Small Cap Value Report (Mon 9 July 2018) - PKG, KBT, MGR, XPD, NBU

Monday, Jul 09 2018 by

Good morning,

I'm slightly sunburned after a weekend which included BBQ & watching the football outside. Well done England!

Of interest today are:

Park (LON:PKG)

  • Share price: 73.25p (+1%)
  • No. of shares: 185.6 million
  • Market cap: £136 million

Park Group Wins New Retail Contracts

(Please note that I currently hold PKG shares.)

An encouraging RNS from this Christmas savings, gift card and voucher business.

I own shares in this and view it as a conservative holding. It has a bunch of attractive features: highly cash generative, low capex requirements, a rich history, a couple of recognisable brands ("Love2shop" and, and a strong balance sheet.

It offers a hedge against interest rate increases, too (since it holds a very large cash balance on behalf of customers, though I think this needs to be balanced against the reduced High Street spending which could result from higher interest rates).

The only thing it's lacking is growth, and this is why it remains a fairly small holding for me. I don't see its valuation changing dramatically unless its new CEO and the wider management team find growth levers somewhere.

Today's news does offer some hope that they might be able to do this. Four retailers have agreed to accept Park's Love2shop vouchers, including Arcadia (owner of Topshop, Topman and Miss Selfridge).

In addition, Fat Face is joining Park's prepaid card scheme, "flexecash".

The CEO comment is optimistic for the future:

"Love2shop' is already the nation's number one multi-retailer voucher, but these exciting new retail collaborations will open up new, or strengthen existing markets for us, as well as expanding our retailer base...
"Arcadia Group brands are visible on nearly every UK high street or shopping centre, so this is a major new signing for our business and really boosts the opportunities for our customers and clients across the UK."

My view

Park's vouchers are already widely accepted, so there is a natural limit in terms of how quickly their distribution can spread from the…

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All my own views. I am not regulated by the FSA. No advice.

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Park Group plc is a multi-retailer gift voucher and prepaid gift card business, which is engaged in delivering rewards and prepaid products to the consumers and corporates in the United Kingdom. The Company focuses on consumer prepayments and corporate reward and incentive programs. The Company's segments include consumer and corporate. The consumer segment includes the Company's sales to consumers, utilizing its Christmas savings offering. The corporate includes the Company's sales to businesses, offering primarily sales of the Love2shop voucher, flexecash cards and other retailer vouchers to businesses for use as staff rewards/incentives, marketing aids and prizes and all online sales. Love2shop is the multi-retailer gift voucher and prepaid gift card, accepted at over 140 retailers with approximately 20,000 stores in the United Kingdom. It offers flexecash, which is its information technology infrastructure. Its Park Christmas Savings Club operates through a network of agents. more »

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K3 Business Technology Group plc is a provider of integrated business solutions. The Company's business solutions encompass Enterprise Resource Planning (ERP) software, Customer Relationship Management (CRM) software, Business Intelligence and e-commerce, hosting and managed services to the supply chain sector. The Company's segments include Retail, and Manufacturing and Distribution. The Company's offerings to manufacturers and distributors comprise SYSPRO, Sage, and Microsoft Dynamics AX and Microsoft Dynamics NAV solutions. The Company's ax l offering is a retail and wholesale solution. The Company's products include modules for CRM, planning and scheduling, warehouse management, pallet management, data integration, payroll and human resources (HR). The Company operates from various locations in the United Kingdom, the United States, Holland, Singapore, Denmark and Ireland. The Company's subsidiaries include K3 BTG Limited, K3 Business Solutions Limited and K3 CRM Limited. more »

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Miton Group plc, formerly MAM Funds plc, is an investment management company. The Company provides fund management services. Its funds are invested in a range of asset classes under various investment mandates, including multi-asset, equity and portfolios of collective investment schemes. Its product range includes equities, such as CF Miton UK Multi Cap Income Fund and FP Miton Income Fund; multi-assets, such as CF Miton Cautious Multi Asset Fund and PFS Miton Cautious Monthly Income Fund; fund of investment trusts, such as CF Miton Worldwide Opportunities Fund, and closed-end funds, such as The Diverse Income Trust plc and Miton Global Opportunities plc. Its subsidiaries include Miton Group Service Company Limited, which is a holding company and central services provider; PSigma Asset Management Holdings Limited, which is an intermediate holding company; Miton (Hong Kong) Limited, which is a marketing company, and Miton ESOP Trustee Limited, which is a trustee company. more »

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

29 Comments on this Article show/hide all

Graham Neary 9th Jul '18 10 of 29

In reply to post #380639

Hi ricky, you'll see that I referred specifically to managed services being low margin! If I wasn't clear enough in the report, I apologise.

For H1:

KBT software gross margin is 71.7%, within which its own IP margin is 94%.

KBT services gross margin is 27.9%.

When you subtract the overhead costs, adjusted profit in services is £2.2 million from £32.4 million of revenue.

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ricky65 9th Jul '18 11 of 29

In reply to post #380649

Thanks for the clarification Graham.

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sharw 9th Jul '18 12 of 29

With regard to IQE (LON:IQE) today's announcement is NOT an RNS - it is an RNS-R or 'Reach' announcement.

Forgive my repeating here what I said last Thursday but we really do need to learn the difference. Reach announcements are more profile-raising and do not contain material that is financially sensitive.

The problem is that on most systems delivering RNS the difference is not obvious. On investegate it is indicated by a dark grey rather than black background to the white letters RNS and that may or may not be visible depending on your screen quality/size/contrast. Here on Stocko there is no indication at all. The only obvious place is LSE itself:

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FREng 9th Jul '18 13 of 29

Recently, replies to comments have been displayed as a reply to a large number rather than as a reply to a numbered posting in todays SCVR. Like this "In reply to post #380604"

Is this caused by my browser settings? Or is everyone seeing this?

I much prefered the old style, so if anyone knows how I can get it back I'd welcome enlightenment.

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Aislabie 9th Jul '18 14 of 29

This is apparently deliberate. There was some reference to it in an Ed Croft note that I cannot now find.
I would agree that it is unhelpful and unnecessary

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Trident 9th Jul '18 15 of 29

I have always found that companies that issue contract RNS's are to be suspected of fluffing up interest when real performance isn't that great, unless they state the contracts are of material value, or represent some core achievement of a unique KPI that indicates a new market gain.

I admit my perspective is a sort of damned if you do, and damned if you don't position, as many private shareholders in the IQE (LON:IQE) type stocks crave information, even though in most instances it rarely tells you anything about actual Company performance.

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Trident 9th Jul '18 16 of 29

In reply to post #380719

If you click on the numerical reference, it brings up the original post plus the reply. Probably could be more apparent in the cross-reference that this is the case.

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Lion Tamer 9th Jul '18 17 of 29

In reply to post #380734

Recently, replies to comments have been displayed as a reply to a large number rather than as a reply to a numbered posting in todays SCVR. Like this "In reply to post #380604"
If you click on the numerical reference, it brings up the original post plus the reply.

I too find the simple numeric numbers (e.g. post 15 of 16) easier to hold in my head so I can spot the replies without the bother of clicking the link every time. On a PC this simply saves a few seconds, but on the small screen of a phone the larger pop-ups without scroll bars are frankly a pain. For these reasons I usually end up not bothering to click the links, and so often don't get the context of the replies I read (especially if there is no reference to the preceding comment or company bring discussed).

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Graham Neary 9th Jul '18 18 of 29

In reply to post #380659

No worries ricky! G

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clarea 9th Jul '18 19 of 29

In reply to post #380659

Hi Ricky,

Good to see you still posting here, did you ever get round to writing up your trading story ? absolutely no issues if the footie, sun and bbq's have seemed a better way to spend your downtime.



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clarea 9th Jul '18 20 of 29

In reply to post #380644

Thanks for the review on Xpediator (LON:XPD) Graham,

I'm finding my way round Stocko, re the margin of safety stats out of interest at what numeric level would the metrics shown in these three stat's start to make you wary,

Would also just like to add thanks for sharing your knowledge you can tell yourself and Paul live and breathe this stuff, how you both manage to get through 5-6 companies per day in detail never ceases to amaze me.

Regards Andy

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jonesj 9th Jul '18 21 of 29

There are an awful lot of companies with significant Chinese operations also listed in Singapore. I remain wary.

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ricky65 9th Jul '18 22 of 29

In reply to post #380764

Hi Andy,

Thanks. I haven't forgotten about it! Sadly it got put on the back-burner. I was having doubts whether it's something people on here would find value in. If you're interested, in the next few days I can send you a draft and you can let me know what you think.

Best wishes


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Graham Neary 10th Jul '18 23 of 29

In reply to post #380769

Hi Andy! In a normal situation where I was strongly considering a purchase I would ideally look into each of these margin of safety stats in a bit more detail. For example, broker targets are usually very optimistic, but in the case of a mature and high-quality stock which is not a client of theirs, they can be pessimistic. So I would think about it on a case-by-case basis. Most of XPD's margin of safety stats say that it's overvalued (hence all the red), so my base case assumption is that it is probably overvalued. More detailed research might be able to show that this is wrong. Hope this helps!


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GavinT 10th Jul '18 24 of 29

In reply to post #380779

And Malaysia for that matter - I can confirm that they are like their British brethren, mostly fraudulent!

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dfs12 10th Jul '18 25 of 29

whoops posted on the wrong report. sorry

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clarea 10th Jul '18 26 of 29

In reply to post #380859

Thanks Graham, the site is truly stacked with nuggets of information.

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clarea 10th Jul '18 27 of 29

In reply to post #380784

Hi Ricky just sent you private message

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jonesj 10th Jul '18 28 of 29

In reply to post #380719

The in reply to post #380604 part would be almost tolerable if the post number was shown alongside each post. However, it is not, so I don't know which post anything is in reply to.

Guess who I am replying to ?

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penchrise 12th Aug '18 29 of 29

c’mon now lets gets back to the ptevious regime, the post number system is not intelligible

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

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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