Small Cap Value Report (Thur 20 Feb 2020) - STAF, ALY, DEV, GAN, MCB, NXR, PHD
Good morning everyone!
Thanks to Paul for manning the fort here so incredibly well, while I've been busy with some other projects.
In terms of my own portfolio, the most interesting development recently was the small acquisition by Volvere (LON:VLE) - which I think looks promising.
On the RNS feed today we have:
- Staffline (LON:STAF) - CEO resigns
- Laura Ashley Holdings (LON:ALY) - interim results
- Dev Clever Holdings (LON:DEV) - traded below expectations in H2
- GAN (LON:GAN) - update on growth of internet gambling in the US
- McBride (LON:MCB) - half year results
- Norcros (LON:NXR) - trading update and impact of coronavirus
- Proactis Holdings (LON:PHD) - trading/sales process update
Finished at 2pm.
Staffline (LON:STAF)
- Share price: 46.5p (pre-market)
- No. of shares: 69 million
- Market cap: £32 million
Paul covered Staffline's profit warning on 31 January. The industrial recruitment company's CEO has now tendered his resignation.
It sounds like he is jumping of his own accord, but as ever we don't know what sort of pressure he was under from the Boad.
I note that Staffline's CFO jumped ship in December. A Director who was also Chair of the Audit Committee left in January. And now the CEO.
As a reminder. Staffline has had serious financial and accounting problems.
Last year, PWC resigned from its position as auditor to the company. In giving reasons for its decision to resign, as it is legally obliged to, it merely cited the company's 2018 audit report, without being any more specific than that.
If you ever find yourself with more time on your hands than you can put to good use, check out Staffline's audit report from 2018. It's a classic example of a disastrous audit report - it has everything from a warning about the company's ability to continue as a going concern, to anonymous whistleblower accusations of wrongdoing, goodwill impairment and breach of national minimum wage legislation.
In the midst of this horror show, PWC disclosed that there were "failures by management to fully disclose to us and to account for certain customer claims and other disputes". Perhaps this is why PWC fired its own client?
And the former CEO, CFO and Chair of the Audit Committee have followed not far behind.
PWC was replaced by Grant Thornton, of Patisserie Holdings (LON:CAKE) fame. The head of Grant Thornton made headlines last year for saying "we are not looking for fraud, we're not looking at the future, we're not giving a statement that the accounts are correct". It sounds like they are a good fit for Staffline.
For background, it's important to bear in mind that Staffline was built by a very long-standing CEO, Andy Hogarth, who was in charge of the company for 15 years (2002 - 2017).
It's fair to say that since his departure, the wheels have well and truly come off.
Mr Hogarth sold Staffline shares worth £10 million in January 2018, shortly after resigning. The share price was 1020p at the time.
With the shares now languishing at 5% of that level, two years later, we have another lesson in why a healthy dose of cynicism is necessary in these markets.
If anyone could have predicted that Staffline was about to run into serious difficulties, it was Mr Hogarth. Whoever bought his shares off him has paid a heavy price for this informational asymmetry (about £10 million).
Would I want to buy shares in Staffline today? No prizes for guessing that the answer is no. Indeed, I'm giving this share the bargepole treatment.
The accounts are a sham - only three weeks ago, it revealed that more provisions and write-downs were necessary. The new problems weren't quantified, except to say that they would cause profits for 2019 to be "materially below guidance".
Debt - Staffline has "a constructive relationship with its lending banks and consequently the Board does not anticipate any covenant issues" - this is code for "we expect the bank to forgive us for breaching our covenants".
Today, Staffline says that "revised terms will remove the risk of covenant issues". Net debt at the end of December was £60 million, or twice the market cap.
Having debt issues and serious accounting problems puts this in the premier league of bargepole shares.
Laura Ashley Holdings (LON:ALY)
- Share price: 2.21p (+17%)
- No. of shares: 728 million
- Market cap: £16 million
It's a legacy retailer that's recently found itself in financial difficulty. I could leave it at that, but let's see what else is going on...
Firstly, I note the announcement yesterday that lender Wells Fargo has agreed to lend sufficient amounts for the company "to meet its immediate funding requirements". The company is reviewing how much money it will need on an ongoing basis.
Secondly, Mr Kwan Cheong Ng will retire as CEO in April.
He was originally the CEO from 1999 - 2003, and then again from 2011. He'll be replaced by Laura Ashley's recently-appointed COO.
Thirdly, these interim results are about as bad as you'd expect. in the circumstances. "Market headwinds" and "weaker consumer spending" are blamed for reducing the sales of bigger ticket items (beds, sofas, dining tables).
Like-for-like retail sales fell 10% and inevitably made it impossible for the company to earn a profit, despite cutting costs. The pre-tax loss is £4 million.
Sales fell both on the retail side and online. The fall in e-commerce sales would be particularly worrying to me, since online is such a great channel for growth at so many other retailers!
Net borrowing was only £1.8 million at 31 December 2019 - the debt position was protected by a very significant (£7 million) reduction in year-on-year inventory.
Number of stores is down by only two to 153, and one store opening is planned for 2020. To me, this is complacent - why not plan to shut down stores, given the market environment and the probability that it's only going to get worse?
Product - no category performed well, although fashion sales were at least flat year-on-year. Big ticket items in furniture were down 6.2%, and decorative items (curtains, wallpaper) were down a massive 20.9% (like-for-like). ALY admits that its range is the problem:
"...our design teams are in the process of reviewing the mix of our decorating product offerings based on customer feedback and research."
My view
Taking a look at the raw numbers, I see that gross margin is down by c. 100 bps (to 37.3%).
Indeed, it's amazing to me that the company managed to keep its loss so low for the period! With declining sales and margins, only cost cuts helped to prevent a bigger disaster.
Also, the company benefited in H1 from an absence of "exceptional items". It's a clean set of accounts, this time around.
Balance sheet equity has more than halved to just £16 million. This is not helped by IFRS 16, since the "right of use asset" is considered to be worth less than the company's lease liabilities. And of course, losses have taken their toll on ALY's retained earnings.
Financial matters aside, this share is a bet on whether the brand can be revived. I've tried to
The elephant in the room is probably Cath Kidston. CK itself is not very profitable (according to filings at Companies House), and it's still catching up with Laura Ashley in terms of total revenue, but it has supplanted its older rival in the public eye.
As noted by a sector specialist several years ago:
Cath Kidston “doesn’t have the same baggage... it has managed to be seen as cool as well as traditional. It’s like the Laura Ashley of the Eighties but smarter.”
For a share like this, maybe you can throw financial analysis out the window and simply focus on the fact that the Laura Ashley brand is tired. If that's true, and it's unlikely to change, then how on earth can the company become a financial success story of the future?
Dev Clever Holdings (LON:DEV)
- Share price: 3.45p (-9%)
- No. of shares: 432 million
- Market cap: £15 million
Dev Clever, a leading developer of career development platforms and customer engagement solutions, is pleased to offer this preliminary trading update.
I've not looked at this one before, and it has not been discussed in the SCVR.
The company's website is here.
It makes a curious mix of software products, including both games and career guides.
The games are promoted in partnership with corporate clients, to help corporates promote their brands. For example, one of its games was branded by Bosch.
Today's brief update says that DEV is negotiating with "a leading worldwide technology manufacturer", which could result in the mass adoption of DEV's career training robot and career matching service.
Because of the negotiations, the UK roll-out of these products in the UK has been deferred. So we get an unquantified profit warning for recent and current performance.
However, it is expected that this strategy will enable the Company to more rapidly exploit an accelerated roll out of our products, into multiple territories around the world, starting in the US from April 2020.
My view
Revenue is still very small (£264k in H1).It's a typical speculative start-up company - though it has a main market listing (similar to Bigdish (LON:DISH)).
The algorithms call it a Sucker Stock but I'll be a little gentler and take no view. It has only been listed since last year - let's see if anything good comes out of these negotiations.
GAN (LON:GAN)
- Share price: 193p (+0.2%)
- No. of shares: 85 million
- Market cap: £165 million
PA Gambling Growth for January 2020
These shares have captured the attention of many investors and are now up about 300% over the past year.
Revenues have been growing at a terrific pace and the company has plenty of cash and is now profitable, so the bull argument is not without some merit!
Most revenues are derived from the US, where there has been a wave of online gambling legalisations in various states.
That's the basis for this RNS. In Pennsylvania, which is "a key market for GAN", we get the following statistics:
Internet Gaming Win was $14.0 million in January, reflecting an increase of 31.4% from the prior sequential month. This compares to:
- $10.6 million for the month of December;
- $9.7 million for the month of November; and
- $4.9 million for the month of October.
These are turbo-charged growth figures - the type of growth you only see when there has been a fundamental shift in an industry (e.g. thanks to legalisation).
Sports wagering statistics are given too, and are also very impressive.
It's an exciting story. I don't feel qualified to judge the value of GAN's turnkey internet gaming ecosystem, so I won't be having a flutter, but I wish it well.
Finally, I note that GAN hopes to have a US listing "as soon as reasonably practical".
US markets are currently in a state of euphoria, with large swathes of the population (including Millenials and Generation Z, still at university) betting on the stock market. Stocks which capture the imagination of the US investing public are now, in my view, completely untethered from normal measurements of valuation and risk.
GAN's share price rally makes more sense when you consider the audience of investors, across the pond, who will soon be looking at the stock.
McBride (LON:MCB)
- Share price: 64.1p (-3%)
- No. of shares: 183 million
- Market cap:£117 million
Paul covered this company's H1 trading update last month. It announced that H1 revenues were down 8% and that full-year revenues were expected to decline 2% (thanks to an anticipated second-half weighting).
McBride is a private label manufacturer of household products (laundry powder, kitchen cleaners, etc.)
Today, it claims to have earned a return on capital employed in the 12 months to Dec 2019 of 13.4% .
That calculation is based on adjusted figures and the adjustments are material.
The outlook based on current trading is in line with expectations.
Net debt (ex. leases) is £113.5 million. The covenant relating net debt to EBITDA says that this multiple must not exceed 3x; it's currently at 2.2.x. I applaud McBride for the clarity of its disclosures.
My view
While the ROCE performance isn't bad, I share Paul's lack of enthusiasm for this share. It's simply hard to imagine that it has any long-term competitive advantage. It's not a bad business, it just looks like a very ordinary business.
Ordinary businesses don't deserve high multiples of earnings and book value, and I reckon the current market cap for McBride is very fair.
So does Stockopedia, giving it the distinctly lukewarm rating of 65/100.
Norcros (LON:NXR)
- Share price: 253p (-13%)
- No. of shares: 80.5 million
- Market cap: £203 million
Trading update and impact of the coronavirus
I've not said all that much about the coronavirus, because a) it's not easy to analyse, and b) ten years from now, I don't expect it to be something I'll wish I spent more time studying.
It (or rather the response to it) does clearly have a short-term effect on trade. Norcros, a supplier of bathroom and kitchen products in the UK and South Africa, says that it expects some disruption:
...we do now envisage that the supply chain disruption is likely to have some impact on the seasonally important remainder of this financial year and early next. The situation however remains fluid and is being closely monitored and actively managed.
Today's RNS from Norcros is a profit warning.
FY March 2020 will be ahead of last year, but below expectations (I can see an existing PBT forecast for FY March 2020 of £35.8 million).
The coronavirus is not the only issue. UK domestic performance is still fine, but exports are "subdued". And in South Africa:
...we have seen no market improvement in the second half of the year, with activity levels in the construction sector in particular markedly lower at the start of our fourth quarter.
My view
This stock has certain concerns attached to it which we've discussed before. But net debt has been reduced significantly (the existing forecast is for it to fall to c. £33 million). And Paul has noted that payments into the pension deficit aren't overly burdensome.
The other major issues we have flagged are:
- geography - not everybody has been to South Africa, and it's hard to feel confident investing in a place you are unfamiliar with.
- growth - organic sales growth is underwhelming, to say the least.
These concerns have been reflected in a dirt cheap valuation. Although as noted by a shareholder in the comments section below, the valuation perked up recently and made it to a P/E multiple of more than 8x (prior to today's drop).
I think the current valuation is probably about right, to reflect the geographical risk and lack of organic growth.
Proactis Holdings (LON:PHD)
- Share price: 44.5p (+11%)
- No. of shares: 95.5 million
- Market cap: £42.5 million
This software company has been in turnaround mode for a while, after some M&A activity went bad.
It focuses on "spend management" (procurement/budgeting) and B2B sales processes.
Let's skip ahead to the outlook section:
Following the significant improvement in new business performance and retention of existing customers, the Board expects that the Group will return to revenue growth for the second half of the financial year resulting in a likely full year outturn of approximately £50.5m for the year ending 31 July 2020 (as compared to the Board's expectations prior to the announcement of the FSP of £53.5m)... The Board then anticipates the rate of revenue growth to accelerate into next financial year and future periods.
Along with its revised growth strategy, it has also been undertaking a Formal Sale Process since July 2019. Today's RNS confirms that this process is ongoing, with "further inbound interest from credible parties".
CEO comment is optimistic; he says that revenue has "bottomed out".
My view
The way the company presents its "annualised recurring revenues" (ARR) is a bit unusual.
ARR has declined over the past six months (from £44.3 million to £43.4 million), however the company says that ARR grew if you exclude the effect of those customers which it expected to lose. That's a new one!
I've never found this share appealing but I do agree with Stocko that it may offer quantitative value at current levels. Stocko calls it a Value Trap - how cynical!
It's definitely lunch time now. Thanks for reading.
Cheers,
Graham
Disclaimer
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58 comments
Irate of SCVR! Let Susan (who looks strangely like Annie Lennox) ask for mid cap coverage. What harm comes from it....and if she keeps asking for the impossible just marvel at the sanity gap.
Susan! Embrace the red thumbs.
I'm surprised that Susan's vainglorious request for mid cap coverage manages to stir such ire.....come on chaps, is it time for you guys to up the meds?
have a lovely weekend
mojo out
Only just seen that,thanks laughton.
I can understand your disagreement with her view, Paul, and I'm sure it's shared by most here. But I think calling someone as a troll who has posted 4 times in 6 years of membership is being oversensitive.
I've just published this: my audio interview today with Andy Gossage of Up Global Sourcing Holdings (LON:UPGS)
The topic is a general briefing on China supply chains from Andy, and the impact of coronavirus. UPGS are experts in importing consumer goods from China.
Hopefully you'll find this interesting. It's completely independent, I don't charge fees for my interviews these days, and I don't currently hold any position in UPGS shares. I approached the company to do an interview, as I thought it would be useful & interesting for us all, in helping to try to make sense of the developing coronavirus situation.
Regards, Paul.
UPGS: Just listened to this - a very useful interview, thanks. Is it just intended for Stockopedia subscribers or are you happy for the link to the interview to be shared?
I hadn't really given it any thought.
Upon reflection, I'm loyal to Stockopedia, so seeing as you guys here pay my (very modest) fees, then you should have first dibs.
Thanks for doing and sharing the interview Paul, an interesting and clearly very relevant topic.
Only just earlier today (I'm currently on US time) I was in discussion with a colleague on this. He was asking that on top of the travel restrictions were there other things to consider, such as special requirements on the receiving in of goods from China. One of my employer's divisions has an operation in China which is one of the key suppliers to our other units around the world.
Whilst I've heard that the virus wouldn't survive a long boat journey from China to the West, a lot of our goods can be shipped air freight. So it is an interesting conversation and whilst neither of us have skills in micro biology we've raised the query to our global corporate office for guidance. No doubt customs and governments are thinking about the same potential issue but it just goes to show how varied and complex the supply chain issues "might" be.
Graham, where did you glean that ‘with large swathes of the population (including Millenials and Generation Z, still at university) betting on the stock market’?
I remember that old adage that when a taxi driver starts giving you stock tips, it’s time for another crash... now of course it would be an Uber driver - but your comment strikes me as being a very loud canary in the mine?
If you have never heard of it - https://www.reddit.com/r/walls...
This is probably the source of such reports. WSB has nearly 1m members and reddit‘s user base is 64% 16-29 year olds.
GAN (LON:GAN) valuation seems way overdone to me.
I do think there is some competitive advantage for some of their customers. The land-based casinos who have an integrated back-end will have relatively high switching costs given that it is not their primary product.
The real growth of the business is in the US-facing sites, but their advantage here is basically first-mover advantage. Ladbrokes or William Hill could not set up tomorrow in the US, and I think I read somewhere the process of licensing would take years. Given that gambling laws are not homogenous across states, this is not so easy at present. So the use of GAN is to provide those operators with a presence. Betfair partner with them for their New Jersey casino.
Similarly, Betfair's FanDuel use GAN for their sports betting. I visited this site and this is interesting as it appears to be a skin of something else (perhaps Unibet). Betfair clearly could offer either its own odds or Paddy Power markets but cannot, because it has no licence.
So GAN are simply a portal, providing the services and taking cuts of revenue. If someone wins £1m on a bet or the casino they don't have the liability for that, neither would they gain £1m if a punter put down £1m on a 1/10 shot and lost.
I would think that the end vision is that gambling will simply be allowed and the big bookies end up getting their licences. What happens to GAN then? For Betfair and its BetDuel site, it may as well implement its own odds rather than let a third-party take the profits.
For betting sites there may be little disruption involved to migrate customers away although it may require work behind the scenes, a change of skin is not a rare thing and customers may not even notice.
So GAN are in a good position at the moment, but I do think it's fanciful that we have a situation where they will be a major player. They can make their site integrations look nice and slick, but they aren't the real drivers of innovation.
I would expect once the US sports market matures that real competitive advantages become important, such as lowest cost (translating into lower bookie edge) and a go-between such as GAN for the big players is not required. I do also think that high taxation may make the US unviable for the smaller players (quite a few pulled out of the UK market for the same reason).
"The real growth of the business is in the US-facing sites, but their advantage here is basically first-mover advantage. Ladbrokes or William Hill could not set up tomorrow in the US, and I think I read somewhere the process of licensing would take years."
This bit is simply incorrect. WMH are in the US.. Or am I mis-reading your paragraph.
" "The real growth of the business is in the US-facing sites, but their advantage here is basically first-mover advantage. Ladbrokes or William Hill could not set up tomorrow in the US, and I think I read somewhere the process of licensing would take years."
This bit is simply incorrect. WMH are in the US.. Or am I mis-reading your paragraph."
Indeed. GVC (who own Ladbrokes) have a joint venture with MGM resorts & say:-
"We operate 3 poker sites, 3 casino sites, and 2 sports sites—more online brands than any other gaming operator in the U.S."
Gan (LON:GAN) - when a company also lists on another exchange where do the shares that are placed in that market come from ?
Graham I hold shares in both Gan (LON:GAN) and Burford Capital (LON:BUR) both of whom are seeking a US Listing in the near future.
Can I ask for your views on how this is likely to play out in terms of the SP on the LSE listing. Logically it should be very beneficial but what may I be missing? Thank you.
Would much appreciate your assessment of IHC. Acquisition last year looks pretty transformational
Interesting to see DEV cropping up in today's report. For me, this is a bargepole stock. Beware, don't touch! The involvement of Cornhill / Pello at float was a big red flag for me. If memory serves, they printed 15 million shares for themselves at 1p each. The share price was then ramped up to 15p on flotation. Lots of PIs were sucked (suckered?) in and then the dump began taking the share price all the way back to 1p before - guess what - a placing! I tried warning people to steer clear, but as Mark Twain famously said, 'It is easier to fool people than to convince them that they have been fooled'. I failed, miserably.
Fantastic write up on STAF Graham. This highlights two fold why we need a mid cap report rather than a small cap report. 1) small caps are punts 2) STAF was a mid cap back when Hogarth sold!
The info asymmetry is interesting. Surely STAF knew about these problems then, as PWC allude. If known, the info should have been disclosed to the market via an RNS. This looks very murky no wonder PWC resigned ......
Even accepting your view that a mid cap report would be of interest, I (and I'm wagering most others here) would strongly disagree that this should be rather than a small cap report.
I expect you already know that.
She's a troll, just ignore her.
Is she ? I thought she was just misguided. (she has to pay the sub to be here) Maybe I am being naïve ? I don't have much to do with social media generally so maybe I don't recognise these things.
If you look at her posts, it’s the third time she has posted the exact same comment, despite valid arguments (in typical polite Stockopedia form) advising her that’s not what readers want. It is the S(mall)CVR afterall!
Ah thanks. Response by me without researching. Common trait in places I understand !
"Small caps are punts" is a pretty sweeping statement........ But, maybe, it's because there are potentially more issues, as well as opportunities, that a Small Cap report is more valuable?
I suspect there are a fair few sources for mid cap stocks, whereas the SCVR is, by far, the most valuable info source for small caps, the occasional mid/large cap & general market issues that I've found.
Disclosure - almost 100% invested in AIM for 7 years (driven by IHT). Our results are good - and, I'm sure, much better for my daily SCVR read. Certainly my style has changed & improved.
I'm sorry Susan but I find that a ridiculous thing to say. Empirical evidence actually shows the opposite in terms of returns. I think you are on completely the wrong board, talking to the wrong audience.
Most of us have a range of investments and small caps are an important part of long term alpha. They are underserved by the analyst community, despite many being very good growing businesses, so can often be overlooked by the market. The whole point of this thread is that Paul and Graham give some analysis where little else exists, and it is a valuable discussion group because it allows us to cast a sceptical eye over each others investments and provide some balance against natural positive investment bias when there are not realms of research.
Whilst there may well be merit in having another thread on mid caps (and actually Graham runs one on his own site where, it seems you'd be better pointed) your dismissal of small caps as punts is just nonsense. There are many mid and large caps that have been disastrous investments and essentially no more than punts. You will note that we tend to steer clear of those that are generally punts, such as blue sky no revenue hyped stocks or resource based ones.
I am not a troll - I pay a SUB! I AM OFFENDED and I AM SERIOUS.
You may not be a troll Susan123 but what you're asking for doesn't make sense. This is a small-cap report and it's not going to change into a mid-cap report just because you want it to.
If you're really serious then stop trying to change the SCVR. Instead get onto Ed and ask him to find a mid-cap report author who can post daily updates in Stockopedia. If you do that then you'll stop annoying people who like the SCVR as it is and you'll please everyone else who want to invest in mid-cap shares.
Graham,
On Staffline (LON:STAF)
Appreciate there has been quite a bit more information since (which may explain why), but your view has changed significantly from when the shares were 848p back in March 2019! An extract:
"My view - I'm leaning towards the idea that Staffline is worth pretty much the same as before the suspension, i.e. around £13 per share."
Yes, the information that the company's accounts were complete rubbish may explain why my view has changed :)
It's a little late to get the bargepole out after the share have lost nearly all their value though. March 2019 was after the shares started trading post suspension... i.e. allegations caused the suspension, so it's not like at that point there weren't any concerns about the accounts.
Appreciate it's surprised a lot of people the stream of bad news ... probably even HRnet who bought a significant stake.
I concluded that it probably wasn't a good business in May 2019, with the shares at 500p (link).
Sorry to bang on about it but I guess £STAFF and other recruitment agencies are very worried about the impact of new IR35 regs to be introduced by the Govt in the forthcoming budget (if it proceeds with them). The uncertainty of the impact is making a number of industries nervous, including the IT industry which is using a lot of freelancers.
Also, there is speculation that the Govt is considering getting rid of Pension tax relief. Who knows if this is spin to introduce a lesser blow, but if it did, this would mean, I think, an effective increase in National Insurance for most employers. Very roughly this could amount to a 10-12% increase, although the calcs are complicated by a tax free range for categories of earners.
On top of automatic pension uplifts that are mandatory, minimum wage uplifts, property taxes (business rates), a Conservative Govt will have been in charge whilst some of the highest burdens of taxation have been introduced. GDPR regs and IR35 are yet another stress on top of these other business pressures. These are essentially easier for bigger companies to cope with, but smaller companies find it much harder.
If I remember what I read recently correctly - The Government has stated that its review which is due to have finished about now has been carried out to ENSURE IR35 changes to larger companies WILL take place 5th April
It certainly seems that some industries via big player announcements have stated that they are carrying out a ban on PSC (Private Service Companies - One man Ltd Co's) from that date
Looks like Oil & Gas and Pharmaceuticals are using the change to make the change en-mass. For Body shop agencies it means they are apparently being asked to put these PSC individuals on a PAYE basis if provision remains via the agency
I suspect that the employer will also pick off key individuals who are willing to take a Staff role
Sounds like a headwind to me
Hi ezlifeme
The only outcome I have heard about the review is that the changes will not be retrospective ( a lamentable trend in tax law) but will apply post April 5.
Of course IR35 has been around previously, but there wasn't this End Client potential liability, hence why some large businesses have been dropping freelancers. This is designed so that it pushes responsibility all along the supply chain, hence why recruiters are sweating massively.
I haven't heard of any exemption or any deferral for small companies, but would be interested to know any specifics.
Hi trident
Per HMRC
"Off payroll working rules change 6th April 2020... from this date ALL public authorities and medium and large sized clients will be responsible for deciding the status of workers that meet 2 or more of the following conditions"
(HM Gov unable for years to do this and win in court so moving emphasis and penalties to the company who employs the worker
Like previous HM Gov & HMRC role outs each tax year the net gets smaller and smaller fish (so to speak)
Morning Graham,
Number of stores is down by only two to 153, and one store opening is planned for 2020. To me, this is complacent - why not plan to shut down stores, given the market environment and the probability that it's only going to get worse?
I don't think this is quite right. Retailers will always shut down loss-making stores whenever they can. The problem is the leases. Over-rented stores (which is probably most of them) can't be off-loaded, unless you pay someone else a huge cash incentive to take over the lease. Even then, it requires landlord approval, which they would refuse for a weaker tenant. Plus the lease reverts back to ALY if the new tenant goes bust.
When ALY opened its stores, the norm was for 15 year leases, with no break clauses. Therefore it's undoubtedly locked into many leases until lease expiry. That's the big problem, rather than complacency.
Regards, Paul.
Thanks Paul.
If Laura Ashley Holdings (LON:ALY) wasn't planning to open a new store this year, having also opened a new store last year, I'd be more willing to retract my accusation. It hasn't said that it plans to close any of its stores this year.
It identified six areas of strategic focus today and none of them involved downsizing or restructuring any of its operations.
G
The fact that they can't assign any store leases at a profit to shore up their finances is whats worrying to me. That suggests their entire store portfolio is in areas with no chance of success, even for stronger brands/retailers.
Its looking like increasingly the only way out for Laura Ashley Holdings (LON:ALY) is a CVA - the bank will get back something (probably an equity stake or convertible debt), landlords will take a haircut, but shareholders are likely to be completely wiped out.
This is a great time to be opening new stores actually - because amazingly cheap deals are on offer, including long (e.g. 2-3 years) rent-free periods, and much lower rents than existing stores. But only if you have a profitable format, like e.g. Dunelm (LON:DNLM) .
Estate management for all retailers involves handing back stores to landlords, which are uneconomic, when the leases expire, having first tried to negotiate a lower rent with the landlord. That's a normal part of the business, which ALY will no doubt be doing, as does everyone else.
Therefore, I see it as a given that ALY will be trying to exit from loss-making stores. Although I can probably compromise with you, by acknowledging that by not talking about store closures in its commentary, that does suggest they might be more willing to tolerate stores trading at breakeven or small losses, in the hope that they might be able to improve trading, instead of trying to close those stores.
The fundamental problem remains though, that the structure of UK commercial leases is a massive problem - once locked into uneconomic leases, that can drag a whole company into insolvency. Apparently, new lettings now, the tenant normally insists on 5-yearly break clauses, so that problems are ring-fenced. Or even shorter leases, in some cases just 2-3 years. Lease flexibility is everything these days.
Best wishes, Paul.
Paul, if you're reading these, are you still planning to speak to Up Global Sourcing Holdings (LON:UPGS) today? Surprised they haven't updated the market further since last Monday...
Paul isn't doing the SCVR today because he is meeting with UPGS.
Yes, I'm speaking to Up Global Sourcing Holdings (LON:UPGS) today, which I confirmed in yesterday's and Tuesday's SCVRs!
It's an audio interview, over the phone, which I'll publish early evening today, and will put a link up here in the comments as soon as it's published.
Thanks Paul, yes I know you have the interview scheduled, I was just wondering whether it had been moved given that the company has not updated the market with any further specifics and so presumably cannot give you much information relating to their trading since Chinese New Year...
I wouldn't ask Up Global Sourcing Holdings (LON:UPGS) anything that might constitute inside information, and wouldn't be able to publish it if they said anything that was clearly price sensitive. So this is not a company update.
My interview is not company-specific, but more about the wider topic of China-UK supply chains, and what's going on, on the ground over there & how it might develop, from experts in this field.
Hope that clarifies.
Regards, Paul.
Staff line [STAF] - The Stock Report says that 2/ 4 analysts still rate it as a ‘Strong Buy’ (1 as Buy, 1 as Hold). The motto seems to be never rely on brokers’ views.
Re: Staffline (LON:STAF) auditors I seem to recall that I was critical of PWC (or maybe it was Grant Thornton) in the past. So kudos to PWC for actually caring about their reputation and saying things when they need to be said.
BDO Stoy Hayward rings a bell in my mind for speaking up, too.
I guess Staffline (LON:STAF) chose Grant Thornton because they'd be happy to sign off on whatever work of fiction was put in front of them.
Brilliant write up on Staffline. That alone makes this month's subscription worth the price.
Welcome back. Graham.
Not a small cap Mony results look good,not expecting you to have time,be a bonus if you could.
Thanks coniston.
I'm afraid I generally cover midcaps here due to time constraints. Thanks anyway. G
coniston - Graham's probably too modest to mention it but he has a website that does a daily(ish) review of midcap results.
As he's here today the duties over there are being covered by Roland Head and Moneysupermarket.Com (LON:MONY) is on the list.
If interested (and much of the content is free) you can find it here:- https://cube.investments
Norcros (LON:NXR)
Bit of a sneaky profit warning from Norcross, and poorly communicated by giving an unnacpetably wide margin of where the profits will end up. Than's no good to anyone really at this stage of the year.
There seems to have been enough positive news in the last couple of updates that it is somehwat surprising todays news despite poor SA trading, prior hopes too half full perhaps? - my main hope is that the net profit will be closer to midpoint between 25.1 mill and 19.4 mill. If we took 22.2. Thats still a miss of 12% probably best hope - not terrible but presumably next year will be chopped and i don't really have any justification for presuming net profit will be that good. Shares are down 12% which seems to tally with my best hoped for reduction in epectations. Looking at where we are now though pe will still be under 10 with net debt falling like a lead weight (hopes for similar with pension defocit too) so no need for me to contemplate selling. Lets hope this is one of the 67% of pw's that are not repeated (shhhh) with the next update.
rmillaree I invest in Sylvania Platignum and was interested to see in their recent report that there are issues with energy in SA. Apparently corruption and incompetence are leading to large shortages in power. I have to say it is leading me to stay well wide of any SA related stocks. I don't know if that is helpful but I thought it worth mentioning. DYOR of course!
Norcros (LON:NXR)
Camtab
Ref South Africa - its a very valid point that there is the South Africa "issue/ necessary discount" that should be sensibly applied here - for some thats perhaps enough for them to (sensibly?) give the stock a wide berth. I would say they seem to have had very stable results from South Africa for as long as i can remember despite the constant issues that always seem to be going on in that country - a couple of years back it seemed to be labour dispute - so i am not over worring about their business their as its probably a simple staple items that are sold on margin - i can't see SA running out of the need for their products.
As long as i can remeber NXR has been on a cheap as chips rating - i have always taken the viewpoint this is partly down to the SA issue and partly down to the pension defecit - potentially last couple of years the bedding in of acquisitions and associated higher debt were temporarily i worry too - they have successfully ramped up profits though that the debt and acquisitions are not now an issue.
In summary i am reasonably comfortable continuing to hold despite the negatives that one can attach - as i feel the discount to market competitors has been worth the extra risk - i would say though that the good increase in sharerpice over the last 2 1/2 years from the low days of 160p a share (despite todays drop) and also the reduction in estimated earnings is probably putting Norcros (LON:NXR) on its raciest pe ratio in 5 years - so i can't really see anyone who has not previously added changing their mind today. I am this year looking forward to excellent progress in debt and pension deficit reduction that will help offset poor trading by having a much strengthened balance sheet (providing they don't but any expensive new toys - if they do buy expensive new toys there should at least be extra profits to match the new toys)
rmillaree i have seen a lot of your posts and I know you are a thoughtful investor, so good luck with Norcros. I must admit I have looked at Norcros over the years too. Paul first introduced me to it. I think I can be too nervous of Africa, my parents lived there for years and it has never seemed to me an investors paradise, but much more suited to the Tiny Rowlands charm and mentality. The mish mash of different views is why we are all fascinated by the market, I guess. All the best.
Hi Graham, in your header I think you mean Norcros not Next.
Would appreciate any thoughts on Volvere's aq.
many thanks
Cheers, I've fixed that to NXR. Well spotted. G
Date is wrong in the header too. Sorry if others already mentioned.
Hi Graham - is it worth looking at the in-line trading update from Tracsis (LON:TRCS) ? There is a 2nd half weighting narrative for the Traffic and Data Services division which, in 2019, was the larger division by revenue but at significanlty lower margin
My morning smallcap tweet: CBD for high fliers in WH Smith travel shops
Dev Clever Holdings (LON:DEV) Norcros (LON:NXR) Inspiration Healthcare (LON:IHC) Sativa (OFEX:SATI) Staffline (LON:STAF) Osirium Technologies (LON:OSI) Proactis Holdings (LON:PHD) Alpha Real Trust (LON:ARTL), AVEVA (LON:AVV), Tracsis (LON:TRCS)
Dev Clever (DEV) FY tradng: H2 weak due to delayed rollout of Launchyourcareer.com and VICTAR VR. Says co "has entered into commercial negotiations to partner with a leading worldwide technology manufacturer, to enable our revolutionary, career guidance products, Launchyourcareer.com and VICTAR VR, to be mass adopted as part of their roll-out strategy for their VR education technology hardware." Co expects an accelerated roll out of products, into multiple territories around the world, starting in the US from April 2020. But H2 ended over 3 months ago. Smells.
Norcros (NXR) warns FY U/L profit below market expectations but ahead of last year. Blames weak SA market. Coronavirus - "based on the slower than anticipated return to full production at our China based suppliers we do now envisage that the supply chain disruption is likely to have some impact on the seasonally important remainder of this financial year and early next." I hold.
Inspiration Healthcare (IHC) guides FY beat with rev up 15%, EBITDA over 20%.
Sativa Group (SATI) WHS Travel will stock CBD products in ~100 of their highest footfall UK stores.
Staffline (STAF) CEO to leave after new on found. Trading in line. Expects to reach agreement with lenders to remove the risk of covenant issues and ensure that the Company retains sufficient liquidity. Net debt £60m end Dec. I hold.
Osirium Technologies (OSI) winds another NHS Trust contract. 3 year deal for 500 devices.
Proactis (PHD) H1 rev £24.5m down 7% but new contracts signed £7.5m up 44%. Guides FY rev £50.5m. Expectation prior to the announcement of the formal sale process was £53.5m. "Our revenue performance in the period is largely a function of the lower new business and much lower retention performance in previous periods which we have now reversed." Sale talks with several parties, co will be in a position to move forward promptly following this trading update.
Alpha Real Trust (ARTL) [last night] arbitration award appeal from Logix dismissed. Galaxia site is being sold and sale proceeds will have to be deposited with supreme court.
In line: AVEVA (LON:AVV) Tracsis (LON:TRCS)