thank you.

Regards

Michael.

Berksbee

An excellent piece of analysis Abtan, thanks. Have owned LON:AUG* since 2013 and have traded in and out and am left with a decent size holding that has a negative in price which always makes me a bit bolder than usual. I'm with you in that I think the downside has been fully priced in. One thing I'd add is that North Sea Oil is going to have a very substantial clean up/decommissioning bill and these guys are very well positioned in this regard. Was already getting my interest and you've kindled that further, may well make a move over the next couple of days.

Was tipped AUG by a chap called Paul Hill from Money Week. He left suddenly and I never had the time to thank him for his excellent work. If anyone knows him please pass on my regards and tell him a bottle of something nice awaits!

penchrise

This comment has been moderated

andrew guppy

Hi Berksbee,

You can find Paul Hill on twitter @CapitalPmh Apologies as I don't know how to make this a live link through to Twitter as still learning.

Regards,

Andrew

22nd Sep '20

“I like Sharepad a lot but nothing on the interface seems intuitive. It is almost as though they like hiding their abilities under a bushel! I just don’t see how you would come across the abilities of Sharepad without taking a degree in it.”

I’m not going to argue with that, Michael. It’s the age-old problem that with power comes complexity (3D modelling software is the quintessential example).

Stockopedia’s visual data presentation is far superior to SharePad’s in my view and it’s the reason I would always recommend this platform over SharePad’s for new private investors seeking a quality share data and screening service (the discussion forum is an extremely valuable bonus).

Nevertheless, as subscriber driven features are added to Stockopedia it will become increasingly difficult for the developers to avoid the inevitable interface layering that will leave new users with a steep learning curve if they want to take full advantage of the site’s data mining power.

All I can say is that I see the two services as complementary, not rivals, and I know that in the absence of either of them my equity returns would suffer.

Agree with all you say including your last paragraph, though the cost has to considered in relation to porfolio size.

Anyway going to dig around the help/support section on news

Michael

Tommy H

Hi Abtan

Have you written directly to the company and asked them why they are not updating as a PI?

If not, it is an easy start to send an email off.

Then possibly use this to say can anyone else who holds also send something of on the lines of. #Shareholder Activism?

Just thinking that in my old job when I got one letter "to the CEO" it was a quick reply and issued out, but when he got 10 or 20 letters on the same issue, I was called into his office "to explain WTF was going on" and all the responses went out with my personal email and mobile number on saying contact me in the first instance...e.g. do not let this happen again.

Just a thought

Tommy (I do not hold)

Small Cap Value Report (Mon 21 Sept 2020) - SDRY, CRW, AUG, FCAP

Today's agenda

Superdry (LON:SDRY)

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Paul Scott

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