Small Cap Value Report (Thur 11 April 2019) - QUIZ, DEB, TED, CTG, TOOP, INS | Graham Neary

28th Jun '19 by Graham Neary

26 comments 10129 reads

Good morning!

This list is taking shape:

QUIZ (LON:QUIZ)
Debenhams (LON:DEB)
Ted Baker (LON:TED)
Christie (LON:CTG)
Toople (LON:TOOP)
Instem (LON:INS)

QUIZ (LON:QUIZ)

Share price: 18.55p (+7%)
No. of shares: 124 million
Market cap: £23 million

Leo has already written up a nice summary of the situation at QUIZ (LON:QUIZ) - see the comments. We can also refer to Paul's comprehensive analysis in January.

As a reminder: this share price has fallen by 90% since a series of profit warnings (starting last October).

It is now in turnaround mode, "undertaking a thorough review of all aspects of the business". It would have been helpful if that had been done prior to the July 2017 IPO!

EBITDA for FY March 2019 will sneak in at £4.5 million, as anticipated in the most recent trading update.

Note that this is significantly lower than the £8.2 million EBITDA result the company anticipated as recently as January, as sales in its standalone stores through January and February turned out to be very poor. This followed weak trading in late 2018.

Working my way back from the FY result, I see that Quiz has suffered a loss at the EBITDA level in H2 (before taking into account depreciation and other important costs).

I'd also note that the guidance given last month was based on the sales shortfall continuing through March, i.e. meeting EBITDA guidance today simply confirms the continuation of the January/February trend. There was no deterioration, and there was also no improvement.

This is very short-term analysis but maybe it's a reasonable approach for a fashion group where trends can change very rapidly, based on short-term missteps.

Because of these considerations, I think we should forget about P/E ratios based on annual eanings at this stage. It's more important to understand that the company has a very bad Autumn/Winter, and poor trading continued through March. Recovery in FY 2020 now requires a 180-degree turnaround, i.e. the new range of clothing for Spring/Summer needs to be a hit. You can view the…

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QUIZ (LON:QUIZ) – FY Trading Update

The good:

No deterioration since the last update on 7th March

Slight revenue beat against forecasts

YoY sales growth across every channel, including stores / concessions

58% growth from QUIZ’s own websites

Suppliers unaffected by Debenhams plc administration

The bad:

Debenhams contributed 23% to overall revenues (this is over the year, not a year-end run-rate). In the best case these sales will reduce over the next 12 months as stores close – based on current plans total revenue looks to fall 5-8% from this effect alone (23% x 20-35%). In the worst case the Debenham’s operating companies could still collapse resulting in significant bad debt.

Online growth overall of 34% is relatively lackluster compared to e.g. BooHoo or ASOS at this size / stage.

A significant majority of sales continue to be from stores. Most sales are from UK stores.

No news of efforts towards closure of stores / concessions until 11th June.

No news on current cash

FY2019 forecasts of 3.3p EPS are now secure. FY2020 forecasts of 3p look like a reasonable best guess, although highly dependent on the store review and there may be some exceptional closure costs. Forecast revenue growth requires online to add more sales than it did over the last year without too much tailing off in percentage growth.

On a normal valuation metrics they appear cheap, especially when cash adjusted. However Bonmarche has shown us how quickly trading can deteriorate, how seasonal cash can be and how quickly it can be consumed. For me, the main distinguishing factor from Bonmarche is the Operating Margin which runs at approximately double what they achieved.

The share price was not affected by events over the last couple of weeks at Debenhams and so this . There may be a small relief rally as trading has not deteriorated further, but the market will then start looking forward to the outcome of the review on 11th June.

I have a small holding. I will be looking for further price weakness or less FY2020 uncertainty before adding.

MrContrarian

11th Apr '19

My morning smallcap tweet:

QUIZ (LON:QUIZ), Porvair (LON:PRV), £FRC, AEW UK Long Lease REIT (LON:AEWL), Instem (LON:INS)

Quiz (QUIZ) FY trading: rev £130.9m, £1.9m above guidance in March warning. EBITDA guidance unchanged.
Porvair (PRV) trading: rev up 18% in first 4 months, flattered by the timing of a large spares order (Brexit?). Profit in line.
The Financial Reporting Council (FRC) has commenced an investigation into the audit by Grant Thornton UK LLP of the financial statements of Interserve Plc for the years ended 31 December 2015, 2016 and 2017. The investigation will be conducted under the Audit Enforcement Procedure.
AEW UK Long Lease REIT (AEWL) following strategic review, erects the For Sale sign.
Instem (INS) secondary placing of 10% of co at 290p, a 12% discount.

rmillaree

QUIZ (LON:QUIZ) - giving us £1.9 mill extra sales in 24 days (last update was 24 days before year end) in one hand then taking it away with the hand - no point having the extra sales if it all vanishes out the door sigh :)

LeoInvestorUK

Published earlier in my blog (see my profile):

No deterioration since the last update on 7th March
Slight revenue beat against forecasts
YoY sales growth across every channel, including stores / concessions
58% growth from QUIZ’s own websites
Suppliers unaffected by Debenhams plc administration

Debenhams contributed 23% to overall revenues (this is over the year, not a year-end run-rate). In the best case these sales will reduce over the next 12 months as stores close – based on current plans total revenue looks to fall 5-8% from this effect alone (23% x 20-35%). In the worst case the Debenham’s operating companies could still collapse resulting in significant bad debt.
Online growth overall of 34% is relatively lackluster compared to e.g. BooHoo or ASOS at this size / stage.
A significant majority of sales continue to be from stores. Most sales are from UK stores.
No news of efforts towards closure of stores / concessions until 11th June.
No news on current cash

Richard Vasey

Graham,

Would appreciate your views on the Instem (LON:INS) placing, please. Paul reviewed the final results at the beginning of this month but admitted he had limited knowledge of the sector.
It is a placing to sell c. 10% of the company's shares (currently held by the Chairman and a Non-exec director) ostensibly to satisfy demand and broaden the institutional shareholder base.
The discount of around 12% of yesterday's price seems reasonable, there is no change in the exec directors holdings and there should be some improvement in liquidity.
I hold and, overall, I am reasonably comfortable with the proposal but would appreciate your views.

Hello leoleo73

Excellent summary thanks for that

forecasts of 3.3p EPS are now secure. FY2020 forecasts of 3p look like a reasonable best guess,

My main worry with regard to the current year is thatthings seemed to go downhill so rapidly in the second half of the year i would be worried that if things haven't improved since then they may be struggling in the first half this year comparatives wise compared to the previous years. On that basis a modest decrease from 3.3p eps to 3.0p eps seems a bit optimistic to me - although perhaps the continued growth of online will save the day perhaps? . Being honest even if the company come out and say they are expecting no further material declines this year i am not quite convinced that i would believe it based on the current trend in numbers - to be fair to the company the decline has been so fast that predicting the short term future can't be easy.

WDWombat

Auditing by Grant Thornton seems to be disproportionately concerned with companies that misrepresent their financial status and earnings. They are not the sole perpetrators of appalling accounting practices but certainly a leader. Why is this allowed to continue?

Small Cap Value Report (Thur 11 April 2019) - QUIZ, DEB, TED, CTG, TOOP, INS

QUIZ (LON:QUIZ)

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Graham Neary

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QUIZ (LON:QUIZ) – FY Trading Update

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