Good morning!

Conviviality Retail (LON:CVR)

Preliminary results for the year ended 27 Apr 2014 have been issued this morning. In my opinion the shares look moderately interesting. It's not a great business, being budget off licences, but I do like their franchise model, since stock loss is always going to be a huge issue in this sector - therefore making the operators of the shops responsible for their own P&L is probably the best option. That removes all the headaches, and just means that CVR can sit at the centre, making a small but safe profit margin supplying the product.

The figures below are based on the current share price of 164p and 66.7m shares in issue = market cap £109.4m

Positives

  • Very good dividend yield of 4.9% (8p for the year)
  • 12.5p adj EPS came in ahead of expectations of 11.3p, for a reasonable PER of 13.1
  • Sound balance sheet with £ 10m net cash
  • Shrewd shareholders (HH, Henderson, Miton together own 32%)
  • Debt now cleared, so finance charge should largely disappear in future

.

Negatives

  • Probably limited growth opportunities?
  • Low operating margin
  • Competition - especially from supermarkets
  • Possible threat from Govt - minimum price per unit?
  • Wide bid/offer spread - 7p, or 4.3% quoted spread
  • Rick of franchisees sourcing their own illicit supplies?

.

So overall I think it looks potentially interesting to buy for the divis perhaps? Although there are large caps available which pay 5% divis, so it might make more sense to go for them if it's income you're after?


Plastics Capital (LON:PLA)

This is a small group of niche plastics businesses. I like the business, but think management are stretching credibility somewhat by over-using the word "major" in today's announcement, e.g. "Major bearings projects update" is the heading, followed by "major design project", and "major commitment from a tier one automotive manufacturer", "this major project win..", "conversion of these major projects...".

Come off it chaps, the contract announced today is only £0.5m p.a.! Sorry, but that's not major at all, in the context of a group with forecast turnover of £36.1m this year. So perhaps the RNS writer should have a bucket of cold water thrown over them before they sit down to write these things!

Still, the company does talk of other similar sized projects in the pipeline, so that opens up the possibility that the company might beat forecasts. I saw one broker note…

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