Small Cap Value Report (Mon 26 Nov 2018) - FLYB, SND, CER, KNOS, IGP, CBOX

26th Nov '18 by Paul Scott

25 comments 10769 reads

Good morning, it's Paul here!

Today's report will be earlier, and briefer than usual, as I have to head over to Chiswick, to attend and speak at Mello London - David Stredder's team's latest investor event. I'm looking forward to catching up with many Stockopedia subscribers at the event.

Flybe (LON:FLYB)

Share price: 16.6p (pre market open)
No. shares: 216.7m
Market cap: £36.0m

(at the time of writing, I hold a long position in this share)

Takeover bid(s)?

There's lots of excitement surrounding this regional airline. It put itself up for sale recently, after concerns about it future viability emerged. On Friday we had 2 RNSs, one from FLYB confirming that it is having talks with several parties over a possible bid, or increased co-operation (e.g. code-sharing). Virgin Atlantic also issued an RNS confirming its possible interest.

An article over the weekend in the Telegraph suggests that British Airways is in pole position to buy Flybe, raising the spectre of a potential bidding war. That could be lucrative for shareholders, so I'm rather excited about this one.

It's quite high risk though, as if the bid interest comes to nothing, who knows where things will end up?

EDIT: The very low market cap means that buying Flybe would be pocket change for the bigger airlines. It could bring cost synergies, and act as a feeder for the more profitable transatlantic flights operating from Heathrow and Gatwick. I think there's also an opportunity to be denied to a competitor, which given the bad blood going back to the 1980s between BA and Virgin, could be an interesting factor.

The volume traded on Friday and today is huge, so we should see some "Holding in company" RNSs this week. End of edit.

Sanderson (LON:SND)

Share price: 85p (pre market open)
No. shares: 60.0m
Market cap: £51.0m

Preliminary results

Sanderson Group plc ('Sanderson' or 'the Group'), the specialist provider of digital technology solutions, innovative software and managed services for the retail, wholesale, supply chain logistics, food and drink processing and manufacturing market sectors, announces Preliminary Results for the year ended 30 September 2018.

These results look good, with the summary saying;

The Group trading results for the year ended 30 September 2018 are significantly ahead…

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Camtab

26th Nov '18

Paul if you get any time I would be very interested in your thoughts on Intercede interims. Cost savings 29% and revs up 14% lead to reduced operating loss of 0.6m which with R&D tax refund moves to a small profit. Cash at 3.6m Chairman says he expects company to return to op profit in next financial year. All quite promising as far as I can see for a sucker stock let's hope it isn't!

monohor

The cakes are delicious if a tad on the expensive side at around £3 a slice.

The odd occasion when I treat myself I do notice that there is usually a large number of birthday (and other special occasion) cakes waiting to be collected.

The product deserves to do well.

browndogwork

Hi Paul. It's going to be a very exciting week for Flybe (LON:FLYB) holders. There's been plenty of discussion over on the LSE board's re: the Heathrow slots. It appears that the slot pairs held by Flybe will be "grandfathered" to the airline after 3 years on the route, meaning they can then be traded on the secondary market. They are restricted to certain European destinations, so not as valuable as unrestricted slots, but, an existing Heathrow operator could swap them around with their existing European operations, thus freeing them up for use as international slots. Some crazy figures being thrown around as to the value of these slots, many multiples of the company's market cap. Exciting times indeed.s

hjg123

Cake Box Holdings (LON:CBOX) results look good but the reviews of the cakes online are quite poor - lots of complaints that they are dry / stale, so I would be concerned that the level of repeat purchases will be low and growth will be difficult once stores mature

Snoo

I quite like Cake Box - I think there is a hell of a lot of potential there considering the massive increase in dietary requirements. Lactose-free, gluten-free, could be on the agenda if cross-contamination can be ruled out.

Different formats could be tried - for instance a PatVal/Greggs type for single servings. Neither cater for groups with food intolerance, and I think the gap in the takeaway market could be significant in certain areas.

One downside for me is the management here, not enough diversity, outside experience or depth. I could see them being resistant to change.

Privateer

thanks for these comments, they are a great daily addition

thejh

Hi Paul, any thoughts on the FinnCap IPO just announced via PrimaryBid? Does your rule that if an IPO filters down to plebs like us it's not worth considering apply to this one?

ACounsell

Would be good to see Sanderson (LON:SND) back to a 100p as Paul suggests though given that it was that level at start of July when I bought today’s price rise is just reducing my losses! Having said that results do look good and Paul’s enthusiasm gives considerable hope for further improvements in share performance.

Patrick L

I would also just like to flag up Palace Capital (LON:PCA) half-year results today. I hold this and topped up again this morning as I think it looks good value for a number of reasons:

- NAV per share is now up to 421p a share even though the share price is currently sat at around 300p. A near 30% discount to the NAV per share looks bonkers to me.
- Palace Capital (LON:PCA) management are conservative and rarely buy properties unless they are confident they will be able to deliver good returns on it. Their track record is excellent - look at the long-term share price growth and past RNS'. For me, management is a key reason for investing
- The share has probably been affected by concerns on the high street and property prices post-Brexit. However, if you look at their portfolio they are not very exposed to high street retailers. Its mainly offices and industrial units.
- Its portfolio is outside of London which over the last year seems to have better weathered property prices. More info here: https://www.palacecapitalplc.com/wp-content/uploads/Palace-Capital-Investor-Presentation-June-2018-FINAL.pdf
- Loan to value is 30%, relatively low for a property company.
- Dividend is 19p or 6.3% at current share price.
- Directors focused on growth.

On the negative side:
- Obviously it can't fully escape wider factors affecting commercial property prices and the economy. But a 30% discount more than factors that in I think and you can milk the 6.3% dividend while you wait for the SP to go up.
- The 6.3% dividend is not fully covered at the moment. The company say this is because they've been too conservative with purchases during the current year but that 'we have every intention of maintaining the dividend.'
- It won't set your portfolio alight like Sosandar (LON:SOS).
- It has always traded at a discount to NAV per share for as long as I have held. However, this has usually been c.10% not approaching 30%.

- Thinly traded although there hasn't usually been a big spread in price.

Do shout if I have missed any other reason why this is trading at such a large discount.

davidjhill

I agree. One I've held for a long while. Sensibly run but un-loved at the moment. A 6%+ dividend is strong enough to keep me happy whilst I wait for it to re-rate. There is development upside to NAV as well as increasing rental income potential so dividend should be covered again in short order.

JohnEustace

Worth reading this article in the Evening Standard.
"Broking is broken" by MIFID 2 regulations. There's a lot of consolidation underway. The danger is that people pay up based on past performance, not the future.
https://www.standard.co.uk/business/liberum-in-100-million-sale-talks-as-rules-leave-broking-broken-a4000176.html

Steves cups

Thank you John for the article. Mot bejng a city person reading these bits are invaluable especially as I hold Cenkos Securities (LON:CNKS) and Jarvis Securities (LON:JIM)
Steve

Paul Welsh

Congratulations on being long FlyBe, Paul. I remember you said the other week that it didn't deserve to be trading so low given its finances and you were correct!

Weasel

Positive sounding RNS with no numbers from Seeing Machines (LON:SEE) I am shocked, I've never seen them do that before! ;-)

Ex-holder who got tired of rampy jam tomorrow BS and sold out. Good to see they haven't changed.

Trident

Interesting to see Paul's brief overview of Cake Box Holdings (LON:CBOX).

IT looks like a promising model, but I didn't quite get why the vegetarian society has endorsed it, just because of the eggless element. It still provides product with milk and cream ingredients.

I am not a vegetarian, or a vegan, so I don't know all the subtle nuances of difference as to why chickens get saved, but baby cows etc do not?

Grateful if anyone can point to me the logic of this.

I am long of being a carnivore.

DJCP

As it's out-of-hours, I hope you don't mind me posting a general-ism which appears to have been popping up quite a lot recently, unless I'm just noticing it more. Let me (try to) explain ... (disclaimer: I read other share BBs as well as the SCVR ! - sorry)

Post the Patisserie Holdings (LON:CAKE) fiasco (or whatever it is now), I noted the bears saying they were right etc. The more reasoned were providing details why (wished they'd done so beforehand !), and one of those was the turnover per shop per hour. I can't recall the exact figures, but using approx. figures from their last finals:
Revenue (£114m) / 200 shops = £570k per shop
Hours open = 50 weeks x 6 days x 10 hours = 3000 hours per annum
£190 revenue per hour per shop.
Average spend £9.50(? - mainly to make following calc. easy ! lol) ... If so, then one customer every 3 minutes in every shop at all open times.
Is that feasible from just selling cakes/drinks? I don't know, but makes you think. Comparisons were made with other similar companies (Costa, starbucks etc. I think) to show how high the Patisserie Holdings (LON:CAKE) figures were.

I've seen similar from Aston Martin Lagonda Global Holdings (LON:AML) being:
£3b market cap. / 6,000 car sales p.a. = £500k per car
By way of a comparison, Tesla figures are:
$60b market cap. / 250,000 cars p.a. = $240k per car

I've even seen one about Paul's favourite, Sosandar (LON:SOS) :
£48m market cap. / 84,500 customers on database = £568 per customer

I know we all DYOR, but I wonder how far investors go with micro-analysing each figure and/or ratio, and THEN compare all these against competitors. I 'play' about with various figures, and suppose, in hindsight, if I'd noticed the Patisserie Holdings (LON:CAKE) scenario above, may have paused, or at least discussed it before investing.

On my main holdings, I have various scenarios for HY and YE results etc. Although pleasing IF my figures are close to the actuals, I learn more when they're not, as I have to then see where I've gone wrong ! lol

Apologies for the ramble, and hope those attending Mello are enjoying themselves :o)

Interesting but the so called bears were not shorting Patisserie Holdings (LON:CAKE) prior to the discovery of the ‘accounting irregularities’! Hindsight is clearly a wonderful thing - the bears are just trying to justify the problems in retrospect. Had they had any prior knowledge and were confident in their analysis they would surely have ‘put their money where there mouth is’! I suspect they were as clueless as the rest of shareholders who are still waiting for a sensible explanation.

Interesting point - it's always good to do a sense check. But I make the Patisserie Valerie opening hours rather higher. The ones I looked up (Reading, Hammersmith, York McArthurGlen) are open 7 days a week and average 77.5 hours open per week. So I get to around 4,000 trading hours per annum and £142.50 per hour spend. Still seems high but not impossibly so to me.

27th Nov '18

There's a follow up article in today's Evening Standard for you Steve,

Simon English: Despite the brokers’ wails, the sell-off of the Old City may be no bad thing
https://www.standard.co.uk/business/simon-english-despite-the-brokers-wails-the-selloff-of-the-old-city-may-be-no-bad-thing-a4001386.html

rmillaree

28th Feb '19

.. oops

Small Cap Value Report (Mon 26 Nov 2018) - FLYB, SND, CER, KNOS, IGP, CBOX

Flybe (LON:FLYB)

Sanderson (LON:SND)

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Paul Scott

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