Small Cap Value Report (Mon 24 Jun 2019) - PRV, CBOX, MYSL

Tuesday, Jun 25 2019 by
60

Good morning, it's Paul here.


7-8am comments

Porvair (LON:PRV)

H1 results (6m to 31 May 2019) look strong;

Revenue up 21% to £72m

Adjusted EPS up 36% to 12.9p

Cashflow looks weak though, due to adverse working capital movements (inventories & debtors up, as you would expect from expansion, but trade creditors sharply down).

IFRS 15 has resulted in a large £8.2m provision for warranties being created.

Looks potentially interesting, so I'll take a closer look later today, in more detail.




Cake Box Holdings (LON:CBOX)

Full year results (y/e 31 Mar 2019) look a little below forecast;

Adj EPS of 7.9p versus consensus forecast of 8.1p

High profit margin, as it's a franchise business, selling cakes.

LFL sales growth in franchise stores of 6.5% looks very good - maybe this is an emerging winner in the current retail downturn? Doing a roll-out of new franchise stores, which seems to be working.

Looks potentially interesting - I'll take a closer look later today.



MySale (LON:MYSL)

Formal sale process & strategic review.

Mentions the dreaded word "stakeholders" - which is often code for the equity probably being worthless. 

One of the options mentioned today is de-listing, so I imagine the share price is likely to suffer badly today, although at c.7p there's not much left anyway.

I don't see any value here. Management have completely screwed things up, and a change in Australian sales tax apparently clobbered gross profit.

Given previously unrealistic outlook comments made by management, I'm not minded to believe the RNS today, saying that drastic cost cuts will make it cash generative next year.

No further coverage today, as this looks a basket case now, with management having zero credibility in my eyes.


Afternoon comments

Now i have a bit more time, let's focus on the shares whose updates look most interesting today.

Porvair (LON:PRV)

Share price: 583p (up 3.4% today, at 15:11)
No. shares: 45.8m
Market cap: £267.0m

Half year results

Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its half yearly results for the six months ended 31 May 2019.

As mentioned above, the financial highlights…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Porvair plc is a specialist filtration and environmental technology company engaged in the development, design and manufacture of filtration and separation equipment. The Company's operating divisions include Metals Filtration and Microfiltration. The Metals Filtration Division designs and manufactures porous ceramic filters for the filtration of molten metals, principally aluminum. The Microfiltration Division designs and manufactures a range of filtration equipment for application in aerospace, energy, bioscience, water and industrial applications. It is developing a range of products, including the products for the manufacture of turbine blades, solar panel manufacture and energy storage. It operates Microfiltration division through its subsidiaries, Porvair Filtration Group, Seal Analytical and Porvair Sciences. It operates Metals Filtration Division through its subsidiary, Selee Corporation. It has plants located in the United States, the United Kingdom, Germany and China. more »

LSE Price
572.64p
Change
-3.3%
Mkt Cap (£m)
271.4
P/E (fwd)
23.0
Yield (fwd)
0.9

MySale Group plc is engaged in operating online shopping outlets for consumer goods, such as women, men and children's fashion clothing, accessories, beauty and homeware items. The Company's segments include Australia and New Zealand, South-East Asia and Rest of the world. It operates with flash sales Websites in Australia and New Zealand (ANZ), South-East Asia (SEA) and the United Kingdom. Its Websites host time limited flash sales in each of its territories. These flash sales are focused on fashion, apparel, health, beauty and homeware categories and are undertaken on a consignment inventory basis. Its retail Websites also focuses on these product categories using drop-shipped inventory. Its flash sales brands include OzSale and BuyInvite in Australia, NzSale in New Zealand, SingSale in Singapore, and MySale in Australia, New Zealand, Malaysia, Thailand, the Philippines, the United Kingdom and Hong Kong. more »

LSE Price
2.8p
Change
 
Mkt Cap (£m)
4.3
P/E (fwd)
2.1
Yield (fwd)
n/a

Cake Box Holdings PLC is a United Kingdom-based franchise retailer and manufacturer of cakes. The Company operates its retail stores under the name Egg free Cake Box. It manufactures and sells personalized fresh cream and egg free cakes. The Company offers a range of cakes that include cup cakes, photo cakes, number cakes, fruit cakes, mendhi cakes, round cakes, kid’s cakes, platter cakes, and wedding cakes. It provides customized cakes for purchase on demand or ordered advance in store or online through https://www.eggfreecake.co.uk/. The Company operates over 110 franchise stores in the United Kingdom. more »

LSE Price
178.29p
Change
-1.5%
Mkt Cap (£m)
72.4
P/E (fwd)
16.9
Yield (fwd)
2.8



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


40 Comments on this Article show/hide all

jwebster 24th Jun 21 of 40
1

In reply to post #486061

Had a look, their ingredients are listed here, some cakes do indeed include Palm Oil

https://www.eggfreecake.co.uk/ingredients

Their standard cake used rapeseed oil so I guess customers at least have an ethical choice

It's interesting as they have made a big fuss about being egg-free and vegetarian society approved, might as well ditch the Palm Oil or at least ensure it's purchased from traceable, ethical sources.  Of course, by extension, is a Vegan cake, take a view from Greggs recent success.

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mojomogoz 24th Jun 22 of 40
7

I think Cake Box Holdings (LON:CBOX) will be a shaky franchise business. Few reasons:

1) Their cakes are crap! Super creamy affairs partly to compensate for lack of egg. Its the deluxe version of what your old local baker did

2) Quite expensive for what they are.

3) Target market is sort of first South Asian and then expanding to 'working class' - all very well but its expensive cake

4) As they expand they will be booking profits from franchisees who need to pay (I think) £150k to take a franchise

Its underlying franchise model of primarily making their margin through the sponge they sell is really good....but as said above I can't see why its a product with great legs. Cake, bakery and coffee shops are very prone to slow death and closure. Bit hit and miss what sticks on local high streets. Feels more an accountants dream than a punters dream...the punters will sink the accountants.

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millen 24th Jun 23 of 40
2

In reply to post #486101

No, it's bizarre, but neither Barclays nor Charles Stanley allows online dealing in $SONG
At heart, it seems quite a simple business. Perhaps because it's Guernsey domiciled, but then so is Burford and presumably this is for international tax reasons. Strangely Stocko classifies it as a Collective Investment which evidently is not the case.

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FREng 24th Jun 24 of 40
2

In reply to post #486116

AJ Bell allows dealing online in Hipgnosis Songs Fund (LON:SONG) if you pass their experienced investor test. Maybe all the confusion comes from it being called a fund when it's an equity.

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JohnEustace 24th Jun 25 of 40
2

In reply to post #486116

Hipgnosis Songs Fund (LON:SONG) describe themselves as high risk (6 on a scale of 1 to 7) on their KIID so the platforms are just picking up on that I think. I thought it was daft too.
I was able to buy online via HL but I had already qualified by virtue of previous purchases and filling in a questionnaire to be allowed to buy high risk investments.
They list Barclays and Charles Stanley as platforms that allow purchase so it could be worth a phone call to them.


https://www.hipgnosissongs.com/how-to-invest
https://static1.squarespace.com/static/5937f2f1bebafb1297678ff8/t/5b4714a76d2a7331419a25bb/1531384999483/Hipgnosis+Songs+KID+Final+v2.pdf

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Snoo 24th Jun 26 of 40
6

In reply to post #486111

I think all your points have some validity.

I have tried the product out of interest. The profit margin is terrific - it is basically a bog standard, mass produced cake which then has some 'work' done on it at the local shop.

The taste is nothing to write home about, but then again, people celebrating a special occasion are in such a mood that nobody is going to be to be paying much attention to the quality of cake unless it is totally foul.

The thing is for me IMO they seem to be struggling to shake off their legacy. Competitive advantage used to be egg-free cakes for a mostly Asian market. This has pivoted to becoming celebration cakes which can be customised (their website has ditched 'Egg-free' from the branding, for example.

There is a decent opportunity here for custom vegan, gluten-free, dairy-free cakes which all could be offered almost instantly, as the ingredients are sourced centrally. Yet the only vegan product I can see is a non-customisable 'loaf cake' which can be easily bought in Tesco.

A single-use product could have some real legs for the shops that have heavy footfall - look at the Greggs 'sausage' roll for instance.

There could be a rather good niche here I feel. I can't see Greggs devoting too much space to 'free-from' foods, nor getting involved in making large cakes to order.

My gut suspicion is that selling products that cater for others but do include eggs is some kind of red line for them. I also find the branding garish and dated. I do suspect that the structure of governance here means it that change will be slow.

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Gostevie 24th Jun 27 of 40
2

In reply to post #486126

All I had to do with Hargreaves Lansdown was to fill out a very simple questionnaire and that allowed me to deal in Hipgnosis Songs Fund (LON:SONG). I didn't actually do so but may do in the future. I have suggested to ShareSoc that Merck Mercuriadis might make an interesting presenter at one its seminars and they are going to follow it up (although I suppose there may be some restrictions on managers of 'complex instruments' presenting to us mere private investors).

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mojomogoz 24th Jun 28 of 40
1

In reply to post #486131

snoo

I think your points have some validity too ;)

Agreed re corporate governance. Concern I didn't mention.

As for vegan, dairy free, gluten free pivot...I think that's impossible as Cake Box Holdings (LON:CBOX) and its franchise model so expect a crash in multiple if they do.

I think its a great franchise model...but with a much less exciting business than perceived.

But my comments are really to elicit the counter case as if I'm wrong then this is super company

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jwebster 24th Jun 29 of 40
2

Cake Box Holdings (LON:CBOX)

@mojomogoz @Snoo

Helpful comments, thank you both!

Yes, CEO owns 41.34% and CFO 8.8% so between them they have exactly 50.14% majority.

On the investor web site it says:

"The Group’s cakes are completely egg free, which the Directors believe has no effect on taste and texture and allows the Group to service a much larger potential market, including those customers who are unable to eat eggs for dietary or religious reasons"

So Snoo - I think you are right, they are unlikely to depart from the core egg-free principle. Shame, as vegan and ethical ingredients would really open up a new segment which is not well served and would make a good point of difference from cheaper options.

Yes, the look and feel of the cakes and web site is low-end. Agree, too pricy for regular purchase, but my reading on-line of customer comments it that purchases are more 'events' birthdays, treats, celebrations, etc. So, I think the price point is ok for such occasional items.

I view this as a business which has been started by a couple of savvy hands-on guys who know how to run a good cash flow operation, and have successfully scaled it up, thus far. Credit to them of course!

But, the runway will end. I think the cash flow will look good for 2019 with a combination of revenue momentum and falling out of the 2018 AIM listing costs and warehouse purchase. After that, not sure. Can imagine the share price pushing up on the next set of good results and an increased dividend payout next year. After that, growth could plateau. What the owners do with their 50% then is critical, they will need an exit at some point. Not sure how they engineer that.

Could be worth owning a few to ride momentum, but with an eye for the exit door if the owners figure it's time to go, or if the only new stores they open are in Wales and Scotland, then grow is nearly done.








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doublelutz 24th Jun 30 of 40
3

Palm OIl - with regard to a couple of comments earlier on about the ethics of using palm oil, I would suggest that certain foods would not have the same taste without it. The companies I know who use it make contributions to the RSPO (Roundtable for Sustainable Palm Oil). Anyone with sufficient interest in this subject should read their web site.

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pj8 24th Jun 31 of 40
4

In reply to post #486186

There's a lot on the net about the ethics of palm oil. Whilst RSPO accreditation is a positive it only seems to cover about a third of palm oil used worldwide. The critical issue is that nothing else grows in palm oil estates - no undergrowth so no other vegetation, so no animals: it kills the ecosystem. Rich ecosystems have been replaced with monocultures – “green deserts” in which native animals and plants cannot thrive. Burning of forests to make way for palm pollutes the environment: deforestation is a major contributor to greenhouse gas emissions and the run off of chemicals used pollutes as well. Add to that the likely extinction of orang outangs through forest clearance in Borneo and there's a host of negatives associated with palm oil.



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Damian Cannon 25th Jun 32 of 40
3

Great write-up of Cake Box Holdings (LON:CBOX) you've done there Paul. I looked at the company a while back and do like their cash generation and low capital requirements. However I've not invested due to concerns around customer and employee reviews which paint a very mixed picture:

Staff: https://www.indeed.co.uk/cmp/Cake-Box/reviews?fcountry=ALL

Customers: https://www.tripadvisor.co.uk/Restaurant_Review-g580415-d7046725-Reviews-The_Eggfree_Cake_Box-Gravesend_Kent_England.html

So in the short run the shares may well do fine, as they expand the store count, but I can't help feeling that they'll run into trouble at some point.

Damian

Blog: Ambling Randomly
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djack 25th Jun 33 of 40

In reply to post #486151

I invested in CBOX last year after a taste of their cakes.

I agree with above comments about the taste but they are nice for a treat and great for the celebration market.

I was attracted to the gross margin and the fact that they vet prospective franchisees before awarding franchises, who are then trained. The niche they hold also appeals to me for the reason stated above; I don't think anyone that I can think of will try and compete in it.

My concerns are if the customised celebration cake element fizzles out. And if not enough money is out into driving traffic to the website or the stores. I'm assuming Head Office is responsible here, I would expect some of the money earned from franchisees to be out into marketing.
My main concerns are if the cele

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djack 25th Jun 34 of 40

In reply to post #486671

I forgot to add that I never invested in CAKE because I thought the quality of what they served was poor for the price, but I always used to walk past a lot of busy branches.

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Gromley 25th Jun 35 of 40
1

In reply to post #486416

However I've not invested due to concerns around customer and employee reviews which paint a very mixed picture:
Staff: https://www.indeed.co.uk/cmp/Cake-Box/reviews?fcountry=ALL
Interesting Damian,

The employee reviews are really quite varied, but on balance quite negative - especially on minimum wage and hygiene !!! (Although one of course needs to be aware that a single disgruntled individual could easily generate a campaign !!)

It occurred to me immediately that most of these were probably employed by individual franchisees rather than Cake Box Holdings (LON:CBOX) directly. So what support do they provide to franchisees and what standards do the enforce?

I had a look here and whilst I have to admit I have never considered become a franchisee for any business - this all looks very thin on detail.  Perhaps others with experience of franchise models could comment?

I don't ordinarily do "scuttlebut", but in this case I would probably want to get someway through the franchise application process before I would have any confidence to invest. (For me personally that seems like too much effort, as even in my best case view of this company there are no unicorns - but others might be more interested in doing that?)



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Justmo 26th Jun 36 of 40

Have removed comment as I didn't link it properly to a previous comment.
Is there any way of deleting our posts, rather than duplicating?

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Justmo 26th Jun 37 of 40

In reply to post #486076

Wondered if anyone had listened to the presentation above and if they had any thoughts on Lightwaverf Lightwaverf (LON:LWRF) which was mentioned quite a bit by Hardman & Co Research.

I’ve done some initial research and a couple of things that concern me:

Two directors have worked at companies that have gone into administration during their time there. In fact one has been involved with three companies that have gone into administration.

They’ve had several placings and from my recent reading of other company placings (I’m new to this), the ones at LWRF appear more complex, which really translates to ‘I don’t know what they mean!’

So these things are currently putting me off going any further. The sp is currently in Decline, but I’m not in a rush to buy so would wait for it to Base a bit.

Thanks in adv if anyone has any thoughts.

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Zoiberg 27th Jun 38 of 40
4

In reply to post #486111

Many years ago I looked at a franchise opportunity. As part of my research I spoke to their most successful franchisee, who asked me if I really needed the backing of the franchise company. And when I thought about it I realised that I did not. £125k plus all of the other expenses seems a very high price to pay for essentially just baking cakes.
Very often the people going into a franchise are doing so with a redundancy package and simply lack the self confidence to go it alone.

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Damian Cannon 1st Jul 39 of 40
1

In reply to post #486696

Hi Gromley,

I also had a look at the franchise opportunity as well but wasn't quite sure what to make of their offer. On one hand the lack of direct fees is a positive but then again the company seems to make most of its money from supplying the sponge bases. Also the up front cost is high but the expectation has to be that you're buying into a specific, winning formula.

Anyway given all of this I'd expect franchisees to be super-motivated to provide excellent customer service and to make sure that they've got the right staff in place to deliver. From the on-line reviews it sounds as though this isn't the case and that some of the branches are being run purely to maximise short-term profits without consideration of other factors.

At best this is just because franchisees want to make the most money. At worst it suggests a real lack of control over the brand, from the parent company, and a decent chance of there being a food poisoning scandal at some point. So Cake Box Holdings (LON:CBOX) doesn't strike me as a long-term success along the lines of Domino's Pizza (LON:DOM) or MacDonalds and hence it's unattractive as an investment.

Damian

Blog: Ambling Randomly
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Gromley 1st Jul 40 of 40
1

In reply to post #488391

Damian,

Just as an amusing aside (well it amused me anyway) I picked up a copy of the Standard  this evening as I passed through London (quite rare for me these days) and there is a bit of a "luvy" note from Jim Armitage about CakeBox's attendance at the ES business awards event (apparently they were "first on to the field and the last off it").

Apparently the franchise model is "executed deftly by well-treated staff and franchisees". Perhaps they bought Jim a drink?


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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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