Small Cap Value Report (Mon 22 Jan 2018) - ACRL, DC., CNCT, ANCR, KETL, RBG, CCC, LTG

Monday, Jan 22 2018 by


News has been a bit hectic over the past few weeks, as companies updated for trading to the end of 2017.

Edit: Thanks for your requests, I am now also looking at Computacenter (LON:CCC) and Learning Technologies (LON:LTG).

I am updating my schedule today as follows:

To cover everything, my usual article length will have to be cut - apologies in advance!


Accrol Group (LON:ACRL)

  • Share price: 36.5p (+1%)
  • No. of shares: 129 million
  • Market cap: £47 million

Interim Results

To recap: this loo roll cutter listed on AIM at 100p in 2016, ran into financial difficulties last year, and has now resumed trading at a much lower level, after raising fresh equity.

The major cause of the difficulties was that the commodity Accrol uses, hardwood pulp, increased in price by 40%. Passing on this price increase to discount retailers couldn't happen fast enough to prevent a serious deterioration in the company's performance.

Indeed, Paul went back to the company's admission document, and found the risk warning where they stated in black and white that hardwood pulp was currently experiencing "oversupply", and that if its price increased, it would adversely affect the company's performance.

So it's another classic example of a well-timed IPO as investors got caught out by temporarily strong earnings, just before it floated.

Anyway, what next?

These results show revenue +13% to £72 million, but loss of margin results in a 35% reduction in gross profit, pushing the company into an operating loss of £5.7 million.

The company has a new CEO and COO, and has received £16.8 million in cash from investors through a placing.

The key debt-related figures are as…

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All my own views. I am not regulated by the FSA. No advice.

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Accrol Group Holdings plc, formerly Accrol Group Holdings Limited, is an independent tissue converter manufacturing toilet rolls, kitchen rolls, facial tissues and away from home products (AFH). Its AFH products include Centrefeeds, Hand Towels, Hygiene Rolls, Toilet Tissue, Wiping Rolls, Standard Jumbo and Mini Jumbo. Its Consumer Paper Products include Envirosoft, Facial Tissues, Handy, Mega, Mighty, Sofcell, Softy, Thirsty Bubbles and Triple Softy. The Company supplies a range of Independents, Discounters and Multiples, as well as a range of AFH customers throughout the United Kingdom. It imports Parent Reels from around the world and converts them into finished goods at its manufacturing, storage and distribution facility in Blackburn, Lancashire. The Company has 15 converting lines in operation providing capacity of approximately 118,000 tons per annum. Its subsidiaries include Accrol UK Limited, Accrol Holdings Limited and Accrol Papers Limited. more »

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Dixons Carphone plc (Dixons Carphone) is an electrical and telecommunications retailer and services company. The Company operates through four segments: UK & Ireland, Nordics, Southern Europe and Connected World Services (CWS). Dixons Carphone offers a range of electrical and mobile products, connectivity and expert after-sales services from the Geek Squad and KNOWHOW. Its primary brands include Carphone Warehouse, CurrysPCWorld and Simplifydigital in the United Kingdom and Ireland; Elkjop, ElkjopPhonehouse, Elgiganten, Elgiganten Phone House, Gigantti and Lefdal in the Nordic countries; Kotsovolos in Greece; Dixons Travel in a number of United Kingdom and Ireland airports, and Phone House in Spain. Its service brands include KNOWHOW in the United Kingdom, Ireland and the Nordics, and Geek Squad in the United Kingdom, Ireland and Spain. Its Business-to-business (B2B) services are provided through Connected World Services, CurrysPCWorld Business and Carphone Warehouse Business. more »

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Connect Group PLC is a United Kingdom-based distributor operating in newspaper and magazine wholesaling, and mixed freight distribution. The Company operates in three segments: Smiths News, DMD and Tuffnells. Smiths News segment distributes newspapers and magazines to retailers across England and Wales from its 39 distribution centers. DMD segment supplies newspaper and magazines to airlines and provides inflight services. Tuffnells segment provides next day business to business (B2B) delivery of irregular weight and dimensions consignments. Smiths News distribution network includes six hubs and 33 satellite depots. DMD supplies printed and digital media to travel points. Tuffnells provides parcel freight services for small and medium-sized enterprises. The Company’s subsidiaries include Smiths News Holdings Limited, Dawson Media Direct Limited and Tuffnells Parcels Express Limited. more »

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

96 Comments on this Article show/hide all

Laughton 22nd Jan '18 77 of 96

WOW! 8 reports - and in detail.
I learn so much from them - and from the comments from much more knowledgeable investors than me.

You've earned the next 3 days off Graham.

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Fangorn 22nd Jan '18 78 of 96

In reply to post #301988

Same guys as the ones that shorted "Carillion" successfully I gather.
Worth considering given Apples sales not as strong as expected. They've considerable business with APPLE I gather.
We all saw what happened at Imagination. #IMG

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Reacher 22nd Jan '18 79 of 96

In reply to post #302533

Thanks for flagging this, ratioinvestor. I have a couple of concerns: firstly, the float is targeting Institutional Investors who have been given access to the IPO document whilst private investors are limited to what was released as an RNS this morning. It is hard to assess the business when such limited information has been provided.

Secondly, I'm not convinced by the reason for the IPO other than to "enable selling shareholders to realise, in whole or in part, their investment in the Company". I may be being cynical here, but are the selling shareholders cashing out at the peak of the market. I know MIFID II (implemented on 3 Jan 2018) is having an impact on asset managers with certain costs increasing due to implementing the project and also "business as normal" costs in 2018. In addition, the landscape is becoming more competitive with more tracker funds & ETFs being launched with lower fees compared to active managers. So I wonder whether the historic growth has peaked?

Perhaps I am being overly critical, but without the IPO document in advance of the date of trading, it is tough to analyse.

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Cisk 22nd Jan '18 80 of 96

In reply to post #302278

bobo, the reverse takeover of Animalcare (LON:ANCR) did indeed shaft existing holders. I sold out upon this news, because for me it ruined what otherwise was a nice profitable niche and effectively gave away a large amount of the company.

I mused at the time that the incoming board members must have had some dirt on Iain Menneer - as otherwise why on earth would he have agreed on a deal that effectively gave two fingers up to existing shareholders?

Just like Graham said, patience might reward though and once things have settled down it might be worth a look again. Once I've got over my bitterness ;-)

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Andrew L 22nd Jan '18 81 of 96

In reply to post #302628

Gajri, Good points. I think you can look at things both ways. If a company needs to raise money in its IPO than you can say it needs money to grow. If a company doesn't need money then you can say that it is profitable and self-funding. Your main point is: why are they doing the IPO? If they don't need money why not keep it private? I.e. are they doing the IPO to cash out? If so don't they think the future is good?

I also accept your point that if the end market is set to see tougher conditions then this would be a concern. My broader thoughts are that this is a profitable and founder driven company. These tend to be good IPOs but not in every instance. Certainly merits consideration. But I agree if there isn't a growth path then it is much less attractive.

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abtan 23rd Jan '18 82 of 96

In reply to post #302508

Re Revolution Bars (LON:RBG) (I hold)

I make adj EBITDA (pre exceptionals and opening costs) of around £18m for 2017-18.
To me this looks fantastic for a company with an EV of just £87m.

Even with relatively meagre LfL sales, the estate is growing, so I'm not sure what I'm missing and why this share, to me, is so undervalued

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gus 1065 23rd Jan '18 83 of 96

In reply to post #302623

According to Short Tracker, Marshall Wace currently have about 40 short positions of more than 0.5% of the share capital of UK listed companies. It’s what they do and like institutional long investors they’re not infallible ( Ocado (LON:OCDO) are on the list and are up 73% in the last 3 months) so I take their name on the IQE shorts register as a piece of data but not the sole grounds for a decision on IQE (LON:IQE) .


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gsbmba99 23rd Jan '18 84 of 96

In reply to post #302628

Today's announcement from IntegraFin is the intention to float. In about two weeks they will announce a price range and two weeks after that the price. The prospectus hasn't been published yet. But it's a UK company so you can see the filing history at Companies House ( which includes audited financial statements to Sep 16. There's also some useful commentary on business performance and KPIs.

In a main board IPO, there is a liquidity requirement of 25% typically. The IPO can consist of primary shares (new shares issued by the company) or secondary shares (pre-existing shares owned by the shareholders) or a mixture of both. IntegraFin is profitable, generates significant cash flow and had a 30 Sep 16 cash balance of £90m (which may include customer deposits). In circumstances where the company obviously doesn't need cash, where else would the shares come from? It doesn't seem unreasonable to me for the founders to take money off the table nearly two decades after the business was started.

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purpleski 23rd Jan '18 85 of 96

In reply to post #302513

Hi Lavinit

Dixons Carphone (LON:DC.) This is a very good, constructive reply/bull case but I am afraid i just dont have the time, as very much a part time PI, to respond to each point. I wish I did. They are all very valid points and one possible alternative world.

I should have made it clear that I am in no way representative (possibly the opposite!) but I was going by what I see in my local towns (Worcester, Hereford, Gt Malvern) when I, rarely, visit them (they are just so dull and lifeless and few people seem to be carrying bags) and by the way the 35 young (under 30) people who work for me shop (Boohoo.Com (LON:BOO) $AMZN etc).

I am sure some destination centres will last (Bull ring, Oxford Street, Knightsbridge migh survive as destination shopping centres) but high streets in your average UK town as more and more people born in the internet age come of age are I think in terminal decline.

Anyway time will tell.

Kind regards

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slartybartfast 23rd Jan '18 86 of 96

In reply to post #302483


I raised this early in 2015 as an idea request and it was rejected in the November

Force the inclusion of a stock code in every posting.
Force the inclusion of a stock code in every posting. There could be a few codes for non stock classifications but it would make searching for comments on shares in multi share threads a lot easier. Perhaps even then have a function to list all the comments on the requested share in a new 'thread'

slartybartfast shared this idea · Feb 11, 2015 · Delete…

DECLINED · Nov 9, 2015

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Fangorn 23rd Jan '18 87 of 96

In reply to post #302693

Indeed. Everyone is fallible.
I presume their IQE (LON:IQE) position is based mainly on slowing APPLE (NAS:AAPL) Iphone sales expectations.
Time will tell if they're correct.

Ocado (LON:OCDO) - simply don't understand how this one defies gravity.Presumably because they have Goldmans backing them!

So how does one get the ticker thingy to work?

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mojomogoz 23rd Jan '18 88 of 96

In reply to post #302853

Hi Michael

I have some Boohoo.Com (LON:BOO) - its a moonbeam shot and of course could come unstuck...hard to see the execution when revenue goes so quick. I note that the board is quite techy / VC-y in inclination. This means that they will go for top-line at all costs. Could be good, could be bad. The girls and mums like it (more when buying for the girls than themselves).


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mojomogoz 23rd Jan '18 89 of 96

In reply to post #302853

PS you just made the bull case for Bonmarche Holdings (LON:BON)'d better back up that truck...old wifeys high street shopping in down at heal towns has got to be a growth up from charity shop when feeling flush and need something else to do apart from bingo, coffee shops and the penny arcade.

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purpleski 23rd Jan '18 90 of 96

In reply to post #302968

This is an interesting conversation. Boohoo.Com (LON:BOO) is my largest holding (13% of folio), earliest purchase has five bagged and overall is 4x for me. I have not sold any of my holding since first purchase in November 2015). My understanding is that the founders have a rag trade background, seem to be able to execute (dont understand “hard to see the exeution when revenue goes so quick”) and are planning for revenue 6 times larger than it is now.

I dont know what time frame you judge things over or whether you would classify yourself as a long term investor or more of a trader but I am looking at Dixons Carphone (LON:DC.) and Boohoo.Com (LON:BOO) in five to ten years time rather than at the end of the year.

As before time will tell

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purpleski 23rd Jan '18 91 of 96

In reply to post #302978

Hi Lavinit

Could you expand on why I have made a case for Bonmarche Holdings (LON:BON) ? I cannot see it!!


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mojomogoz 23rd Jan '18 92 of 96

In reply to post #303078

Hi Michael

It was meant in jest to some degree as its perhaps the ideal counter case to your view that the youngesters and monied are online shopping and the high street is dead. Bonmarche Holdings (LON:BON) is on all the crappy high streets so as the oldsters can go in browse and shop. I reckon its in the right place on the high street in crappy long as it gets its customer right.

I don't own it. I note that Graham (the writer) does (I think). Its an interesting one and I will look particularly as it has disappointed a little yet fallen a lot. Suggests perhaps an overreaction or too casual a negative sentiment...the other side of that is the view that Marks and Spencer (LON:MKS) went on their patch with a better offering and that is a real threat. I can get that. My mum was quintessential crappy town shopper...and for some reasons M&S holds status regardless of its woes and missteps.

There's cash flow and longevity punting clothes to old wifeys. Not too many want to compete with you either.

 I'll respond later to your other point when I have time.

Best wishes

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Graham Neary 23rd Jan '18 93 of 96

In reply to post #303128

Hi Paul, I'd like to make clear that I don't own Bonmarche Holdings (LON:BON). I own Next (LON:NXT). Thanks.

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mojomogoz 23rd Jan '18 94 of 96

In reply to post #303173

Sincere apologies for tarring you with such a stock

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mojomogoz 24th Jan '18 95 of 96

In reply to post #303013

I'm new to Boohoo.Com (LON:BOO) at 180p so no bagging for me.

“hard to see the execution when revenue goes so quick” > they need to finance the building of new distribution capabilities (+ other things). They raised approx 2% equity to kick this off and they plan to finance the rest from cash flow...painless as the stock bulls along. If top line slows and costs rise on build then it will not appear so easy to finance it and that can negative feedback loop into valuation of stock. That's not a prediction, just an example. High top line growth can hide ills. That said they do make cash on it so this is no bluesky dream stock. But they are not immune from stumble.

I am long term but in the knowledge I can't see the future. Dixons Carphone (LON:DC.) is opportune purchase that I hope is medium to long term...there is no reason to love it too much but there is scope for duration of surprises. Undoubtedly boo has more upside potential than DC, but DC is perhaps safer to downside with decent upside (a double, perhaps more with good results). So I bought DC with lack of full understanding and doing work to catch up and make sure the price was right. I'm a lucky 20+% up.

I'm not fixed in my approach to investing. Perhaps best described as capital cycle and bit contrarian biased. I like stocks and sectors (and economies) that have learned the lesson of bad capital allocation...or have had to manage with capital discipline as they have not been fashionable. A great example of that is Argentina where I have investments since 2012 with many times bagging.

UK retail is interesting, particularly on the mundane and unfashionable high street side. There's pain and problems You are right that its got problems. However, its inconceivable that there will not be some form of destination retail going on over the next decade no matter how well online does. Recent Carpetright (LON:CPR) warning is an example of a retailer losing the battle and unable to withstands the sticks and stones of a rough time. IMO SCS (LON:SCS) is an example of retailer that (partly as a result of previous pain) has right fitted themselves for the environment (and is much cheaper too as everyone remembers its negatives whilst they have been willing to chase the past Lord Harris glories in CPR).

Best wishes

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hayashi22 24th Jan '18 96 of 96

Carpetright (LON:CPR).Got to agree that the company seems poorly set up for today's retail environment. CEO seems clueless and has no idea as to why footfall fell. Could even be another warning.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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