Small Cap Value Report (Mon 24 Aug 2020) - UPGS, CLG, STU, MOTR

24th Aug '20 by Paul Scott

56 comments 9074 reads

Good morning! It's Paul here with the SCVR for Monday.

Today's report is now finished.

It's very quiet for small caps results/trading updates today. I've got family visiting, so want to get this week's reports out of the way by lunchtime at the latest, hence would prefer no reader requests this week, if possible!

Here's today's agenda;

Up Global Sourcing Holdings (LON:UPGS) - repaying Govt funds

Clipper Logistics (LON:CLG) - results FY 04/2020

Studio Retail (LON:STU) - results 52 weeks ended 27 March 2020

Motorpoint (LON:MOTR) - trading update

Up Global Sourcing Holdings (LON:UPGS)

As covered here previously, this product sourcing company has traded well throughout the covid crisis. I last covered it here on 6 July 2020, being impressed with its update.

Today it announces;

Return of Government furlough funds

An unusual announcement today;

Ultimate Products, the owner, manager, designer and developer of an extensive range of value-focused consumer goods brands, announces that it has taken the decision to repay the £465,237 that it has received under the Coronavirus Job Retention Scheme ('furlough scheme') and does not intend to make any further claims under the furlough scheme or for the associated Job Retention Bonus.

The Group is also no longer utilising the Government Time to Pay and VAT deferral schemes. All VAT and PAYE payments are up to date as at 31 July 2020.

These payments are possible because the Group's profitability and cash generation have been stronger than expected during this crisis....

... Returning this money to the taxpayer is therefore the right and proper thing for us to do.

I salute their sentiments, but do wonder if there's more to it than that? I've not looked into the finer detail of Govt support schemes, so am wondering if any readers know whether companies have to demonstrate that covid/lockdown has caused them financial hardship, in order to be eligible for these schemes? Particularly for a listed company, if they're putting out positive trading updates, then I would hope HMRC would push back against any requests for deferral of taxes.

Separately, but on the same topic, there are articles in today's papers saying that research from Oxford, Cambridge, and Zurich Universities suggests that a staggering 6 million people…

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Zipmanpeter

24th Aug '20

"My opinion - that was a waste of everyone's time, it tells us virtually nothing."

Paul,

Great comment (as ever!). I just wish there was a way to automatically send your commentary & analysis on company RNS to their CFO/CEO/PR teams each day.

Mark L.

My take is that the end of the Brexit transition period really doesn't matter that much.

Despite all the hot air, it is highly unlikely that January 2021 will see the UK and EU trading with any new tarrifs in place. It is in neither block's interests, WTO rules allow continuance of pre-existing tarrif arrangements for several years.

There's a risk that Johnson agrees to a half baked 11th hour agreement which is not in the UK's long term interest. He has a track record unfortunately of valuing a catch-phrase, glizy announcement over detail, and substance. Even so, there would be negigible initial impact.

The real, and huge risk in my view is the Euro. It is an economically and politically unstable contruct. At some point there will have to be a resolution, and it's hard to imagine that happening without a nasty economic shock (at best), or full scaled disaster at worst.

I have pondered how to mitgate this risks, but don't have a real answer.

jwebster

"Isn't it the case that the FTSE 100 earn most of their profits overseas"

Yes, that's correct.

I was thinking more the banks not the big miners and oil as I don't invest in commodities except for silver and gold.

Yes, I too looked at Legal & General (LON:LGEN) but couldn't see through how they will fund the liabilities they have, if interest rates head negative.

Brookeda

Have been considering buying more but given its in my top 5 already I have stopped at the moment but is clearly undervalued by a considerable amount. Its never going to multi-bag but when the results over the next 12-18 months come in with the added stores it will re-rate.

Michael Tee

UPGS:

I read your comment about the repayment of furlough payments.

I think this is all about the difficulty in paying dividends if a company has accepted furlough payments. The directors have large shareholdings and will want to receive dividend payments. Without repaying furlough payments, paying a dividend is controversial.

It is obvs positive if they do not need the funds.

Michael

Tortoise investor

Yes interesting price action today. I think this might just be in anticipation - I seem to remember there was a similar move in the run up to results last time too.

I sold out of Creightons (LON:CRL) recently as similar beauty product companies have had falls in retail sales during the pandemic and there's been a bit of optimism around Creighton's hand sanitiser which may be misplaced given how many other companies are now making hand sanitiser. I also thought this sentence in their most recent update in July hinted at a possible profit warning:

Despite pivoting the business with speed, the competitive environment and demands on the supply chain have nevertheless been, and continue to be, challenging. The Company will continue to find the positives where possible to keep moving forward.

Surrey Steve

My understanding is that although a number of companies state they are repaying government Covid support "in the public interest", their main motivation is to avoid restrictions on dividends and executive bonuses. I am not an expert on the individual schemes but I believe that some contain explicit prohibitions and that there is a "read across" from those to the other schemes (which were introduced earlier) which don't have the explicit conditions but might be expected to have them implicitly (you can see the newspaper headlines - massive director bonuses paid to company X which claimed government covid support!).

I am sure that HMRC will be reviewing email traffic during the furlough period as part of their routine PAYE audits over the next 6 years.

Tommy H

Thank you Patrick I might need to think about book the profit and move on as I had seen a similar gloomy report from L'Oréal and come back again later in the year

Nick Bradshaw

My thoughts exactly.

“Clearing customs” is a phrase every business will be using a lot more next year.

Robert Middleton

An expensive haircut for me and others too I'm sure. The market is a power game. Lesson learned.

JamesHolmes

25th Aug '20

Hi Michael,

I’d like to politely disagree with this, if I may.

In my opinion, a company should be able to pay Dividends out of reserves already generated prior to Coronavirus. It can still be affected, claim furlough support for temporary/current disruption while paying dividends out of retained earnings. No issue there in my view. It’s different, at least morally and also from HMRCs point of view, if the reserves created in order to pay the dividends were entirely as a result of furlough, though!

I should add, a business can still perform well (and generate distributable reserves) while also evidencing that it has been affected by Coronavirus. There is no restriction on dividends as a result of the use of government schemes from my knowledge. If anyone has a government source to the contrary it would be good to post here for us to take a look

Paul Scott

Hi Zipmanpeter,

A lot of companies & PRs do read these articles, as I get typically about 1-2 complaints every week!

Regards, Paul.

Hi James

Just to clarify,my post deals with what I understand to be the reality rather than what I view as the ideal position.

Details of some of the restrictions can be found at:

https://www.gov.uk/guidance/apply-for-the-coronavirus-large-business-interruption-loan-scheme

see the end of the Eligibility section just before the Who cannot apply section

This is not about reserves and all about perception.

Paying dividends having accepted (bailout) money from the government looks bad.

If they have the reserves, they don't need tax-payers money. Others need it more.

extrader

Hi Michael Tee,

.."If they have the reserves, they don't need tax-payers money. Others need it more..."

I don't see how company A can establish whether it's 'more deserving' or not than company B.

The civil servants have had to draft in haste regulations covering an enormous range of scenarios and one COULD argue that directors have a fiduciary duty to do what's best for their 'stakeholders', just as it's everyone's right to reduce their (own) tax bill to the minimum.

My nephew works for a FTSE 100 company and the external caterers have been happy to avail themselves of the Eat Out to Help Out offer, improving their (and THEIR stakeholders') trading prospects.

In the context of a £ 100+ BN trickledown project like HS2, I'm not sure the current stimulus issues (more drone than helicopter money) are worth getting too exercised about !

ATB

..

raggedtp

Well, while I haven't done serious calculations, things like Cala homes building to rent means they are making some of their own direct investments for income.

26th Aug '20

Thanks Steve - I wasn’t aware the CBILS restriction until now, I am only very familiar with everything other than CBILs so my bad!

We’ll agree to disagree Michael. The schemes are there to support business affected by the virus, not for those only in dire straits prior to the virus with zero reserves.

Small Cap Value Report (Mon 24 Aug 2020) - UPGS, CLG, STU, MOTR

Up Global Sourcing Holdings (LON:UPGS)

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Paul Scott

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