Small Cap Value Report (Thur 28 June 2018) - KOOV, TND, AUK, GOR, XPS, SPRP/FA.

Thursday, Jun 28 2018 by
57

Morning folks,

Quite a few announcements today.

I'm going to skip the trading statements that are "in line with expectations" - they aren't really news.

A few updates which did catch my eye, for one reason or another:



Koovs (LON:KOOV)

  • Share price: 19.75p (+13%)
  • No. of shares: 175 million
  • Market cap: £35 million

Customers Love Koovs

This isn't a proper news announcement, either, but I just thought it was interesting!

Koovs, the online fashion retailer, has achieved a big net promoter score (NPS) among customers in a survey conducted by an "independent industry research company".

I'm not familiar with this research group - it is supposedly rather large in the Indian market.

Figures for Q1 2018 show Koovs with an NPS of 61%, 16 points ahead of its nearest rival and performing top in all six customer categories of Price, Product Variety, Product Quality, Ease of Navigation, Delivery and Post Delivery Experience.

I've just pulled out the interim results to confirm my suspicion the Koovs still had a negative gross margin, as of the most recent figures:
5b34b5512869dKOOV_20180628.PNG


The company is moving in the right direction, certainly.

Sosandar (LON:SOS), another small online fashion play, should also see margin improve as it scales up, thanks to increased buying power.

But a negative gross margin is a major red flag in my book. It means the company is selling a dollar for 90 cents (or one rupee for 50 paise). No wonder customers love it so much!

It's easy to have very happy customers when you are selling things at a loss. What's more difficult is to keep your customers happy and make a profit at the same time.

The metrics have definitely been moving the right way for Koovs, but for me it still needs to get across that threshold of profitability at the…

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Disclaimer:  

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

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Koovs plc is a supplier of branded fashion garments and accessories for sale by a third party through Koovs.com Website principally in Republic of India. The Company offers dresses, tops, jumpsuits and playsuits, skirts, trousers and leggings, cardigans and pullovers, lingerie and sleepwear, and swim and beachwear, among others, for women. It offers shirts, t-shirts and polo shirts, vests, jeans, jog pants, shorts, hoodies and sweatshirts, coats and jackets, and innerwear and socks, among others, for men. In addition, the Company offers bags and wallets, accessories, sunglasses, jewelry and watches. The Company offers its products of various brands, including Knockaround, KOOVS, Kultprit, Pataaka, Pepe Jeans, Shuffle, Sole Threads, Vans, Voi Jeans, Modello Domani and Mr Button, among others. The Company's subsidiary is Koovs Marketing Consulting Private Ltd. more »

LSE Price
9.55p
Change
-2.9%
Mkt Cap (£m)
35.0
P/E (fwd)
n/a
Yield (fwd)
n/a

Tandem Group plc is a holding company. The Company is engaged in the design, development, sourcing and distribution of sports, leisure and mobility equipment. The Company operates in two segments: Bicycles, bicycle accessories and mobility, and Sports, leisure and toys. The Company's subsidiaries include Tandem Group Cycles Limited, which is engaged in the design, development, sourcing and distribution of sports, leisure and toy products; MV Sports & Leisure Limited, which is engaged in the design, development, sourcing and distribution of bicycles and accessories; Pro Rider Limited, which is engaged in the design, development, sourcing and distribution of mobility and leisure products, and E.S.C. (Europe Limited), which is engaged in the design, development, sourcing and distribution of leisure products. more »

LSE Price
115p
Change
 
Mkt Cap (£m)
5.8
P/E (fwd)
n/a
Yield (fwd)
n/a

Aukett Swanke Group Plc is a professional services company, which principally provides architectural design services. The Company specializes in master planning, interior design, executive architecture and associated engineering services. It operates through three geographical segments: United Kingdom, Middle East and Continental Europe. The Continental Europe segment includes Turkey, Russia, Germany and Czech Republic. It provides architectural, interior design and related services to a range of clients, including property developers, owner occupiers and governmental organizations, both in the United Kingdom and overseas. It operates over 10 studios. It has operations in areas, such as office headquarters and business parks; hospitality and mixed use leisure; retail shopping malls and bespoke retail; education and healthcare; industrial warehousing, and telecommunication industry. Its projects are located in areas, such as Istanbul, Moscow, Berkshire, Birmingham, Bristol and Dubai. more »

LSE Price
1.65p
Change
 
Mkt Cap (£m)
2.7
P/E (fwd)
n/a
Yield (fwd)
n/a



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


24 Comments on this Article show/hide all

InvestedGeordie 28th Jun 5 of 24
3

I wish I was at the Sprue Aegis (LON:SPRP) AGM. Fireworks galore, I'm sure!

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davidjhill 28th Jun 6 of 24
3

Tremendous statement from SCISYS (LON:SSY) in my view. Very bullish commentary.

Order book up 10% so far this year - suggests annualised revenue growth exceeding 20% and around 2 years worth of forecast revenue
Cash generation of £4m since y/e is excellent so net debt now negligible

Trading on a next year PE of 10 feels too cheap for a business clearing growing with double digit EPS. Wouldn't surprise me to see them upgrade later in the year.

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PeterW 28th Jun 7 of 24
1

HI Graham, I think after a couple of torrid years Sprue Aegis looks interesting. A quick glance suggests no debt, positive tangible assets and an improving trading situation. Could it be great value now? Best, Peter.

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Laughton 28th Jun 8 of 24
2

Hi Graham, As you've mentioned Sosandar (LON:SOS) I wondered if anyone here managed to make it to Mello Beckenham on Monday which included them making a presentation and if so what your readers made of it?

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cholertonandrew 28th Jun 9 of 24
3

Really appreciate the report Graham, lots to think about and try and learn from, including managements’ ability to sensibly use cash because it can be so costly when you have to issue equity for it.

Regards
Andrew

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Effortless Cool 28th Jun 10 of 24
5

Graham,

Thanks for your candour regarding your involvements with Tandem (LON:TND) and Aukett Swanke (LON:AUK). I always find there is much to learn from an otherwise successful investor giving an honest appraisal of their occasional failures.

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12barblues 28th Jun 11 of 24

Re XPS Pensions (LON:XPS) - The interim dividend, paid in February 2018, was an "unlawful distribution"! But it seems this was just an admin cockup in that they forgot to file the interim accounts to 30 November 2017 (not to be confused with an interim announcement of results) which demonstrated the availability of sufficient distributable reserves. The payment will have to be ratified at the AGM in September. Not clever...

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drvodkaquickstep 28th Jun 12 of 24
9

Ah Graham - you have made my day mentioning Aukett Swanke (LON:AUK) !

Graham and I have had a number of discussions over the last 12 months or so concerning Aukett and I have probably been buying his shares as he has been selling - the greater fool theory in play..!

As Graham has said, this is in cigar butt territory al la Mr Buffett and certainly before Mr Munger introduced him to the attractiveness of quality businesses at a fair price.

Whilst I agree with most of Graham's points (this is a lousy business) I am patient and happy to lock up a proportion of my portfolio on the simple thesis that on average over the last 10 years Aukett have produced around 3.6p of EPS and in 3 of the last 10 years they managed circa 1p EPS. Does the current SP make it good value - possibly.

Equally this sector is rife with M&A activity and I have lost count of the number of deals involving Engineering Consultants, Project Managers and Architectural firms. I would argue that a Price/Sales ratio of 0.25 is well below the sector average.

On the point of spending their cash on acquisitions - the rationale was that they were too UK centric and wanted to diversify their income stream. This has worked to an extend and their Middle East business is now a decent size and they are securing larger and better quality projects as a result.

By contrast one of my most successful investments Waterman (LON:WTM) moved out of Russia and the UAE in 2012/13 as they wanted to focus on their core market (UK) - this was a wise move given the notorious payment terms and bad debts that are part and parcel of doing business in the UAE.

The Aukett Board has recently being reshuffled and they are now looking to appoint a new Chairman and another NED, both of which are needed and may be a catalyst for better prospects.

Most of the Board and / or major shareholders are also around retirement age and have large shareholdings. The Board / staff own over 50% of the company. The CEO owns circa 10% of the company alone. At some point in the not too distant future they will want to realise their investment and I am banking on this being be means of some Corporate activity well in excess of the current valuation.

The patient investor should see a decent return on investment from current prices but this comes with opportunity costs and the shares are very thinly traded. Market timing is also key.

As Graham very sensibly notes - avoid if you want a stress-free life.    Of course, I hold!

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kevfle 28th Jun 13 of 24
1

Hi Graham

I don't totally agree with your analysis on Gordon Dadds. The legal industry is very fragmented. Many firms provide a similar service yet they all have their own support staff providing accounts, personnel, IT, marketing support etc. By consolidating there are huge savings to be made in these areas.

There are also opportunities to cross sell legal services in a larger firm which can increase revenue without necessarily having to increase fee earners.

At the moment GOR is not that profitable but it will be interesting to see how things develop in the current financial year. They need to make the right acquisitions and not pay too much for them. Also retaining key staff is important too.

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FREng 28th Jun 14 of 24

Redcentric (LON:RCN) prelims today. It looks as though they are struggling to win business. Revenue down but profit up and debt reduced. Maybe the new board can turn this round?

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ls2g08 28th Jun 15 of 24

In reply to post #378554

Many made a similar augment to Graham when the investment banks went from partnerships to public companies. I guess the success of this is up for debate, Bear Sterns, Lehman Brothers vs. Goldman, Lazard, Evercore etc.

Arguably he also overlooks one of the better performing and well known professional service firms - Accenture (spun out of Arthur Andersen just before the Enron scandal occured) which is publicly listed and has outperformed the S&P 500 quite handily since it's listing.



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Graham Neary 28th Jun 16 of 24
1

In reply to post #378554

Hi, re: Gordon Dadds (LON:GOR)

Thank you for putting forward an alternative point of view!

G

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Graham Neary 28th Jun 17 of 24

In reply to post #378564

Hi there, re: Gordon Dadds (LON:GOR)

As mentioned in my XPS Pensions (LON:XPS) comment, you also have WLTW and AON (and MHM, parent of Mercer) in the investment consulting industry. Some of these have performed well for investors.

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Graham Neary 28th Jun 18 of 24

In reply to post #378529

Thanks Andrew, glad you like the report.

Management's ability/willingness to use cash well is so incredibly important.

There are plenty of "deep value" plays which don't work out, because management can't/won't use their resources properly.

On the other hand, management who do put money to use productively can generate fabulous compound returns for investors.

Best wishes

Graham

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Graham Neary 28th Jun 19 of 24
1

In reply to post #378494

I saw Sosandar (LON:SOS) present at UKIS which was only a few months ago. Haven't got much to say about them that I haven't said already. If any new and interesting snippets of info were presented at Mello, I'd also be curious to know what they might be! Cheers

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Edward John Canham 28th Jun 20 of 24
2

In reply to post #378589

Hi Graham

Would it be possible for you to pick a few upbeat situations tomorrow?

I'm despairing of ever finding another good share after today - and all I've got to look forward to tonight is two teams trying to lose.

Slightly tongue in cheek

Phil

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sharw 28th Jun 21 of 24

In reply to post #378559

Maybe the new board can turn this round?

Well, hedge fund Coltrane obviously think so (or a takeover) as they have built up to over 19% of Redcentric (LON:RCN) .

The debt reduction is good - last year having £38m of the £40m revolving credit facility drawn was worrying.

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Graham Neary 28th Jun 22 of 24
3

In reply to post #378594

Phil.... This was possibly my most downbeat SCVR ever. I'm in quite a good mood, so it's not because I got out of the wrong side of the bed, etc. It's just the way the RNS announcements fell today - hopefully we have better luck tomorrow!

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Graham Neary 28th Jun 23 of 24

In reply to post #378469

Sorry I didn't get around to Ergomed (LON:ERGO) today, Camtab.

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Beginner 28th Jun 24 of 24
5

Very surprised nobody has made the Sprue Aegis (LON:SPRP) is worth sweet FA comment.

(I meant to mention the other day a family member formerly worked for Mind Gym. When I mentioned they were to become a plc he laughed mightily! He valued it at about three pickled eggs and a tube of Smarties, but he could be wrong about the Smarties).

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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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