Small Cap Value Report (Thu 4 Jan 2018) - DEB, SPE, CHH, CAMB, WGB, TAP, ENET, BHRD, CYAN

Wednesday, Jan 03 2018 by

Good morning, it's Paul here.

Please see the article header for the companies whose trading updates I am covering today.

Debenhams (LON:DEB)

Share price: 28.9p (down 18.8% today)
No. shares: 1,227.8m
Market cap: £354.8m

Trading update - the department store group announces trading for the 17 weeks to 30 Dec 2017.

The problem with updates from retailers, is that too much emphasis is put on like-for-like ("LFL") sales. However, there is no consistency in how this measure is calculated - some include refurbished shops (e.g. Moss Bros (LON:MOSB) ) which I think is clearly incorrect. The whole point of refurbishing a shop is to increase sales, so it's not a LFL comparison once it's been refurbished. Other retailers merge retail sales and online sales in their LFL calculations, which muddies the water. Farcically, Mothercare (LON:MTC) even reports customers in-store ordering on one of their tablets as online sales!

For these reasons, I'm increasingly just focusing on forecast profit. After all, that takes into account everything - sales, gross margins, and costs. The guidance given today is as follows;

Looking ahead, should the current competitive and volatile environment continue into H2, FY2018 profit before tax is now likely to be in the range of 55m to 65m

To put this into context, timing-wise, FY2018 is the year to end-Aug 2018. 

Broker updates - I've got several in my inbox this morning. To give a flavour, one has reduced its PBT forecast from £79.0m to £55.4m - a reduction of 30%.

The key thing is to consider that this is based on forecast revenues of almost £3bn. So Debenhams profit margin is wafer thin, at about 1.8%. What that means, is that only a small further deterioration in sales & gross margins could easily tip the company into losses, and possible insolvency (if shareholders refuse to refinance it).

More details from today's RNS;

  • Digital sales are up 9.9%, giving 2 year growth of 22%. So optimists might latch onto the possibility of Debs transforming itself into an eCommerce company with some big stores also acting as warehouses. The new CEO is ex-Amazon, so who knows what might happen in this area?
  • UK LFL sales down 2.6% in the 17 weeks to…

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Debenhams plc is a United Kingdom-based company, which is engaged in multi-channel business. The Company’s brand trades through approximately 240 stores in 27 countries. The Company's segments are UK and International. The UK segment consists of stores in the United Kingdom and online sales to the United Kingdom addresses. The International segment consists of international franchise stores, the Company-owned stores in Denmark and the Republic of Ireland, and online sales to addresses outside the United Kingdom. The Company's stores trade under the name of Debenhams other than the Danish stores, which operate under the Magasin du Nord banner. Its stores offer customers a range of services, including restaurants and cafes, personal shopping assistance, hairdressing and beauty treatments, nail bars and wedding or celebration gift services. Its Debenhams Direct ( offers a range of products and services for online customers. more »

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Sopheon plc is a United Kingdom-based company, which is engaged in the provision of software and services in the product lifecycle management (PLM) market. The Company operates in two segments: North America and Europe. Its Accolade solution provides integrated support for innovation planning, roadmapping, idea and concept development, process, project, portfolio, resource and in-market management. Its offerings include alignment of long-term innovation plans with market requirements, industry regulations, and supply chain capabilities; generation and development of ideas and concepts to fill gaps relevant to achieving strategic initiatives; process and project management that tracks and enables decision making, focused on evaluating projects associated with innovation initiatives, and data management, analytics and integrity tools. Its subsidiaries include Sopheon Corporation, Alignent Software, Inc., Sopheon NV, Sopheon UK Ltd and Sopheon GmbH. 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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  Is LON:DEB fundamentally strong or weak? Find out More »

69 Comments on this Article show/hide all

FREng 4th Jan '18 10 of 69

There's a useful note from Ed about recent LSE price feed problems here:

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Reacher 4th Jan '18 11 of 69

In reply to post #292408

Hi Nicobos- Taptica International (LON:TAP) has always traded at a reasonable multiple and delivered positive updates. Perhaps the reasonable multiple is a result of it being a foreign company. I believe it’s a marketing company that tailors it’s efforts specific to customers, therefore gathering data on individual consumers. However, I would be interested to know if the upcoming GDPR legislation will impact Taptica International (LON:TAP). Can anyone provide any insight?

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spaceinvader2 4th Jan '18 12 of 69

Anyone else @MarkHowitt famous shortseller  of Ocado who emailed them regarding his shorts on the stock? They thought he was a customer as shorted means something different in delivery terms

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runthejoules 4th Jan '18 13 of 69

Taptica International (LON:TAP) requested as well please Paul - Graham was positive, I hold a bit, doesn't *seem* like another Israeli buzzword fraud, may be discounted because of those that have been. I hold. Also interested in Symphony Environmental Technologies (LON:SYM) which I am researching today!

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simoan 4th Jan '18 14 of 69


I think it's worth mentioning the good trading update from Stonegate this morning that will have some read across for Revolution Bars (LON:RBG):

It's definitely been a happy start to the New Year for my portfolio with the updates from Next (LON:NXT) yesterday and  Sopheon (LON:SPE) today :-) It'll never last...

All the best, Si

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iwright7 4th Jan '18 15 of 69

In reply to post #292538

Nicobos: I made this note from the Taptica International (LON:TAP) last conference call...

The CEO said that they welcomed the new EC regulations as in their view it would "clear the space" as they always complied with international regulation. They collect no data via cookies, but only take data from the device i.e. they collect no personal data on the people using the mobile device. They then direct advertising back to the device, not the individual.

I also see they handle 22 billion requests per day and has data on 220 million devices in its database. Clever enough! Ian

P.S.  Finncap today:  We lift our FY 2017 earnings expectations and target price from 500p to 550p.

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eddyboots 4th Jan '18 16 of 69

I was long Symphony Environmental Technologies (LON:SYM) until today. Their profits trajectory is great due to their small cost base and operational gearing. However, I was never really comfortable with the technology, which has been disputed for years (see the Macarthur report most recently). However, I think that if oxo-biodegradables aren't outright banned in Europe and the US then they could become mainstream as plastics manufacturers who already export to the likes of UAE and Saudi Arabia, where they are a legal requirement, add d2w to all of their plastics. The share price here will blow with the regulatory winds, which are behind them at the moment - but could change quickly in the opposite direction (see 2011).

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willhampson 4th Jan '18 17 of 69

In reply to post #292658

Many thanks iwright, I have the same comment in my notes from the conference call. They also helpfully dealt with the changes by Apple in iOS11 to deal with data tracking prevention in the September interim results and how these would actually assist the business. Very happy holder here.

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purpleski 4th Jan '18 18 of 69

In reply to post #292408

I would second the request on Taptica International (LON:TAP) but there is also a good summary over at Johns Investment Chronicle at

I hold.

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tic_tac_toe 4th Jan '18 19 of 69

"I would also treat the big dividends as being past their sell-by date."
I love this turn of phrase!

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ed_miller 4th Jan '18 20 of 69

Regarding Sopheon (LON:SPE) I have always been put off buying because of the perpetually high receivables (as well as the small float) - does anyone have a reason that these high receivables are nothing to worry about? One time I saw their accounts they had made an acquisition, but that cannot explain why their receivables are perpetually high.

Ed Miller

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rmillaree 4th Jan '18 21 of 69

Ref Camb

I think the looming electric car potential disruption to the the way cars and sold and maintained is now starting to "quickly" gather pace from the perspective of delivering an electric car that will match a petrol one convenience wise- if Camb makes most of its dosh by OTT price wise service charges that wont be needed to the same degree with a "less bits" electric car then thats not good news. My particular concern would be that Nissan/others like Tesla swap to all maintenance in house and ditch the dealers from the loop.

Evidence of the impending transformation has come from an announcement by Nissan last week that their 2019 leaf will have a 225 mile range (note not all range figures are the same !! and the european ones i think are a bit of a con)
I really wasnt expecting the leaf to go that far that quick with the increase in range and this must increase the potential customer base massively - where one car manufacturer goes range wise the rest will follow - no doubt this is like the iphone second generation probably still not fit for purposes for everyone but surely if its 225 miles next year that will be 300 miles plus as standard within 5 years. Surely 270+ miles practical range and 45 min top up charge time to do another couple of hundred would do for 90% of bods as long as they can ensure there is sufficient on street charging options - surely it cant be that hard to start adding those in when necessary.

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simoan 4th Jan '18 22 of 69

In reply to post #292708

Regarding Sopheon (LON:SPE) I have always been put off buying because of the perpetually high receivables (as well as the small float) - does anyone have a reason that these high receivables are nothing to worry about? 

I've always felt this is just a factor of how conservative (or otherwise) a software company's policy is on revenue recognition? Perhaps the policy is ultra-conservative at Sopheon (LON:SPE) ? I've never compared with similar companies as the level of receivables is reasonably constant and importantly has not grown a great deal over the years. Although I agree they are higher than most similar software/consultancy type businesses, they do also have a higher percentage of recurring revenues and this is maybe one factor. Tbh it's not something that concerns me too much about holding Sopheon (LON:SPE) but I take your point about the small float and illiquidity which has to be a major factor in the large rise today.

All the best, Si

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Orangetree 4th Jan '18 23 of 69

Debenhams has the misfortune of being owned by PE firms that made out like bandits leaving it with huge amounts of debt (£1.2bn).
They spend the rest of the next decade paying the debt off while their rivals made their move online much earlier.
So, unable to keep up with the competition it's where Debenhams find themselves today.

I agree with Paul views that dividends are unattainable. Also, I believe they need to reduce the size of their operations because department stores are becoming out of fashion. They need to follow the path of WH Smith by focusing on profitability while reducing sales.
Maybe at a much smaller size, they could survive.

Blog: Walbrock Research
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ed_miller 4th Jan '18 24 of 69

In reply to post #292768

Thanks for your view on Sopheon (LON:SPE) receivables (and small float), Si - will take another look at the accounts with that in mind.

Regards, Ed

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hawkipa 4th Jan '18 25 of 69

In reply to post #292733


Re Cambria Automobiles (LON:CAMB)

Isn't the problem of infrastructure the main one to overcome now as the tech for the cars is evolving extremely quickly but the infrastructure is not moving at anywhere near the same speed?

One of the biggest problems is that the grid hasn't anywhere near the capacity available to cope with the likely evening surge in demand when electric cars would return home and need to be charged. There is scant detail on how that supply problem can and will be addressed. Furthermore, the need for wholesale charging points is also a major issue which is not being tackled as it needs, for imminent wholesale adoption. It seems that government action will eventually become necessary.

There is no doubt that these issues will be resolved in time, but it is possible that they will block widespread usage of electric vehicles for a time possibly a number of years hence. The head of Valeo apparently said as much last year.

In the meantime, the massive LFL declines in car sales could reverse as others, like me, have found that the reality of buying and using an electric car is still a way off. (I bought a new car Q4 last year having intended to buy electric or at least a hybrid and was extremely frustrated to find it just wasn't a workable option for me yet).

For that reason I continue to hold Pendragon (LON:PDG)


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rmillaree 4th Jan '18 26 of 69

In reply to post #292798

Hello hawkipa

good comments - i am deffo looking into the future here (2-5 years minimum) but i see no problems whatsoever that cant easily(??) be overcome and in some respects not sorting the solution until one is needed means that the eventual solution will likely be a better and cheaper suited to the purpose - i can see no technical challenge in putting cables down streets and adding charging points on the pavements - we certainly have plenty of bollards performing no proper use on out streets as it is - this will be a bit bitty for so,e time to come though probably in a similar manner to broadband - but we are mostly townies or have a garage i guess??

with regard for demand - there has always been less demand for electric during the night - so doing overnight charging to me would even grid usage over a 24 hour period - if bods are willing to pay extra for more electric surely the demand will generate the solution as it always has done how long would it take to get new some new gas power stations up and running - we are building new transmission lines to norway etc so i dont see the worry particularly altho i am sure there are concerns that we arent adequately planning ahead so we dont have to overpay for a solution.

ref the workable solution for you i am guessing if you could plug in where you park at night - set it to charge overnight and then do 225 miles before needing a topup you may have been up and running now- i would guess in 36 months that option will be available for a sizeable % of new car buyers if we can do things right - Just look at norway and how quickly they have gone to over 50% of new cars being electric - change is a coming

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herbie47 4th Jan '18 27 of 69

In reply to post #292828

How do you charge your car up overnight, if you park on the street, maybe not even outside your own house? Don't electric cars need special charging points?

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smatthews1 4th Jan '18 28 of 69

In reply to post #292733

I am personally quite sceptical about the electric car scene. I would like to question the reliability of those range figures, especially as its a well known fact the batteries in general do not perform well in cold conditions, and there useable time drops dramatically. Would be interesting to see Jeremy Clarkson and his crew test this!

I also just don't see the charging times coming down to anything acceptable any time soon.

I also very much agree with you on the point about "less bits" for electric cars is a big negative for service charges at dealerships and an industry as a whole. This is also a very interest subject in its self, if the Government wants the country to adopt to electric cars, then surely this creates a huge shortfall in vat from fuel, additional service parts, and the supply chain for those parts as well?

If electric cars became the majority of vehicles in the UK I wonder how the creative TAX man could fill that shortfall in their 'greener' future. (which is only as green as our power stations).

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cyberbub 4th Jan '18 29 of 69

EV charging is very simple:

* Charge overnight at home. The power companies have always been very keen to see customers using electricity at night (hence Economy 7 discount tariffs etc). A standard charger in your garage or driveway only uses the same power as a basic electric shower (7kW) so can easily be accommodated in a normal house, especially when everyone is asleep. In fact, as domestic energy storage becomes viable, many houses are now using solar panels to charge up a battery during the day (free), which then discharges into the car overnight. Of course there are capital costs, but overall it's still cheaper. A standard 7kW charger might take 8 hours to charge a car, but if you start it at 10pm (hence avoiding the Corrie kettle spikes) it should be ready by 6am.

* If you don't have a garage or driveway, you can instead charge up at work, or at the train or Metro station where you park your car for the day on your commute. A lot of train stations are now installing charging points (initially most were free but most are now starting to 'charge' £5 or so... still cheap!) and some workplaces on the same basis. Or even at the supermarket on a 'rapid charger' which gets you up to 80% in 30 minutes while you're shopping.

Also don't forget that the vast majority of UK drivers don't drive anything like 200 miles a day. If you do (e.g. travelling salesman), an EV today is probably not for you. The vast majority of drivers in the UK only do 20-30 miles a day. So in reality you wouldn't even need to charge your car every day, just every 3rd day max, or maybe before a 100-mile 'day out' type trip. The only issue comes if you're driving 'occasional' long distances e.g. on holiday. Well then you just have to deal with it - stop at petrol stations for quick charges etc. Or take the train.

I don't disagree that there needs to be more infrastructure for EVs. But I don't think it's as impractical as everyone makes out, today. People got nervous with the original Nissan Leafs which had a 100 miles range - a range of 200 miles is a game changer.

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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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