Small Cap Value Report (Thu 31 Jan 2019) - STAF, BOTB, SOS, BLV, FOXT, FLO, FA., SCS, CTO

31st Jan '19 by Paul Scott

66 comments 18242 reads

Good morning, it's Paul here!

Cloudcall (LON:CALL)

As promised, here are the videos from the Cloudcall (LON:CALL) (in which I hold a long position) Capital Markets Day, which I reported on here, on 22 Jan 2019. Clicking on the links below will take you directly to the videos, on Vimeo.

9-minute summary video

Full presentation 1 hr 41m

Staffline (LON:STAF)

(suspended at 670p)

Not another accounting scandal?

What on earth was AIM thinking of, allowing Staffline shares to continue trading yesterday, after a bombshell announcement at 7am that results would be delayed? Investors understandably started panic selling, and the shares dropped by about a third. Only at 3:50pm were the shares suspended. This is madness/incompetence.

With some sort of accounting problems probably having emerged (why else would results be delayed?) then shares cannot be allowed to trade, as it's a false market. People don't know what's going on, hence the shares have to be suspended.

The company update given at 6:14pm yesterday says very little. Key bits;

... concerns were brought to the attention of the Board relating to invoicing and payroll practices within the Recruitment division.

Given the nature of the allegations, the preliminary results will not be published until the matters have been fully investigated.

The Board is confident that its policies in relation to these matters are appropriate, particularly given that these practices have been the subject of prior audits.

However, if the allegations are substantiated this could have a material impact on the Group and its profitability and until further investigation has been undertaken the Board cannot assess the potential materiality.

Materiality is usually defined as 10% of profits. So it looks as if the problems, if genuine, could be at least 10% of profits.

There doesn't appear to be any cash impact, as far as we know;

Other than that noted above, the financial position of the Company is unchanged, as reported on 8 January the Company expects to report net debt of c£63m for the year ended 31 December 2018 and can also report that in July 2018 the Company refinanced its £150m lending facilities.

My opinion - this sounds as if sales &…

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JohnCo

31st Jan '19

As a holder of Staffline shares, I was amazed that AIM allowed trading to continue right into late afternoon. I entirely agree with you that suspension should have happened immediately on the 7 a.m. announcement.

dscollard

timarr

I'd argue that price action by definition cannot be random since it is a summation of all of the decisions of those buyers and sellers..but then we are into another argument and I'll take a random walk away from that one.

The question then comes down to whether those decisions are independent of each other - i.e. you're looking at a wisdom of crowds result - or not - i.e. you're looking at noise trading. Almost by definition most technical analysis is the latter, and the more uninformed punters who are attracted to it the lower the signal to noise ratio is likely to become.

I'm not dissing technical analysis in general, just pointing out that the same signals can be generated either by real information or by noise. Identifying the false positives can only really be done by fundamental analysis. Of course, very smart traders can make money by trading on the noise generated by idiots, but that's an entirely different sort of investing.

pippasfan

Thanks DJCP, good observations, however I would still love to know how well animal print is selling. Obviously they believed it would sell well,but I have my doubts. Thank you

@Tim

although trend analysis ,for example, is a de-facto summation of signal over noise: that's been around for a while since Livermore's day if not before and does work well.
There are so many flavours of technical analysis and most of them are bunkum. I don't go with wave analyses as a proxy for crowd psychology . However I do know that price moving on strong volume is more signal than noise and that signals such as these can and do inform subsequent buying/selling. I am evidence-led and data driven : that is in my nature and in my original background as a scientist: but I get that opinions vary markedly on this. If nothing else, Minervini has done some good for a much maligned and misrepresented suite of tools.

If we ever meet IRL, we can debate with vigour : whatever about the wisdom of crowds, I try not to get fooled by randomness

steviano3141

top stuff, cheers

Trident

I think we can sometimes take what CEO's say with a pinch of salt. To suggest the Best Of The Best (LON:BOTB) tender price was just sort-of random does not strike me as true. In circumstances where something like that was put forward it would be discussed by the board, and no doubt their advisors. They would be trying to understand what signal it sent etc., what was the inherent value of the Company etc.

The CEO did sort of also imply that it was also to make it attractive to take up. So at one level the price is a marketing tool for the Tender Offer.

I think the main motive was to share the distributed cash as equitably as possible. But I wouldn't be surprised if there was a secondary motive. If there is an increase in their ownership, and let us say there have been thoughts of selling up or de-listing, they will have been honourable and distributed some surplus cash, and not forced anyone to sell up. So hands are pretty clean, and if an offer were to be made, they will have the opportunity to increase their take of the sale price.

In the spirit of total speculation I suggest there will be a part two to this story.

Howard Marx

sher3141

The revenue recogntion policy for Sosandar (LON:SOS) is detailed on page 49 of the Accounts

"Revenue represents net invoiced sales of goods including posting and packing receipts, excluding value added tax. Revenue from the sale is recognised when the company has transferred the goods to the buyer on dispatch from the warehouse, less actual returns and provision for expected returns. Revenue consists primarily of internet sales."

doublelutz

With Patisserie Holdings I would have thought the chart simply indicated that the strong momentum trade that had taken it up from around 340 to 500 in a period of only a few months had at least temporarily ended. Had I held the share on this run up it may have made me get out about the time it broke below its 50 day moving average at around 440. Much more importantly it would have stopped me buying back in until the situation resolved itself with a move up out of the sideways trend that continued until the death although this did not signify anything more than a possible pause before perhaps continuing upwards. I always say that if charts do only one thing they can stop you trying to catch a falling knife although Patisserie never came near this category.

slartybartfast

I'm not sure why Stockopedia don't make it mandatory to enter either a stock ticker or Topic on any posting.

Zipmanpeter

Re Sosandar (LON:SOS)

Questions to ask:
1. What is the split of their Admin Expenses into i) Marketing ii) Distribution & Fulfilment iii) Other
2. Building on 1, are they testing more aggressive marketing plans whilst they seem to have a winning proposition even if this put the breakeven date back by another 6-12months.
3. What other brands do their consumers also buy by (since none will be exclusive)

As a further comment, different to some comments above, I really hope Sosandar (LON:SOS) do NOT branch out from womenswear into Menswear (or Kidswear or Athleisure or Lingerie.....) - at least until they they are > £100Mn revenue ie many, many years out.

Their claimed edge and USP is superior insight into fashionable middle-aged women. Only once they have a well established brand reputation AND big revenue base should they consider going much wider. Market size is plenty big enough where they are now. IMHO this is mistake many fashion companies make (eg Quiz = glamourwear was easy to understand and distinctive but Quizman, QuizCurve etc are me-too ideas (no irony intended).

Focus on a single proposition means concentrated, meaningful marketing spend against clear idea to a well defined target group. This (along with good product) is the key to success. Given business structure if Sosandar can hit just £50Mn pa it will be very profitable ..........and the fastest, most efficient way to do this is to win big in womenswear where they are off to a great start..

I own and am very optimistic on business value in 2 to 3 years IF they keep their current focus.

RadioactiveMan

Hi Paul,

Would you be able to ask the following question.

I saw recently that discounting has allowed some troubled retailers to delay the inevitable over what is a very tricky period. If a wave of retail failures hit the high street what would be the impact on Sosandar?

Also please don't feel the need to ask about returns, I feel that the company has explained this is part and parcel of online clothes retailing and it is slowly coming down. They also addressed it in the presentation you linked.

Lion Tamer

This is not aimed specifically at Chris, although I've written it as a reply to Chris' comment...

If you click on the actual reply post number (6 digit) it opens a window that shows the thread of the original post and the replies.

Whilst true, this is time consuming when in a hurry and also more difficult on a mobile phone. Frankly a lot of the time I can't be bothered as the payback for my effort is often disappointing (for example if about a company I'm not interested in). If the comment does not say which company or what topic of conversation (such as quoting the relevant bit) then I'll most likely pass on by. I assume some or more others here might do the same.

mrosbiston

1st Feb '19

i noticed that TK Maxx have started doing this (adding a fairly significant electronic tag) for their gold label products - so people cannot do this bizarre trend of taking an expensive item, instagramming it and returning it - or wearing it to a wedding etc.

my view is this is definitely the way to go and should be adopted by all retailers - esp. online

AnonymousUser192020

2nd Feb '19

My question for Sosandar (LON:SOS) would be, given the plague (and wastefulness) of free online returns, what steps are they taking to reduce their return rate? It seems to be an expensive and widely-recognised global issue, eg https://www.smartcompany.com.au/industries/retail/hidden-costs-online-shopping/ and https://cebr.com/reports/many-...
There was I think another thread that referred to tech solutions to encourage shoppers to buy the correct size; it would be nice to hear that Sosandar (LON:SOS) are actively appraising solutions, perhaps in conjunction with other retailers.

Apologies if this is already on the question list.

abtan

5th Feb '19

Re Best Of The Best (LON:BOTB) would anyone have any inclination what Best Of The Best (LON:BOTB) actually pay for their Dream Car prizes?
I'm assuming they don't buy a car at full retail price and would receive some sort of discount?

Any thoughts (or facts) would be appreciated.

Thanks
A

23rd Feb '19

Re Best Of The Best (LON:BOTB)

Exceptional accounts for the 9 months to January 31st have just been published:
https://beta.companieshouse.gov.uk/company/03755182/filing-history

YTD PAT = £3.5m, or £1.0m if excluding exceptional income from recent tax rulings.

The above figures are vs PAT expectations of £1.2m for the full year.
So either Q4 (Feb-April) performance is expected to be weak, or broker expectations are far too low.

For reference, my very rough-full-of-assumptions calculations imply that 50% of the announced annual marketing budget of £2.8m will be spent in Q4.

A

Tortoise investor

That's a good spot! I am surprised this doesn't have to be released in a RNS? Isn't it price sensitive information?!

Do any of the changes in remote gaming duty affect Q4? Might be a factor.

Yes, it made me wonder too why there wasn't a more official release, although some figures were disclosed a few days ago.

Change in RGD doesn't come into place until April, so only one month impact this FY.

Meldrew

7th Mar '19

Thanks Paul. An excellent article as always.

In a previous article, I think it concerned Sosandar, you expressed the opinion along the lines that you were not worried about Brexit because the consequences of the UK leaving without a deal would be so horrendous that no UK Government would ever allow it.

I am holding onto the shares I have, including Sosandar, hoping for the best, but I also have a pot of money to invest when the picture is clearer after Brexit.

We are just three weeks to leaving and it looks increasingly likely that we will be leaving without a deal. What do you think investors should do?

Small Cap Value Report (Thu 31 Jan 2019) - STAF, BOTB, SOS, BLV, FOXT, FLO, FA., SCS, CTO

Cloudcall (LON:CALL)

Staffline (LON:STAF)

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Paul Scott

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