Small Cap Value Report (Mon 8 Nov 2021) - DX., DTY, CBOX, CARD
Good morning, it's Paul & Jack here with the SCVR for Monday.
David and the team are back with another Mello Monday tonight, they're always worth checking out with some interesting management presentations this time around including Property Franchise (LON:TPFG) and Sosandar (LON:SOS) . You can find more detail here.
Agenda -
Paul's Section:
Cake Box Holdings (LON:CBOX) - impressive H1 results, with quite a rapid roll-out of new sites, funded & operated by franchisees. No supply chain problems. The valuation still looks reasonable, so I suspect this share could continue to do well.
Card Factory (LON:CARD) - the most encouraging update we've seen since the pandemic began. Store sales have now improved to almost reach pre-pandemic levels, driven by largest basket size, on still much reduced footfall. Net debt is still worryingly high though, but the situation overall does seem to be improving.
Jack's section:
DX Group (LON:DX.) - operational leverage, volume improvements, and market share gains have driven an increase in profits as the turnaround here looks to bear fruit. Conditions are currently positive- these could moderate and there are headwinds, but the company continues to invest for growth. There's been a substantial increase in the share price recently which makes me warier, but brokers retain quite aggressive price targets of 55p-57p.
Dignity (LON:DTY) - management has changed and the turnaround strategy focuses on reducing prices and increasing volumes, which looks to be the right move. There's more to be done, however, and the group continues to lose market share. The financial picture is also a concern. The group says it will 'have a lot more to say at the year end'.
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.
We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).
A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.
Paul's Section
Cake Box Holdings (LON:CBOX)
397p (up 4.5% at 10:07) - mkt cap £159m
Cake Box Holdings plc, the specialist retailer of fresh cream cakes, today announces its half year results for the six months ended 30 September 2021 ("H1 FY22").
Record first half performance with further strong growth and strategic progress
I wish all company accounts were as simple, and easy to understand as these! There aren’t any adjustments, it all looks very clean.
The balance sheet is strong, including £4.15m net cash.
Cash generation is good, funding a small amount of capex, and divis.
Current trading is good, and full year expectations are confirmed.
Revenues are low at £16.5m, because it’s a franchise business
Stripping out new store openings, like-for-like revenues are up 13.3% in the 4 months of comparable trading in 2021 vs 2020 - showing strong underlying demand.
Profit before tax in H1 of £3.7m is up a very strong 122% on H1 LY, helped partly by worse lockdowns last year than this year, and of course the roll out of new stores.
EPS: 7.46p in H1 (up 116% - very impressive)
2.5p interim dividend
No supply chain issues, and several months ingredients are on hand - hence very little risk of a profit warning from supply chain disruption.
7 kiosks opened in ASDA, with more being rolled out in future.
Valuation - we like CBOX a lot here at the SCVR. It’s established a really good track record of not only prospering throughout the pandemic, but also opening many new franchised stores.
Is it a reasonable price though?
Stockopedia shows broker consensus of 13.4p FY 3/2022, rising to 15.1p for FY 3/2023. Those numbers seem light, given that we’ve already had almost 7.5p reported for H1 today, and there seems to be a profit bias in H2 (although that could be due to new store openings). Hence it looks to me as if something like 16-20p EPS might be more realistic for this year perhaps?
Many thanks for Shore Capital, for issuing an update note today on Research Tree, showing a forecast of 14.7p for this year, and 16.3p next year. That’s higher than consensus, so we should expect to see further increases in consensus forecast.
What figure should we use to value the shares? Given that CBOX is a reliable roll-out, then rising profits are almost certain. Hence I’m prepared to push the boat out, and base my valuation on a future EPS figure of about 20p, which looks within reach for next year.
Hence at 397p, the PER is about 20 - certainly not excessive. I think that can be fully justified by strong performance, and continuing expansion of store numbers (cape all funded by the franchisees remember).
My opinion - a very nice business, and its shares have shrugged off the recent sell-off in many small caps.
Have we missed the boat - i.e. is it too late to buy, after such a good run up in share price?
I’d say not, this still looks an attractive roll-out, with plenty more growth in the pipeline, and a valuation that looks reasonable to me.
Well done to investors in CBOX, you've picked a winner.
.
Card Factory (LON:CARD)
54p (up 10% at 11:16) - mkt cap £185m
Card Factory plc ("Card Factory" or "the Company" or, together with its subsidiaries the "Group"), the UK's leading specialist retailer of greeting cards and complementary products, today provides an update on the Group's trading and operations.
This update reads positively. Trading is continuing to recover.
Q3 (3 months to 31 Oct 2021) saw revenues only -3% pre-pandemic equivalent.
What is striking is that transaction volumes are down heavily, at -20.9% compared with pre-pandemic Q3. However, much higher basket size, +22.5% recoups most of the shortfall, hence revenues down 3%.
We can confirm these numbers ourselves, using 100 as the base turnover. Deduct 20.9% for lower volume, giving 79.1%. Then multiply by 1.225, to reflect higher prices. Arriving at 96.9, so -3.1% revenues.
This seems to confirm a trend that people are going into towns to shop less, but buying more when they do visit. Which is very encouraging for high streets generally, if this pattern continues.
Supply chain problems sound contained, and at a modest level, so the company reassures on this topical issue.
Net debt - still the main problem at this company, with an equity raise still needed. Although as the performance of the company improves, it might well be that the bank manager is sleeping better at night now? So I imagine risk is probably reducing.
Net debt, which is typically at its annual high due to stock purchase in advance of the Christmas season, as at 31 October 2021 was £108.4 million (excluding £20.8 million of deferred rents and VAT), compared to net debt of £142.5 million (excluding £13.2 million of deferred rents and VAT) on 31 October 2020.
My opinion - things are clearly improving at CARD, and the risk of a highly dilutive equity fundraising is probably receding somewhat.
With revenues now close to pre-pandemic levels, the stores should be operating profitably again by now, and generating good cashflows. That holds out the possibility that the company may not need to do a dilutive equity raise, or not dilute as much as previously feared.
The big disappointment with CARD is that it missed the boat with online greetings cards, as Moonpig (LON:MOON) and others grabbed an opportunity worth over £1bn from under its nose. To date, CARD’s online offerings have been lamentable. Although there’s always a chance that CARD could develop a more convincing online strategy, and drive growth in that way in future.
As regards the stores, they’re facing big cost headwinds when business rates return to normal, plus the >6% rise in living wage from April 2022. Lower rents are likely to help in the other direction though.
Putting it all together, I’m happy to sit on the sidelines because net debt is still perilously high. Although this is the best update so far, since the pandemic started, and I think it’s starting to look potentially interesting, if you’re happy to ignore the risk of equity dilution and hope for the best on that point.
Remember that CARD was doing badly before the pandemic struck. So don't necessarily expect an instantaneous recovery all the way back up to previous highs. The previous policy was paying out excessive divis, and running excessive debt, so hopefully the company will be more prudent in future.
.
Jack’s section
DX Group (LON:DX.)
Share price: 33p (+3.94%)
Shares in issue: 573,682,000
Market cap: £189.3m
DX Group provides a wide range of delivery services to both business and residential addresses across the UK and Ireland. It was first established in 1975 as a Document Exchange service to the legal sector, but this is now an increasingly small part of the overall company.
It has one of the widest ranges of overnight delivery services in the market, as well as logistics services. DX Freight comprises DX 1-Man, DX 2-Man and Logistics. The division specialises in the delivery of irregular dimension and weight freight ("IDW").
DX Express comprises DX Parcels and DX Exchange and Mail. The division specialises in the express delivery of parcels and documents.
Amid all the demand for products from both companies and customers, the group’s share price performance has been impressive. It has risen from a lockdown low of 6.75p to some 31.75p today, well ahead of its pre-Covid levels of between 12p and 15p.
Very strong results… Group is well-positioned and further progress is expected
Highlights:
- Revenue +16% to £382.1m,
- EBITDA +55% to £38.6m,
- Underlying operating profit +266% to £16.5m,
- Adjusted PBT up from £0.2m to £16.5m,
- Adjusted EPS up 2.1p from a loss of 0.1p to 2p,
- Net cash +37% to £16.8m,
- Cash flow from operating activities down from £33.5m to £28.1m following a c£14.5m swing in working capital payments.
These results show the group is on track in its turnaround plans set out in 2018. The adjusted operating margin also improved to 4.4% (2020: 1.4%), moving towards the long-term target of 7.5%-10%.
This strong performance was largely driven by the DX Freight division, which saw revenues and profitability significantly increase as a result of higher volumes, greater operational leverage, and efficiency improvements.
Freight revenue rose by 32% to £223.0m and operating profit increased from a loss of £0.6m to a profit of £22.9m, pushing the divisional operating margin up to 10.3%, which is above the wider company’s long-term target. Three new depots were opened in Oxford, Westbury, and Burnley, while another three were upgraded.
A strong focus on customer service has supported new business wins and customer retention, meaning the division has strengthened its market position from a year ago. Market share gains have been further aided by the withdrawal of a competitor from some parts of this market.
This in turn has improved volumes, efficiency, and productivity through greater delivery densities and improved utilisation of existing capacity.
The high operational leverage has led to a significant recovery in the division's margins, as additional volumes do not require a commensurate rise in fixed costs.
We estimate that the market for parcel freight is expanding at approximately 10% per annum, with Brexit driving some of this growth as businesses increasingly 'on-shore' their supply chains in reaction to the frictions of cross-border trading and the impact of coronavirus pandemic. Our growth of 32% compares favourably with the overall parcel freight marketplace, and our strategy for DX 1-Man is to continue to expand its market share and to improve margins by increasing efficiency and productivity.
Opening new depots has several beneficial effects: it reduces stem miles; improves the ability to win new business in the local area; enhances service levels by being closer to customers; and increases vehicle productivity by enabling double delivery runs on certain routes. There are growth opportunities for the 2-Man & Logistics business, boosted by the trend towards outsourcing.
As the division grows, DX expects to further improve operating margins.
DX Express performance was significantly impacted by lockdown, but strong progress was made in the growth of its Parcels activity.
DX Express revenue was stable at £159.1m (2020: £160.3m), although operating profit fell from £22.9m to £12.4m as lockdowns affected the group’s Legal and High Street activities. The separation of Document Exchange and Parcels delivery network is now complete. Three new depots opened in Glasgow, Rotherham, and Middlesbrough.
The cessation of the HMPO contract in the last quarter of the previous financial year has led to a different sales mix, and that the DX Exchange network was underutilised.
The parcels market is large and growing strongly, driven by the increase in online buying. It is presenting plenty of new opportunities, albeit the market is very competitive with a large number of providers. However, we are confident that our differentiated approach puts us in a good position to grow the division's presence in this part of the market as we continue to build a profitable, high-quality, service-orientated parcels delivery service.
The group has now launched a major new capital investment programme, worth £20m-£25m over the next three years, in order to further expand its depot network and drive improvements in equipment and infrastructure. A total of £6m was invested in the financial year just ended (up from £3.4m), spent mainly on depot network expansion, equipment, and IT.
Balance sheet - DX has £44.5m of current assets excluding cash and £16.8m of cash set against £81m of current liabilities. There’s no debt but the group has established a £20m invoice discounting facility. Net assets are £39.8m, up from £23m. There’s £31.4m of intangibles and goodwill though, so net tangible assets are single-digit millions. A stronger position than the prior year, but still an area the group might look to improve.
Outlook -
Although there are ongoing trading challenges, including HGV driver shortages and global supply chain disruptions, the Board remains confident of further progress and DX continues to win new business and increase its market share
Conclusion
DX continues to win new business and increase market share, and the board is confident of further progress here. Margins have improved, albeit aided by an unusually strong demand environment that should moderate to a degree at some point.
When is hard to say, but the more company-specific factor here is a successful looking turnaround. Against a favourable backdrop, the company has shown its model can generate operational leverage and there is further scope for margin enhancement.
It’s not all plain sailing though. According to the group:
In recent months new challenges have emerged and the macro-economic environment has become more volatile. As well as recent shortages of HGV drivers and other logistics industry workers, the disruption to global supply chains has led to a number of customers experiencing stock shortages.
The group is implementing measures to address pressures, ‘and there are some early signs that issues are beginning to resolve themselves’.
Useful progress has been made in returning the business to long-term, sustainable profits growth and cash generation. Fair enough, that has been helped by favourable conditions, but there’s nothing wrong with fixing the roof while the sun is shining.
There are some challenges ahead but the company has ambitious growth plans for the next five years and has announced a £20m-£25m capital investment programme. The margin target of 7.5%-10% is well ahead of the 4.3% reported in these results.
If it can combine this with revenue growth then there could be further earnings growth and share price upside from here. Market share gains support this possibility, although there is still the possibility of current tailwinds moderating or headwinds intensifying. There has been a substantial uplift in value already and this has become a popular sector, however, which makes me slightly cautious at this point.
It’s a tough sector, but DX does appear to have a differentiated model in the space (focused on IDW and high value parcels and documents) where there is a bit more pricing power and service is more important. For what it’s worth, brokers continue to forecast good upside with improved price targets of 55p - 57p.
Dignity (LON:DTY)
Share price: 706p (-1.81%)
Shares in issue: 50,028,740
Market cap: £353.2m
Dignity was once a bit of a stock market superstar but it’s had a huge crash. There has since been a slight recovery, but the share price is still well down on its previous levels.
There have been some interesting developments here.
The old chairman was ousted by shareholders earlier in the year and the CEO, Gary Channon, is actually a partner at deep value investment specialist and major shareholder Phoenix Asset Management. So clearly management is aligned with shareholders.
- Underlying (post-IFRS 16) revenue up a percent to £237m,
- Underlying operating profit -10% to £43.4m,
- Year to date (YTD) number of deaths -3% to 483,000.
The YTD decline in profitability results from both a fall in number of deaths and a drop in market share, as well as increased costs in the Funerals division. While profits have fallen here, Crematoria has proven more resilient with a slight increase in operating profit.
The third quarter has been ‘better’, with a 10% yoy increase in death rate driving a £2m increase in funerals profit to £7.2m. Dignity says it continues to lose market share in both funerals and crematoria, however.
Funerals underlying operating profit has fallen sequentially, from £22.2m in Q1 to £9.4m in Q2 and £7.2m in Q3, for a YTD contribution of £38.8m.
In the first three quarters of 2021 the group conducted 57,900 funerals (September 2020: 61,700) in the UK. Just over 1% of these were performed in Northern Ireland. Excluding NI, this represented approximately 11.9% of total estimated deaths in Great Britain. That’s down from the 12.2%in September 2020.
Market share is calculated based on a fixed assumption of one week between the registration of the death and the date of the funeral, however, and this relationship looks to have changed somewhat so those figures may not be comparable.
Crematoria underlying operating profit is also falling, from £14.6m in Q1 to £10.6m in Q2 and £9.2m in Q3, for a YTD contribution of £34.4m. Around 54,900 cremations have been performed so far in the financial year, representing a market share of 11.4% (September 2020: 11.5%).
Capital structure - Looks precarious. The group's primary financial covenant under the Secured Notes requires EBITDA to total debt service to be above 1.5 times. The ratio at September 2021 was 2.11 times (June 2021: 2.12 times). That limits the group’s room for manoeuvre.
At the end of September 2021, the group held cash of approximately £68m, approximately £48m of which was held by Dignity. This looks like a risky position to me.
At the last balance sheet date, Dignity had £1,933m of total assets including £322m of intangibles and goodwill. Given the £2,069m of total liabilities, that makes for a negative NTAV of some -£458m, more than the group’s market cap. The £524.8m of debt (excluding capital leases) also exceeds it, which is clearly not prudent.
I would view further progress here as a requirement.
Turnaround strategy
There is considerable activity underway within the Group, as mentioned in the interim results statement, impacting all aspects of our business. This is driven by the strategic changes being made as well as preparing for and complying with new and evolving regulations in our industry. This reporting period includes a few weeks of trading with our new pricing, where we have launched competitively priced funeral services in the UK to truly lower the cost of dying for families, but it is still too early to judge and extrapolate the overall effect. Our average revenue per funeral has fallen, and volumes have risen as we expected, but coming as this does at a time of an elevated death rate it is still not possible to apportion the element of that growth that potentially could be attributed to market share, in part because the time between death and funeral has moved in reaction to that volume rise.
So there are signs that Dignity is taking the kinds of action required after being found out by competitors undercutting its services. As well as reducing prices and increasing volumes, Dignity is being reorganised into smaller, more autonomous regional groups. The fact that the group is not immediately hailing this new strategy as a success strikes me as suitably cautious.
Outlook
Quarter four is going to be important but is still hard to predict so Dignity refrains from giving guidance.
Deaths were above the prior year in the first quarter with the second quarter falling below the five-year average (2015-2019). The third quarter saw an increase in deaths from the prior year and an increase above the five-year average. The impact of COVID-19 deaths in 2020 and 2021 could possibly mean we experience a lower number of deaths than originally anticipated by the Office of National Statistics ('ONS') in 2022 and 2023. The Group will not speculate on the most likely outcome.
Some might argue that the group can afford high levels of debt due to the predictable nature of its revenue and cash flows. The above comment does not appear to bear that out. Of course deaths will continue, and likely at a fairly steady rate, but the lack of guidance reinforces the view that the company should carry significantly less debt.
Conclusion
The group itself says that it ‘will have a lot more to say at the year end and look[s] forward to sharing an update then.’
So perhaps now is not the best time to assess its prospects given that more detail will soon be forthcoming. It’s probably worth keeping on a watchlist though, as change is happening here and this has been a well-regarded investment before.
There’s plenty of work to be done, however, and the group continues to lose market share. It can only regain this by cutting prices, and the medium to long term impact of that is unclear. Meanwhile the financial position looks weak. There are some comments on potentially undervalued freehold assets here, which could change the picture if correct.
There’s no rush to get involved at this point but I give some credit for the management commentary, devoid as it is of the hot air that clogs up many other overly-optimistic communications with investors. There has been no equity dilution so the turnaround opportunity remains intact, although it’s still risky.
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58 comments
Could you possibly review or provide an update on small cap Frenkel Topping, Frenkel Topping (LON:FEN) in your SCVR reports? This stock comes up in Ben Hobsons "Fast growing Stock" Screens from his article today, and I just bought in before market close as it looks to be breaking into new highs. Thanks.
Looks as though customers of Angling Direct (LON:ANG) might be getting access to tackle of a different sort today after a cyber attack over the weekend linked their online order book to a porn site. Management have put out an RNS saying it shouldn’t affect business but presumably it’s causing some harm both to reputation and the online order book while the problem is sorted out. Just checked the gallery on the Boohoo (LON:BOO) site and suspect the same thing has happened there too (this second part is meant in jest!).
Gus.
So the largest shareholder in Dignity is Phoenix Asset Management.
That's reassuring...
I would not Buy DX myself. A few of our suppliers use them and are pretty unhappy with service- mainly lost parcels, damage and DX will not pay claims. But maybe just a couple of unlucky users.
Smiths News (LON:SNWS) , I see "SILCHESTER INTERNATIONAL INVESTORS LLP" took out a near 5% position in them today, seems like II's are waking up to the potential steady returns of smiths
Hi ihalliwell,
Although I hold Smiths News , I believe that the announcement is completely wrong.
Silchester were always a shareholder , around 10%.
They have been selling recently and they are down to around 5% now which explains the pressure on the price.
Regards
The HOSTMORE saga continues.There appears to be an issue with uploading the HOSTMORE info. I have just received a reply back from Stocko that the developers realise there is a problem but it will take time to resolve due to them prioritising their workload???
Hostmore (LON:MORE) now down 20% since demerger. Wondering why? Not what I was expecting. Could be a bargain price or some investors know a significant negative I don’t?
Hi Ken.
Poor reception from the market to Hostmore (LON:MORE) and the residual Electra Private Equity (LON:ELTA)/Hotter business . Plenty of comment hereabouts as to whether they’re good or bad investments at these price levels which I see as a healthy sign. Does seem to be some confusion in interpreting the stand alone financials (suggesting in part it’s not been presented in a completely clear manner which is down to the various advisers). I suspect there’s also a fair bit of speculative hot money that pumped the price ahead of the demerger in the hope/expectation of a quick pop that clearly hasn't happened that’s now cutting its losses and moving on to the next trade. Personally, quite happy to sit tight and wait for the market to stabilise before adding/holding or cutting the current position.
Gus.
Thanks gus for the helpful reply. It makes sense too. I’ve sold ELTA for now but will continue to hold £MORE. My mistake was adding to MORE far too soon!
This video is worth an hour of anyone's time, the guy looks familiar.
Hostmore (LON:MORE) gets a mention around 58 mins in, plus a whole host of SCVR favourites.
dignity
Anybody been offered a funeral plan? You can pay a lump sum now and fix the price of your funeral, from a range of options, no worries about the security of your money,they say, as its in a separate trust, so all good? In my view no, I think it’s the next equitable life, for those old enough to remember.
The fundamental assumption is that the cost of a funeral will rise less then the investment value of the lump sum paid now, to “ fix “ the price. If not how does it work? Really? Is that going to happen? Yet the price paid now doesn’t all go in the trust pot, there are sales people to pay for, costs to “get“ the lump sum from the punter!
So my view is that the costs of funerals will rise, and faster then any lump sum put away now to pay for them in x years time.
At some stage there will be a shortfall. The money won’t cover the cost, however when that happens it’s at the time of a death and often the survivors just “ pay up” to cremate a loved one, or they don’t and someone( funeral company?) picks up the shortfall?
Just think the whole large scale funeral industry is a car crash waiting to happen!
Equitable life endowment mortgages anyone!!!
Defined benefit pension scheme deficit?.
Funeral plans ??
Gary Channon who runs Dignity (the chap who runs Phoenix) has said that the big pot of money sits there as cash in trust and that this is a problem. He intends to use this "float" in the same way that Buffet does with Berkshire Hathaway - by investing it instead of having it sit there as cash.
Which in my view is a brilliant business model - take money upfront for a service to be delivered later and in the meantime make that money work for you and compound it over and over.
umm, except they can’t actually get there hands on the money, legally, it sits in trust!
Hmm interesting. So what's the incentive to invest it? Unless Gary Channon sees this as a way of getting capital into his other holdings...?
hi, I haven’t seen or read what he may of said, but from what I know I would be very surprised if he can get his hands on the money, that would be a real scandal if he could. Be a bit like the old day’s when companies could use the assets in the company pension funds, and look where that got us!! people have paid now, for the guarantee of a funeral ,paid for,in x years time. Can’t see how their money could be used to enrich the shareholders, or not,!! In the intervening years. High risk doesn’t even get close to describing that.
Dignity.
Yes you may well be right Tanglands. Some years ago I did some research on Dignity and I was alarmed by the company's huge liability to provide funerals set against the apparently low returns it was getting with the ring-fenced pre-paid funeral money held in the National Funeral Trust which said it was invested "carefully". I actually wrote to the manager of a fund I was invested in to raise these concerns. I'm not sure what the current situation is but I am sure the National Funeral Trust produces annual reports but I didn't find one when I just did a quick check on the internet. I wonder if they are managing to keep up with increases in the costs of the types of funerals which Dignity provides?
peter, spot on I am afraid. The money is ring fenced and I suspect, but don’t know, is carefully invested. That I believe will be the problem. I did some work for the national funeral trust, and the impression I got was that they could sort of see my point, but didn’t want to!! Corporate can kicking down the road. someone else’s problem!
Card Factory (LON:CARD) But that is what they are. You can buy 10 cards for £1. Or pay £1 for a reasonable card that would probably cost £2 in other card shops. I think they must make some money on extras, as they are always pushing them, when I pay, I never do pay for extras. Quality I think similar to other cards but cheaper. But most people want cheap in this country.
I think they have expanded too much in some areas. Near me they have 2 shops, busy town centre one and one on a industrial estate although there are some supermarkets there also. Do people buy cards in supermarkets, they must do but they seem poor value compared to CARD.
I don't hold any shares in Card Factory (LON:CARD)
I thought Paul was positive about them last year? Robbie Burns was shorting them because he feels cards are a declining market.
Card Factory (LON:CARD) were trialling higher price points as we went into Covid I believe. Would agree there is substantial room for them to enhance margin here without damaging their bargain positioning.
Interesting to see the basket size is up to compensate for the footfall. As you suggest this may rebalance over time and as we head into the new normal.
The Strategy Director departed for Asda not long after the CEO went. Not sure what they do in the way of a Marketing Director or department which may account for omissions to the range like football cards for boys. Again addressable, as is the online deficiency over time - which they definitely need to and have the brand strength to do so if executed well.
Still not sure I'd take the gamble on becoming a shareholder when there are lots of other opportunities around. Good luck to those who do/are.
Card Factory (LON:CARD) actually look cracking value now. PE 6 vs Moonpig 31. Robbie Burns liked Gattaca. Look at it now.
Yes Robbie Burns does like Gattaca (LON:GATC), he has made a lot of money in the past from it, recent trades went wrong but he bought some more at 153p, now it's 177p. You can't win them all.
His short on Card Factory (LON:CARD) was some time ago, think he did quite well on that one.
Card Factory (LON:CARD) is looking better than it was earlier this year.
Sorry, yes, this should have been a thread.
Hi Jack, Paul,
Would you mind reviewing the interim figures for Argentex (LON:AGFX) ( I hold). They're a bit hyped as record figures. My estimates for the year based on these figures and a back-end weighting based on previous years is that they are pretty much as forecast, so in theory it is still quite a cheap share. There's a bit of a cloud as one of the founders and former co-CEO left through illness and sold off his holding at quite a discount. He was rather begrudgingly thanked under the circumstances I thought.
Looks like there are quite a few people interested in Argentex (LON:AGFX)
I remember listening to Tamzin Freeman's pitch for this company in the September Virtual StockSlam.
The Argentex (LON:AGFX) numbers look OK - given there is a slight H2 weighting I believe (look at their short reporting history plus Alpha FX's H2 weighting for example) then maybe this will come in at 7p EPS for full year? So maybe this is priced about right for the immediate term given some of the recent uncertainties around growth tailing off but I believe at a potential p/e currently of 12-13 this could be a decent entry point if they can once again become a growth share particularly given the ambitions of management. I bought in a bit early at 100p but very happy to hold for now.
There is an investor meet presentation at 4pm which I am hoping to tune into as it's my day off! A slight concern is the margin suppression which I will ask about if there is an opportunity.
At the Investor Meet the company confirmed there is a H2 weighting and suggested that performance would be 'much improved' compared to H1. I didn't really get that much else from it that I didn't already know. They suggested the slightly weaker margin is due to investment in international expansion and staffing.
Hi Patrick L, I had the Argentex (LON:AGFX) IMC presentation on whilst reviewing a doc for the day job so may have missed something. The second half weighting was already obvious from the previous figures on Stocko. I used a ratio of 5:7 this morning as it matched the last two years figures and that's why I though they were probably on target for the analysts figures, but I think it was said in the presentation that it was about 45% in H1 because of how major holidays fall. I wish they'd break it down the way Next break down their figures.
I picked up that there were costs for extra headcount and new recruits to cover a wave of resignations. It takes a while for new sales staff to become productive.
I wasn't sure about the wave of resignations amongst senior staff despite the incentives. It could just be co-incidence that a number of senior staff leave just after the former co-CEO leaves and withdraws his capital.
I like it (ProCook).
Reminds me a lot of Dunelm (even have one of their former CFOs). Down to earth and from the Midlands. Family owned, strong LFLs, roll-out story + international element.
I was impressed with the store I visited for the range, price points and quality. Staff were motivated and knowledgeable.
Whats the stock?
Sorry just noticed SOS
As it is a quiet morning I thought I would share something about Countryside Properties (LON:CSP) that a friend shared with me. It provides an interesting case for investment which may not be well known. It relates to a letter to investors from Alphyn Capital: https://static.seekingalpha.co...
Alphyn Capital has opened a position in Countryside Properties and says:
Countryside Properties is a £2.5bn market capitalization UK homebuilder with two distinct divisions, traditional housebuilding, and a more exciting Partnerships business. In December 2020, US-based hedge fund Browning West launched an activist campaign to replace Countryside’s Chairman and split off the traditional business. Countryside has since hired John Martin, who has a successful record as CEO of Furguson Plc, a £22bn market capitalization plumbing and heating products distribution business. By July 2021, Countryside further announced it would run off the traditional business, thereby generating £450m of surplus cash by 2023 to be used in share repurchases. As of September 30th, Countryside has already repurchased 7.1m shares or approximately 1.35% of the company. Finally, it would expand Partnerships to the Home Counties region of the UK (counties that surround the Greater London area), which will add £60m in operating profits by 2023. I felt this presented an attractive opportunity to invest in a refocused and growing company.
The traditional homebuilding division develops homes on greenfield sites in London and Southeast UK. This is a decent business with approximately 20% ROI but requires a significant amount of capital to purchase land, has lowto-mid single-digit revenue growth, and is subject to traditional housing market cycles. Meanwhile, the Partnerships division forms joint ventures with local government housing associations to build both affordable and private housing. Local housing authorities provide land at no charge to Countryside, resulting in a 60%+ ROI and favorable working capital, enhancing cash flow generation. Partnerships has reduced, though not eliminated, exposure to the housing cycle as half its revenue comes from local government-mandated affordable homes. Partnerships further de-risks revenues by pre-selling homes to institutional investors such as Goldman Sachs, EQT, and Sigma Capital.
Partnerships benefits from industry tailwinds and competitive advantages. The UK “housing crisis” has been well document by the British media.6 The UK suffers from a chronic shortage of affordable housing, numbering in the millions, while the housing industry produces fewer than the 250,000 homes that the Ministry of Housing estimates must be built each year to keep up with household formation. Local housing authorities are charged with developing the land yet lack the skills to do so, and therefore contract with developers who can manage the entire development process.
A significant focus of the work involves regenerating “council estates,” British public housing built by local authorities, often with poor living conditions and higher crime rates. It is a delicate task to achieve buy-in from skeptical lower-income residents, which requires extensive public outreach efforts. “Community management” is a skill set missing from many traditional homebuilders, resulting in some highly publicized failures. 7 The politically sensitive nature of these developments means that local authorities prefer to award bids to well-established developers with successful track records, such as Countryside. Furthermore, the bidding process can take 5-years which deters new entrants given their low chance of being awarded the project. As a result, Countryside enjoys a 40% bidding win rate. 8 Countryside’s record of successful projects provides significant financial incentives to local 3 Former Chairman and CEO of Sony Music UK in an expert network interview published by local authorities, as the regeneration increases the book value of the land, which raises tax revenue and lowers local government borrowing rates.
Countryside aims to increase its annual housing completions from the current rate of 4,000 to approximately 8,000 by 2023/4. It has a large pipeline of 40,000 units and previously invested in construction facilities that allow for modular housing design. Based on £250k average selling price per home, 15% operating margins, reduced share count after buyback to around 435m shares, and 25% tax, this implies EPS of approximately £0.50 or only a 10x forward P/E multiple. Assuming a normalized P/E of 15x (not aggressive for a business growing sales at 30% per year with 50% ROI) implies a share price of roughly £8, vs. £5 today, with plenty of room to continue compounding, provided the company executes. There is room for significant upside should the company prove effective at selling its story to investors (there is an investor day planned in November), leading to a multiple re-rating of the business. Still, we do not need this to happen for the investment to be a success.
As with all investment theses, there are some risks. First, homebuilders are subject to market cycles, albeit slightly less so in the case of Partnerships. Second, while Countryside certainly has competitive advantages over most traditional homebuilders, high ROIs will eventually attract competition. Finally, Countryside will likely suspend its dividend, which may lead to some shareholder turnover with dividend-focused investors. In keeping with my usual practice, and because the share price had run significantly from the December activist presentation to the 3rd quarter, I bought a starter position with plenty of room to increase size as the story unfolds.
I was wondering the extent to which the partnership division would be able to pass on higher build costs (labour, materials)? Worth noting that Vistry (LON:VTY) also has a growing partnership division and I think is a fair bit cheaper than Countryside Properties (LON:CSP) so that would be my preferred pick in this sector.
Hi Paul/Jack, interested to hear your thoughts on the Card Factory (LON:CARD) trading update today. Results look positive with LFL sales down only 3% from 2019. Seems footfall is still way down, however people are making bigger purchases per visit. Online is murky with no figures given. I know Paul is negative on the company due to the weak balance sheet, however a re-financing deal was agreed and net debt is being paid off a quite a clip. Share price remains significantly below pre-pandemic levels, could this be a buying opportunity? Previously this has been a cash cow. (currently i hold no position)
I went into my local Card Factory a couple of weeks ago for an In Sympathy card. The layout of the shop and the general impression that I got was one of a discount store, not one to get a quality card.
I have held shares but sold them a couple of years ago.
Now I see that share price has gone up 8%!
Perhaps its your username - have you thought about switching your username to "shares tank afer i sellem" that should do the job nicely.
Re £CARD
LFL 3% lower vs 2019 hides ave basket up +22% but transactions down 22%. Big and now sustained swing in purchase habits
That could be positive if (as I believe) much of the transactions will come back as footfall returns overall (ie some maybe city centre/commuter stores will be down, some maybe suburban up but net number of store-bought cards will only modestly be down vs 2019 by say 2023 ie when Covid is finally done (I hope).
What is is interesting is why basket size is up and what that means for long term margins. Have they bumped up and be able to retain the lower tiers of pricing - they sold a lot of cards at 39p that I always thought could stretch to 49p (+26% all to margin if volumes hold)? Or has this been done and volume has dropped. Or are they selling more non-card stuff again (which was not the strategy).
Good news on net debt - down £26Mn to £129Mn vs YA (on info supplied), suggesting the cash generation machine it used to be remains intact.
Yes it has missed the boat on online but it it is cheap, still dominates its market (digital cards remain a small part of market as even MoonPig says) and should steadily recover. It's competition (in physical cards) has been hit hard with many store closures and its vertical, integrated UK manufacturing cost advantage remains
The big issue depressing the price has always been the risk of a heavily discounted equity raise. What refinancing deal has been done? I cant see anything on the RNS recently. Have I missed something.
I hold
Card Factory (LON:CARD)
Zipmanpeter
The big issue depressing the price has always been the risk of a heavily discounted equity raise. What refinancing deal has been done? I cant see anything on the RNS recently. Have I missed something.
They temporarily kicked that can down the road -albeit they sp[ecifically mentioned raising £70 mill - its notclear toi me if excess cashflow might "partly" make the problem go away.
It has been one of the reasons i have stayed on the sideline - if they are forced to raise funds via isuing new shares and the shareprice is low at that time (or tanks when announced) the dilution could be very material along the lines of the revolution bars debacle. On the balance of probabilities i think they will probably find a solution that sorts the problem ok as long as trading in the meantime is "reasonably robust" - it is all slightly sketchy. In my head something around the 40-50p seems about a reasonable risk reward for me. Its easy to imagine a sceanrio where shareprice could go really low though if markey thinks they need to raise £70 mill in a hurry andthat needsto be done at "arm leg and two torsoes rates"
As you change is basket size is interesting - i would guess some of their customers only buy when prices are ridiculously cheap - so i could easily imagine decent price hike would put them back where thye were anyway with lower sales (one would expect they would have previously raised prices if they thought that would make them more) - it probably does get bods through the door.
Other interesting thing was recent mention of very poor card selection choices (someone said no football cards for young boys i think??) - makes one wander if they are thinking hard enough of the basics of giving the customers what they want? Who knows maybe flowers on cards will always sell more than a nice pic of Joelinton firing the ball into the stands yet again.
21 May 2021
The facilities are structured to incentivise an early reduction of overall debt with fees of up to £5m payable if pre-payments are not made in line with specified dates from 30 November 2021 through until 30 July 2022. Subject to prevailing market conditions and upon taking independent advice, the Company intends to use its best efforts to raise net equity proceeds of £70m to facilitate these prepayments. The Company is also permitted, under the terms of the facilities, to prepay £70m using funding from other subordinated sources.
Thanks - from your note, I seems I am up to speed on equity raise by £CARD : it is still out there as a need but with lessening pressure if they can get through Christmas in good order.
Re range - I recall their research always showed "Wide Range" to be the no 1 driver of consumer preference (in physical cards). and them having a big lead on the metric. With in house teams of designers and a lot of experience, I am sure they have football cards.
However, perhaps they should get into "collectible cards" (actually, not such a silly idea to drive footfall by parents to buy cards for their kids!).
A card of Joelinton putting one into the net could then be a naturally rare collector's item. :)
(I hold small and am tempted to punt more)
Morning! Paul in previous posts you have been rather sceptical on CYAN. Might you change this view?
abrdn has confirmed it's in talks to acquire Interactive Investor (as opposed to ii IPO plan) https://www.investegate.co.uk/... Good for the founders, but possibly not for the many ii account holders.
They'll probably rename it inneracInveshta.
my guess is "ntrctv nvstr"
Decent full year results for freight delivery company Dx (group) (LON:DX.) this morning.
https://www.investegate.co.uk/...
Finally returning to profitability after a few near death experiences following the heavily leveraged and, with hindsight, ill judged IPO a few years ago. Turnaround continues under new management team although I recall they had a heavily geared incentive plan when they took over which needs to be factored in to any valuation.
Gus.
Has anyone any thoughts on the ProCook IPO? to be floated with a valuation between £100-150m depending on demand which would apparently make it eligible for inclusion in a FTSE Index.
Interesting and little-watched interview with CEO who seems like a level headed guy, keen to continue to steer the ship and keep staff motivated. The list of those recruited to help is impressive. Reasons for flotation seem reasonable but have numbers been flattered by lockdown?
Closing for applications tomorrow Tueday 9th November.
When I mentined this IPO to Mrs Grumpy, she forcefully made the point that she thought their pans wore out far to quickly, and will not be buying them again!
Wary of ProCook having got burned on the Parsley Box (LON:MEAL) (no pun intended). Also had a look at the Trust Pilot ratings. Generally pretty good but a fair few complaints about the quality/price of some of the products and beef about poor customer service when attempting to return faulty goods.
Gus.
Was actually going the ask the same question! I've bought a fair amount of stuff from them, anything from frying pans, pots, plates etc. Everything has been great quality and the price has been decent as well, but obviously not as cheap as IKEA. A bit surprised to see some negative comments here, but then again I haven't had to get in touch with the customer services as I've had no problems.
I haven't looked into the IPO, but will definitely follow to see if it's worth investing once it's trading publicly. It always feels better to invest in a company that I buy products from!
And another point, after having had a brief look at the prospectus, they appear to be raising no new money for the company at all. I don't like that.
ProCook was discussed last week on the SCVP, if you do a search, you should find the posts.
What is SCVP please? A quick online search returned Society for Cardiovascular Pathology (which I'm guessing is nothing to do with stocks and shares or cooking).
Should that not be SCVR...........Small Cap Value Report
Sorry SCVR, Small Cap Value Report
https://www.stockopedia.com/co...
Cakebox Cake Box Holdings (LON:CBOX) Interims were out this morning. no suprises but continues to look good and tasty profits