Small Cap Value Report (Thu 13 Jul 2017) - GMD, BWNG

Thursday, Jul 13 2017 by

Good afternoon, it's Paul here.

The good news is that I've now completed Tue & Weds reports, as follows;

Tuesday's report covers updates/accounts from:

  • Begbies Traynor
  • McBride
  • Ilika
  • Amino
  • Bango

Wednesday's report covers:

  • Fulham Shore
  • CloudCall
  • Eve Sleep

On to today's news.

Game Digital (LON:GMD)

(at the time of writing, I hold a long position in this share)

 Sky news broke this story yesterday, and it's been confirmed in an RNS today. Mike Ashley's Sports Direct has bought a 25.75% stake in Game Digital. This is what GMD said about it today;

GAME Digital plc ("GAME" or the "Group") has been informed that Sports Direct International plc ("Sports Direct") has acquired 44 million shares, equivalent to 25.75% of the share capital of the Group. 
GAME is aware that Sports Direct has taken significant strategic equity stakes in a number of retail and brand businesses across both the UK and USA, and is a leading retailer which partners with major global brands and suppliers. 
GAME is pleased that the strategic value of the group has been recognised by Sports Direct through this acquisition of a 25.75% stake. The Group looks forward to working collaboratively with Sports Direct to explore the clear opportunities that a constructive partnership and collaboration can deliver for all stakeholders in the gaming, live events and rapidly growing esports markets in which it operates.

Windows 10 has just decided to do a major update, without warning me, and it took nearly 2 hours. Great, thanks Microsoft.

Getting back to GMD, I think this one is very interesting indeed. It's still profitable & cash generative, is priced well below its own net cash pile, has a sound balance sheet (unlike when it went bust in 2012), and has an average lease length of only just over 1 year. So this one could get interesting, especially now that Mr Ashley has got involved.

We had a very interesting discussion about the company, here on 30 Jun 2017, prompted by Graham spotting the potential special situation opportunity.

N Brown (LON:BWNG)

Share price: 287.9p (down 5.4% today)
No. shares: 283.4m
Market cap: £815.9m

(at the time of writing, I hold a long position in this share)

Historic Insurance Products - Customer Redress

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GAME Digital plc is a retailer of video games. The Company operates approximately 580 stores across the United Kingdom and Spain. The Company's segments include UK, Spain, and Events, Esports & Digital. Its UK and Spain segments are engaged in the sale of hardware, software, accessories and digital. Its Events, Esports & Digital businesses include SocialNAT and Ads Reality Limited (Ads Reality). The Company's activities include multichannel retailing and merchandising; supply chain management and distribution; software and technology development; marketing and customer relationship management (CRM); sourcing and procurement from suppliers, as well as range of individual customers; event management and production, and training, development and employee engagement. The Company's subsidiary undertakings include Game Retail Limited, Game Stores Iberia SLU, Multiplay (UK) Limited, Game Esports and Events Limited, and Game Digital Solutions Limited. more »

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N Brown Group plc is a digital specialist fit fashion retailer. The Company offers customers a range of products in clothing, footwear and home wares. The Company is a multichannel retailer. It operates through the Home Shopping segment. Its power brands include JD Williams, Simply Be and Jacamo. JD Williams is a department store concept offering style for 50-plus customers and their families. Simply Be is a women's clothing retailer, which offers a fashion collection regardless of the size. Jacamo offers in-house ranges, such as Label J and Black Label, alongside international brands. Its brands also include Ambrose Wilson, Julipa, Premier Man, House of Bath, Marisota, Fashion World, High and Mighty, and Figleaves. It offers financial services that focus on credit customer base and cash customers. It offers womenswear from sizes ranging from 10 to 32 and menswear from sizes ranging from small to 5XL. It operates a store estate in the United Kingdom that focuses on key shopping areas. more »

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  Is GAME Digital fundamentally strong or weak? Find out More »

31 Comments on this Article show/hide all

rouleur1 13th Jul 12 of 31

I'm guessing DTG might be a favourite on here. I sold up on opening today, expecting that the market would punish them for the results. So it's proved. Any views as to the proportionality of the reaction?

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tic_tac_toe 13th Jul 13 of 31

In reply to Howard Marx, post #10

Howard, I'm *not* making the point that they are potential investments, I am saying its an approach to begin looking for anomalies.
Is JPR on the list? no idea, I ran a quick 2 minute filter out of curiosity.

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ratioinvestor 13th Jul 14 of 31

In reply to Howard Marx, post #5

What are the trading asset worth in the event of a firesale? I.e. a lot of computer games and consoles. Probably less than the balance sheet value.

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andrea34l 13th Jul 15 of 31

In reply to rouleur1, post #12

The problem I have always has had with DTG is the Distribution & Logistics arm which has been a perpetual drag on the rest of the company. This year the main Leisure Travel business is also not doing so well, with load factor down (whereas Easyjet, Wizz, and Ryanair are up) a bit and there is a whopping forex charge! They say current trading is "in line with market expectations" which I suppose is good, though as usual it is not stated what these actually are...

I wonder if at some point OTB may announce similar mediocre trading...?

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Howard Marx 13th Jul 16 of 31

In reply to ratioinvestor, post #14

That's a fair point ratioinvestor, the Net Current Assets calculation assumes that inventory is worth it's Balance Sheet value.

On the other hand, the Net Current Assets is conservative as it ignores all Fixed Assets - the GMD Balance  Sheet suggests total Fixed Assets of £83million.

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andrea34l 13th Jul 17 of 31

I've been in gambling mode today and bought a tiny holding in GMD when the mid price dropped below 25p; what interests me as well as the cash is the growth potential in the new E-business.

While larking around I recalled FJET's recent update and I just thought I would check out their website and the customer experience in booking a flight on it. Oh deary me, what a disaster!!! Once I selected the route and pressed 'Go' it then came up with this robot-checking thing not once but twice where I had to not only click a button but also select pictures in a grid, some of which weren't that clear! Then when it came to the schedule for the applicable dates once I clicked on a flight a website error came up and took me back to the homepage. What a disaster!!!

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mr_spock 13th Jul 18 of 31

Hmmm. N Brown. Tripped up again, and we are still waiting for the outcome of the dispute with the HMRC (could result in a charge of £43m or refund of £54m).
Net debt is rising, and more cost headwinds if Sterling devalues. Closing stores that were opened only a few years ago. USA still not profitable. And there is the additional risk that a consumer credit crunch may result in an increase in bad debt.
Profitability may return when CAPEX slows, but will sit this one out for now.

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seadoc 13th Jul 19 of 31

In reply to andrea34l, post #6


" but maybe this is already baked into the price"

Is that not what was said about Microsoft in the 80's? Agreed, it seems like they are paying a bit less than £1m each for 69 employees. It is a small pond, they they are buying some pretty big fish, and  Mr market values the employees of ACSO at just over £500k an employee.



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shine66 13th Jul 20 of 31

"Windows 10 has just decided to do a major update, without warning me, and it took nearly 2 hours. Great, thanks Microsoft."

I remember a couple of years ago someone was recommending to a government select committe that open source was the way to go. But then said expert got an offer of extremely well-paid employment from Microsoft and the proposal faded away.

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Lion Tamer 13th Jul 21 of 31

In reply to shine66, post #20

I agree, Linux Mint is a great upgrade. A worthwhile performance boost and very much less hassle. Even my elderly mother-in-law likes it better.

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sminers 13th Jul 22 of 31

In reply to dscollard, post #4

a fellow cyclist i see.

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dscollard 13th Jul 23 of 31

In reply to sminers, post #22

indeed, and the TdF has forced me to invoke the n+1 rule: another Colnago added to the portfolio last week.

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jonesj 13th Jul 24 of 31

In reply to shine66, post #20

One of the reasons why I have refused to upgrade from Windows 7 is the enforced upgrades on the newer software. Since I should decide when MY PC is available for use, it follows I should have control of when the upgrades are applied.
I've found Linux to be OK on netbooks, so if Microsoft do not mend their ways by the time I need to replace Windows 7, it will be Linux for my main PC.

Then there is the bigger issue, where it seems Android & Apple keep "upgrading" their software so that a phone that was very fast when brand new works at a snails pace 2 years later, so encouraging people to buy a new one. The authorities need to look into that.

At least with Microsoft, I can get my reliable windows 7 disks out and do a reinstall every couple of years. With Android, of course it can be rooted, but try finding a completely reliable source for the replacement OS.

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paraic84 13th Jul 25 of 31

In reply to mr_spock, post #18

I agree. I looked at N Brown (LON:BWNG) at the weekend. I thought any re-rating of shares depended largely on better evidence of international growth which I note was down 2% on constant currency in the most recent update. Some of its brands also look a bit tired to me. One to keep an eye on though as I see they have a new international director from Boohoo.Com (LON:BOO) who could help.

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ricky65 13th Jul 26 of 31

The irritating J D Williams advert with Lorraine Kelly and others jumping around is enough to put me off N Brown (LON:BWNG) !

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Paul Scott 14th Jul 27 of 31

The interesting things with N Brown are;

  • c.70% of sales are online, but it's priced like a conventional retailer
  • Excellent Q1 update recently
  • Hidden balance sheet value from debtor book (a bit like HOME, which worked out rather well)
  • Niche products for fatties (such as me!)

On the downside, I don't like the expensive/extended credit business model. Maybe that could be the next thing that regulators attack?? Who knows?
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herbie47 14th Jul 29 of 31

In reply to jonesj, post #24

I did a reinstall of Win7, went ok but since then can't get an updates, tried various things but nothing seems to work, apparently it is a known problem.

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andrea34l 14th Jul 30 of 31

In reply to seadoc, post #19

The market doesn't seem impressed... there are mostly only sales going through for ACSO since the announcement...

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seadoc 14th Jul 31 of 31

In reply to andrea34l, post #30


"The market doesn't seem impressed... there are mostly only sales going through for ACSO since the announcement..."

Agreed. I have the cash in the ISA and shares outwith so next reversal is a chance to move shares into the ISA. I have put some lines on my "charts" (I use Sharescope so just a two click job) and 1650 was that point but it may now be 1580? But essentially I would like to do the transfer at a low spot to avoid CGT (and even at 1580 might have to do just some and the rest next year. I do believe that in the long term accesso Technology (LON:ACSO) has to be a winner.



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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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