Small Cap Value Report (Thu 10 June 2021) - DFS, BEG, IGP, CARD, ERGO, HRN

10th Jun '21 by Paul Scott

53 comments 9924 reads

Good morning, it's Paul & Jack here, with the SCVR for Thursday.

Timing - we've covered 6 companies, and don't want to overload you, so that's it for today. We were going to look at SPE and NXR but they don't seem to have moved much in price, so there's less of a rush to report on them.

Agenda -

Paul's Section:

Dfs Furniture (LON:DFS) - very impressive Q4 order intake, and crystal clear guidance for what's turned out to be a year of bumper profits for FY 06/2021 - who would have thought that outcome would happen, this time last year?!

Notes from my briefings yesterday with Begbies Traynor (LON:BEG) (I hold) and Intercede (LON:IGP) (I hold). I'm pleased with progress at both companies, and see them as good long-term holds, probably priced about right for now.

Card Factory (LON:CARD) - I have a proper rummage through the FY 01/2021 results - which to be fair are not as bad as I feared - thanks to massive taxpayer support. Stretched balance sheet badly needs the £70m equity fundraise that the company has agreed with its banks to do on a best efforts basis. Overall, I think risk:reward looks unfavourable. I'll look at it again once trading (not very impressive since re-opening) has stabilised, and the £70m placing has been done. Until then, for me it's an avoid. Why take the risk? £225m mkt cap looks full, for a highly indebted retailer with limited online progress.

Jack's Section:

Ergomed (LON:ERGO) - strong trading momentum continues, with FY adjusted EBITDA to be 'materially ahead', although existing forecasts appear to be conservative based on historic growth rates.

Hornby (LON:HRN) - revenue growth of 28.3% in a Covid-disrupted year is creditable and the company is investing for growth, but a fair amount of further recovery is already priced in.

Paul's Section

Dfs Furniture (LON:DFS)

272p (pre market open) - mkt cap £703m

Trading Statement

Ahead of its financial year end on 27 June 2021, DFS Furniture plc ("DFS" or "the Group"), the UK's leading retailer of living room furniture, provides the following update on recent trading through to 6 June 2021.

Strong trading performance and outlook, with fourth quarter order intake to date up 92.1%…

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Paul Scott

10th Jun '21

Sure, you can look at dilution either way, there's no standard format.

I like to see how much the share count is being increased by, so that's the figure I used in the report above.

In my view, brokers like to show the % of total enlarged shares in issue from a placing, because it makes the dilution appear less severe!

EDIT: you got me thinking, Jonathan, so I've just worked out how much EPS would fall by, for a 31% enlargement of the share capital. That would result in a 24% drop in EPS, so I'm now leaning towards your way of looking at dilution, because it shows how much EPS would drop by in % terms. Thanks for flagging this point!

Equity Development

LON: BEG good summary as always, Paul

For those who missed it live , here is link to recording (including investor Q&A) :

https://www.equitydevelopment....

Kaboom

Very fair, apologies... but RPI is running at 2.5% currently and inflation of their components perhaps 10 times that, without being sensational.

However to be balanced, with imported sofas facing the same inflationary pressures and ocean freight issues, maybe clients will pay the increases to get what they want in time. After all, they won't be having their 2 weeks in Benidorm in the near future, so will have cash to splash!

gus 1065

Wondered if there were any thoughts on the formal offer made by management for Cambria Automobiles (LON:CAMB) that came out late yesterday afternoon? (and in particular the alternative being offered to the 80p cash offer). Here’s a post I logged on yesterday’s SCVR that might have slipped through the net.

——————————————-

“Details of the Cambria Automobiles (LON:CAMB) MBI emerged late this afternoon.

https://www.investegate.co.uk/...

In addition to the previously flagged recommended cash offer of 80p a share there is also an alternative (with strings attached) that will allow investors to convert into shareholders in the bidco. The strings are, at least, that the conversion shares are non-voting and limited to not more than 20% of the new share capital of bidco. Also the new shares will not be listed/readily tradeable (at least initially). At face value it’s not an especially attractive alternative but there may be more to it when full details emerge.

Gus.”

Thanks for the link to the BEG presentation, Andy.

I've embedded the Begbies Traynor (LON:BEG) video into the main article above now.

Regards, Paul.

timarr

There are 7 different ways of reading these comments of which 4 are not threaded. If you choose to read a threaded version please say which company you are referring to so that all readers will know.

While agreeing it's irritating, if you're going to make this request you'll end up doing it every single day and often several times a day.

My view is that if people can't be bothered to add the company they're referencing then I can't be bothered to click through to find out what they're talking about. As said company is of no interest to me 99% of the time I've found this a highly satisfactory solution.

:-)

Lion Tamer

Re: adding a subject line to posts

Last September I used the green blob to suggest an optional subject field in the input box for discussion post replies. It was not taken up, I suspect this is due to mine being a lone voice and so not given any priority. Shame because I end up skipping so many comments on this board because life is too short and it is too much hassle to find out what it being discussed.

bryans1311

"Scs (LON:SCS) Dfs Furniture (LON:DFS) (I don't) & Dunelm (LON:DNLM) (I hold)

No-one seems to be talking about the elephant in the room - Inflation."

Well the room will need a pretty large sofa then, won't it?

Sorry...

ACounsell

Cmc Markets (LON:CMCX) results did indeed look very good and well ahead of consensus expectations shown in the Stockopedia Stock Report. The reaction of the market in terms of share price was muted with little change. Perhaps the market wasn’t convinced by the bullish outlook believing instead that once the pandemic is over CFD trading and the like will revert to a more normal level. I guess we will have to wait and see.

RE: Cmc Markets (LON:CMCX)

The reaction of the market in terms of share price was muted with little change. Perhaps the market wasn’t convinced by the bullish outlook believing instead that once the pandemic is over CFD trading and the like will revert to a more normal level. I guess we will have to wait and see.

The outlook section in the results states that income next year will be "in excess of £330 million" which is potentally a lot less than the £409 million reported today.

Harry Hindsight

What is the fixation with Card Factory (LON:CARD) and Dfs Furniture (LON:DFS) - we want GLOBAL Britain and sofas and paper posted items are not on my SIPP portfolio - neither is watching the Chase.

I don't have three hours in the morning to sit watching a spread bet screen. And if I did it whilst 'working from home' then both the paid capital inputting into the account and the working capital which will be reducing by 20% will eventually make me lose my job and destroy my capital.

That said if I had the time the day trading with a nice pot would be great fun. But need great focus and experience.

So all the spread/cfd/fx cos may struggle when people may have to go out to er 'work' for a living. Lifes tough.

Sorry Cmc Markets (LON:CMCX) Plus500 (LON:PLUS) Ig Group (LON:IGG) Aj Bell (LON:AJB)

Which, unsurprisingly, is why people 'working from home' don't do that. Anyway, we're all far too busy.

The main driver of spreadbetting revenue is market volatility, boosted by the general issue of zero interest on savings which has pushed people into more risky investing - the stockbrokers are also seeing record revenues. Unsurprisingly the pandemic has driven volatility and that's seen spreadbetting revenues soar.

As and when volatility subsides and interest rates rise so will earnings, but as Cmc Markets (LON:CMCX) suggested this morning they'll probably normalise at levels significantly higher than pre-pandemic times albeit lower than where they are today.

In general the spreadbetters are an easy trade - buy on volatility, sell when markets go flat. But they'll always be cheap due to the constant drumbeat of regulation in the background.

KevinS1

Cap Xx (LON:CPX) - my 30 second look says;

- Continually issuing new shares

- Never made a profit

- Z score zero

- Bankruptcy risk - huge

- plenty of debt

- virtually no cash

- a stock rank of 4 and a Quality score of zero!

etc etc

Good luck with this one.................I'll keep hold of my money thanks.

Avon Rubber (LON:AVON) - surely there is some demand for their offering.

andywillz94

From my limited experience, CMCX Share price always lags behind (more so than its competitors). it'll tick up in price slowly but surely over the next 10 years and pays chunky dividends. the threat of regulation means this isn't an exciting share, but im happy to tuck it away with my other long term, dividend paying beauties.

11th Jun '21

From my limited experience, CMCX Share price always lags behind

Not recently it hasn't.

If we look at the performance of the spreadbetters since the March 18th 2020 pandemic inspired bottom:

Cmc Markets (LON:CMCX) up 498%
Ig Group (LON:IGG) up 39%
Plus500 (LON:PLUS) up 81%

The best of the brokers is Jarvis Securities (LON:JIM) which is up 189%.

Cmc Markets (LON:CMCX) has massively outperformed its peers - which I certainly didn't see coming. On the other hand it was clearly undervalued pre-pandemic, so the outperformance is partly a reaction to this, although its figures have been extraordinary:

2019 was where ESMA really hit, showing the potential impact of regulation. On the other hand they were already recovering pre-pandemic. Now they expect net operating income of at least £330 million this year, presumably assuming market volatility normalises.

Frankly, with figures like these trying to forecast is a triumph of hope over expectation. In the absence of punative regulation or unforeseen unhedged losses they'll probably carry on doing OK. But neither of those risks is completely negligible.

On the other hand, if volatility rises then they'll probably beat this year's numbers ...

Bonitabeach

GLOBAL Britian

I too want Global Britian but I think we shall have to make do with Card Factory (LON:CARD) and Dfs Furniture (LON:DFS)and our children riding bikes for Deliveroo: LON: ROO or Dominos Pizza (LON: DOM) .

Go West young man for the likes of Square (NYQ:SQ) or KLA: (NSQ:KLAC): you won't find it in Global Britian!

Disclosure: Long Square (NYQ:SQ) and KLA: (NSQ:KLAC) .

peachy47

12th Jun '21

Oh how right you are Card Factory. Management have a lovely philosophy of paper to customer card production but they have squandered their capital on rolling out shops and ignoring online presence and advertising. Shame.

Small Cap Value Report (Thu 10 June 2021) - DFS, BEG, IGP, CARD, ERGO, HRN

Paul's Section

Dfs Furniture (LON:DFS)

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Paul Scott

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