Small Cap Value Report (Thur 5 Dec 2019) - JOUL, TMO, MYSL, CLG, PRV

5th Dec '19 by Graham Neary

27 comments 6112 reads

Good morning!

Today we have updates from:

Joules (LON:JOUL)
Time Out (LON:TMO)
MySale (LON:MYSL)
Clipper Logistics (LON:CLG)
Porvair (LON:PRV)

And in the world of big-caps, IG Group (LON:IGG) has issued an update. And the executives at Boohoo (LON:BOO) have sold shares (thanks for alerting me to this with your comments).

Timings: finished at 13.40.

Joules (LON:JOUL)

Share price: 225p (+0.5%)
No. of shares: 89.4 million
Market cap: £201 million

Pre-close trading update

Joules, the premium British lifestyle brand, today provides a trading update for the first half of the financial year to31 May 2020 ('H1').

These H1 sales figures are adjusted to include Black Friday, since it was included in last year's H1.

I quite like the overall message here:

As you can see, retail and "other" (licensing) both achieved growth.

The only category to fall was wholesale. Wholesale partners have been converting to the retail concession model, so there is a shift in revenue from one category to the other.

But that only partially explains the 3.8% decline in wholesale - Joules cites the "continued challenging UK trading environment".

As for retail, it will have been boosted by the conversion from Wholesale but other factors given are "strong e-commerce growth", "enhancements to the customer proposition" and "growth in our active customer base". There has also been some store growth.

Store growth - after a tough September, Joules reports that October and November were much better (retail revenue up 9%). As a consequence, Joules plans to open four new stores before Christmas. For context, it had 125 stores at the most recent year-end.

I'm not entirely sure about this - surely the justification for opening new stores is a lot stronger than just a couple of months of good trading?

Either way, it's encouraging that management see continued store growth opportunities, despite the difficult general environment.

But note that the 3.1% growth rate in retail revenue includes e-commerce revenue and is not adjusted for floor space or the number of established stores, i.e. it is…

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JohnEustace

5th Dec '19

That does read like a polite way of saying the bloke was a complete nightmare to work with and they finally had a big bust-up. Which could lead anyone following events at e.g. Ted Baker (LON:TED) to worry about what else might surface now he's gone. I'm not so sure the market is being irrational but clearly there could be reward for taking the risk here.

davidjhill

Not really. If you make the effort to talk to the current management you get a good flavour for what went on. They have tried to explain this in videos as well but the market isn't listening. It has fingers in ears and saying "blah blah blah". You can't compare Ted Baker leaving with Innovaderma (LON:IDP), that's irrational. Not much you can do with that as management team other than continue to deliver. Todays statement was good but others aren't listening. I expect to do well on others folly.

john2

'Unless you are Mike Ashley, I think the best strategy is to be extremely selective in this sector'

I reckon Mr Ashley is already regretting his House of Fraser purchase.

sharesurfer

Hi David. Agree its looking cheap on an EV/EBITDA basis. And the quality metrics are not bad. But 2 caveats. The chart is a disaster and I'd normally want to see some evidence of the market buying back in. Ultimately, its the institutions that start moving the price.

Also, the cashflow statement is a bit concerning. Last year, they did OK and looked like they had some free cash flow but in previous years they've needed quite a bit of funding. In 2018, they raised £4m ish and spent £2m on CAPEX and even without paying any dividends or buying any businesses increased net cash by just £1.7M. They don't seem to generate mush cash. Mine's just a cursory glance and you seem to know a lot more about them so happy to be corrected.

hi Sharesurfer

Yup - the business moved from a cash burn of -£2m a year ago to about +£200k year just gone and should go up considerably from here ,so the free cashflow trend is good and is now cash generative.

On the chart I concur it is horrid and needs to turn upwards. I think once it does then it could re-rate quickly. At the moment no-one cares but given its market cap it is illiquid so it won't take a lot for it to move. My main concern is whether there is any indigestion from the founder sale. ie the purchasers bought in the low 50's so I wouldn't want to see them dripping out holdings in the 60-70 mark else that will certainly hold it back a while irrespective of improving fundamentals.

Patrick L

davidjhill - I think the main market concern with Innovaderma (LON:IDP) at the moment is the way they are capitalising some costs as well as the issues around the founder. Once you factor in the accounting issues the price might be trading closer to fair value than some of us initially thought. These are all best described in a post by Graham here: https://www.stockopedia.com/content/small-cap-value-report-fri-8-nov-2019-mello-idp-gaw-ctr-cgs-smt-527461?order=createdAt&sort=desc&mode=threaded

Investornot1

Also its a tiddler with 1 broker where forecasts have been reducing step change downwards in the last few months - what is driving that? Looks high risk.

Boon

IMO Time Out (LON:TMO) is the WeWork for food halls.

It leases big commercial spaces. It leases it out to small food vendors.

There is actually very little tech involved (so no moat for new entrants).

There is little brand loyalty (i.e. vendors will set up in any market offering good footfall and rents, customers will go to markets based on convenience and choice and quality, not brand name).

They have built Lisbon's #1 food market and attraction by virtue of being first there on the scene and now having a stranglehold.

But in all markets they are launching (especially London) there are already existing food markets, and more in the pipeline, so they will never get the dominance they have in Lisbon again.

Trustpilot reviews for Ozsale Mysale (LON:MYSL) might be poor, but I wonder if someone is gaming the system with fake reviews. Almost all the negative reviews are first time reviewers, or only have 1 or 2 other reviews on Trustpilot.

You don't have to be a verified customer to leave a review.

Might be a shorter or a competitor bent on tarnishing Ozsale reputation?

Deegee Eff

I agree with you. I think they got lucky in Lisbon, for all sorts of reasons which I could list. I do not think that the concept would be easy to replicate. And they ruined my favourite market which is now full of revolting tourists!

Vsihv

Indeed - la bocceria in Barcelona is pretty spectacular, especially if you go off the tourist outer ring.
Whatever happened to the magazine and website I wonder - they rarely talk about it!

stuartb58

Porvair (LON:PRV)

I am long term holder and like the way they quietly go about their business, small bolt on acquisitions from time to time without any dilution. Little or no debt and solid cash generation. Measly dividend. Pre-close update today suggests profits slight ahead of expectations. At half year, they showed just over £10M of provisions for possible warranty claims. They are high quality operators and although non cash I suspect a decent proportion of this may find its way onto the P&L account over the next few years.

Those have been answered well by management recently. They took a lot of time out to do that and address in a variety of calls and emails and presentations. We are all dredging up the same old stuff and using it as a confirmation "negative" bias. Almost the opposite of a ramped stock that everyone loves but is well overvalued. It's interesting. Could prove a very nice contrarian play for me.

???? Go and look at the FinnCap research on ResearchTree

No change to forecasts of 10.3p this year and 12.3p next year but with nothing factored in for revenue from new category launched early next year in Superdrug

This is pretty useful if people are interested

Recent Company Presentation

Cisk

Slightly off topic as a large cap, but anyone have any views on DS Smith (LON:SMDS) results today - on the face of it they look good but price off over 6% currently...

answered my own question...

from city am:

DS Smith has made a number of acquisitions in recent months, which it admitted was the “principal” driver of its robust profit and revenue growth.

But investors have not missed the fact that organic volume growth for its corrugated boxes is below forecasts, and pricing is under pressure.

Russ Mould, investment director at AJ Bell, said: “The company argues it has achieved a better performance than the wider market, but even if this is the case it is hardly a reason for investors to get excited.

“The growth of e-commerce, which requires boxes to send goods out to consumers, saw market sentiment towards packaging companies reach fairly elevated levels for a while, but today’s update from DS Smith adds to signs that the growth story is losing momentum.”

David O’Brien, analyst at Goodbody, added: “While DS Smith’s broad European footprint and exposure to consumer demand has been resilient, this is offset by weakness in industrial end markets.”

doublelutz

They are very different from normal food halls that have McDonalds and Pizza Hut, etc. They attract the leading chefs in each location to take space. The idea is to promote high class food at a reasonable price. The New York venue is successful and gets a lot of great reviews despite plenty of competition in NY (it has a great location overlooking Brooklyn Bridge). I followed very large investors into this and will obviously watch the chart but I am already sitting on a substantial profit. I will shortly get friends to look in at the Chicago venture.

Gromley

I am not really surprised at the muted reaction today to the Innovaderma (LON:IDP) update.

I think that the main factor impact the share-price is the remaining "overhang" from the founder's share disposal (an amount of that will have been bought by parties looking to flip them for a short term gain).

In any case, there is still room for scepticism as to how "online store sessions" convert to revenue, profitand perhaps most importantly cash-flow.

It is fair to observe also that the update is not really surprising. I am actually quite impressed that the language was quite restrained "best ever" and "strongest to date".

It always amuses me when growth companies report "record" sales - if they were not reporting an increase in each period then they would not be on a growth path. and hence would have failed.

Although I am been a bit curmudgeonly here,I do actually hold shares in Innovaderma and do consider them to be substantially undervalued (previous threads here address the potential concerns and background). I do not however, necessarily except the price anomaly to correct particularly quickly given the overhang that I believe still exists.

I do not want to sound over-bullish and in fact one always needs to be EXTREMELY careful with micro-caps like this but if my surmise is correct that the share-price in the near term is driven by supply and demand for shares rather than the company's performance then there could be a case to "go large" - I am not confident or brave enough for that however.

simoan

Although I have no axe to grind with regard to the company being discussed, I think you need to be careful when fighting your corner on threads like this. It's all very well talking about another poster having a negative bias but they could turn out to be right and you have to do whatever you can to remain objective. I often see posts on this blog that I don't agree with concerning shares that I hold and which I'm quite bullish about, but these days I bite my tongue and let it go, even if I know the post to be factually incorrect. I realise that is probably not very community spirited but...

The power of writing posts on a share you feel so strongly about (either positively or negatively) in a public forum is dangerous IMHO and leaves you wide open to the influence of commitment and consistency bias which wreaks havoc with your objectivity and will colour your future actions. I speak as someone who has suffered from this in the past. Chapter 3 of the book Influence by Robert Cialdini should be essential reading if you want to avoid this.

This is just a general point I'm making and not intended in anyway as criticism of anyone's position in Innovaderma (LON:IDP) .

All the best, Si

jwebster

6th Dec '19

Innovaderma (LON:IDP)

Interesting discussion above and in previous posts here on SCVR.

My view is there might be something here, as they have managed to earn shelf space and shift the Skinny Tan product in key UK stores, Boots and Superdrug. The online product reviews are generally positive. But, some flags, i.e.
1. B/S intangibles high and related capitalisation of expenses
2. Founder quits early
3. I’m not clear management is running things on the ground in the UK (92% of sales) versus sitting out in Australia
4. Poor Trust Pilot rating due to weak fulfilment and after-sales service process
5. A bit of a spray of products and countries lacks focus for such a small firm with one leader product
6. Could do with a cash raising to pay for digital marketing expansion

On a market cap of £8.55m it is cheap. Self-tanning is a large, crowded market. Skinny Tan has high potential but requires a push on digital marketing spend.

I bought a small number of shares on the dip, see what happens.

hi Si

I wasn't talking about an individual poster having a negative confirmation bias. What I found interesting (and useful btw) is that there is clearly still lots of negative perception about the stock that feels as though it is now bordering on a "negative confirmation bias" within the small cap investment community in general. Management have taken time to answer a lot of the points, quite satisfactorily to my mind. Now, if investors were arguing that those management explanations were a pile of the proverbial then I would be trying to unpick quite carefully, but what I'm seeing is the same concerns being raised almost as though management hadn't given any explanation at all. What that tells me is that there appears to be a psychological bias against the stock rather than a good fundamental one and that feels like it might offer up a nice opportunity.

I am long, but not massively so, and I'm certainly not in the "woohoo this stock is the next big blue sky stock" camp but I am trying to probe why the stock is optically cheap. The conclusion I am drawing is that it is of perception, rather than the reality of what's happening on the ground. Other posters comments here have been very useful and informative in that regard so I am definitely appreciative of people taking the time to post their opinion.

I realise that is a bit contrarian and since this is a micro cap and clearly illiquid, comes with many other risks, so recognise I could also be wrong and have sized accordingly. However, I now feel as though the risk/reward is skewed in my favour so happy to take the trade and wait.

I also agree with Gromley that there could be an overhang from the founders share sale. I don't know how many purchasers bought because they think it represents a good long term opportunity and how many just want to flip for 20-30% so I may need to be patient. At the moment though sales, cashflow, growth in stockists are all going in the right direction so I expect the next couple of updates at least to be positive, which gives me some time to let the trade breathe.

Small Cap Value Report (Thur 5 Dec 2019) - JOUL, TMO, MYSL, CLG, PRV

Joules (LON:JOUL)

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Graham Neary

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