Small Cap Value Report (Thur 27 Sep 2018) - VLE, BON, MOGP, ZOO, FISH, IGG | Graham Neary

27th Sep '18 by Graham Neary

43 comments 12018 reads

Good morning!

A huge pile of news today. The impact on my own portfolio has been a small net positive: Volvere (LON:VLE) shares are up, while IG Group (LON:IGG) shares are down after the CEO stepped down.

Final list:

Volvere (LON:VLE)
Bonmarche Holdings (LON:BON)
Mountfield (LON:MOGP)
Zoo Digital (LON:ZOO)
Fishing Republic (LON:FISH)
IG Group (LON:IGG)

Volvere (LON:VLE)

Share price: 960p (+8%)
No. of shares: 3.7 million
Market cap: £36 million

Half-year Report

(Please note that I currently hold VLE shares.)

This is the largest position in my portfolio again.

As a refresher, this is the investment vehicle that finds companies in need of some restructuring. Typically, their bank debt has become too large. Volvere comes in and replaces the bank with a majority equity stake.

It has compounded NAV at a double digit percentage rate for many years. I'm a relative newcomer, only owning it since May 2016 (you can find my original write-up here).

Today's interim results are about as good as I could have reasonably hoped for. The company's key subsidiaries, of which there are only two, have both improved compared to last year.

Impetus Automotive (website)

These are consultants to the automotive industry - clue in the name!

I wouldn't normally want to own shares in a company like this, as revenues are quite lumpy and contract-driven. However, I don't mind owning it within Volvere's portfolio, as Volvere was able to buy it at a very favourable price. It's also just a small part of the overall NAV.

Impetus revenues are up 21% to £14.8 million and PBT up 31% to £1.9 million (before intra-group charges), after picking up new business.

The statement is cautious about making further growth in the short-term, on the basis of uncertainty in the sector at the moment (including Brexit-related uncertainty).

That's ok - Impetus doesn't owe us anything. Performance has been superb! If it merely carries on at the current rate of profitability, it will be a fine result.

Shire…

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LeoInvestorUK

27th Sep '18

Bonmarche Holdings (LON:BON) - Profits warning.
https://investegate.co.uk/bonmarche-holdings--bon-/rns/trading-update/201809270700050729C/

After a large (but not unusual for a company of this size) drop in the share price on 4th September and subsequent drifting, they have today announced adjusted PBT for FY ending March 2019 is now expected to be approximately 30% lower than last year, and worse still compared to previous expectations, with statutory figures worser still. They blame lower high street footfall and currency movements. Perhaps because the previous management brought themselves into disrepute by serially blaming the weather they are cautious about putting too much emphasis on the delayed autumn as a factor. They intend to hold the dividend at 7.75 (a likely 10% yield by the time you read this) and therefore forecast cash lower than last year but still healthy.

It seems quite incredible to me (and so perhaps somebody could help me here), how they can possibly predict today to the degree of implied accuracy the shopping patterns (let alone exchange rate) between now and the end of March 2019, a period including Christmas. They have cited a figure of "approximately £5.5m" for PBT and "approximately £4.0m" for cash (rather than, say £5-6m, or £4m respectively) which implies to me a significant degree of certainty. My suspicion is that they will now make short-term decisions to hit these figures regardless of turnover (which they have not forecast), which may affect future profitability.

Note: This is one of my larger holdings. My current inclination is to buy more to maintain exposure, but this may change. Despite its small size, the company is not on AIM, but quoted on the main market.

MrContrarian

My morning smallcap tweet: BON turns bad again.

Eservglobal (LON:ESG), Midatech Pharma (LON:MTPH), Bonmarche Holdings (LON:BON), Zinc Media (LON:ZIN), Impellam (LON:IPEL)

eServGlobal (ESG) Placing at 6.25p, a 4% premium but SP was 7.5p 2 weeks ago so crystal balls being rubbed perhaps. Cash needed "to fund the Company's share of an expected capital raise by the HomeSend JV and to help position the core eServGlobal business for sale." The core business is anticipated to return to growth this year...discussions with a small number of interested parties regarding the sale of the core business, with an update expected to the market within eight weeks."
Midatech Pharma (MTPH) Proposed Sale of Midatech Pharma US for $13m and ear out of $6m. Net proceeds will fund key R&D priorities eg MTD201 Q-Octreotide and MTX110 plus repaying the loan to MidCap Financial.
Bonmarche (BON) warns it expects FY underlying pretax only £5.5m (£8m).- blames consumers would you believe.
Zinc Media Group (ZIN) FY rev up 5% but EPS-cont -0.17p (-0.01p). Trading: "very encouraging win rate on significant commissions. This has exceeded the same period in the prior year. The current TV commissioned order book stands at £14.5m, over 50 per cent of budgeted TV revenues for the current financial year. The strength of our order book gives us a basis for confidence in the outlook for the full year..."
Impellam Group (IPEL) Warns FY EBITDA lower YoY. Managed Services businesses in the UK and Australia growing ahead of expectations as is the entire US business, on a like for like currency basis. and accounts for 60% of total EBITDA. NHS market remains challenging due to the continued reduction in agency spend. HNS has reinforced its intention to reduce agency spend by 17% in 2018/19 so the usual seasonal uplift in September has not materialised. Also recent reduced volumes in certain of UK Specialist Staffing brands. FX moves hurting. Nurse!

runthejoules

Modern Water (LON:MWG) plans a new plant in China to purify landfill runoff. *Homer SImpson voice* 'Mmm, bin juice...'

Beeks Financial Cloud (LON:BKS) loses its CFO who did A-Ok with the IPO. I know Paul holds, I'd just started researching, was this planned, and was that recent pullback this leaking or his shares leaving the building??

Graham's favourite Volere seems to be doing well, profits up about 50% (?) but warns on outlook. I won't be buying automotive with EV sales at 6% and growing.

DJCP

As you're a holder too, I hope you have time to cover the Volvere (LON:VLE) half-year report today.

Highlights:
PBT: £1.28m (£0.76m)
Net Assets per share: £6.75 (£6.23)
Cash: £20.4m (£20.5m) after £3.4m share buyback

Possible positive opportunity due to 'the B word':
"Volvere may perhaps, on balance, be one of the very few businesses to benefit from Brexit-led distress, provided it does not endure too long."

I've held for over 8 years, and looks like a >12% CAGR over that period. Volvere (LON:VLE) is my 2nd largest holding.

gregatr0n

I can't believe other people are also interested in Mountfield (LON:MOGP). Excellent value if results can be maintained. Activity in construction sector seems strong despite brexit fears.

emmettsmith

Hi Graham

IG’s announcement about Peter Hetherington’s departure; the share has taken a bit of a beating in the last couple of days. Are you still keeping faith and do you see this as a buying opportunity?

There is a broader question here of whether you should view these type of announcements as an opportunity or a threat. It would be interested to hear your thoughts.

Kind Regards
Emmett

RDHOWARTH

Volvere - look good to me, they have signed Lexus/Toyota and Suzuki ( see Impetus Site), the VW contract would have given them another 10% revenue growth but actually they are 20% ahead. Also, Shire Foods Revenue growth is strong although gross margins are still under pressure. Natural caution re Brexit and Auto but no more cautious than at the finals. Looks like Impetus will make north of £4m, so with cash + investments of £20m Vs market cap of £33m - difficult not to conclude that this is a cheap stock.

Also Koovs (LON:KOOV) - director buys at 15p from August I believe (current price about 13.2p). Not quite sure how I missed that RNS this morning, but I'm guessing those who got in first thing may be flipping around now, as L2 is evens.

Albertos

Bonmarche Holdings (LON:BON)

Don't know what to make of this mornings announcement. In the main body of the text the prime culprit is:-

"During the second quarter of the financial year, online sales have continued to grow strongly, in line with expectations, but sales in the stores have not maintained the momentum gained during Q1, and are below expectations. The continuation of warm weather for an extended period may have delayed demand for early autumn stock, but we believe that the more dominant factor is that underlying consumer demand for the UK high street is weaker which is impacting footfall."

Then in the CEO's comments:-

"Whilst it is disappointing that FY19's result is expected to be lower than originally planned, despite the challenging market, the health of the business remains strong: excluding the impact of the FX headwind, this year's underlying PBT expectation would be in line with the £8.0m achieved in FY18."

So she is suggesting all the profit downturn of £2.5m is due to FX and presumably the remaining reduction against expectations is due to footfall. Could have been explained a lot better + I'd like a explanation of the £2.5m FX - its pretty easy to hedge these days.

I presume this is why the SP is only down about 20% on a major profit warning.

Phil

FoolishBen

Hi Graham. I know you are a holder so would be interested in your view on the IG Group (LON:IGG) CEO stepping down. The market has not reacted well to it and I guess the timing couldn't have been worse with investors already feeling nervous after their recent quarterly update. Would you consider this to be a buying opportunity or is your faith in the firm now being tested?

ls2g08

I also hold this share - it has been a painful few weeks for me. It seems every day one of my stocks has a 4-10% fall!

Trident

Re: IG Group (LON:IGG)

I think the worry amongst other things is that normally a CEO standing down with 'immediate effect' is a signal of something untoward e.g. a board revolt, a personal calamity etc. but the announcement uses emollient language but doesn't state why the exit is immediate, necessitating an interim Director having to take over, pending appointment of a new exec. It doesn't seem very smooth assuming his departure was on the cards for a while.

Ned Kelly

Hi Graham, Zoo Digital (LON:ZOO) would be interesting. a 20% drop following an inline update. Obviously expectations are/were very high but dubbing, the big driver going forward, seems to be going well "dubbing service is pleasing and, at approximately three times above our expectation for this stage of the financial year" although there seems to have been a problem with subtitling. The other possible reason might be:
"We expect to report revenues in the first half of the financial year at least 17% higher than the same period last year, and we are confident in the prospects for a strong second half. Accordingly, we anticipate overall full year performance will be in line with expectations." whereas holders were expecting much more.

I hold.

Zipmanpeter

Re Bonmarche Holdings (LON:BON) - despite being a positive, contrarian buyer of retail on a case by case basis, and impressed with what the CEO Helen Connolly has tried to do since coming in, I cannot get behind Bonmarche.

A latecomer to the internet, the chain's revenue base is sales in retail stores to poor, old ladies. So it did well in the heatwave of Q1 (when old ladies come out) but not in Q2's normal British summer. Every year, warm, home shopping aka the internet becomes more comfortable for the middle aged and up. I am not ready to be on good British weather defeating that dynamic.

In the current Darwinian retail environment, weak store led-chains and brands like Bonmarche need to and will die. Cash pile and the cleansing re-birth from Peacocks administration will mean it will take time in Bonmarche's case.

But consider this thought experiment : if Bonmarche disappeared who would bring it back (again). What does it sell that's not available more cheaply online (or in Asda if we have to go to a store).

Stockrank value is probably going higher than ever after this fall but Bonmarche is not investable for me.

dscollard

noted another significant drop in IG Group (LON:IGG) today and the CEO's departure announcement: I used to hold but took profits before the recent double top at 950p
.
Given CMC Markets (LON:CMCX) and Plus500 (LON:PLUS) are all showing similar price action, are these collectively showing a structural change in this sector as tighter regulation and scrutiny are starting to bite?

Is the IG Group (LON:IGG) CEO departure a prescient move?

ESMA regulations on leverage seem to be hitting profits.. is it possible we go the way of the US and ban CFDs?
Interested in your views G as I know it is a conviction holding of yours

af20001

It's all very well clothes retailers blaming the weather for poor sales, but if they actually stocked summer clothes in the summer then maybe they would do more business. In the middle of the heatwave I went shopping for some holiday t-shirts and shorts only to be confronted by a shop full of winter coats, jumpers and hoodies. Needless to say I left empty handed, money in pocket.

We face the same problem every year - with growing children we normally have to buy them new stuff every year, Unless we get it in June or the start of July at the latest then it's a job to get anything. Retailers are always getting the next seasons clothes in far too early.

andrea34

Adept Telecom (LON:ADT) please Graham - AGM looks good and although it's not exactly flush with numbers I find that they are already proposing a 15+% increase in dividend rather reassuring. The Stocko page looks lovely to me, a PEG of only 0.6, and a big rise in broker forecasts after the last results.

Dave_17

Bonmarche Holdings (LON:BON)

Well the first two paragraphs didn't exactly exactly fill me with confidence (bold highlight is mine)....

In the update issued on 26 July 2018 in respect of the first quarter of the current financial year, we noted that trading during Q1 had been significantly better than in the final quarter of FY18(1), particularly the store LFL(2) sales performance. Based on this encouraging start, the Board was confident that by continuing to improve Bonmarché's proposition to customers, the Group would achieve further profit growth during FY19(3).

During the second quarter of the financial year, online sales have continued to grow strongly, in line with expectations, but sales in the stores have not maintained the momentum gained during Q1, and are below expectations......

Apart from the mixed messages, they are being weaselly with their words and measures (who isn't these days) - "Q1 better than final quarter" mixed with "store LFL" which is Q1 to Q1.

"modernising the store offer" = discounts and reduced margins or better stock?

Desperate to find a good spin on numbers?

Good luck with your holdings but I see more bad news coming before any turnaround.

anothersaxman58

I agree pretty much with your summary about Bonmarche Holdings (LON:BON)......and am really kicking myself for buying into it. But I have a learning question: I was over-influenced by the good stock ranks. I understand why the value score is so high but I am struggling to see how a business that has been performing poorly for the last two years gets such a high quality score. Can someone explain?

Graham Neary

Hi Emmett, I've been weighing up the IG Group (LON:IGG) decision this morning. It's not really suitable material for this report, however. I have been thinking about buying more. G

Small Cap Value Report (Thur 27 Sep 2018) - VLE, BON, MOGP, ZOO, FISH, IGG

Volvere (LON:VLE)

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Graham Neary

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