Small Cap Value Report (Mon 3 Dec 2018) - Macro, CRAW, MCLS, PLA

Monday, Dec 03 2018 by

Good morning! It's Paul here.

I'm starting to feel a bit Christmasy, whatever that means. This has mainly manifested itself by my humming "Jingle Bells" under my breath, and asking when the Christmas tree will be going up.

Also, I'm thinking about starting a petition to raise 100k signatures, to get Parliament to ban the playing of Sir Cliff Richard's Mistletoe & Wine, not just over the festive period, but at all times.

MySale (LON: MYSL)

(in which I have a long position)

Several readers have asked if I met management as planned recently. Unfortunately not, I couldn't make the meeting in the end, and I've not spoken to them.

It remains a mystery why the share price is so weak - just more sellers than buyers. My broker tells me that, last week, a retail investor dumped his or her shares, trashing the price. Slamming the price down does seem to unearth some buyers, but then it goes to sleep again. Until the next time someone smashes the price down again.

The shares are tightly held, by management, and big investors Philip Green (through a company called Shelton), and Sports Direct. Therefore, there's a risk that they might decide to take it private. I don't mind if they pay a decent premium, but being notoriously tight, I don't think those characters would be minded to pay a generous price.

The key issue for MYSL will be whether the large receivables on the balance sheet do indeed start turning into cash, as promised in the last set of figures. Time will tell.

Macro musings

It's very quiet for company updates today, so I'll allocate some time to thinking out loud about current issues.

Balance sheets & debt - a friend sent me a very interesting email over the weekend. In it, he pointed out that banks seem to be tightening credit in difficult sectors (e.g. construction, outsourced services, traditional retailers, and others). This is forcing some companies to seek alternative funding, which of course usually means tapping shareholders for funds. We've seen several deeply discounted rights issues recently, and I think there could be many more to come.

My strategy of avoiding companies with weak balance sheets has arguably been too cautious over the last 10 years. I missed some good opportunities because of my strict rules on avoiding weak balance sheets. Although I've…

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McColl's Retail Group plc is a neighborhood retailer. The Company operates approximately 1,375 convenience stores and newsagents. The Company also operates over 1,00 McColl's branded United Kingdom convenience stores, as well as over 370 newsagents branded Martin's, except in Scotland where it operates under its heritage brand, RS McColl. In addition, there are also the operators of Post Offices in the United Kingdom with approximately 560 in its stores. Its convenience stores provide a range of everyday products and local services ranging from a pint of milk in the morning to an evening meal, from an open-all-hours Post Office to a selection of fresh fruit and vegetables and food-to-go, from the newspapers delivered to the door to online collections. With over 370 newsagents across the, the Company also operates as specialist confectioner, tobacconist and newsagent. It has operations in Scotland, North East, Yorkshire and Humber, East Midlands, South East, Wales and London. more »

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Crawshaw Group Plc is a United Kingdom-based company, which operates a chain of meat-focused retail food stores. The Company has approximately 40 stores, which are located across Yorkshire, Lincolnshire Nottinghamshire, Derbyshire and the North West. The Company's product range is categorized into approximately two distinct areas, such as Traditional raw meat, and Hot and cold cooked food. Under the Traditional raw meat category, it offers various products sold either loose in a serve over counter for the traditional experience or as multi buy packs on supermarket style multi deck counters, which have all been cut and packaged in store. Under the Hot and cold cooked food category, it offers freshly prepared roast chickens, gammon and pork joints, hot roast sandwiches, shop cooked curries and casseroles, chicken and chips, as well as other traditional deli products. Its stores include Arndale Centre in Arndale; The Arcades in Ashton Under Lyne, and Fresh Meat Factory Shop in Astley. more »

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Synnovia PLC, formerly Plastics Capital PLC, is a holding company. The Company is principally engaged in the manufacture of plastic products focused on products for various markets exporting to over 80 countries across the world. Its segments include Industrial, which consists of hydraulic hose consumables, packaging consumables and plastic rotating parts, and Films, which includes high strength film packaging. Its operations are based on the six operating businesses: BNL (UK) Limited, which makes plastics rotating parts; Palagan Limited, which makes high strength film packaging; C&T Matrix Limited, which makes the packaging consumable of creasing matrix; Bell Plastics Limited, which makes hydraulic hose consumables; Beijing Higher Shengli Printing Science and Technology Co Ltd, which also makes creasing matrix, and Flexipol Packaging Limited, which makes high strength film packaging and bags. It has over five factories in the United Kingdom, approximately two in China. more »

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

49 Comments on this Article show/hide all

paraic84 3rd Dec '18 30 of 49

I share your views on MySale (LON:MYSL) Paul. It is looking good value - it achieved underlying EPS of 2.3p in 2018 and should be higher than this in 2019 given modest revenue growth and cost efficiencies. This is cheap for this sort of company.

However, I also wonder if the falling share price is related to governance issues. In October the CFO resigned without explanation - although he had a few weeks to tidy things up so it didn't sound totally dodgy and it was 'to pursue another opportunity' (so maybe got a better pay package elsewhere). Today the Chairman also stepped down although he did give a bit more notice: <- Also if you check his Linkedin profile he does seem to have a lot of fingers in a lot of pies so I can believe that he might be looking to free up some time. However, given his Belerion Capital firm invests in tech retail companies it is perhaps not the greatest sign he has decided to deprioritise MySale (LON:MYSL).

I hold.

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hayashi22 3rd Dec '18 31 of 49

Is the Ted Baker (LON:TED) sell off presenting a buying opportunity? Seems somewhat overdone to me.

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matylda 3rd Dec '18 32 of 49

In reply to post #423868

Don't you mean "Merry Xmas Everyone" :)

Another that should be banned...

Snow is falling
All around me
Blah blah blah Mr Stevens

Blog: Briefed Up
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gus 1065 3rd Dec '18 33 of 49

In reply to post #423958

Re. Mark C’s post #23, I’d personally like to see most of Cliff’s records being broken...... and the Tapes, CDs and MP3’s.

Coat please.


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sharmvr 3rd Dec '18 34 of 49

In reply to post #424013

£ted  overdone?

I would say so, strong brand growing internationally, wholesale and licensing which suggests there is still a substantial runway ahead, with strong margins and ROCE.
For me this is a long term compounder so happily topped up today to more than double my holding - cheaper than peers, cheaper than itself, top and bottom line growth near double digit and people (men) are happy to spend £30 on a haircut in their grooming rooms!

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sambrook207 3rd Dec '18 35 of 49

Hi Paul, what ratio or data point within stockopedia would you look at to assess a strong balance sheet or not ? Would you look at current ratio?


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Kevlar 3rd Dec '18 36 of 49

Have you seen Tim Steer's new book?
"The signs were there.....The clues for investors that a company is heading for a fall."
There is a section on Conviviality, pages 113 to122.

Re Cliff Richard, I thought "Devil Woman" was a belter. Especially when done by Peter Kay on Car Share.

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WhaleHQ 3rd Dec '18 37 of 49

In reply to post #424013

I think so and that is why I opened up an investigatory position in it today, I've glanced at it in the past but dismissed it primarily due to valuation reasons. I would be intrigued to hear what Paul has to say about it but if you look at the growth that has been posted over the last 5 years it is clear that Ted Baker (LON:TED) is in a massive uptrend having doubled total revenue over that period and at least trebled US revenue. It has tapered off recently but there aren’t many companies that post that level of linear growth every year. I currently think the news around the founder hugging people is perhaps being exaggerated in the share price but I suppose all we can do wait for the findings of the independent committee before drawing any absolute conclusions.

- High ROCE
- Recently opened distribution hub for north America
- Strong consistent revenue/ eps growth
- Healthy forward dividend
- Strong Brand
- Founder with substantial share-holding
- Distinctive designs (immediately recognisable shirts for example)
- Recent marketing campaign
- Founder hugs everyone on sight
- Increasing inventory levels
- Debt levels increasing
- Fickle nature of the fashion industry
- Deep in overdraft?

Trading update on Thursday.

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gbjbaanb 3rd Dec '18 38 of 49

In reply to post #423923

I think the reason the craft pub has opened if that the government allowed retail properties to be converted to micro pubs without requiring planning permission.

i guess the solution to the high street is to allow further forms of conversion (eg residential or entertainment) to occur without permission too, then market forces of whatever works will quickly convert them to something useful, because betting shops, estate agents and charity shops aren't exactly working out for us.

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momentofclarity 3rd Dec '18 39 of 49

Quality musings Paul, appreciate both your and Graham's general thoughts around the mkt. With regards M&A activity you have to think with the weakness in sterling, cross border deals may well be an opportunity for overseas companies to scoop up some bargains.

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sharmvr 3rd Dec '18 40 of 49

In reply to post #424063

Think you have captured it pretty well - for me the biggest concern is the debt position. Also, have the feeling that someine somewhere might have got wind of the update due Thursday (intraday did not show a gap down if I remember correctly, which is what should have happened given weekend news.
Maybe it is the founder's alter ego (Ted Baker) that hugs everyone, and we cannot discriminate against politically incorrect terms!
Re business performance, i would add that they do this with little marketing spend and also have rent linked to sales so less operational gearing (ref to flexible business model in reports).
Read that the fall today might be in case Ray Kelvin has to leave because of these allegations (Liberum I think) which really will be a shame given it is his company!
Ted Baker (LON:TED) is known for their unique marketing strategies so maybe this is one - how people who have never worked at Ted baker can tweet an opinion and sign the petition is beyond me but I guess in today's world - #progress.
Minded to buy more TMRW out of spite but will wait for results in stead!

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ttjs4 3rd Dec '18 41 of 49

Interesting trading update from Taptica International (LON:TAP) this evening...

Taptica (AIM: TAP), a global leader in advertising technologies for performance-based mobile marketing and brand advertising, announces that Hagai Tal, CEO of the Company, has today been found liable for certain statements made in relation to the sale of Plimus Inc, a company of which he was both a shareholder and chief executive officer at its time of sale in August 2011. The plaintiffs in the case are entitled to restitution for breaches of certain representations and warranties.

Details of the claim were disclosed in the Company's admission document on page 85 (section 7.9 of Part IV), which is available on the Company's website.

Mr Tal has tendered his resignation from the Board, which the other directors of Taptica are now considering. Further announcements will be made as appropriate.

Trading Update

The Company provides the following update on trading for the current financial year to 31 December 2018.

Since announcing its interim results in September 2018, the Company has continued to perform well and execute on its strategy to deliver higher-margin revenue. As a result, the Company expects to report EBITDA growth in line with market expectations, demonstrating a higher-than-expected EBITDA margin, and revenue below expectations due to the forgoing of some lower-margin sales. Cash generation within the business is also as expected.

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014. The Company confirms that it is no longer in possession of any unpublished price sensitive information.

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clarea 4th Dec '18 42 of 49

In reply to post #423968

Hi would be interested in your take when you have read the book.

Kind regards


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knighty 4th Dec '18 43 of 49


Was here any investigation by the Serous Fraud office or anyone else over Globo?

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ezlifeme 4th Dec '18 44 of 49

In reply to post #424063

Great insight all, many thanks
Makes Thursday more interesting!

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Bonitabeach 5th Dec '18 45 of 49

In reply to post #424063

Ted Baker (LON:TED

Not so long ago - American Apparel


No position

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lyndhurst25 6th Dec '18 46 of 49

"Synnovia"??? What the flip does that mean? If a company's business is making plastic then they shouldn't be ashamed to have the word in their name. All these silly made up names are just (intentionally?) confusing e.g. we have Aviva (insurance a.k.a. Norwich Union), Arriva (buses and trains), Areva (French nuclear power company, now called the equally unfathomable name "Orano") and AVEVA (software/engineering). How about sensible company names for a change?e.g. "McColl's corner shops","Crawshaw's butchers".

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sharw 6th Dec '18 47 of 49

In reply to post #425343

Yes, I once owned shares in WCRS and the name was changed to Aegis. The business was split in two and one half was called Synovate.

What you have to remember is that change is big business and there are lots of 'consultants' being paid silly amounts of money for sitting around and dreaming things up. Management are being distracted from running the business by being told they need a logo or a mission statement. Then in a couple of years the "consultants" will be back telling you that you need to "refresh the image".

As for websites that have been "upgraded" and no longer work as well as the previous version - don't get me started!

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Nick Ray 7th Dec '18 48 of 49

In reply to post #425343

To be easily google-able you need your company name to be a made-up word these days. I think this drives many of these fanciful names.

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HumourMe 8th Dec '18 49 of 49

In reply to post #425713

To be easily google-able you need your company name to be a made-up word these days. I think this drives many of these fanciful names.

Just to find a potential website address and name, that hasn't been thought of by one of the other 6bn people on the planet, is a challenge. In my experience, if I'd had any pretensions to being creative, they would have soon proved to be an illusion. As it was my 'creative' colleagues were repeatedly brought back down to Earth.

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 Are LON:MCLS's fundamentals sound as an investment? Find out More »

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


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