Small Cap Value Report (Part 1) - Thu 25 May 2017 - FEVR, RBG, EHG, BLV, MMX, BOOT, FLO, REDX

Thursday, May 25 2017 by
92

Good morning! It's Paul here.

I'm meant to be having a day off today, concentrating on moving house. However, I've done my usual morning scan of the RNS, so thought I'd put up some brief comments. Graham is planning on doing some more in depth reporting later today.


Founders cashing in

The list is growing of companies where founders are cashing in significant portions of their stakes. Coming after huge moves up in share prices, this is another sign that the market for growth companies is clearly getting toppy.

Actually, I think we're possibly now into the final, "euphoria" stage of a bull market. Whilst that may sound alarming, this is also a time when fortunes can be made. The trick is obviously to cash out before the market eventually corrects, or crashes.

Off the top of my head, I can think of £G4M and Purplebricks (LON:PURP) (both of which I hold personally) where Directors have taken a fair chunk off the table. Yesterday Directors of Keywords Studios (LON:KWS) did the same.

Today it is Fevertree Drinks (LON:FEVR) - a founder Director Charles Rolls intended to sell 2.5m shares, but "due to significant institutional demand" (lol!) he ended up kindly selling them 4.5m shares, but took a haircut on price - selling at 1625p per share. That's £73.1m he's banked - not bad going! Mr Rolls still holds 12.9m shares though, so still has acres of skin in the game.

Should we begrudge Directors taking advantage of an extremely buoyant market, and cashing in some chips? Possibly not - I'd probably do the same in their shoes. However, when you see Directors cashing in at many companies, then it clearly points to a market that is expensive. If there are willing buyers though, then maybe these share prices could go even higher? In some cases I suspect we might already seeing the "greater fool theory" in play.

As regards Fevertree Drinks (LON:FEVR) I briefly bought some for my Stockopedia portfolio, Beam Me Up Scotty, but got cold feet after the last trading update. For me, the bull case rested on the likelihood that broker forecasts look far too pessimistic (as has proven the case historically).…

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Fevertree Drinks plc is a United Kingdom-based holding and investment company. The Company is a developer and supplier of premium mixer drinks. The Company's premium mixers consist of a range of all natural carbonated mixers, including Tonics, Ginger Ale, Ginger Beer, Bitter Lemon and Lemonades. The Company sells a range of products under the Fever-Tree brand, which include Indian Tonic Water, Naturally Light Tonic Water, Elderflower Tonic Water, Mediterranean Tonic Water, Ginger Ale, Ginger Beer, Naturally Light Ginger Beer, Bitter Lemon, Sicilian Lemonade, Lemonade, Spring Soda Water and Premium Cola. The Company caters to hotels, restaurants, bars and cafes, as well as supermarkets. The Company sells its products to a range of markets, such as the United Kingdom, Europe and North America. more »

LSE Price
2358p
Change
1.3%
Mkt Cap (£m)
2,703
P/E (fwd)
36.4
Yield (fwd)
0.8

Revolution Bars Group plc is a United Kingdom-based operator of bars. The Company has a trading portfolio of approximately 60 bars located predominantly in town or city high streets, which operate under the Revolution and Revolucion de Cuba brands. The Company's bars focus on a drinks and food-led offering, and typically trade from late morning, during the day and into late evening. Revolucion de Cuba bars are characterized by their 1940s Cuban-inspired style, with dark woods, traditional bar counters, antique tiles, vintage furniture, Havana-style ceiling fans, and original Cuban artwork and photographs. Its bars are located in various places, such as Cambridge, Ipswich and Norwich in South East; Bath, Plymouth and Southampton in South West; Birmingham, Derby, Leicester, Loughborough and Milton Keynes in Midlands; Cardiff and Swansea in Wales; Blackpool, Chester and Huddersfield in North West; Sheffield, Sunderland and York in North East, and Edinburgh and Glasgow in Scotland. more »

LSE Price
66.2p
Change
-0.8%
Mkt Cap (£m)
33.4
P/E (fwd)
9.5
Yield (fwd)
7.9

Elegant Hotels Group plc is a holding company. The principal activity of the Company and its subsidiaries is the ownership and operation of hotels and restaurants on the island of Barbados. It owns and operates six freehold beachfront hotels and a beachfront restaurant in Barbados. Its hotels include Colony Club, Tamarind, The House, Crystal Cove, Turtle Beach and Waves. It operates Daphne's restaurant, which is located on platinum West Coast in Paynes Bay, adjacent to The House and Tamarind in Barbados. Its Colony Club hotel is spread across six acres of tropical gardens with approximately 300 feet of beach frontage on the Caribbean Sea and lagoon style pools. Its Tamarind hotel is on the Platinum Coast. Its Crystal Cove hotel has three freshwater lagoon pools, two restaurants, two bars, two floodlit tennis courts and a fitness center. Its Turtle Beach property is on the south coast of Barbados. Its portfolio consists of over 550 rooms. more »

LSE Price
70.5p
Change
 
Mkt Cap (£m)
62.6
P/E (fwd)
6.9
Yield (fwd)
5.1



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


74 Comments on this Article show/hide all

jamesoldring 25th May '17 55 of 74
5

Paul,

Just a note to echo many of the sentiments above - you have absolutely nothing to apologise for. As a very small scale private investor, I find your reports easy to digest, comprehensive and I genuinely enjoy reading them. They do most definitely help shape my opinions on small cap companies, but ultimately I am responsible for my own decisions regarding which companies I invest in. Sometimes I do a little more research, and decide a company you like is not for me - and sometimes I've missed out on significant returns, other times I've dodged a bullet.

However, overall you have helped me put together a profitable SIPP, which is returning far, far more over the last few years than any of my other, institutionally managed, pension funds. And what's more - I've really enjoyed doing it.

So - no apology EVER necessary. You provide your own opinions, and it's up to me to decide whether I agree or not. I also hugely respect the fact that you put your money where your mouth is, and back your own judgement financially.

Thank you - and please do keep up the great work, it's much appreciated.

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Carey Blunt 25th May '17 56 of 74
3

In reply to post #188889

Amen about the fact that stocko doesn't run a low quality discussion board.

I would cheekily suggest that with Revolution Bars (LON:RBG) , Paul and others (including myself) seem to have forgotten the wise words Ed put out in "the anatomy of a profit warning". So far it's following the pattern that was suggested almost perfectly.
This suggests we have at least 18 months to wait to get our money back, I'm not sure I have the patience.
Cheers
CT

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barnetpeter 25th May '17 57 of 74

Actually I don't think there are many saying much about Paul at all....maybe one or two max....and he has a lot of support even from those who are way down on the stock. Cannot get them all right.

I am a bear and see 80p or lower.

Not sure I accept the reasons given.....feeble excuses. I reckon things are very bad here in fact. If RBG is actually going to make a loss what then? It has few assets to back up a 60 million mkt cap.....just a few leases that may look expensive in a year, a lot of liabilities and so on. A competitive market with more and more "offers" around.

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Matthew Stevens 25th May '17 58 of 74
2

Paul,

After a couple of years when my portfolio floundered, I personally can't thank you enough for the informative views you provide. Of course, like most of us I don't always get it right! Indeed the losses I'm currently nursing are legacy (pre-Stockopia days). However, a combination of your research, applying and constantly revising stop losses has helped turn things around.

Indeed I was so disillusioned with investing, I'd have happily given the lot to a fund manager for ten years. You've stopped that, I now trade less and make more. Thanks

Hope the move goes OK.

Matthew S

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Paul Scott 25th May '17 59 of 74
4

In reply to post #188809

Hi TMFMayn,

Wow! That must have taken you ages to pull together all those stats on BMUS!
Thanks though, it's really interesting.

The reason that BMUS has done a 200% gain in 2 years is simple - I concentrated the money into the big winners. There's a certain amount of luck involved in that.

So the losses were small percentages. The big winners like BOO, G4M and AVS were pretty big holdings. That's the trick, I think.

It's no good putting 3% into everything. I think, to out-perform, you have to put 20% into the best 3 or 4 ideas.

I can't see any point in doing it otherwise.

Regards, Paul.

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Andrew niven 26th May '17 60 of 74

Elegant hotels have just purchased treasure beach hotel on the west coast this is after they bought waves last year.
They now own turtle beach on the south coast, colony club, crystal cove, and tamarind on the west along with the other two, making them the largest hotel owners in barbados.

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jonesj 26th May '17 61 of 74
2

I suppose the bulletin board trolls miss the point that it is also possible to make good money by selective investments led by Paul's ideas, with additional due diligence. That would be their loss.

My Boohoo holding is showing as +784% currently. I have top sliced a couple of times.
I almost doubled my money on Purpllebricks, but seem to have sold out too soon.

There are a couple of minor losses, but since Boohoo is up so much, it would need 100% losses of 7 similar sized positions to drag me back to break even. The magnitude of the upside is important. Actually even Paul himself often refers to the percentage of winning trades, when the upside on the good ones is at least as important.

I still say the way to deal with non-constructive trolls is to ignore the boards on which they reside & kick them off this one.
Anyone who has constructive logical ideas for or against the investment proposal should be welcome. Those who are purely critical without adding any reasoning just waste time.

As for myself, when I do see an attractive opportunity like Boohoo, I need to check it out more carefully & then take a bigger position & be slower to top slice.

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xcity 26th May '17 62 of 74
1

Revolution Bars (LON:RBG) - I never bought this having a deal of scepticism about the industry from an investing viewpoint. Despite reading everything Paul wrote, and thinking it is probably another one that got away as it kept on rising. I haven't formulated a view on what to do now either. The interview with Paul suggested a reality that has proved inaccurate. They should have known. Maybe they did and were hoping it would turn round. Maybe they didn't. Dishonest or incompetent? Did they all know the same things, or just the FD. Was the pious act about FD leaving just an act by one or both?
I don't know the answers so I can't work out a buy price. I assume that the operational gearing statement from Numis is wrong with - it would be uninvestable if true. If it is anything like true, I can see why the PE sellers left it without gearing. The historic cash flow must be fairly accurate; might have created a few future skeletons though stated policies suggest not. But a lot of adjustments to profit figures, but and that always suggests things have been made to look better than they are. The report of them opening a bar, finding it uneconomic and closing within a year worries me too: it means a low level of confidence that planned openings means profit growth; could be losses.

Paul - I always read and value your columns. I don't mind if your opinions are right or wrong (though I hope they are right enough to keep you going). We all get things right, we all get things wrong. I highly value your comments which often point out things not said elsewhere and do it usually in a very timely way. I have no problem with days when you don't comment because my opinion doesn't depend on them; very useful when I have them but happy to trundle on happily enough when I don't.

I agree completely about the importance of position size. I'd find it interesting if you could comment on your BMUS decisions on position size. In this column, you mostly refer to a small starter and putting more in as you become more comfortable.

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Hedgecutter 30th May '17 63 of 74
2

Hi Paul,
Back in your report for 16 November 2016, you predicted correctly that Eagle Eye (£EYE) would need an injection of cash at some stage to sustain it's growth and it might then be an interesting investment following a successful fund raising. This has now happened (see last week's news) and I wondered if you now had a view on it's prospects. I have made a second small investment following the announcement.
Regards and thanks,
Nick

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Bournville2004 3rd Jun '17 64 of 74

Paul,
No apologies needed.
You got me into Boohoo at 39p!
Am staying long with RBG.
Regards and Thanks

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Paul Scott 3rd Jun '17 65 of 74
1

In reply to post #189619

Hi Hedgecutter,

Yes, I was reading up on Eagle Eye Solutions (LON:EYE) recently, as it was featured in SCSW, with a positive article about the outlook.

The valuation looks very aggressive to me. However, we're in a bull market, and the company does seem to have quite exciting potential, and with big name, real clients, already using its electronic vouchers system.

SCSW say the exiting upside could come from potentially ASDA turning into a Walmart contract. Plus upside from transactional-based revenue streams, e.g. from product promotions.

On that basis, I've opened a small long position in the share. As you say, it now has cash in the bank to fund losses for now. There seems to be a lot of optimism around the company.

It's not the usual thing that I would touch in normal markets, but as we're in a roaring bull market, then jam tomorrow shares can explode upwards. The trick is obviously selling out before the market turns, and they all come back down again! So speculative, but interesting, I would say.

Most people like a little fizz in their portfolios!

Regards, Paul.

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Hedgecutter 3rd Jun '17 66 of 74

In reply to post #191014

Thanks Paul for looking into EYE. I don't have access to the SCSW, so hadn't made the Walmart connection, but if that were to happen, the impact on the company's future and share price would be pretty enormous.
I am sure you are right to point out the potential for the SP to be "pumped up" and then to burst at the first negative news. Let's see how it goes and prepare the parachute!

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Edinburgh Investor 4th Jun '17 67 of 74

Regarding Elegant Hotels (LON:EHG) I stayed at their Crystal Cove hotel two years ago, as we had access to all the Hotels in the group we had a good look around all of them on Barbados (not including Waves). I would definitely say the Hotels were in decent condition and if we ever went back we would stay there. I didn't realise they were listed until Paul mentioned them in a previus small caps report, I'm now watching closely. It may also be a good way to play a recovery in the pound.

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herbie47 25th Jul '17 68 of 74
1

Fevertree Drinks (LON:FEVR).  "For me, the bull case rested on the likelihood that broker forecasts look far too pessimistic (as has proven the case historically). However, the last update indicated the company is "comfortably ahead of current market expectations".

Sounds like they were being modest, today's interims are way ahead of forecasts. I also sold out after the previous update but I'm back in this morning.

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vik2001 25th Jul '17 69 of 74
1

RBG is also up today. broker finnCap currently have a GBX 180.00 target price on company and have upgraded to a buy rating.
I bought some this morning as I was waiting for the share to turn towards a bullish direction before I got in.

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hayashi22 25th Jul '17 70 of 74

In reply to post #201823

Which stock herbie?

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herbie47 25th Jul '17 71 of 74

In reply to post #201831

Sorry that was Fevertree Drinks (LON:FEVR).

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hayashi22 25th Jul '17 72 of 74

Wish I had some. Looked at them so many times and thought too expensive.But there again I do have plenty of BOO-some from below 30p. Perhaps if I was a G&T man -but prefer real ale and red wine.

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Ramridge 25th Jul '17 73 of 74

In reply to post #201823

Herbie47 - Re Fevertree Drinks (LON:FEVR) I agree today's HY results tell me that they will almost certainly exceed broker forecasts. I bought back too after selling out last year.
Key performance metrics are not looking too outrageous when you consider adj. eps growth of 106%
- PE 52 ; PEG 0.5
- ROCE 35%
- FCF/ Sales near 20%
- 130% operational gearing
- no debt; surplus cash £47m

On the other hand, I suppose a P/S = 13 is a little toppy, but it has come down from 19.7


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herbie47 25th Jul '17 74 of 74

In reply to post #201843

I'm drink the same but don't have any shares in real ale. Yes Fevertree Drinks (LON:FEVR) always look expensive but growth is still there that's one lesson I have learnt in the last year.

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 Are LON:FEVR'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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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