Small Cap Value Report (Thur 25 June 2020) - NXR, TND, VCP, TPFG, WSG, UCG

25th Jun '20 by Graham Neary

81 comments 10319 reads

Good morning!

Graham here to round out this week's SCVR coverage for you.

This morning I've noticed RNS announcements from:

Norcros (LON:NXR)
Tandem (LON:TND)
Victoria (LON:VCP)
Property Franchise (LON:TPFG)
Westminster (LON:WSG)
United Carpets (LON:UCG)

Let me know if you have any other suggestions, though I reckon these will keep me busy!

Cheers

Graham

Thanks for your suggestions. This might be a quickfire report as I attempt to cover as many stories as possible.

Today's report is now finished, as I have to go to the dentist! I have noted your suggestions and will attempt to catch up on them tomorrow. Thank you!

Norcros (LON:NXR)

Share price: 169.52p (+4%)
No. of shares: 80.6 million
Market cap: £137 million

Final Results

I know this as the owner of Triton showers, but it also owns Merlyn shower doors and a bunch of other bathroom and kitchen brands.

It tends to trade cheaply, which I've explained as being a function of:

low organic growth.
exposure to South Africa.
its net debt and pension scheme.

It issued a warning in February, as the Covid-19 situation was beginning to deteriorate, and then downgraded expectations in April.

Full-year Results

These results (to the end of March), and current trading, are better than the guidance given by the company on April Fool's Day.

Trading is "ahead of our COVID-19 operating scenario".

Underlying operating profit for FY March 2020 is still down 7.5% compared to FY March 2019.

Statutory operating profit is down 31%.

Make sure that you ignore the percentage changes in the highlights table - they aren't comparing like with like.

There is simply no point in comparing pre-IFRS 16 numbers with post-IFRS 16 numbers.

Net debt appears manageable at £36.4 million, but trading does need to normalise in order for it to satisfy covenants. Covenant waivers are agreed until March 2021.

Dividend - no final dividend is proposed. An unsurprising decision but I do think it's worth taking note of which companies have continued to pay dividends during this crisis, as they must be particularly resilient!

Pension scheme -…

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Tommy H

25th Jun '20

The other think to check with Next (LON:NXT) is how much of it's revenue and profit is now coming from the finance that it provides to people to buy their clothes.

I had to pick up a couple of things for the kids pre-Christmas last minute online, great offering and they were happy with the choices they could make, it was quick delivery, but I could not find a way to actually pay for it without taking the "interest free 30 days option" probably my IT skills, but then obviously it kicks into a heft rate at day 31 which how many people end up doing as I was ringing them up asking how on earth do I actually pay this?!?

cmpeckham

"I had read somewhere that they are testing more per head of population than anywhere else?"

You will have read this in reports of a speach by a certain Donald J Trump. It is ofcourse untrue, but we live in a post truth world now, where certain politicians make use of the fact that it doesn't matter if something is true or not. All they have to do is state something for a significant share of the population to believe it and never hear it refuted.

Here it is fact checked at the time:

https://www.bbc.co.uk/news/world-us-canada-52493073

Here are the current data on testing per capita:

https://www.statista.com/statistics/1104645/covid19-testing-rate-select-countries-worldwide/

Edit: this is the key quote from Trump: "We're now conducting well over 100,000 coronavirus tests per day. It's over 100,000 tests a day. And these are accurate tests, and they're moving rapidly, which is more than any other country in the world, both in terms of the raw number and also on a per capita basis, the most."

Indeed, the "false photo" is not false at all, but the comments on this subject above started with the claim that:

"I think you need to be careful what you read in newspapers. Some of those pictures looked at very convenient angles designed to foreshorten and give a possibly misleading picture. Not that newspapers would want to present a possibly misleading headline of course..."

a view which others seem to endorse.

stuartb58

Simon - pretty sure ANP only have licence to sell Credence for agricultural purposes. I am also long term investor in ANP and like the way it is going. Very pleased that they are supporting local NHS and Care Homes, made me proud to be a shareholder. Graham's view much appreciated if he has the time.

timarr

Hi Si

I think you need to be careful what you read in newspapers. Some of those pictures looked at very convenient angles designed to foreshorten and give a possibly misleading picture. Not that newspapers would want to present a possibly misleading headline of course...

Well, it was a bit tongue in cheek, but we now have a major incident declared at Bournemouth. Bit easier to get to than North Norfolk, I'd observe ...

john2

What I always think when I see photos like that is , 'Who on earth would want to be there?'.

GTrader

...supply of chains...

2ShedSam

With that representation of statistics and quotations you could work for the media cmpeckham.

Take a BBC fact check relating to May 11th, match it with a cumulative view on June 24th and put in context of what appears to be a quote from not sure when about run rate testing.

Currently USA appear to be conducting 500,000 test per day. At May 11th USA were indeed conducting over 100,000 tests per day.

I could be wrong but the current daily run rate of testing will probably be the highest per capita in the world or not far off.

If you read the text from his speech on May 11th (you can view on white house website). His context was clearly about current run rate and presenting a positive outlook on direction of travel for testing. BBC choose to fact check run rate numbers against Cumulative numbers to support an anti Trump narrative which is fine as it makes for good click bait.

Post Truth World hey :)

I have no real perspective on Trump or the USA. I don't live there and have no wish to tell the American people who they can and cannot vote for but I am naturally sceptical about any emotion driven headline.

I will not assume to know what you have or have not read but please feel free to correct me if appropriate. Every day is a School day and I do get things wrong and am always eager to learn.

Is that the same Liberal Democrat leader of Bournemouth Council currently under threat of a Vote of no confidence? I am sure her Motives are entirely honourable.

Your assessment is spot on, analyst pack slide deck, slides 30/31 I think tell the potential upside based on Provident history. Totally agree they need a small equity pump to unlock the agreed lending but this looks like a no brainer for Alchemy. Will continue to monitor.

simoan

26th Jun '20

Well, it was a bit tongue in cheek, but we now have a major incident declared at Bournemouth.

Yes, I heard that, however my point remains that the newspaper photos were taken in a way to make the situation look far worse than reality using foreshortening. I have seen other photos from higher viewpoints where it looks nothing like as bad, although still more crowded than most non-cretins would be comfortable with.

What is far worse IMO is just the sheer number of people not working and kids not in school on a Tuesday. Seeing it myself in Wells really brought home how screwed up things are.

All the best, Si

john652

I agree Simoan,

‘People not working, kids not at school, mess’ . Bournemouth also reaffirms my view that i just dont believe the media & surveys where large % dont want to go to work, bars, restaurants until a virus is found etc etc. Today in spain it is 99% back to normal apart from some capacity/social distancing & mandatory masks in confined spaces but those are restriction on what people do when they are doing what they always have done.

If boris opens s up properly, without his whitehall chums & their silly rules the reopen trade will (yep predictions) roar. People haven’t changed overnight, Bournemouth shows that. There is a virus still but free choice needs to be given and people will go back to normal. People didnt stop smoking, having sex, drinking, sitting in the sun because of lung cancer, hiv, Cirrhosis, skin cancer etc etc.

People changed behaviour over time sure, but not a total reset. So Bournemouth to me says when leisure opens is highly likely it wont be empty in-spite of the all the silly little rules, given a chance.

People changed behaviour over time sure, but not a total reset. So Bournemouth to me says when leisure opens is highly likely it wont be empty in-spite of the all the silly little rules, given a chance.

This is not simply a first order equation - that reopening means a burst of economic activity. I think that's pretty obviously going to happen. The second order is crucial - if that burst of economic activity leads to a spike in cases and reimposition of tougher rules then the economic consequences for the leisure industry in particular will be devastating. For that to be avoided then we probably do need to see a change in behaviour.

For what it's worth my friends in Bournemouth said that it was chaos - cars everywhere, hoards of people wandering about not socially distancing - but that the beaches themselves weren't too bad, people were taking reasonable care. That's obviously not a representative sample.

Personally, I still think the leisure and entertainment industries are uninvestable, but there's clearly good money to be made there if you can time your entry and exit well.

timarr

rmillaree

888 Holdings (LON:888)
slightly odd significantly ahead of prior expectations update from 888 today, the tone of the news sort of suggests this good streak may/will not last - headwinds ahead doh. Hopefully they are just being suitably cautious about the future and/or they have a regulator they do not want to upset - its kinda like the news was drafted by lawyers in the knowledge the ceo would be put infront of a treasury select committee next week.

peterg

This comment is under review

The inevitable has to be a change in behaviour for social distancing and hygine to slow the spread but more importantly a change in mentality that we have a new dangerous disease to go with all of lifes other risks. Ask and epidemiologist what to do to stop 650k deaths from the flu each year, lock everyone up.

Yes, if you want to focus on just the flu, but we don't do that, for obvious reasons. But of course the question is, would we have if epidemiologists were in charge...

We accept the risk and the inevitability that the flu may get you, especially if you are already very sick.

https://www.who.int/news-room/detail/14-12-2017-up-to-650-000-people-die-of-respiratory-diseases-linked-to-seasonal-flu-each-year

We accept the risk and the inevitability that the flu may get you, especially if you are already very sick.

True, but we have vaccines and treatments for flu and the risks and long term effects are well understood. None of that is currently true for Covid-19, our understanding of it is still in its infancy.

So, at the moment, no one can accept the risk because no one knows what it is.

Hi Timarr

Thats true there are vaccines and treatments but it still kills 650,000 and its an accepted risk. For covid surely there isnt any alternative to accepting the risk unless a future of lockdowns and all the implications of that become the norm. This debate could run of course, and is everywhere, but for me its all back to is the response in proportion and the excess death graph will be the one to watch over the coming months. Oh and resurgence too of course and a whole load more probably!

The Phoenix

Hi Si,

Interesting I'm in Norfolk also semi retired went to Sea Palling as closer for me than Wells car parks were 90% full early doors way above the norm beach was busy but enough space to social distance.

Lots of youngsters in large groups not bothering though and i will say you get a better class of punter at Wells.

Agreed the normal thought that it wouldn't be to busy as people working and kids at school well off the mark. Would have been interesting to see how much more things peaked people wise if the weekend was in line with last few days but it looks like british weather will get Boris out of jail for the short term.

Regards Andy

27th Jun '20

For covid surely there isnt any alternative to accepting the risk unless a future of lockdowns and all the implications of that become the norm

Can't agree with that.

Firstly we can only "accept the risk" when we know what it is. Unlike flu we don't - yet. Part of the reason for the lockdown and social distancing measures is to buy the time to figure that out, and clearly a lot of progress has been made but there's still much more to be done, particularly to figure out the long term impacts, which may well have implications that extend beyond the current high risk groups.

Secondly, there clearly are alternatives to lockdowns which countries are starting to operate now with phased measures while keeping social distancing measures in the place. Another full lockdown is unlikely, although if we get a winter spike along with a flu epidemic we may have to reinstate some measures.

Thirdly, we can already see progress on multiple fronts, We have the first therapeutic treatments which both reduce the amount of time people spend in intensive care and reduce mortality rates. We understand better - although far from perfectly - who the at risk groups are so we can get them to shield if there is a spike. We have widespread testing programs in place so we can rapidly identify people who have the virus - which is particularly important in hospital and care contexts. We now know that a third of the population can effectively work from home. All of these things will reduce the load on the NHS if we get another spike.

Fourthly, the underlying agrument here is that the economic damage is too great to allow another lockdown. That ignores the point that even if we hadn't locked down our economy would still have gone down the pan. Sweden didn't, has the highest (by far) mortaliy rate in the Nordics and now finds all borders closed. We're in a global economy, we can't just do what we want. As the US is about to find out.

Fifthly, most of the economic damage is already done. Most of the larger companies going under were in very poor states anyway and removing them will clear the way for better companies to grow and innovate. The move to online both for shopping and working has only been accelerated, it was an inevitable trend anyway. If it means less unnecessary commuting and more localism then good. Investors who are caught on the wrong side of this trade, at this point, have simply made a mistake. Those who've been waiting for a recovery in some of those zombie stocks will have learned a valuable lesson about mean regression.

Of course, things aren't perfect. I'd like to see a lot more direct support for smaller businesses without the banks intermediating. I'd like to see government investment in research programs that ensure that where highly skilled workers are losing their jobs - as with Rolls Royce for instance - that they have the opportunity to rapidly build new businesses. I'd like to see furlough schemes include mandatory training programs to build skills. We can do things better now we have more time to think.

But I don't think we'll see another lockdown and, if we do, I don't think it'll do much additional damage. The challenge now is to grow out of the coming recession and the best way of doing that is to invest in the future, not throw money into broken business models. And that's as true for private investors as is it for the government.

Small Cap Value Report (Thur 25 June 2020) - NXR, TND, VCP, TPFG, WSG, UCG

Norcros (LON:NXR)

Full-year Results

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Graham Neary

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