Small Cap Value Report (Mon 4 Feb 2019) - Monsoon, AIEA, WEY, TRAK

4th Feb '19 by Paul Scott

38 comments 10280 reads

Good morning, it's Paul here!

Graham has rather foolishly passed the controls to me. As we know, anything can happen!

Looks to me as yet another big name High Street fashion chain is feeling the strain - Monsoon.

Anyone asking for lower rents, and time to pay, is under financial pressure. Retailing is just so brutal at the moment, undergoing massive structural change. There's no alternative to rents coming down very substantially, and over-capacity can only be fixed by considerable numbers of retailers (and restaurants) falling by the wayside.

Peter Simon, the founder of Monsoon, is in my recollection, an arrogant so & so. Myself, and a couple of pretty harmless shareholders, turned up at a Monsoon AGM c.2004 in my Aston Martin DB7 - which was a sleek silver thing. We expected to sweep in, without a word. Not a bit of it! Monsoon had arranged for a snarling welcoming committee of registrars, who looked like a bunch of ugly, and very aggressive librarians. Demanding to know your name, and if you appear on the shareholder register, seemingly unaware of the nominee system.

I tried to storm the meeting, which sent them into a frenzy! Peter Simon hid behind them all. David Stredder was allowed in, and challenged Peter Simon - who seemed to be scared of shareholders! I've toned down this section a bit, as on reflection it was a bit too strident originally.

On to today's news....

Airea (LON:AIEA)

Share price: 62.0p (up 3% today)
No. shares: 41.4m
Market cap: £25.7m

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

Trading update

Airea plc (LSE: AIEA), the manufacturer, marketer and distributor of floor coverings, announces the following trading update for the year ended 31 December 2018.

Trading & outlook both seem solid;

Revenue and Operating profit for continuing operations in the second half of the year exceeded the performance of the 6 months ended 30 June 2018 in line with management expectations driven by the continued growth in the order book and increased sales both in the UK and Internationally.

The successful launches of our new ranges continue to gain traction in the market and further launches in 2019 are planned to continue the revenue growth.

Pension…

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ithomson1

4th Feb '19

Looks like Monsoon are having a tough time, I've actually heard of some vicious rumours flying around suggesting that they've actually been paying their staff at least the minimum wage this year.

AnonymousUser192020

Don't forget, there's a sizeable army of PIs into commercial property at the £0.25m - 1.0m unit size (though perhaps little overlap with share traders as it's a different ball game). Me and a business partner owned a Monsoon shop in a large Midlands town for a few years. Bought on a yield of almost 13% as a distressed sale from the Co-op in the fallout from the banking crisis. Monsoon were a good tenant, rent paid like clockwork each quarter and didn't challenge their repair liabilities.

Luckily we managed to exit at auction 3 years ago as the property was distinctly over-rented, an anchor tenant (M&S) was moving out of the area, costly work loomed to meet forthcoming EPC regs and Monsoon had a historic policy in many towns of planting a Monsoon and an Accessorize close to each other - with obvious risk that they could consolidate into one premises in a downturn. We expect the new freeholder caught a cold on that one!

At that time, fast food and coffee was the most promising sub-sector,or somewhere with scope to convert upper floors to residential (most retailers now have just-in-time logistics and need little storage space) but I think the shine has gone from even that nowadays.

Sorry to veer off-thread, but there are plenty of investment opportunities outside of quoted equity!

Camtab

I have a question for the experts in this column. Is it a bad thing to invest in a business which probably shouldn't have a listing? I am balancing my views on BOTB (which I own). I cannot see why they don't take it private. The recent tender offer could be a precurser although no mention of such an intention in Paul's interview. So what is so bad about holding such an investment? They would have to offer a market price.

mmarkkj777

Paul,

You will have to let us know next time you are going to an AGM. I do get a bit bored sometimes in front of my screen :-)

MichaelFBS

Hi Paul

Glad I got to read the opening section before you toned it down a bit, it is was interesting and enlightening.

I think what management are like as people is so important (especially in the light events such as £CAKE) and therefore people who know them’s opinion is always interesting and useful. Thx.

Whitbourne

On Wey Education (LON:WEY) it is true that the news was not unexpected - the focus on the UK had been flagged before. It makes sense, given the uncertainties around overseas expansion.

I think many close followers will have been expecting something pretty much exactly like this, yet they are currently down 15%. Clearly there is underlying profitability, but the level is unclear and this must be the major uncertainty.

I agree. What is disappointing is the sense that this is not an entirely professional operation, indicated by the release of news during trading hours. All of this must have been known at the weekend, so why not release it at 0700 this morning? It would also have been better to quantify the expected loss by giving an indicative range. There is some credit for indicating the level of turnover though, instead of just saying 'substantially below'. Again a range would have been more informative.

Could do better!

Trident

First of all, I am no expert, but have had some experience of tender offers.

Thanks to Pauls interview we heard some words on the Best Of The Best (LON:BOTB) situation from the CEO's own mouth.

Ostensibly a 1 in 14 offer should not ordinarily change the ownership structure, but I have a feeling it will, as it plans to allow some discrimination to smaller investors to exit. Again, that makes sense as making a small investor hand back 1-14 of say 50 shares is not massively beneficial to them. However, if there are lots of small shareholders this could give them a good opportunity to exit a relatively illiquid share.

The CEO did seem to say the price they mooted was to make it an attractive offer, but in my experience advisors etc would not countenance merely making a price up. They would at least comment on them perhaps suggesting this was the board painting this as the inherent value of the share. Otherwise they could be hung for it later if they make a lower offer.

So every situation has its own peculiarities. I suspect that the current 17% free float of Best Of The Best (LON:BOTB) will diminish further, but have no idea to what extent.

I would further suggest/speculate that there will in due course be a Part 2 to this exercise. that could be an offer for the company, a buy-in by the management, and/or a delisting. I find it hard to believe that Best Of The Best (LON:BOTB) will want to continue trading as public company with a very limited free float.

I think the change of tax regime has prompted some sort of down-the-line thinking by the CEO/owner. He has been good to shareholders, so I don't think he is out to rip any one off, so it may be worth hanging on to see what happens.

gbjbaanb

Re: pensions - if defined minimum benefits for women is something that is now mandatory, then think what other industries employ a lot of female staff at usually low rates of pay... retail? Perhaps Paul should be asking at the AGMs he attends whether this is in management's sights.

rhomboid1

Afternoon Paul

Thanks for the commentary on Airea (LON:AIEA) ..as of today it is my largest holding...not least because it’s more than quadrupled since I first started buying it.

What I like about it was for years the poor performance of Ryalux disguised the attributes of the high quality Burmatex business

Management have done a classic rolling restructuring on the business, shedding 5 (IIRC) leasehold sites, derisking the pension fund with some v innovative initiatives & refurbishment of the Lancashire Investment Property to attract a top quality long term tenant ..in total they have c £6.5m of freeholds, half of which is used by them.

The most important thing management have done is create new capabilities for the design team by acquiring a US made ‘megaloom’ ..it allows them to enter lower price points but with the same or better margins. It also allows new styles to be created that are proving a big success with specifiers (usually architects) and has created some real momentum in the business
I believe this company is an early stage James Halstead & is a classic multi-year compounder ...I intend to hold forever...or until they get taken over

Roger Lawson

Problems at Wey Education undoubtedly stem from the health problems of former Executive Chairman David Massie who died soon after retiring from the board. He adopted a growth strategy which is clearly now in ruins so we will have to see whether it can move forward from here.
As regards the Monsoon AGM, it's always important to turn up at AGMs with the right documentation if you hold your shares in a nominee account. DS may be able to blag his way in but us less loquacious folks need to stick to the rules, as registrars will.

NK104

On the pensions issue, the Lloyds Bank case affects all schemes with Guaranteed Minimum Pension built up between 1978 and 1997, ie most defined benefit schemes. As a case it wasn't that adversarial, basically Lloyds and the Trustees needed to know how to treat GMP equalisation so they cooked up a case to let the courts decide the method.

Beginner

I am repeating myself here regarding Wey Education (LON:WEY) ,but I would stress that a wide range of educational provision is available on line for free from US institutions and this is likely to expand. I cannot see there being a long term future in this as a business. I formerly worked in this area.

Many thanks for that Trident, most interesting. Have a good week.

Stocks123456

'Beginner' thanks for the bear case re WEY. However Pearson surely would be worth a lot less than £7b if that were the case? Also would WEY be takeover target for them? Thanks

davidtianjin

Regarding WEY. As a British expat with a young son I have done some looking around online at the options available for my sons education. He is not able to attend the local schools and international schools here are very expensive. From what I have been able to research Interhigh looks a good potential choice for my son to get British qualifications at a reasonable price.

FREng

As regards the Monsoon AGM, it's always important to turn up at AGMs with the right documentation if you hold your shares in a nominee account. DS may be able to blag his way in but us less loquacious folks need to stick to the rules, as registrars will.

What is the right documentation?

herbie47

Wey Education (LON:WEY) But don't some people prefer their children to learn English rather than american?

You need to have a "letter of representation" from your nominee operator (stockbroker/platform operator).

sharw

If you are on the share register you will be sent an admission card to present on arrival.

If, like the majority, you hold your shares in a nominee a/c you will need a letter from the nominee stating that you represent them in respect of x number of shares and you take that with you. The problem is that charges for that vary enormously - some (e.g. iWeb) do not charge, others do (x-o £20) and others do not appear to have any provision.

I think Pearson (LON:PSON) is massively overvalued. Their advantage is, as Herbie suugests, their UK connections. Many former colonies still hold UK education in somehat unwarranted high regard. I cannot see them taking out a tiddler like Wey Education (LON:WEY) whenthey can simply out compete them.

Small Cap Value Report (Mon 4 Feb 2019) - Monsoon, AIEA, WEY, TRAK

Airea (LON:AIEA)

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Paul Scott

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