Small Cap Value Report (Thu 20 Apr 2017) - BON, TRI | Paul Scott

20th Apr '17 by Paul Scott

33 comments 13513 reads

Good afternoon!

Apologies for running late today. I'll be updating this page between 1pm and around 3:30pm today.

I've been nominated for small cap journalist of the year again. However, thinking about it, I've found the previous years' judging to be so haphazard, bizarre even, that for me the whole thing lacks credibility. Therefore it doesn't interest me at all.

Readers here constantly tell me that they value my work, and it's helped them make money (and avoid losses), which is all that matters to me.

Let's start with an update from yesterday;

Bonmarche Holdings (LON:BON)

Share price: 81.5p
No. shares: 50.0m
Market cap: £40.8m

Trading update - 53 weeks ended 1 Apr 2017. Note the elongated period, which will flatter results versus the previous year.

The following table is presented for Q4, and the full year's sales;

This shows a clearly improving trend in Q4, with LFL+online sales up 0.7% in Q4, against a total for the whole year of minus 3.8%.

However, there's a problem with this table - it's not actually Like-For-Like (LFL) sales at all! As they admit below the table, this is comparing 53 weeks this year, with 52 weeks last year. Clearly that is not a LFL comparison. So why on earth was this published, when it's clearly misleading?

As noted previously, FY17 includes a 53rd week to align our reporting year-end more closely with our accounting reference date of 31 March. To aid comparisons with FY16's 52 week reporting period, we also include below the corresponding FY17 figures for the 13 and 52 week periods ended Saturday 25 March 2017:

So here are the proper figures, which are on a LFL basis (i.e. comparing periods which are the same duration);

As you can see, there's a significant deterioration when the correct prior year comparison periods are used. Instead of +0.7%, the Q4 sales are now -1.1%.

Note how there was strong growth in online sales in Q4, at +14.8%, which is encouraging. Although this doesn't move the dial much overall, because online sales are still a fairly small part of the total. An older, value-orientated customer base, is not likely to be as receptive to shopping online (especially on smartphones) as younger demographics. So I'm not sure how much opportunity BON…

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PeterW

20th Apr '17

Hi Paul,
Apropos to your opening remarks above I've been remiss in not telling you how much I value your column. Your attention to the relevant details combined with your common sense and extensive investment and business experience make for powerful and insightful analysis. So thank you so much for helping me make better returns.
Regards,
Peter

JohnEustace

I have let my Investors Chronicle subscription lapse and I read this column most days so that's my vote cast.

Paul Scott

Hi Peter,

Thanks very much - although I wasn't fishing for compliments!!

I think awards only make sense if the public have actually voted. A randomly chosen panel, most of whom obviously haven't even looked at the subject matter concerned, just makes for a meaningless event of little to no value, in my view.

Regards, Paul.

xcity

I think it is very hard to value Bonmarche Holdings (LON:BON) atm.
Trading was poor last year and retail climate is against it.
OTOH, there was a clear steadying in the last quarter.
Purely on these fundamentals, with a strong balance sheet and high yield, it doesn't seem expensive but you would have to worry how long it could last before the balance sheet is eroded and trade disappears.
However, the large uncertainty is about the impact of the new CEO. Some of the comments this time are sensible (unlike last time when it was the same old excuses) and it is impossible to know from outside how much scope there is to improve things under the right direction. Also no indication of any transformational costs (and previous comments about moving to new systems were concerning; potential gains, but also costs and risks). She seems to have the right background, but that doesn't really tell you what the outcome is likely to be, simply that she might be able to take advantage of any opportunities, assuming there are some.

andrea34

It's a shame we can't vote for you Paul.

Re BON, I didn't even get as far as thinking the table was misleading when I saw the RNS, it just continues to looks a bleak picture to avoid to me.

Any views on TRI and the update today? Perhaps they are too big for you now... though you have mentioned them before.

Camtab

At the risk of embarrassing you Paul, you and Stockopedia have made a huge difference to how I invest in shares. It feels good just to acknowledge that. Thanks to you and the team.

pastybap

Agree with all above. Whilst I do still subscribe to the IC and take ideas elsewhere, what I think I gain most from your reports is the balanced narrative (almost like you're talking to yourself and weighing up in your own head), as well as the ability to smell a rat and interpret window-dressed reports.

Would definitely get my vote.

Rusty2

I cancelled my IC subscription about 18 months ago, had a few rows with ST over Globo and Stanley Gibbons (LON:SGI). I found this site far better and my performance has improved. IC probably has higher readership so no surprise that it gets awards. I do have concerns about some of things in IC. It is far more balanced approach here and far deeper understanding, hence the different views on Globo. Not to mention chinese AIM shares. Actually I only "discovered" Paul via Globo, I never was a holder even though I was accused of being a shorter.

Michael Mortphew

Same here. I found it informative for a couple of years but came to the conclusion that they had a tendency to look on the bright side. Reading this makes me realise how little I know. Thanks to all those here who make detailed / reasoned input.

InvestedGeordie

Recognising that I don't want to make you blush Paul, you are a constant inspiration to me in the way I invest. You have changed the way I think about companies, and the way I understand investable propositions.

Your beer tally rises!

simoan

This share has had an amazing run since 2009, when it bottomed out at about 8p. If the company can keep growing earnings, then there's no reason why the shares couldn't continue rising. I'm a little sceptical about competitive issues though - surely there must be thousands of companies all over the world that make industrial fastenings? How come this company makes a decent margin, against what must be a huge amount of competition which could undercut them on price, from e.g. low wage economies?

Luckily for me I have held £TRI throughout this time. This is a story of a very well managed company making excellent value enhancing acquisitions and acting as an industry consolidator to increase market share (which is still very small) including buying a low cost producer in Malaysia to supply the Far East. They have concentrated on all the right things, most importantly cost control and product and customer support excellence. The management has been top notch IMHO (and very well remunerated too!) and my one reservation to continue holding is the recent changes at the top.

One of the main reasons I have built up a holding in Flowtech Fluidpower (LON:FLO) recently is the involvement of Malcolm Diamond - if he can repeat even half of what he did whilst at the helm of Trifast (LON:TRI) then it looks pretty cheap to me.

All the best, Si

Laughton

Re Trifast (LON:TRI) - in answer to your question regarding competitive issues from another long term holder. As I understand it TRI really understands what it takes to capture customers and then keep them. It's all about service. They don't just wait for a customer to specifiy a fastening - because of their relationships they respond to the customer's needs and actually design fasteners that will do the job the customer wants doing. They also have a near zero failure rate on their products and that counts for a lot. What manufacturer of cars (or any other expensive product for that matter) wants to have a problem with some small component that might result in recalls or assembly line hold-ups?
Hopefully the new people at the top will appreciate what makes the company special and will carry on in the same way.

rhomboid1

Re Bonmarche Holdings (LON:BON) they surely have to be a dying business as it is aimed at middle age & above ,and women approaching that demographic are from the Online Smart phone using era and will be shopping accordingly ? Their small online presence would need to grow significantly to offset the impact & there's little to suggest that it's doing so . I hold a small position in Shoe Zone (LON:SHOE) who appear to be a far more resilient proposition and offer a similar yield.

Small Cap Value Report (Thu 20 Apr 2017) - BON, TRI

Bonmarche Holdings (LON:BON)

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Paul Scott

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