Small Cap Value Report (Thu 29 Oct 2020) - HRN, FOXT, BEG, PHD, CTG, REDD

29th Oct '20 by Paul Scott

55 comments 11730 reads

Good morning, it’s Paul and Jack here with the SCVR for Thursday.

Please bear with us this week, as we’re experimenting with new ideas for how to seamlessly contribute sections into the same article. Yesterday seemed to work out well. I enjoyed having a good rummage into the weird put options at M&c Saatchi (LON:SAA) which turned up a potentially nasty dilution situation. So be careful with that one. If anything looks odd, in the accounts, it really does need to be properly checked out.

Timings - Jack did an early section, many thanks for that. Now I'll be producing the usual 4 or 5 sections throughout the day. Likely to be finished late afternoon, as some of these sections take a long time to dig into, and write up! Let's aim for 4pm finish. Update at 16:26 - the main sections are now done, but I'll do a bit more to look at one or two more companies. Extended finish time now 6:30pm. Today's report is now finished.

Agenda - these results/trading updates have caught my eye;

Foxtons (LON:FOXT) - Trading statement

Begbies Traynor (LON:BEG) - Red Flag Report

Proactis Holdings (LON:PHD) - Final results

Christie (LON:CTG) - Interim results

Redde Northgate (LON:REDD) - from yesterday, several people have asked if I’d look at it

** This first section contributed by Jack Brumby **

Hornby (LON:HRN)

Share price: 37.4p

Shares in issue: 166,927,838

Market cap: £62.4m

(Jack writing)

This developer, producer, and supplier of hobby products probably has some goodwill with certain investors who have used Airfix and the rest before.

Long-suffering shareholders might be less fond of the company as a listed entity, however.

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It’s a potentially interesting case here.

What some once assumed to be the likely fate of Games Workshop (LON:GAW) has happened at Hornby: from 2015, Hornby (LON:HRN) has reported declining financial results due to a sustained fall in collecting customers and the rise of video gaming.

A brief summary of recent trading:

Shares dropped by more than 50% in a year in 2015/16 and Hornby announced it would cut more than half its less profitable toy ranges. In the…

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Michael C

29th Oct '20

It is important to remember that model railways are still a very important part of Hornby's business and the models with the best margins are expensive items sold to adults, not trainsets sold to kids. The hobby is very lively at the moment, with everyone seeming to be very busy, and there are quite a lot of collectors. Anyone following £hrn could usefully follow the leading enthusiast forum, RM Web, where there is a sub-forum for Hornby (LON:HRN) https://www.rmweb.co.uk/commun... and a thread with intelligent comments about today's RNS: https://www.rmweb.co.uk/commun...

However I am not convinced by Hornby's new Steampunk line, where I think the design work is amateurish. If you are trying to appeal to a very specialised market you need designers who are totally immersed in the genre, and you need some powerful social media influencers on board. When a new consumer product catches my interest the first thing I do is look at Youtube. A search for Steampunk videos produced in the last month has the two leaders with 931k and 837k views, both about a week old - no mention of the Hornby range. The highest viewcount for the Hornby steampunk range is 30k views after 4 weeks. The majority of the comments on all the Youtube reviews of the Steampunk line are critical and many are utterly scathing.

thirty fifty twenty

Gfinity (LON:GFIN) final results today look like BIG decline in revenues and huge losses much bigger than current CASH but under the bonnet there is a much different picture.

i have calculated back from last year results and this year H1 results.

the new CEO (Mar 2020 cut the run rate of costs by 65%) and they have stated regularly before about reaching profitability for Q1 2021. so my calcs for Q1 2021:

t/o = 1.8m
GP = 1.1m
admin costs = 1.0m
profit = 0.1m

so this means that turnover is possibly growing from
< 0.5m in mar to june (albeit in heavy lockdown)
to 1.8m between jan and mar 2021
i.e. huge growth rates
and using Q1 2021 turnover rates implies annual turnover (run rate) of 7m
so at the current 4p giving MV of 32m the valuation is 4.5 times
but obviously this is reducing rapidly as the growth rates kick in

they have 1.6m of net CASH, and warrants that will give a further 2m CASH.
given the valuation of comparable companies seems to support the rising chart to me, and of course like many others they have enough CASH and will be profitable soon.

the key for me is that > 3.8p seems a very clear chart break out confirming a chart bottom after years of company poor performance from the previous management .

disc: GFIN is in my portfolio. i am low risk investor

shopping365

Foxtons (LON:FOXT)

Many sales and chains are falling through because mortgage companies will not lend money on a property that does not have an EWS1 certificate, it is not possible to re-mortgage either (i.e. convert a normal mortgage to a buy to let mortgage as this is considered a new application) https://www.theguardian.com/mo...

The Sunday Times has had several articles about this too. London and other urban areas are obviously at greater risk because of the relatively high number of flats.

JohnEustace

It's all a bit rubbish in my view to give users half a dozen different ways of viewing comments and then expecting us to format our comments for people using one of the other five methods. But yes being a polite chap I do try to remember.

Laughton

A suggestion for the powers that be. How about adding a box at the top of the Comment Now box - in which to put the ticker of the relevant share? That would then appear when you submit your post, so that the top line could show "in reply to post #xxxxxxxx re "name of share".

If you are replying to a previous comment then the box could be automatically filled with the ticker from the post you are replying to. Can't be impossible, surely.

If your comment is just a general comment on the market for instance then you could enter a simple symbol (an asterisk, for example).

MiserableJacktPotato

Right, but it’s only the old site that had the issue.

If you’re using the new site the comments can be threaded.

Exactly, it’s unreasonable to expect everyone else to take an action because one person doesn’t want to thread the posts. Tail trying to wag the dog.

The format is £SHARE in caps with no special characters in the string. For example £SHARE. wouldn’t work.

Test iPad, Safari Boohoo (LON:BOO)

"Exactly, it’s unreasonable to expect everyone else to take an action because one person doesn’t want to thread the posts. Tail trying to wag the dog."

Or, looking at it another way - if you take the trouble to post something do you want to make it as easy as possible for someone to know what it is you're talking about?

God knows how you guys cope with Reddit.

When you use unthreaded, it even gives you a click saying “one reply” or “two replies”.

As I have hopefully just demonstrated.

oh look, in unthreaded I can see I have three replies.

Guess this one makes it four.

Sharewallah

Great work chaps. Thank you.

PDiddy

again, completely disagree with adding a ticker on replies to OP's. I don't believe in clutter. People should use 'threaded' & 'latest' filters. Who jumps into a book at page 10 for example? I also hate clutter and a ticker on every post is silly. Stocko should simply add a hyperlink on the linked thread posts and if people are curious or want to know more about that conversation then click it. Otherwise ignore it and jog on.

Rusty2

Not a problem on the old site it was clear who he was replying to and what the share was.

Phuntt

I have three young kids myself and this comment struck a nerve. My sister and her husband both tested positive for COVID last week and as a good brother I wondered what I could do. So I headed to the local Smyth’s superstore and put a bag of “time stealing” toys together for each of their kids. They are all too young for Hornsby brands but it made me think that if this company is at the right price it has massive potential both for parents trying to introduce the new generation and parents trying to relive a lost youth. The parallels with Games Workshop (LON:GAW) aren’t valid as they have already created a younger demographic following from their older following which is obviously attractive but it seems reasonable to me that Hornby (LON:HRN) could do the same with effort and with a range of brands that have a much greater potential for mass market. I also note Dogon’s fervent support for the management team above - that I think will be my avenue for research - do these guys have experience in creating a brand or community? If I can see that, I think I’ll be a buyer. Michael C’s negative comments below are also interesting - more research needed here !!

As an aside it also struck a cord with me that I had very little worries for either my sister or husband’s health - they are both younger middle aged, my sister lost sense of taste, her husband was symptom free, neither has any related health condition. For the majority of the country, this isn’t the life threatening condition we were worried about (although as investors we really need to be concerned with what the government is actually doing, not what we think they should be doing - don’t want to restart that debate).

Caper4

many thanks for your review of Redde Northgate Paul. This is my second largest holding after Boohoo,and I intend to keep onto both for a few years

Wilbraham

I thought one of the attractions of Redde Northgate (LON:REDD) was the pedigree of the new Chair, Avril Palmer, who made a mint at BCA/WeBuyAnyCar https://www.thisismoney.co.uk/...

PLS1nve5t

A bit of nostalgia there with Redde Northgate - I learned to drive on that industrial estate in Darlington 40 odd years back, cant believe they are worth half a billion now. Just across the road is the remains of the old MFI - now Howdens Joinery.

Shall take another look - thanks Paul

davidjhill

30th Oct '20

hi Paul

Redde Northgate (LON:REDD) is also a holding of mine. It is worth noting that second hand values are actually increasing so this is likely to have a positive overall effect on earnings. As you say it has decent cash generation, good dividends and much room to grow. Analysts expect 36p of earnings next year which puts it on a PE of 5.

However, during this year they have achieved £14m of annualised run rate savings with a bit more to come. This upcoming year should be when they see those realised (note : the cost reductions were put in place between merger in Feb and August y/e so there is probably only 3 months worth in this years numbers ). Therefore I can see £10m+ dropping straight to bottom line that wasn't there in this years 30.8p eps on underlying earnings. Thus I think the business only has to stand still this coming year to achieve the 36p eps on analysts radar and as a consequence I can see upgrades on the horizon.

Further lockdowns could clearly have an impact but this years numbers include the whole Mar-July initial shutdown. In my view any subsequent lockdowns will be shorter and less onerous in nature but more importantly are now less of a shock to people and businesses, so in theory at least, should be a little less disruptive.

All in all I can see this years eps expectation of 36p as being comfortable, even given the current environment, and there is strong free cash generation so don't forsee too much risk to dividends. But on the other side of the Covid crisis I can also see strong growth.

best

David

Small Cap Value Report (Thu 29 Oct 2020) - HRN, FOXT, BEG, PHD, CTG, REDD

Hornby (LON:HRN)

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Paul Scott

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