Small Cap Value Report (Thur 20 Dec 2018) - YU, UCG, CNKS

20th Dec '18 by Graham Neary

30 comments 9647 reads

Good morning!

The Fed did raise rates yesterday, provoking another 350 points to get shaved off the Dow Jones Index.

The FTSE isn't thrilled about the news either, and is down by another 0.5% this morning.

It's a horrible end to the year, at least for those who are nearing the end of their investment time horizon.

I most definitely have my buying boots on, and am working my way through the watchlist to see which other shares I should prioritise for a purchase early in the new year.

These conditions are painful for many investors, there is no doubt about that. It's unnerving to see so many shares collapsing in price - but you always to have to look at the specifics of each case. Has there been an underlying loss of value - and is it permanent or temporary? Or has there been no underlying loss of value, and the share price is merely reacting to the general mood of the market?

We have examples to look at today:

Yu (LON:YU.)
United Carpets (LON:UCG)
Cenkos Securities (LON:CNKS)

Yu (LON:YU.)

Share price: 61p (-22%)
No. of shares: 16 million
Market cap: £10 million

Findings from the Accounting Review

I didn't expect to be back covering this again so soon, but here we are.

In summary, things are worse than expected: profitability is reduced by an additional £2.75 - £3.25 million, on top of the £10 million reduction previously announced.

The adjusted loss for the current year will therefore be in the region of £7.35 - £7.85 million.

The only thing the company has in its favour is a reported cash balance of £11 million as of 30 November 2018. So the market cap has fallen to just below this level.

I would note that the actual loss could wind up being much higher than the adjusted figure shown above.

The Adjusted Loss Before Tax excludes charges for Share Based Payments, gains or losses on derivatives contracts, and, for Financial Year 2018, exceptional restructuring costs, provisions made on first adoption of IFRS 9, and the costs of the Review. It is also is based on a working assumption that the corrections will not result in a restatement of prior…

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barnetpeter

20th Dec '18

FTSE falls to lowest level since August 2016 according to cityam.

Anyone got thoughts on “real food group” results and sale today? Holding a few from the placing at 5p. Could this benefit from Brexit and rally strongly next year or is it a dead duck?

JohnEustace

You'll have to explain to me how Brexit is going to help Cake Decoration!
And Brighter Foods say they work for global brands, so difficult to see a benefit there.

Nick Ray

I am always amused when Stockopedia shows a negative lower bound on a stock chart. But perhaps in the case of Yu (LON:YU.) it is entirely deserved.

mw8156

agree Manx looks good for an ISA, excellent yield, just a little concerned over hitherto what looks like excess executive remuneration-considering also they only pay tax at 20% in the IoM, have to hope they show they deserve it by flawless execution of the Goshawk roll-out next year and by sealing new deals abroad while defending their franchise in the IoM.

Graham Neary

Herbie - I agree. It's odd. G

Patrick L

Yes I think this is worth the short time reading because it provides a bit more data following the ASOS (LON:ASC) update.

However, this data does seem to show a lot of growth was driven by Black Friday which may suggests lower profits.

Also interesting that household goods showed a decent increase although clothing/footwear a much more modest increase.

FREng

Thanks Graham. Have a good weekend.

Ramridge

Hi Graham - Re. Yu (LON:YU.)
The shocking news about YU is once again a salutary reminder to all private investors that the AIM market is a shark infested pool where no one is safe. Whenever I see such instances, my first reaction is to find out if there were any clues some months before the shocker that this was likely to happen.
Putting aside the frauds such as GLOBO and Quindell, where Paul S to his credit repeatedly sounded the alarm bells for months before they imploded, the more insidious ones are those which seemed to have escaped the x-ray eyes of even the best analysts.

But I think even here, we can find tentative clues or hints. The two recent examples below have a common thread.

Re. Patisserie Holdings (LON:CAKE) Paul Scott commented on the 14 May Trading Update:
"This tea/coffee/cakes outlet seems to be sailing through the choppy waters of town centre retailing, with complete ease. I'm perplexed as to how this can be, when so many other town centre operators are complaining of low footfall. That doesn't seem to be affecting CAKE."

Re. Yu (LON:YU.) Recently, on 24 October trading update, you commented:
"A friend recommended this share to me previously, but I quickly dismissed the idea. Energy supply is a competitive space, with tight margins. Therefore it simply didn't make sense to me that a new entrant could come in, and deliver extremely rapid growth, and surging profits."

The common thread is that both companies seemed to have been doing *significantly* better than others in the same sector.

My personal take-away is therefore, if a company is showing that it is doing remarkably better than its peers and you cannot find solid reasons why that should be the case, then this is as real a red flag as the other well known ones.

On a different note, I am drawing a line for 2018 with a feeling of frustration and disappointment. Let's hope 2019 turns out to be a better and more profitable journey for all of us.

truegent

Hi Graham, may I ask the rationale for the Britvic (LON:BVIC) purchase ? I looked at them but they are saddled with debt (over 6x PBT) and do not make enough FCF to cover the dividend and have to take out more debt each year to cover it. I went for Nichols (LON:NICL) as the better option, who make vimto and other stuff and have bags of net cash and are cash generative.

gbjbaanb

True, so maybe its time to lobby government to hold the directors and nomads and auditors all the associated people who should prevent frauds occurring personally liable. Once one of them loses their hoarded cash, the others will start to take notice.

However, I doubt it'd stop some of them though, all they see if the little carrot dangling before their eyes and will delude themselves that they'll be able to pull it off.

Hi, I like the Britvic portfolio and its low-sugar/zero-sugar emphasis leaves it well-placed for the future. But I like Nichols (LON:NICL) very much, too. I will probably wind up owning both. G

Cheers, FREng.

Hi Beginner, thanks for the comment early doors. I hope you find my response to have been sufficiently thorough! Cheers. G

cholertonandrew

Hi Graham,

Thanks for all the reports and hope you have a good Christmas if we don’t hear from you Monday.

Best wishes,
Andrew

Alexgedla

Strikes me that all sorts of issues are now colliding

1— Brexit, say no more
2— US monetary policy tightening
3— Deteriorating global macro ex US
4 — Dozens of serious AIM profit warnings
5— Failed Fund raises eg Kier

Late cycle hell

Conclusion — increase cash, hunker down for H1 19

DJCP

Just in case I don't post again before Xmas, I'd like to wish Paul, Graham, Stockopedia Staff and all the SCVR contributors, Seasons Greetings and a Prosperous (but more importantly, a Healthy and Happy) New Year.

Regarding the SCVR contributors, I would like to mention that my damages-claim file against MrContrarian is expanding, with today's example being added:
"Yu Group (YU.) serves up a glass of the chef's urine to go with the shit sandwich."
Yet ANOTHER mouthful of coffee over my keyboard this morning ! ! ! lol
Seriously though, thanks for your snippets, which are an enjoyable way to start the investing-day, whilst waiting for Paul/Graham to provide their analysis. (I've just noticed that MrC's post is under review ! WTF ! - No doubt this post will be next for quoting him)

Howard Marx

Alexgedla

As your five points make clear, there are a large number of fundamental reasons to currently have a negative view on investing in Equities.

However, the majority of Equity indicies are either in or close to being in a bear market (see below).

There is almost certainly a slowdown/recession coming : but to a degree it has already been discounted.

smatthews1

It's also 2 very credible examples of Paul and Grahams excellent investigative work, so thankyou again for your work this year.

skinner66

Hi, I like the Britvic portfolio and its low-sugar/zero-sugar emphasis leaves it well-placed for the future. But I like Nichols (LON:NICL) very much, too. I will probably wind up owning both. Greply,, i think same way, cuts on suger and extra taxes on companies that dont do, could be good investment. unless bigger players reverse suger levels then wipe out smaller..

Beginner

Lovely. Thank you Graham. Much appreciated.

Small Cap Value Report (Thur 20 Dec 2018) - YU, UCG, CNKS

Yu (LON:YU.)

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Graham Neary

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