Small Cap Value Report (Thu 17 May 2018) - PMP, CHH, STAF, FOXT, IND, WATR

Wednesday, May 16 2018 by

Good morning! It's Paul here.

Mello South - 14 June

Following the amazing success of Mello Derby a few weeks ago, David Stredder has organised another, slightly smaller, one-day investor event - this time in Hever, Kent. For those travelling from London, the direct train from London Bridge only takes 42 minutes. By car, it's near the M25. The surrounding area looks lovely, so it would make a nice mini-break.

The theme is "meet the fund managers", with keynote speakers including Mark Slater, Andy Brough, Ralph Baber, and others.

There will also be 30 companies exhibiting, most of which will be different to the ones at Mello Derby, to avoid duplication. Remember that David hand picks quality companies only, so you won't find a load of junk resource companies trying to part you from your money at any Mello event.

To give you a flavour of what an outstanding event Mello Derby 2018 was, here is a short video from our friends Tamzin & Tim at PIWorld. Hopefully you can see the tremendously positive energy that David injects into his events. The community feel is what it's all about, as well as interesting speakers & good quality companies.

It will be a terrific day out, so is highly recommended. Here's the link for more information, and to book your ticket.

Betting companies

I heard on Radio 4 this morning that the Government is apparently going to cut the maximum stake size on highly addictive fixed odds betting terminals (FOBTs) from £100 to £2. This is likely to have a big negative impact on some gambling companies, but seems to have been widely anticipated - hence share price falls today of only about 2-3%.

GVC Holdings (LON:GVC) says today that the financial impact will be very considerable;

Expected financial impact
The focus in the UK Retail operation over the last two years has been to create a business that is well placed to face these structural and regulatory headwinds. As such we expect to be able to reposition the business within two years following implementation, with an anticipated fully mitigated impact of cGBP120m on Group EBITDA secured by the end of this period.

In the first full year the impact on Group…

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Portmeirion Group PLC is a United Kingdom-based company, which is engaged in providing ceramic tableware, cookware, giftware and tabletop accessories. The Company has five brands: Portmeirion, Spode, Royal Worcester, Pimpernel and Wax Lyrical. The Company's segments include UK and US operations. Portmeirion offers tableware and gifts with collections, such as Sophie Conran for Portmeirion and Ted Baker collection. Spode brand includes Blue Italian, Blue Room and Christmas Tree. Royal Worcester is engaged in providing porcelain tableware and cookware collections. Pimpernel provides placemats, coasters, trays and accessories. Pimpernel also includes Wrendale Designs collection, which includes placemats, coasters, trays, ceramic and melamine gift sets. Wax Lyrical offers fragranced candles and reed diffusers. The Company caters to markets, such as United States, the United Kingdom, South Korea, India, Taiwan and Thailand. more »

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Churchill China plc is a United Kingdom-based manufacturer and distributor of tabletop products to the hospitality and retail sectors across the world. The Company's customers include pub, restaurant and hotel chains, sports and conference venues, health and education establishments, and contract caterers. The Company's segments include Hospitality and Retail. The Company primarily offers ceramic tableware. The Company also manufactures and sources product sold through Retail customers for consumer use in the home, in various markets across the world. The Company offers Churchill branded manufactured products. The Company offers various types of products, such as accessories, beverage pots, bowls and dishes, cake stands, cookware, cups, mugs, cutlery, dip pots and sauce dishes, glassware, jugs, melamine items, plate towers, plates, saucers and wooden items. Its collections include Alchemy Fine China, Churchill Super Vitrified, Art de Cuisine, Sola Cutlery and Lucaris Glassware. more »

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Staffline Group plc is a holding company, which is engaged in the provision of recruitment and outsourced human resource services to industry and services in the welfare to work arena and skills training. The Company has two segments: Staffing Services, which includes the provision of temporary staff to customers, and PeoplePlus, which includes the provision of welfare to work and other training services. Its Staffing Services focuses on providing complete labor solutions in agriculture, food processing, manufacturing, e-retail, driving and the logistics sectors. Its recruitment business operates from well over 300 locations in the United Kingdom, Eire and Poland. The Staffing brands include Staffline OnSite, based on clients' premises providing both blue and white collar, out-sourced, temporary workforces. Its Employability includes work program, prime contractor in over nine regions and sub-contracts in approximately five regions in England. more »

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41 Comments on this Article show/hide all

extrader 17th May '18 22 of 41

Hi all,

I think it was Balzac who said " Behind every great fortune lies a great crime".


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Wimbledonsprinter 17th May '18 23 of 41

I have believed that Staffline (LON:STAF) is cheap because it has a number of dark clouds on the horizon, which are difficult to assess:

1). Can PeoplePlus adequately replace the lost profit from the demise of Work Programme?
2). Can the staffing side find staff adequately post a world of tighter unskilled workers immigration controls?
3). Can the staffing business survive a tougher political climate on zero hours (and similar) contracts?

As Paul mentions, the Andy Hogarth departure, which seemed so sudden, has not been properly explained.

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herbie47 17th May '18 24 of 41

In reply to post #364994

Yes low pay is a problem but in many countries it is better than no pay. I did see a follow up to the well meaning program (BBC?) about under age workers, many factories got rid of young looking workers even if they were over age, many ended up on the streets. Pay is relative to the cost of living, it may look low to people in the west but is in fact a living wage, the alternative is often a lot worse. China costs are getting high so some companies are switching to other countries which have lower wages.

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IGotPoesJacket 17th May '18 25 of 41

In reply to post #364989

Oh dear, you have strayed very far from Kansas haven't you. Apparently because I believe that organisations have a necessity to act in a moral fashion I'm a radical Left Wing Socialist. How about that, 1+1 = 749.
If some companies reduce costs by failing to meet their moral obligations to provide the correct working conditions, they aren't doing things at "the true economic cost of labour", they're forcing those costs to be met by somebody else - they're subverting the market not improving it.
Some people are rich, some are poor, I couldn't care less, but that doesn't mean we should force the poor to work in unsafe, unsanitary conditions, that we should allow companies to destroy the planet for short term gain.
Yes, all these things happen - that doesn't mean we shouldn't crack down on them when we find them - and when we do, companies find other ways of making money.

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sharmvr 17th May '18 26 of 41

In reply to post #365019

Perhaps not historically, but competition and capitalism invariably makes lives better for employees, shareholders and society and I wholly agree with Simoan, what we actually need is an efficient legal system, where those that do wrong (fine line between morality and illegality, but I think as an observer laws and morals tend to be quite correlated) are adequately punished for their midemeanours.
To that end, we should rightly crack down on them as should the state. Further, recruitment costs are not cheap, so I think a lot of companies should (would) focus on retention, if we want a pure play everyone acts in their own best interest invisible hand for cracking down on them.

However, it is very easy to go after the large corporation who is paying the little guy £9 / hour in stead of £12 and making shareholders better off, and ignoring that those shareholders might give £3 to charity or save it and allow the investment multiplier to improve the plight.
In a world where the wealth from capitalism is infinite, an infinite amount can be shared with those less fortunate increases.

Far fewer arguments about how government employees are underpaid (pensions aside), because they have no choice but to work for the one employer or alternatively leave the country.
Doctors / Nurses / Politicians are likely underpaid for the amount of education / effort they have put in, demonstrated by how most ex politicians have far more lucrative careers when they join the competitive environment of the private sector, or if doctors and nurses move to the US or Australia.

While a lot of unskilled workers have their salaries cut, because their work can be done cheaper elsewhere and I sympathise with them, BUT:
Globally equality is far lower and I am not sure why someone in the UK / US / Spain / France (earning £60 / day in stead of £100) should be given more importance than someone earning £4 / day in stead of £2 in India / China / Malawi

Sorry for chatting too much and not even sure it makes sense - had one of those old school lunches!

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Orangetree 17th May '18 27 of 41

Mothercare releasing their results in the afternoon looks strange, was it intentional to avoid criticism from Paul Scott?
Given that they "re-hire" the previous CEO (just one later) to the board appears to be the resurrection that Mothercare wanted. It seems all the bad operational performance and the destruction of shareholders' wealth got swept under the carpet. Symbolism at its finest!

Hope Paul covers Mothercare tomorrow.

Blog: Walbrock Research
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andrewdb 17th May '18 28 of 41

In reply to post #365029

"competition and capitalism invariably makes lives better for employees, shareholders and society"

Actually, over the last 20 years or so, productivity - which drives increases in real wages has been negative.  

The effect has not been uniform, the top 1% now has about 15% of all income - up from about 8% 20  odd years ago.

This means that the incomes of those at the lower end of the income scale, but not dependant on the state have declined quite a bit.

Of course one good answer is that we do not live in a capitalist, competition based society.

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sharmvr 17th May '18 29 of 41

In reply to post #365064

Your last sentence, quite.

Re productivity, I don't have the statistics at hand, but I am doing this on my phone while on a call at work on hands free - could not have done this 20 years ago.

Re income distribution, I refer to it globally. Yes Western economy lower paid have suffered but the benefit to the lowest paid around the world is greater, especially when we start considering pareto optimality and marginal benefit of an extra £.

Don't quote me, but I remember an economist saying that in trade, it is the most abundant resource that benefits and most scarce loses. Therefore in rich Western countries where capital is abundant, owner and provider of capital wins.
China where labour was the abundant resource, labour reaped the rewards.

You are of course right in that wealth and income are not the same and whether global wealth distribution has matched improvements in global income distribution, I would be less confident.

Then again I have no detailed data / analysis other than general reading s I could be speaking complete

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IGotPoesJacket 17th May '18 30 of 41

In reply to post #365064

Unless I can’t read the graph right, labour productivity has increased by over 30% since 1994, ie 24 years. It has pretty much stagnated since 2007. I don’t think you’ve even interpreted the data in your own link correctly, which says 2007 to 2017 was the first 10 year period with negative growth.
And whilst productivity and wage rates are related, there isn’t a one to one mapping. Likewise just because the rich have got relatively richer, it doesn’t follow the poor have got poorer. If you want to compare real incomes, get the real incomes data. Food and other basics are now much cheaper, you get more for less (another benefit of increased productivity).

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Graham Ford 17th May '18 31 of 41

In reply to post #364894

“We should all be aware that life is a zero sum game - people can only be rich because others are poor.”

Please stop to think about this for a moment.

If this were true it would mean that there is fixed amount of prosperity in the world. Or, to put it another way, the cake never gets any bigger. The West has become more and more prosperous. Compared to 200 years ago we are phenomenally wealthy. So, if the zero sum game is true, the rest of the world would have to be phenomenally poorer than they were 200 years ago and obviously they are not.

The cake grows by innovation, specialisation and increasing productivity. With mechanisation, technology etc. a single person can produce far more than they could in years gone by and thus more prosperity/wealth is created.

Not convinced? Consider the increase in population. If there is a fixed amount of prosperity divided across a hugely increased world population then we should on average be vastly poorer than our ancestors. It is clear we are not.

The zero sum game theory instinctively feels right because if you give me £10, I am £10 better off and you the opposite. But that’s not the way the economy works. In the economy, we are exchanging goods and services that cost us less to produce than we sell them for. That difference expands over the long term for the reasons mentioned above, so wealth gets created.

Is this bigger cake equally divided? No, there is relative poverty. But it isn’t because it is a zero sum game.

Defining the problem as a zero sum game leads to the wrong conclusions about how to increase the prosperity of people who are relatively poor.

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DJCP 17th May '18 32 of 41

With the amount of red thumbs today, looks like the blind cobbler has been busy !

If I may, just to nearly close the day's proceedings with a slightly relevant tale, and thanks to the late Ronnie Corbett I believe ... (but a much shortened version !)

Farmer Giles is visited by a Govt. official who's checking up on employee's rights etc., and gets shown around the farm.

He asks the first person how they are treated by Farmer Giles.
"I earn £30k per year, free farm produce for my family, and I'm very happy."

The Official ticks their form, and notices a younger person, and is expecting a tale of woe.
"I earn £18k per year, am being trained and have time off to study so I can further my career."

"Bugger" mutters the Official as he ticks another form.

The Official then mentions he's heard of someone at the farm being treated poorly, which is why he's visiting.
Farmer Giles replies "There's one person who works 18 hours a day, 7 days a week, rarely gets a holiday, and earns just £10k per year, with their only benefit being a slight chance of a bit of hanky-panky with Mrs Farmer Giles once a month."

Rubbing his hands together with Officialdom glee, he asks to speak to this poor down-trodden worker.
"You have been for the past hour !" replies Farmer Giles with a grin :o)

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timarr 18th May '18 33 of 41

In reply to post #365159

That's correct, global wealth is not a zero sum game. Angus Maddison's research in this area is famous. In essence the wealth of the individual, as measured by real per capita GDP was virtually unchanged through from 1AD through to 1820AD. After that it exploded, if about 2% real growth per year can be described in that way. But from that point on the world and the people in it have got steadily richer without having to beggar one another to do so.

Now these numbers are disputed in detail, but there's little disagreement about the direction of travel, and that growth creation continues today. The underlying argument is here is more about how that wealth is distributed. Should wealth creators be allowed to keep most of their wealth even if there are people in poverty? Should the "undeserving poor" be given handouts or encouraged to get on their bikes to find work? And so on.


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peterg 18th May '18 34 of 41

Should wealth creators be allowed to keep most of their wealth even if there are people in poverty?

While I agree with your post in general timarr, there's a lot of room for interpretation about that sentence! Those who acting as zero hours contracts, minimum wage cycle couriers for Deliveroo (to take one of thousands of possible examples) are very real wealth creators. It's not only those with the capital or the ideas who create the wealth. And all to often even those with the ideas don't end up keeping much of the wealth.

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timarr 18th May '18 35 of 41

In reply to post #365294

Hi peterg

Where possible I believe we should try to observe the Principle of Charity when interpreting the written word.  So, while I agree that the language is slightly loose, I think what I meant is clear. For instance, it's fairly obvious I'm not suggesting that a minimum wage Deliveroo courier should have to give up more of their wages to fund social security payments.

And as for the point that the people with the ideas don't end up keeping the wealth, the issue really is that the idea itself is not enough. Our capitalist system rewards those who are able to monetise the idea and those people generally are those who have capital to start with. And as we, on Stockopedia, are generally providers of capital being used to exploit other peoples' ideas it's hard to argue that we disagree with that as a principle.


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peterg 18th May '18 36 of 41

In reply to post #365414

Clearly my answer was loosely worded too, tim. I'm certainly not arguing that a Deliveroo courier should give up more or their wages, nor suggesting that you were saying they should. My response was probably ill-directed - a reflection of my objections to the way the term "wealth creators" is often used - and that it is often used in a way that excludes many or most of those involved in creating the wealth.


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Fangorn 20th May '18 37 of 41

"I'd like to think we're all pretty intelligent people here who have lived a bit. We should all be aware that life is a zero sum game - people can only be rich because others are poor. Life is not fair. You only have to watch a Sparrowhawk picking the meat off the bones of a pigeon as happened in my garden last week. On here we are all very fortunate in being rich and having enough money to fanny about buying and selling shares. "

Simoan spot on with this imho.

Not often I agree with him political side, especially Brexit. but here he does nail it.

Life isnt fair and Life is need a zero sum game - for someone to win, someone must lose.

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Fangorn 20th May '18 38 of 41

"Funny because you're sounding more like a Corbyn fanatic. He'll sort the problem, don't worry, just don't grumble when it's your wealth he redistributes to those less fortunate. And we're having this discussion over an FT article written by a no doubt highly paid journalist who in terms of economic productivity has a Return on Capital of zero and is paid by a publication funded by advertising payments from companies that generate profits by not (you can guarantee) paying the true economic cost of labour and/or overcharging the end consumer for the product or service they provide."

Surprised that Simoan's comment above got 22(net) red ticks down because he is, once again, spot on.

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hayashi22 21st May '18 39 of 41

Stopped buying the FT as it more and more became like the Guardian in terms of its non financials coverage.

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simoan 21st May '18 40 of 41

In reply to post #365709

Surprised that Simoan's comment above got 22(net) red ticks down because he is, once again, spot on.

Hi Fangorn,

I just like to think of the red thumbs as a social media equivalent of Momentum :-). Even the colour is right. Obviously, I am struggling to understand how we would ever agree on anything so it's making my head hurt and I must assume my posts have been misconstrued more than usual... 

Of course, as you know, I am about as far away from Kansas as you can get and I'm fortunate enough to live in one of the most enlightened places in the UK, where a liberal attitude exists and the vast majority of the population have open minds and open arms to people from all over the world, with a very high standard of living to boot. I consider myself very lucky to be able to afford to live in the postcode with probably the highest IQ in the country given the large number of post doctoral students and University Colleges; although it decreased a large notch with the recent sad death of Stephen Hawking. 

BTW I'd like to apologise to IGotPoesJacket for the Corbyn quip - it was intended in a light hearted manner but due to posting at work I got distracted and forgot to include any symbols to indicate such. 

All the best, Si

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Fangorn 21st May '18 41 of 41

In reply to post #365894

Hi Si,

"Obviously, I am struggling to understand how we would ever agree on anything so it's making my head hurt and I must assume my posts have been misconstrued more than usual.."

I suspect we agree on far more than you suspect - Brexit, and ARM aside of course!

"I'm fortunate enough to live in one of the most enlightened places in the UK, where a liberal attitude exists and the vast majority of the population have open minds and open arms to people from all over the world"

Ah Cambridge - what a superb place..Superb hospital at Papworth Everard as well I hear.

My father lives there. Brexiteer, sorry :)

Much of UK is such surely? UK is welcoming to many hence the high net annual migration no?

p.s Apparently IQ is overrated! As it often comes with absence of common sense! :)

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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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