Small Cap Value Report (Thu 3 May 2018) - TNI | Paul Scott

3rd May '18 by Paul Scott

33 comments 12001 reads

Good morning, it's Paul here!

We're up-to-date! Yes, Tuesday's report now includes a rather sceptical commentary on Connect (LON:CNCT) (in which I hold a long position, but am pondering whether to sell or not) here.

Wednesday's report was updated last night, to include six companies in total, so the link for that is here.

Leon Boros - half marathon

ISA millionaire, and all round decent chap, Leon Boros is running a half marathon on May 20th. Leon is always generous with his time, helping to educate and enrich other people through talks at investor shows, etc. His investment track record, based on a clear focus on high quality companies, is extraordinarily good. Stunning actually. So he's very much a person to follow.

Here's a link to Leon's eBook and articles about his highly successful strategy. If you're looking for a proven strategy to adopt, then I think Leon's approach is second to none.

The fundraising cause is for ShareSoc, which as many of you know, is a not-for-profit organisation which campaigns for private investors on numerous topics. The Directors & other supporters are unpaid, and put in a tremendous amount of work on our behalf.

I feel that we should do more to support ShareSoc, and hence it's a good thing to become a paid member. Also, if you can spare a bob or two to sponsor Leon run for ShareSoc, then I know he would appreciate it very much indeed. Here's Leon's sponsorship page.

Trinity Mirror (LON:TNI)

Share price: 84.7p (down 2% today, at 12:43)
No. shares: 299.3m
Market cap: £253.5m

Trading update

This newspaper group updates us today;

Trinity Mirror plc is issuing a trading update for the 4 month period from 1 January 2018 to 29 April 2018 ('the period'), ahead of its 2018 Annual General Meeting later today.

A reader left a very interesting comment here yesterday, suggesting that newspapers might see a resurgence because people are becoming disillusioned with all the lies on social media. That's a nice idea, although newspapers don't exactly have the best of reputations for accurate reporting! It's more about reflecting the prejudices of the readership, sadly. Although that's less the case…

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matylda

3rd May '18

Re Van Elle Holdings (LON:VANL)

Its strange because I made this point this morning...

Year End Trading Update (To End April 2018) – This looks like a miss (PBT to be £10.5m) by I reckon, about 25% (based on Stockopedia 2018E £10.4m Net Profit (my rough calculation being, add 25% for 20% Corp Tax).

With little movement in the SP today not sure what's going on - Can't find any broker notes.

robin66

Re Van Elle Holdings (LON:VANL)
Sorry Matilda I missed your comment earlier (so did xcity obviously!). Like you not sure why SP not reacting much

Albertos

Van Elle Holdings (LON:VANL)

I always go on the EPS forecast.

10.1p x 80m shares is essentially £8m net income - extrapolating from this, PBT would be about £10m - so I think the forecast is PBT and therefore it's a slight beat.

One of the problems I have with Stockopedia is quite often the net income forecast is actually PBT, or adjusted PBT or .......

Phil

Thanks all - Will be interesting to see if Paul can pick up on this, perhaps he has access to some broker info (can't find anything on Research Tree myself).

SharesMagSteve

I note zero acqs in 3 years but BoD paid £4.3m in salary, bonuses (!) and pension funding. Two of the dirs are Marwyn people, FYI.

xcity

You're quite correct, though that then leaves me baffled as to how broker expectations could have been that high after the warnings in the interim statements. Tax unlikely to be as high as £2m. But need to look more closely at the broker predictions in future to make sure I have the right line. That said, I don't completely understand the figures - estimated profit up and EPS down. Sharepad had the predicted pre-tax (normalised!) as 10.7.
I had been hoping to pick up a few today after poor results but discounted it after the statement only to see that someone did manage to pick some up in the mid 70s. :( Price back over 80 again now.
Maybe when the results are actually out.

ls2g08

I'm currently a fan of this company. I think management really know what they are doing and communicate their strategy really effectively.

It has a strong asset backed balance sheet through direct ownership of it's hotels giving good downside protection and room for expanding their growth through further borrowing to increase the number rooms available. They have consistently high occupancy across the group and modern well appointed rooms. They all have received good reviews in both brands 3.5-4 for all Maldron hotels and 4-4.5 for the more premium Clayton brand.

Their strategy of going after the 3-4 star market in provincial cities is a smart play in my opinion as the competition in these markets is very fragmented and the hotels are typically older than the the budget hotel segment. This update seems positive and leads me to believe they continue to execute their strategy effectively.

This presentation given in January I think outlines their strategy pretty well.

http://dalatahotelgroup.com/wp-content/uploads/2018/01/Investor-Presentation-January-2018-FINAL.pdf

That would certainly explain the otherwise strange relationship between predicted net profit and predicted EPS.

Boon

On Trinity Mirror (LON:TNI) one key trend that is happening is media accountability - big brands are coming under increasing pressure to know where their ads are shown, and against what type of content.

Social networks like Facebook, Youtube, and display networks like OpenX cause this issue, because its a "network buy" for ad space. Against user generated content.

We are probably going to see marketing spend shifted to "walled garden" closed networks, sometimes known as premium networks, like Trinity Mirror (LON:TNI) or selective premium video & display networks.

If you're Unilever's CMO, why risk your job chasing ad impressions on open networks when you can spend your money in the many closed networks available, and sleep well at night knowing there won't be any public backlash looming?

Therefore I see digital ad revenues on newspapers increasing in the future, as companies stampede to secure the limited but safe ad environment.

moolahcoast

On Trinity Mirror (LON:TNI) I ask myself when was the last time I interacted with a product from them and I have my answer whether to invest or not. (in my case not)
On Facebook shorting, I wouldn't personally do it - they own Instagram which has a huge and increasing take-up and are getting into dating, which I think they will do well from. They have fingers in so many pies - VR through their purchase of Oculus Rift etc... that should the Facebook part of it wane, another part of it might boom.

ken mitchell

My investment performance has improved markedly since subscribing to Stockopedia, with Paul and Graham’s daily small company reports a key reason for that success, both big winners I would not have invested in (e.g BOO 7 bagged) but for their expertise, but also when their excellent analysis reveals shares not to touch with a barge pole.

One concern though is burn out risk. Their updates are so detailed and thorough that they must take hours to do. e.g Yesterday was a marathon marathon effort from Paul. If they are both happy to continue to put in so much effort that’s great. But if (or perhaps more likely, when) it becomes too much strain then would it be a good idea to reduce the detail on shares where they are feeling neutral at best, and focus more on shares they like a lot and any obvious stinkers. I look at all their information when they are very positive or negative about a share, but tend to skip some of it when it is far less clear cut. IF others do the same it questions whether it is worth their doing it in such detail.

Also I’m happy with most of my portfolio and tend to hold the quality investments that are doing well for years sometimes, and so have to be selective with new buys. And the updates I really really like are the ones on shares I currently hold or are on my watch list, and the new ones that look must buys. Hence why I sometimes skip some of their information on shares they are ambivalent about.

I hope this isn’t out of place, but it just seems that sometimes they are working TOO hard for our benefit, and we’ll all lose out if their enthusiasm wanes.

DJCP

Paul,

Re Trinity Mirror (LON:TNI) you mentioned "... a dividend yield over 3 times the forward PER! I can't recall ever seeing such a situation where the yield is that much higher than the PER."

As a quick job, so no checking data, or the quality of the companies, and E&OE etc. (Think that's all the disclaimers out of the way !)
Here's a list of companies who's Divi is >= (current) PE. I did leave out Carillion (LON:CLLN) ! lol who's figures came out as PE:0.49 Div:129.93 Ratio:265.16
Still trying to work out what, if anything, this means, but do recognise some of the names as being mentioned in SCVR in the past.

Pan African Resources (LON:PAF) PE:0.06 Div:4.58 Ratio:76.33
Aberdeen Private Equity Fund (LON:APEF) PE:2.62 Div:47.06 Ratio:17.96
Accrol Group (LON:ACRL) PE:2.00 Div:33.33 Ratio:16.67
Safestyle UK (LON:SFE) PE:4.43 Div:19.40 Ratio:4.38
Barloworld (LON:BWO) PE:0.76 Div:2.83 Ratio:3.72
Connect (LON:CNCT) PE:5.00 Div:17.82 Ratio:3.56
Gattaca (LON:GATC) PE:5.88 Div:16.73 Ratio:2.85
Caffyns (LON:CFYN) PE:2.28 Div:5.29 Ratio:2.32
Debenhams (LON:DEB) PE:6.17 Div:13.90 Ratio:2.25
OPG Power Ventures (LON:OPG) PE:2.28 Div:5.09 Ratio:2.23
UP Global Sourcing Holdings (LON:UPGS) PE:5.76 Div:12.34 Ratio:2.14
Trinity Mirror (LON:TNI) PE:3.70 Div:6.82 Ratio:1.84
Urals Energy PCL (LON:UEN) PE:2.42 Div:4.46 Ratio:1.84
Hansteen Holdings (LON:HSTN) PE:3.45 Div:6.27 Ratio:1.82
Galliford Try (LON:GFRD) PE:6.36 Div:10.36 Ratio:1.63
Centaur Media (LON:CAU) PE:3.55 Div:5.56 Ratio:1.57
NAHL (LON:NAH) PE:5.88 Div:8.55 Ratio:1.45
Marshall Motor Holdings (LON:MMH) PE:2.65 Div:3.79 Ratio:1.43
PayPoint (LON:PAY) PE:9.93 Div:13.81 Ratio:1.39
Northern Investors (LON:NRI) PE:9.78 Div:13.39 Ratio:1.37
Conviviality (LON:CVR) PE:9.37 Div:12.45 Ratio:1.33
National Grid (LON:NG.) PE:4.09 Div:5.22 Ratio:1.28
Prime People (LON:PRP) PE:5.71 Div:6.67 Ratio:1.17
Income & Growth VCT (LON:IGV) PE:25.45 Div:29.58 Ratio:1.16
British & American Investment Trust (LON:BAF) PE:9.89 Div:11.47 Ratio:1.16
Ferrexpo (LON:FXPO) PE:4.74 Div:5.21 Ratio:1.10
Cenkos Securities (LON:CNKS) PE:7.92 Div:8.61 Ratio:1.09
PCI- PAL (LON:PCIP) PE:2.69 Div:2.86 Ratio:1.06
Mobeus Income & Growth VCT (LON:MIX) PE:24.60 Div:25.81 Ratio:1.05
Panther Securities P L C (LON:PNS) PE:3.13 Div:3.20 Ratio:1.02
U and I (LON:UAI) PE:7.38 Div:7.54 Ratio:1.02

Not sure how good your data is - just looked at National grid, the PE ratio is 14, and div is 5.28%. Appreciate the effort all the same.

Re the PE/Divi data.
I should have pointed out it wasn't from Stockopedia, and the figures were from another site's financials. Perhaps I should have worked them out from the underlying numbers too, to check their headline figures were correct.

jim knight

Hi Paul

I'd just like to thank you, Graham and the Stockopedia staff for your hard work, insights and analysis, particularly the recent feedback and videos from Mello. By far the best investment I have made was to subscribe to Stockopedia. I'm sure it must be very hard work and tedious at times churning out the SCVR so keep up the good work and I hope you'll return refreshed and renewed after your sabbatical. I really appreciate your efforts, erudite analysis, humility and honesty.
Cheers.
jim knight

ccraig

Tni has lots of property and office space. I would think they will morph into more of a reit as the decline happens

Gromley

4th May '18

Hi Paul,

Thanks for your observations on Trinity Mirror (LON:TNI) - I always value your views.

I should point out that I wasn't intending to suggest a resurgence for the papers, but rather that there is some evidence of a change in the (down) trend having actually happened in the short term at least. As it turned out Trinity Mirror (LON:TNI) 's take on this was less bullish than that of Johnston Press (LON:JPR). I note though that Johnston Press (LON:JPR) referred to the regionals whereas Trinity Mirror (LON:TNI) did not give the national / regional split - the lack of that split may of course mean that they saw no significant difference. On the subject of trust that you raise I do agree that the "red tops" are probably not much more credible that Facebook - people do though I think have a warmer feel about the regionals.

Anyway albeit a with a less bullish tone than Johnston Press (LON:JPR) (and one that did not 'surprise' the market as I conjectured it might) Trinity Mirror (LON:TNI) did report some improvement in print advertising.

This is important in two ways I think. Firstly because existing valuations are predicated on all of the traditional business areas continuing to decline aggressively; if even temporarily the decline abates then this increases the profits and cash that can be thrown off during the death spiral.

More significantly perhaps it also creates the possibility of a change in sentiment in the near term. I made a bit of a joke of the fact that TNI's outlook statements have been incredibly boring in the last three years - always "in line" - but this underwrites the fact that the earnings trajectory has not really changed over the recent years (taking aside the recently announced tie up with Express & Star that I will mention later). So the story has not really changed in three years, yet the price wiggled between c. 190p and c. 60p so imho sentiment is a big factor here imho.

Anyway I can absolutely understand the 'Marmite' taste of TNI as an investment, but for me the "run down" value of the traditional business more than supports the current valuation.

You made an important point though that I believe is transferable to other situations :

for a business in (arguably terminal) decline, it's astonishing how cash generative TNI still is

This actually comes with the territory and is the counterpoint of the oft heard complaint about growth stocks - that they generate great profits but no cash as it is all invested in growth - on the wind down these businesses throw off super levels of cash as capex falls.

As an aside, I used to run the operations for a business unit that was barely washing it's face ; "the seniors" then decided to take a massive write down on our assets (potential resale value was virtually zero). Although we were still doing exactly the same business, I cannot recall now how many calls I had to field over the next year from the heads of other divisions wanting to know what they could do to achieve our levels of return on Assets. (They were by and large not impressed at my suggestion of becoming "old school" and "redundant".

Anyway, back on topic - Trinity Mirror (LON:TNI) should probably now go back into the "too boring" bucket until we learn what the regulators think about the proposed tie up with Express and Star (incidentally these are the national titles not the black country regional of that name)

Personally I think it would be perverse for the 'merger' to be blocked by the regulators, but nevertheless this would be my major caution here.

TMFMayn

5th May '18

“I feel that we should do more to support ShareSoc, and hence it's a good thing to become a paid member.”

Well... according to Leon’s sponsorship page:

“The money raised will be used to help ShareSoc install an up to date membership database and online member support forum and to further its educational work.”

And according to ShareSoc:

https://www.sharesoc.org/servi...
https://www.sharesoc.org/servi...

“Over the last two years, Mike Dennis and I, with input from Roger, have examined how best to achieve this. Fortunately, we have established that we can develop the facilities we need using open source software: WordPress and CiviCRM, so there are no software costs as such. However, to create a website of a professional standard, professional input is required. After an extensive competitive process, we have identified expert contractors able to assist us with this, though much of the work to transition to this new site and system will be performed by ShareSoc’s own staff.”

“Firstly, the cost of contractor effort to conduct the first phase of the project was ~£6,000, below the original budget. Subsequent phases are expected to cost us a further £18,000. “

£18k to implement what is free CiviCRM software does sound rather a lot.

And poor old Leon will have to run a few more half marathons to pay for the expert contractors :-(

If I were a ShareSoc member (or Leon!), I would be asking what alternative and cheaper CRM packages — or combination of membership/event/forum packages — could be considered instead.

Perhaps the tech aces at Stockopedia and SharePad could provide some advice?

For what it is worth, I have downloaded the CiviCRM software, installed it into a localhost WordPress set-up and found it does not integrate well with the page-builder (WP Bakery/Visual Composer) used to develop the ShareSoc website. The problem I encountered was CiviCRM displaying confirmation pages using the active WordPress theme and seemingly ignoring the style of the pages created using the page-builder.

https://docs.civicrm.org/sysad...

And it seems CiviCRM was developed primarily for Drupal and not WordPress. Anyone know Drupal?

I know Drupal. A bit.
But I'm not volunteering.
I wouldn't choose to use it on my own sites. so don't know (or want to know) it well enough to use it for anyone else.
And don't know CiviCRM, though understand that it should support Wordpress as well as Joomla!.
I'd've thought that ShareSoc would have enough tech experts/professionals as members to be able to get volunteers. Employing outsiders to do it can be a road to endless expense or problems. And stuff often needs acting on immediately - as in the recent Drupal vulnerability.

6th May '18

"I'd've thought that ShareSoc would have enough tech experts/professionals as members to be able to get volunteers. Employing outsiders to do it can be a road to endless expense or problems."

Agreed.

Maybe I am worrying about nothing though. Some further thoughts:

1) I recall Roger has run a software company (see this old thread: https://www.stockopedia.com/content/small-cap-value-report-30-apr-2015-cct-ope-ubi-gbo-97917/?comment=33#33). So there is some real-life expertise involved here.

2) I gather some ShareSoc directors are active on social media. No doubt calls for tech/CRM experts would have been made though that channel.

3) ShareSoc and UKSA have been in merger talks. UKSA.org.uk runs on Drupal, so perhaps the eventual plan is to integrate CiviCRM with that website (although that leaves a question about the £6k WordPress site).

Small Cap Value Report (Thu 3 May 2018) - TNI

Leon Boros - half marathon

Trinity Mirror (LON:TNI)

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Paul Scott

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