Good morning!

Of interest today we have:

We had in-line-with-expectations updates from Restore (LON:RST), Instem (LON:INS) and Judges Scientific (LON:JDG).  Keywords Studios (LON:KWS) announced a small acquisition.



United Carpets (LON:UCG)

  • Share price: 7.625p (unch.)
  • No. of shares: 81 million
  • Market cap: £6 million

Final Results

(Please note that I currently hold UCG shares.)

This floorcoverings and bed retailer is a legacy holding for me, from the period when I was focused on dirt-cheap micro-caps.

Most of those dirt-cheap stocks have by now exited my portfolio, but I've never quite been able to press the sell button on this one. It has always seemed to be priced at an extraordinarily cheap level.

So even though I'd ideally prefer to own something of higher quality, I've been unwilling to sell this one so far.

When it comes to achieving a higher rating for the stock, the low market cap itself is a problem. Plenty of people don't want to analyse companies worth less than £10 million, and for good reasons.

In addition, the CEO, Commercial Director and Finance Director own nearly 54 million shares between them, so I think there are only about 28 million shares in the free float. That makes for an illiquid stock.

So I may end up being locked up in this one for a while longer yet.

Fortunately, many of the reasons I originally bought into it remain in play.

Let's review.

  • Strong balance sheet - despite having paid a very large special dividend (1p per share), UCG finished FY 2018 with net funds of £2.64 million. It has equity of £5.3 million, nearly all of which is tangible.
  • Strong returns - the capital-light franchise network model has enabled it to earn very high returns. I estimate that return on equity was 25% in FY 2018.

5b55892b2babbUCG_20180723.PNG

  • Stability - the managers have been satisfied to focus on the existing…

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