Small Cap Value Report (Thur 25 April 2019) - CPR, SFR, DVO, PHTM, THAL/LSR, MCON, DISH, SYN, ALY

Thursday, Apr 25 2019 by

Good morning,

Some RNS announcements I noticed today:

  • Carpetright (LON:CPR) - in line with expectations trading update
  • Severfield (LON:SFR) - in line with expectations trading update
  • Devro (LON:DVO) - in line with expectations trading update
  • Photo-Me International (LON:PHTM) - €20 million acquisition
  • Thalassa Holdings (LON:THAL) - extension of offer for Local Shopping REIT (LON:LSR)
  • Mincon (LON:MCON) - trading update, Q1 profit "slightly behind" last year.
  • BigDish (LON:DISH) - expanding to Basingstoke, Exeter, Brighton
  • Synnovia (LON:SYN) - trading update, marginally below expectations and a restatement of historic accounts.

These aren't earth-shattering announcements so I might just run through each of them with quick comments.

Elsewhere, I listened to the Tesla Q1 conference call live last night, and increased my short position in it again this morning. Lots of weird and interesting things going on there, as always!

Stop the press: Laura Ashley Holdings (LON:ALY) issued a profit warning at 10:30 am. Not great for shareholders.

Carpetright (LON:CPR)

  • Share price: 20.55p (+34%)
  • No. of shares: 304 million
  • Market cap: £62 million

Trading Update

The market loves this update, helping the shares back toward the January high.

The key bit is that the "UK like-for-like sales trend improved significantly in the fourth quarter, compared to the year to date".

Does this mean that like-for-like sales were positive? To me, it doesn't, not necessarily. All we know is that they are less bad than the first three quarters of the year!

A reminder:

  • Q1 LfLs: down 16.8%
  • Q2 LfLs: down 8.9%
  • Q3 LfLs: "remained negative, although the trend has improved from that of the first half".

So the year-to-date LfL result might be minus 10%, for example. And Q4 is much better than that.

£19 million of cash savings are on target - a very big number for a company with this market cap!

CEO comment:

"the work we have done to reposition the business is starting to deliver the benefits necessary to put Carpetright back…

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All my own views. I am not regulated by the FSA. No advice.

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Carpetright plc is engaged in providing floor coverings and beds. The Company operates through two segments: UK and Rest of Europe (comprising Belgium, the Netherlands and Republic of Ireland). The Company trades from approximately 440 stores and concessions in the United Kingdom, as well as over 140 stores across Holland, Belgium and the Republic of Ireland. The Company offers free home estimating services. The Company's product range includes carpets, mattresses, headboards, laminate flooring, engineered wood flooring, rugs, vinyl flooring, luxury vinyl tiles and flooring accessories. Its luxury vinyl tiles are available in a range of designs, including tile, oak, pine and stone. It offers a range of beds and bed products, including divan beds, roll up mattresses, bed frames and others. It offers a range of options from memory foam mattresses to open coil and pocket spring mattresses. Its brands include Kosset, Essential Value, Storeys, Carpetright Clearance and Carpetright. more »

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Severfield plc is a structural steelwork company in the United Kingdom, which is engaged in construction contract business. The Company serves the construction and infrastructure markets. Its construction sectors consist of commercial offices, industrial and distribution, stadia and leisure, retail, and data centers and other. Its infrastructure sectors include transport, power and energy, and health and education. It has worked on over 120 projects, which include One Angel Court and Nova Victoria in London; Anfield Stadium; London Bridge Station; Nissan paintshop, Sunderland, and Dublin waste to energy facility. Its subsidiaries include Severfield (Design & Build) Limited, which designs, fabricates and constructs structural steelwork and portal frames for the warehouse, distribution and industrial sectors, and Severfield (NI) Limited, which delivers constructional steel products in the United Kingdom and Irish structural steel market. more »

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Photo-Me International plc is engaged in the operation of sale and servicing of a range of instant-service equipment. The Company operates coin-operated automatic photobooths for identification and fun purposes, and a range of vending equipment, including digital photo kiosks, amusement machines, business service equipment and laundry machines. The Company reports its segments on a geographical basis, such as Asia; Continental Europe, and United Kingdom and Ireland. Its products include digital prints, photobooks, posters and collage posters, calendars and photo-cards. It offers children's rides, such as carousels, generic rides, character licensed rides, simulators and interactive rides. It operates approximately 27,000 photobooths, over 6,000 children's rides and approximately 4,700 digital kiosks in areas, such as shopping centers, supermarkets and rail stations. Its subsidiaries include Fowler UK.Com Limited, Prontophot Austria G.m.b.H. and Photomatico (Singapore) Pte Limited. more »

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  Is LON:CPR fundamentally strong or weak? Find out More »

31 Comments on this Article show/hide all

peterg 25th Apr 12 of 31

In reply to post #471596

I can't answer your question. That is clearly entirely down to Graham. However, Paul and Graham have always had somewhat different approaches, and worked to slightly different times, so what there's no reason to assume what works well for Paul is going to be appropriate for Graham.

And much as I value their reports, I suspect you would be wrong to assume that most subscribers are here for that reason. They are a very small part of what Stocko provides. For me, and I'd be sure many others, the data is by far the main reason for subscribing.

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fred9566 25th Apr 13 of 31

If Photo me isn't a value oppurtunity I don't know what is . Looking at the Stockopedia report it is generating the following numbers PE:8.56;EPS:7.86%;Yld:10.2:Ev/Ebitda:4.49 ;ROC :20.6;ROE :27.7:OM:17.1 . Even by Graham's and Pauls exacting standards the balance sheet is fine -Stockopedia is shwing net cash of £31.4 million on a Market Cap of £323million .
The RNS this morning indicated that the acquisition is eexpected to be earnings enhancing in the coming financial year and thereafter. Finncap issued a report this morning confirming the cash generative nature of the business supported the yeild of over 10% . On the bearish side their traditional business is either stable or in decline but laundry is growing at 25% per annum and new products particularly related to secure issues like passports and banking are in the pipeline .Robbie Burns of Naked Trader has been in this hare for years and I can see why
Would be interested to see if you share my enthusiasm

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andyi 25th Apr 14 of 31

In reply to post #471641

I beg to differ Peter, I find these reports very valuable whereas much of the data is available elsewhere, Graham and Paul's interpretation is not and the SCVR is worth the subscription in itself.

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Zipmanpeter 25th Apr 15 of 31

In reply to post #471651

Re Photo-Me International (LON:PHTM) - there is much to like on metrics but even at the much lower share price levels vs previous years still carries a lot of risk IMHO.

From the analyst presentation in the Annual report and interims, roughly 2/3rds of revenue and an unknowable % of margins comes from 1 division: the ID unit. This still largely old style photo-booths.

Whilst PHTM are trying to drive innovation (eg secure govt approved links for photos for driving licence etc) and cut costs, essentially this does what anyone with a smartphone and homeprinter can do with very little technical skill. (I know as I did my passport renewal online and printed photos for sports clubs etc myself this year).

Much of this business could therefore disappear very fast - hence the attempts to diversify into self serve, large load laundry (successfully since 2012) and now entry fruit juice vending to exploit the "moat" aka high largely fixed cost of its fleet of service engineers originally developed for the photobooths. However, it is now operating in a lot of very different product markets

At a higher level of trust, I also don't like that PHTM does not make the margin contribution by product segment clear in the same way it shows revenue by geographical and so we can make an informed view of the importance of the ID margin

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WDWombat 25th Apr 16 of 31

Photo-Me - the stock is down nearly 50% over a year The headlines are a p/e of around 8.5 and a yield of 10%. Sema (the acquisition) has been going for 30 years and looks a sensible fit to me. I assume the supermarkets provide the fresh fruit and veg. I was going to buy on the news but have held up. We know there is a(nother) rather disappointing earnings release due but of more concern is the balance sheet. There have been bolt-on acquisitions but the increase in debt is striking over the past year and a worry. Frankly it looks to me as though they are paying too much in dividends (I think around 8p a year on an historic eps of 5p). We also don't really know the cost of the Japanese restructuring and there will probably be a write-down on the holding in the HK associate - not a huge holding (18% of a very small cap) but the stock has been pretty poor since listing. I shall keep watching.

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spantick 25th Apr 17 of 31

Just like to add that I am a new subscriber just for SCVR for which I find excellent !

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elviron 25th Apr 18 of 31

In reply to post #471636

Gary, I fail to see how the tone was all that offensive to be honest. Do we have to be nicey nicey pretty please on here, all agreeing with each other, now that those "nasty" unpaying posters have been excluded?

Wrt to wanting a reaction, you suspect wrong. Not sure I like your tone either. The only reaction I would like is in the form of Graham matching Paul's morning effort.

I agree that both Paul and Graham are well worth reading. They have markedly different styles and I like them both. My comment this morning was focussed only on one point.

As for whether or not the majority subscribe for access to the SCVR, and whether or not they feel that they are getting their money's worth, only time will tell. If the format continues as per the recent change, then that will clearly state it is making money. If they introduce a dual tariff in the next year or so, then clearly the SCVR is in fact a major draw. Really can't tell one way or the other at this stage, without access to all of the figures of course.

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john652 25th Apr 19 of 31

In reply to post #471701


Re Photo-Me International (LON:PHTM) debt, they financed €30m at ''between 0,5% for 5 years, 0,55% for 5 years and 0,65% for 7years'', so this might go some to alleviate balance sheet worries, although not sure why they borrowed so much but 0.5% is virtually free so why not if someone is willing. I think the company is ok but who on earth would loan at 0.5%, nuts!

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timarr 25th Apr 20 of 31

In reply to post #471716

If people want some kind of change to Stockopedia could they possibly go through the proper route and request it through the big green button (down there to the bottom right) rather than cluttering up the board with inconsequential non-investment based chat?



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jonesj 25th Apr 21 of 31

In reply to post #471616

Ref: Tesla.

1 To make a million units a year would require significant capex.    Incidentally, their battery supplier seems to have put some capex on hold as well.

2 Tesla will probably struggle to sell a million units a year in a market in which competitors are launching quite rapidly over the next 2 years & considering word is slowly getting around regarding Tesla's poor reliability.

3 The mass market car makers tend not to make 8% profit margin. Premium brands like BMW and Mercedes can manage it. BMW trades on a PE ratio of 8.7 & has a market cap of Eur 53 billion. (USD 59 billion). Tesla has a market cap of USD 45 billion, based on the hope of future profitability. BMW have a proven business model.

4 Tesla operate in what is currently the lowest margin segment of the automotive industry (electric vehicles).

5 Tesla have zero competitive advantage. Arguably they are at a disadvantage, since other makers have much more volume and can share the R&D for all the common parts across platforms.

6 Tesla have highly questionable management.

Disclosure: Short Tesla  (modest position).


As for Photo Me, if I am not mistaken, a number of the passport, visa and other such sites around the world now allow a digital photo to be used.    So the customer can travel into town, pay £5 and get whatever photo the machine provides.     Or use the selfie camera, take about 10 free photos and pick whichever looks the best.

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seadoc 25th Apr 22 of 31

In reply to post #471616

HornBlowerm Re: Tesla. Did you listen to the webcast?

I would agree that there is a lot going on Elon did not sound like he had a complete grasp either. I am also short and holding.

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Graham Neary 25th Apr 23 of 31

In reply to post #471686

re: Photo-Me International (LON:PHTM)

Very reasonable points, Zipmanpeter. Have a thumbs up from me. There is a real risk there in terms of longevity and diversifying into other ostensibly similar activities is less attractive than having one or two very strong and profitable acitivities. G

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Graham Neary 25th Apr 24 of 31

In reply to post #471616

Hi HornBlower,

Hard for me to summarise my thinking on Tesla without writing another article. It's a very complicated story with many moving parts. I might write about it in the SCVR again if there is a shortage of company news. Good luck with your own position.



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Graham Neary 25th Apr 25 of 31

In reply to post #471601

Hi gostevie, re: Synnovia (LON:SYN), I agree, I don't think this is a big deal. Just my 2c. G

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sharesurfer 25th Apr 26 of 31

Coincidentally, I analysed Photo Me yesterday and was planning on buying today. Had to pay 3% more so was a bit annoyed :-)

My conclusion was as follows. It is a company that is ex-growth at the moment. The evidence for this is the stagnating revenues which are not rising by much. Profits have risen by less than revenues which is translating into a reduced operating margin. I was wondering why profits are falling more than revenues or rising by not as much and I think the answer lies in costs rising in response to finding more growth. Their markets are approaching saturation and they are spending to to find other types of vending machines to get the growth going. For what its worth, I think much of these new machines like selfie booths and 3D figure printers are not going to do much (personal opinion) but they don't have to. The reason why I bought them this morning is that they have a great moat. I'd rate it as 8/10. Its not perfect because people could change their habits and take passport photos at home etc. but I think most people still prefer ease and will opt for the photo-booths. So what you are buying is a mature business that pays a sustainable 10% dividend. If you discount the net cash, you are paying 7x earnings for a great business with a great moat.

Added to this, you have the hope of increased revenue from Laundry machines which were 10% of revenues in April 2017 and are now 16% (April 2018 FY results) having grown by 67%. That is quite substantial. So you get a great company with the hope of some growth for a great price. I bought a small amount this morning. And will be scaling up as the price increases hopefully.

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Graham Ford 25th Apr 27 of 31

Hello Graham

Regarding BigDish (LON:DISH)

“You go onto the website or download the app, and get tasty last-minute discounts on restaurant seats. It allows for very efficient restaurant pricing, a bit like airplane seats.”

I’m not sure that’s right. If that is the way it works is that not the original model? The airline model is sell initial seats at cheaper prices to encourage early booking and then ratchet up the price as the availability reduces nearer to the departure date. In other words a last minute premium rather than a last minute discount.

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Graham Neary 25th Apr 28 of 31

In reply to post #471771

Hi Graham! I agree that the pricing usually moves in the opposite direction for airline seats although that's not always true - ticket prices sometimes fall.

Anyway, you can see for yourself how DISH works:

It maximises revenue through the use of variable pricing at different time slots, so to me it looks a bit like airline yield management.

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Graham Neary 25th Apr 29 of 31

In reply to post #471596

Hi Elviron, I don't plan to change my style/format, but as always things remain up for discussion and review. G

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Merlotman 25th Apr 30 of 31

Photo-Me International (LON:PHTM)
Like others I've been following PHTM for a few years tempted by the yield and valuation but haven't bought.
My issue has been the poor free cashflow. Due the reoccurring hi capex of which a material portion is capitalised, profits are somewhat overly stated IMHO with poor free cash conversion. As a result FCF hasn't covered divis for 4 years and fell to 0.3x in 2018

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sharesurfer 25th Apr 31 of 31

I think with Photo-Me International (LON:PHTM) it really comes down to the moat and how powerful it is. Having read some of the statements above, I don't think its as strong as I thought but regarding the photo-booth estate (still the bulk of revenue/profit), I'd say the following:-

1. Digital passport photos are a threat but perhaps not as much as we might fear. I used my phone for my passport photos but, though it requires little technical knowledge, there are lots of people (sorry to sound ageist but the older generation) who would not be able/comfortable doing this (though admittedly increasingly less so in future)
2. You don't need passport photos just for passports. Theres also ID cards where you need a physical photo and many people either don't have a printer or fancy going out and buying photo paper.
3. Acceptance of digital passport photos started in Jan 2017. You could argue there has not been a material impact on revenues for the full year ending April 2018 (April 2017 to April 2018). Revenues haven't fallen off a cliff. This indicates to me that perhaps there are a fair few people who still use photo-booths.

I'd say a couple of other things. Regarding FCF - yes the high CAPEX has really reduced FCF but this is discretionary to some extent. Its there to find the next big growth area. It can be switched off or lessened.

And, lastly, I like their relationship with site owners. This leaves scope to replace the photo-booths with things that are more relevant in the digital photography age. Fresh fruit dispensers, or souvenir dispensers or whatever it is that their investment/acquisitions might produce. It's not just the fleet of service engineers or the photo-booths that comprise the moat. Its the relationship and 'physical space' that the photo-booths occupy - which could be anything that can successfully be vended.

But in light of the comments made my Zipman and others, I am having second thoughts regarding the strength of the moat. Maybe its not 8/10, but more like 6/10.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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