Small Cap Value Report (Thu 12 Sep 2019) - TUNE, COM

Thursday, Sep 12 2019 by

Hi, it's Paul here.

This is the placeholder for Thursday's reader comments.

Estimated timings for today's report: as usual this week, I'll be writing mainly from late morning, until estimated completion time of 5pm.

To get the early birds started, here is the link to yesterday's completed report, which I think had some useful & interesting stuff in it, including reader comments, which early risers might have otherwise missed.

Focusrite (LON:TUNE)

Share price: 530p (up 6.4% today, at 11:50)
No. shares: 58.1m
Market cap: £307.9m

Trading update - y/e 31 Aug 2019

Focusrite Plc (AIM: TUNE), the global music and audio company supplying hardware and software products used by professional and amateur recording engineers and musicians, is pleased to update the market on another successful year in which revenue and profits have grown strongly

This sounds good - ahead of expectations;

The Company expects revenue for the financial year ending 31 August 2019, to be ahead of market expectations at approximately £84 million, up from £75.1 million last year.

This growth comprises an increase of approximately 10% for the existing business (c6% on a constant currency basis) and approximately six weeks of revenue for ADAM Audio, a German studio monitor company, which was acquired on 16 July 2019 for a total consideration of £16.2 million in cash.

Margins have remained consistent with the prior year and as a result EBITDA is also expected to be ahead of market expectations.

Cash - Focusrite spent £16.2m on an acquisition (which seems to have been a full price, considering the acquired company only made a profit before tax of E1.0m). Despite this, the group still has £14.9m in net cash. It's a very well funded business, with an excellent balance sheet.

Outlook - sounds upbeat;

Our product roadmap continues to strengthen with significant new product releases planned for the first half of the new financial year.  We continue to execute on our growth strategy while closely monitoring unpredictable global issues such as US tariffs and Brexit and have in place action plans to mitigate any foreseen negative impacts to our business."

Valuation - is high, therefore the company really did need to perform ahead of expectations in order to justify the rich PER. I can't find any broker…

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Focusrite Plc is a music and audio products company supplying hardware and software products used by professional and amateur musicians. The Company is engaged in the development, manufacture and marketing of professional audio and electronic music products. It operates through three segments: Focusrite, Novation and Distribution. The Focusrite segment includes the sales of Focusrite branded products. The Novation segment includes the sales of Novation branded products. The Distribution segment includes distribution of third-party brands, including KRK speakers, Ableton, Stanton, Cakewalk and sE Electronics. The Company sells its products in approximately 160 territories and countries around the world. The Company offers Scarlett, which is an audio interface; Blocs Wave application, which is used by musicians to create their own sounds and songs on any iPhone Operating System (iOS) smartphone or tablet, and e-commerce Websites. more »

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Comptoir Group plc is a United Kingdom-based company, which is engaged in the operation of restaurants with Lebanese and Middle Eastern offering. The Company owns and/or operates approximately 15 Lebanese and Eastern Mediterranean restaurants based in the Greater London and Manchester area. The primary restaurant brand of the Company is Comptoir Libanais. Comptoir Libanais is a Lebanese and Eastern Mediterranean focused restaurant. It operates approximately 11 Comptoir Libanais restaurants. It is also engaged in franchising the Comptoir Libanais brand to other restaurant operators. It also operates approximately two smaller Lebanese and Eastern Mediterranean outlets under the Shawa brand, and over two standalone high end restaurants called Levant and Kenza. Shawa is a Lebanese grill serving lean, grilled meats, rottiseried chicken, homemade falafel, halloumi and fresh salad wrapped up into traditional shawarmas through a service counter offering. more »

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

18 Comments on this Article show/hide all

Effortless Cool 11th Sep 1 of 18

To the top, just for andrea.

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Paul Scott 11th Sep 2 of 18

In reply to post #512246

Well done, Effortless Cool, thank you!

I've just triggered the flag to put this report on the SCVR landing page too.

So I think we have all aspects covered.

Best wishes, Paul.

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Brookeda 12th Sep 3 of 18

Markets seem relatively flat at the moment but I'm personally seeing a lot of fluctuations in my holdings (for the better for a change.) It almost seems at the moment that the market is sorting out the good from the bad and value (which is one of my main criteria) is starting to get money going in again. Long may it continue but feeling very bullish based on Sept so far.

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tomps3 12th Sep 4 of 18

Weekend viewing, (well it's almost the weekend!)

Here's an interview with Stephen Yiu, Blue Whale Capital.

Blue Whale Capital was launched in September 2017, since when it’s achieved an annualised return of 21%. Here, Stephen gives us an insight to how he achieves those returns, and what they do differently. 

An interesting insight to those who manage their own money, or those who are interested specifically in Blue Whale Capital.


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Effortless Cool 12th Sep 5 of 18

An encouraging "ahead of expectations" announcement from Focusrite (LON:TUNE) this morning.

Revenues ahead, margins in line, cash healthy, despite a sizeable acquisition.

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Graham Ford 12th Sep 5 of 18

Safestore Holdings (LON:SAFE) an in-line update from this self storage company today. Not a small cap and not an ‘exciting’ company. Just one that makes steady progress in this developing market and the shares have done well over the longer term.

However, I mention it, not just because I hold it, but because it chimes with the recent concerns that some builders are converting office blocks to residential apartments that are smaller than would be permitted if they were purpose built. So, if you think modern purpose built properties are small and have too little storage these are even worse. While the cost of self storage would seem to be high, if you have to have some extra space while you are living in one of these rabbit hutches it serves that need.

So, Safestore would appear to be in a market that is set to keep growing and its steady Eddie progress looks like it will continue for a good while longer. I’m not in favour of investments that you make and then forget about but this does appear to me to be one that you can make and barely need to keep a watch on.

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ambrosia 12th Sep 6 of 18

Steppe reported today, theyre up on last year, yet its been treated as a profit warning and theyre down 17%. is it just the market is nervous and jittery, or am i missing something.

also weirdly Sports Direct cant get an auditor,

"Auditors see Sports Direct as posing too much of a reputational risk to take on as a client"

not a good look Mike Ashley

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Damian Cannon 12th Sep 7 of 18

It might be worth taking a look at Haynes Publishing (LON:HYNS) today as they've put out some forecast beating results today. The key win is that their digital transformation is really motoring while the legacy manuals business slowly declines. I saw management present last year ( and they are delivering on their vision.

Blog: Ambling Randomly
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Martin C 12th Sep 8 of 18

In reply to post #512371

Hi Paul, i would second £STCM as worthy of a look. Low PER (but possibly deserved given its a foreign co listed in London. Does pay a massive dividend and is good diversifcation against Brexit)

Ambrosia, they're up on last year, but noting a slowdown in the market. This is the reason for the drop - albeit its only lost what its gained over the last month or so. One to hold and tuckaway for the long term i think as it does go up quickly when its in favour.

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jesseowens 12th Sep 9 of 18

In reply to post #512411

Haynes Publishing (LON:HYNS) seems like outstanding value for a cash rich growing company, but cannot ignore the elephant in the room, a £24 million (and growing) pension deficit, whilst global bond rates head towards zero again .

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Glorenfeld 12th Sep 10 of 18

In reply to post #512411

I'd also second a nod to Haynes if you have the time/inclination. I really like the developing story.  Balance sheet doesn't seem to be up to much - NAV seems mostly to be made up of intangibles.

I also wonder how much they're exposed to any secular shifts to electric cars, which we're constantly being told need less aftermarket care. This may not happen overnight, but the proportion of new registrations taken by electrics is accelerating.

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Zipmanpeter 12th Sep 11 of 18

Re £BWNG : An RNS today for a further PPI related  'additional provision in the range of £20m to £30m in its half year results for the six months to 31st August 2019. As a result, our full year net debt guidance is anticipated to increase from £440m - £460m to £460m - £490m'.

Blessed with a catalogue-based husiness and ahead of the curve niche brands vs ling term trends (eg SimplyBe, High&Mighty for the big & heavy, JDWilliams for the older women) that should have been ideal for transition to the internet age, £BWNG has blown its inherited lead  through a variety of errors and poor service.  

With a recession coming, I fear for its improved but still low quality debtor book - clothing bills will be the first to be repudiated by customers in a recession and disputes will sap sales.  It won't go under but debt is increasing and its products, that lead the credit income are being beaten

I have held for (too) many years but will now finally sell, much too late - despite wisdom from contributors on this site.

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kennzo2020 12th Sep 12 of 18

LON:CCT is it now showing signs of hitting the bottom?

All trades suddenly seem to be Buy. 

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andrea34l 12th Sep 13 of 18

In reply to post #512526

There aren't any big buys going through yet on Character (LON:CCT) so for the mo could be smaller investors bottom-feeding...

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doug2500 12th Sep 14 of 18

"but what happens if there's a blip in trading? You could wake up and find that the price is down 30%."

This feels like it's happened a lot to me recently, so thank you Focusrite (LON:TUNE) for finally giving me some good news.

It's been quite a bruising spell. and I don't mind admitting that's it's done nothing for my confidence as an investor. For some reason I'm finding it tougher than 07 to 09 even though indexes are still relatively high. Maybe because the sums are larger now after 10 years of fairly successful investing, maybe because I'm more in small caps now and they feel a little out of favour to me.

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drvodkaquickstep 12th Sep 15 of 18

In reply to post #512441

The impact of electric vehicles may be very minimal as the business moves firmly more towards the 'professional' segment of its business i.e. HaynesPro, E3 Technical and OATS.

Electric vehicles still have a huge number of OEM parts as per a traditional petrol/diesel so there is no difference really and Haynes will continue to provide the aggregated data.

Motoring websites also increasingly use Vehicle Registration Look-ups and Haynes earn from this each time they are used as they have 90+% of the UK market for look ups.

OATS is also securing an increasing number of deals with Tier 1 players such Petronas, Shell and Exxon.

There is so much more to the business now than manuals and consumer DIY repairs.

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bryans1311 12th Sep 16 of 18

In reply to post #512556

I have to agree with your statement regarding the markets this year. In % terms, I (so far) happen to be having my best ever year. However, I have had to stray away from areas I normally invest in - tech, franchise, "high quality" businesses to what I consider "deep-value" resource stocks. It has been a huge learning curve, but I still can't shake that feeling of how ugly the markets appear. I think once we have a bit more political certainty, the markets will start to show some direction again and certain "normal" shares will move forward.

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ACounsell 12th Sep 17 of 18

Slightly surprised no comments on announcement from Xaar (LON:XAR) regarding major investment by £SSYS a NASDAQ quoted 3D printer manufacturer given that 3D printing is a hot topic in manufacturing technology. The RNS outlines a relatively complex transaction but the basics are £XAR gets a net $8.21m from the proposed transaction to sell 20% of Xaar 3D for $10m  and £SSYS gets a call option exercisable in the next 3 years on the remaining 55% of Xaar 3D it doesn’t own exercisable at a minimum price of $33m. If call option exercised this appears to value the Xaar 3D business in 3 years time at $60m for a business that currently has £13.1m of gross assets and losses of £0.4m. Current market capitalisation of Xaar (LON:XAR) is £46.2m even after today’s share price jump of 20%. The business also had £21.6m cash at June 2019 though it is burning through this at about £7m each HY due to the rest of its business making significant losses. This deal would seem to shore up the current balance sheet and promise, if it transpires, significant cash in the future. However, unless this is a fantastic value play (Graham has alluded to this in past comments), it also suggests that the rest of the Xaar (LON:XAR) business is worthless - the market seems to be taking this view. As a serially disappointed long term holder would appreciate any comments.

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Michael C 12th Sep 18 of 18

In reply to post #512336

I watched the interview of Yiu. Very nicely produced. I wish I had a room in my house as nice as the venue you used for the interview!
I think he is right that if you are going to be an active investor, which is what most of the people here are, there's little point in holding 100+ names because it dilutes the research effort and probably won't beat a proper index fund.
It seemed to me that he is ticking two of Terry Smith's 3 boxes: "Buy Good Companies" + "Try not to overpay". His point of difference is that he doesn't tick the third box: "Do Nothing". He's basically a long-only trader with a value orientation and a willingness to hold for lengthy periods, but not for ever. And he used the word "bet" twice, so at least he understands he is in a casino.
Nothing wrong with any of that and he has done very well. I'd like to know whether he would be willing to go all to cash if he thought he ought to. If so he would beat Fundsmith in a crash and probably in the aftermath unless liquidity were to vanish in a heartbeat as Ruffer seems to think it will, in which case everyone will be stuck.
One thing's for sure. He has beaten and will continue to beat Mr. Woodford. No nuclear fusion start-ups in his portfolio!

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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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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