Small Cap Value Report (Tue 10 July 2018) - OCDO, BEG, MYSL, PHTM, PAM, RWA

Tuesday, Jul 10 2018 by

Good morning!

In times like this, when there is so much political news, I find that analysing individual stocks can be a sort of refuge.

Looking at a few small companies and trying to decide if they are good investments is not easy. But it is, I find, much more relaxing for the brain than trying to make sense of political news and its potential macroeconomic consequences. That is where things get really mind-boggling.

In this vein, I've finally started reading Lord Lee's book: How to Make a Million Slowly. One of his 12 rules is:

Ignore the overall level of the stock market. Don't make judgements on the macro outlook - leave that to commentators and economists. Focus on your particular selection.

To be honest, I do like to tweak my overall equity exposure based on my view of overall valuations. Cash and fixed income assets are my psychological buffer. They protect me from worrying too much about a general crash in the stock market, since I know I have some powder dry. So I don't follow Lord Lee's rule perfectly.

In the end, though, stock selection is where most of us are trying to gain our competitive edge. Selecting individual stocks is how I personally devote c. 90% of my time. Let's keep it this way!

Quite a few updates today. I am planning to take a look at:

Elsewhere, I see that Ocado (LON:OCDO) has released interims. It's a bit too big for us, with a £7 billion market cap.

According to,  there are only 2.2% of its shares declared as having been sold short. I suspect that there are still a lot of smaller, undeclared short positions outstanding.

Ocado's share price has more than doubled in 2018, and is up c. 3x from its value late last year.

My investing life has been so much more relaxing since I quit shorting. And…

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

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Ocado Group plc is a United Kingdom-based online grocery retailer. The Company's principal activities are grocery retailing and the development and monetization of Intellectual Property (IP) and technology used for the online retailing, logistics and distribution of grocery and consumer goods, derived from the United Kingdom. The Company offers end-to-end operating solution for online grocery retail based on technology and IP, suitable for operating its own retail business and those of its commercial partners. The Company's brands include Ocado, Ocado Smart Platform, Sizzle, Fetch and Fabled. Sizzle is a kitchen and dining store. The Company's Ocado Smart Platform is a solution for operating online retail businesses. The Company's Ocado Smart Platform combines its end-to-end software and technology systems with its physical fulfilment asset solution. more »

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Begbies Traynor Group plc is a business recovery and property services consultancy. The Company's segments include insolvency and restructuring, and property. It provides services from a network of the United Kingdom locations through two operating divisions: Begbies Traynor and Eddisons. Begbies Traynor is an independent business recovery practice that handles corporate appointments, serving the mid-market and smaller companies. It provides insolvency, restructuring and consultancy services to businesses, their professional advisors and financial institutions. Eddisons is a national firm of chartered surveyors, delivering transactional and advisory services to owners and occupiers of commercial property, investors and financial institutions. It provides professional services, such as business rescue options, advisory options, forensic accounting and investigations, corporate and commercial finance, personal insolvency solutions and services to banking, legal and accounting sectors. more »

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MySale Group plc is engaged in operating online shopping outlets for consumer goods, such as women, men and children's fashion clothing, accessories, beauty and homeware items. The Company's segments include Australia and New Zealand, South-East Asia and Rest of the world. It operates with flash sales Websites in Australia and New Zealand (ANZ), South-East Asia (SEA) and the United Kingdom. Its Websites host time limited flash sales in each of its territories. These flash sales are focused on fashion, apparel, health, beauty and homeware categories and are undertaken on a consignment inventory basis. Its retail Websites also focuses on these product categories using drop-shipped inventory. Its flash sales brands include OzSale and BuyInvite in Australia, NzSale in New Zealand, SingSale in Singapore, and MySale in Australia, New Zealand, Malaysia, Thailand, the Philippines, the United Kingdom and Hong Kong. more »

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

35 Comments on this Article show/hide all

paraic84 10th Jul '18 16 of 35

I remain unconvinced by MySale (LON:MYSL). Firstly there is a reasonable amount of competition. In the UK, Brand Alley is better than MySale (LON:MYSL) for example. In my experience of shopping Brand Alley seems to have better brands and stock availability (e.g. more average size clothing) and the website is much easier to use than Cocosa (the main part of the MySale group in the UK). I have bought multiple things from Brand Alley but never felt compelled to buy anything from Cocosa. Also don't forget TKMaxx. Secondly, because of the amount of competition it is difficult to see how they can ever command big margins on their products as surely companies will just select the sale website that offers them the best deal on their products or the website prepared to spend the most buying the inventory upfront?

Although the share price has come down the c.10% revenue growth from MySale (LON:MYSL) doesn't justify the high PE multiple despite improvements in the gross margin.

More and more companies also have outlet sections of their website as well so they may just be passing unsellable items to MySale (LON:MYSL) et al.

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peterthegreat 10th Jul '18 17 of 35

I would also like to add to the calls for coverage of Adept Telecom. My impression following today's lukewarm reception to the results is that investors may concerned that the company's growth is coming mainly from acquisitions and these acquisitions are greatly increasing debt, in other words the company is buying growth. The company's ROCE is unspectacular so the question is whether the company is overpaying for its growth.

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JakNife 10th Jul '18 18 of 35

The two points that I really don't like about MySale (LON:MYSL) are (1) the focus on EBITDA, and (2) the material capitalised costs.

Actual profitability is miles away from EBITDA eg EBITDA of A$8.7m in 2017 vs pre-tax loss of (A$1.5m) and the capitalised costs means that cash flow is also materially different to EBITDA.

Personally I'm expecting them to need to place when the final results are released.

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Graham Neary 10th Jul '18 19 of 35

In reply to post #380954

Hi dfs, I don't have much of a view on Robert Walters (LON:RWA) but mentioned it in passing for you. Happy to hear more detailed input from yourself or anyone else with a perspective on it. Cheers. G

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Graham Neary 10th Jul '18 20 of 35

In reply to post #380899

Re: Photo-Me International (LON:PHTM)

Great point on the margins, abtan. Definitely could use some clarity on this. G

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Graham Neary 10th Jul '18 21 of 35

In reply to post #380894

Apologies, Capital Drilling (LON:CAPD) is not within my range of coverage. Wrong sector for me. G

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sharw 10th Jul '18 22 of 35

With regard to Photo-Me International (LON:PHTM) Graham said:

Somewhat worryingly, I cannot find any reference to the margins or profits generated by Laundry

Having looked at this:

I don't find it particularly attractive!

Graham: check out one near you to see how busy they are:

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dfs12 10th Jul '18 23 of 35

In reply to post #380984

Hi Graham, thanks very much for your comment. I don't know much about Robert Walters (LON:RWA) other than it fundamentally looks good and the trading update seemed excellent (usually a good combo in my opinion). I really appreciate you adding it to your list even though it was late and perhaps outside the criteria on size. All the best.

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kenobi 10th Jul '18 24 of 35

In reply to post #380934

Hi, why do you believe there's a good future for photo booth machines ? might not soon be the case that you take pictures electronically and send them electronically, with some method of electronic verification (as opposed to some one writing on the back) ? As for laundrettes the idea that that might be a growth industry is surprising to me. when at uni I remember a friend saying while waiting in the laundrette, when I get a job, first thing I'll buy is a washing machine forget a tv and video. I suppose these days it's all service washes which have higher margins ? Even so I find it hard to believe it's more convenient than having a washer dryer in the house to be honest

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rhomboid1 10th Jul '18 25 of 35

In reply to post #381014

The laundry machines have one USP that matters to me..they’re huge so can wash duvets ...& most importantly dog beds...if there were one near me I’d be a regular user ..

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Graham Neary 10th Jul '18 26 of 35

In reply to post #381004

Thanks for that sharw - there are loads of PHTM photo booths around here too! G

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Graham Neary 10th Jul '18 27 of 35

In reply to post #380864

Sorry andrea, I don't think I've ever covered ADT before and don't currently have a view on it! Thanks for the request anyway. G

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john652 10th Jul '18 28 of 35

Is Robert Walters (LON:RWA) a read across to Empresaria (LON:EMR) which are looking cheap if not dirt cheap.

Growth & Value

12m Forecast Rolling 
PE Ratio (f) 5.56
PEG Ratio (f) 0.41
EPS Growth  (f) 15.5>td ###
Dividend Yield  (f) 1.99>td ###

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Zipmanpeter 10th Jul '18 29 of 35

In reply to post #380914

Thanks tomps3 on Non-Standard Finance (LON:NSF) for sharing the presentation from Mello (which is essentially an update of the latest results presentation in March but takes the reported data through to Feb 18 and includes references even through to the FCA review.

Non-Standard Finance (LON:NSF) is now my biggest holding as I think in 12-18 months time this is going to be seen as a cracking business once it starts to report statutory profits (ie as start up accounting costs drop out, all the new branches from last year move into profit and operational leverage kicks in. The move to IRS9 has also been a big negative on reported profits whilst having no impact on cash).

All 3 businesses are on track to meet the target of organic growth rates of close to 20% and a ROA of 20% (Loans@Home this year, Guarantor Lending and EveryDay Loans in 209) as growth is fast but impairment flat leaving a very good risk adjusted margin.

However, I am mindful that Stockranks does not like and the price has steadily been dropping. I am either going to seem smart/be very happy or am I missing something. What did the audience think of the presentation and pitch?

I will be brave and post my own (positive) Non-Standard Finance (LON:NSF) analysis later this week but would welcome any bear logic anyone can use to explain why the price keeps falling - now only 56p vs >70p 6 months ago despite making what I see as huge and sustainable underlying operational progress albeit at the expense of some short term investments.

I am also hoping Graham will include when 1/2 year comes out at start of Aug.

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Paul Scott 10th Jul '18 30 of 35


Graham and I have been chatting about Begbies Traynor (LON:BEG) (in which I hold a long position) where our views differ. Graham focuses on the operating margin of 5.3%, which he calls lukewarm. However, I think that's the wrong number to focus on, because it is stated after charging £1.9m in amortisation of  intangibles relating to acquisitions. Graham feels that these are real costs, relating to historic acquisitions. Whilst that's true, my view (and it has to be said, the generally accepted view) is that for valuation purposes we can usually remove the amortisation charge relating to acquisitions, to arrive at the arguably more meaningful adjusted profit - this gives a better idea of how the business is actually performing, in my opinion. There's no right or wrong on this, it's just differing interpretation.

There is also £1.36m in transaction costs (relating to acquisitions), which BEG adjusts out. In my view that's also a valid treatment, to focus on the underlying performance of the business before one-offs.

Therefore, in my view, the key number for valuation purposes is the adjusted profit before tax of £5.6m, which on revenues of £52.4m is a profit margin of a healthy 10.7%. So the way I look at it, the margin is not a concern, it's actually quite good, rather than lukewarm!

Adjusted basic EPS was 4.0p (up from 3.3p prior year), so a healthy increase there. At 68.5p that gives a historic PER of 17.1 - not cheap, but the price is factoring in a further increase in earnings this year (and in the longer term).

I also take a more bullish interpretation on the outlook comments. They give a clear steer that earnings are likely to rise again this year;

We anticipate continuing our track record of earnings growth in the new financial year. 

The trouble is, we don't have any forecasts to work on - the ones on Stockopedia look out of date to me. I am emailing the company's advisers now, to suggest that they need to get some commissioned research out into the market, so that private investors have something to work on, re forecasts & hence valuation.

I reckon earnings might rise by say 10-15% this year, so I'm basing my calculations on adjusted EPS this year of perhaps 4.5p, which would drop the PER to 15.2, which is probably about the right price.

It's encouraging that the dividend was increased this year, as Graham mentioned, the first increase since 2011. So a yield of 3.5%, which is rising, is reasonably attractive.

Overall, I like to have something counter-cyclical in my portfolio, that pays out a nice stream of divis whilst we wait for the next recession. BEG seems a well-managed business. Net debt is modest now, and the balance sheet look OK overall to me. The stand-out feature is the large debtor book, which is how this niche works - large un-billed costs mount up, then they get paid at the end of each job. That's funded by bank debt. Completely normal, and the bank debt is unsecured, and with lots of headroom.

This will never be a large position for me, but so far so good, I'm sitting on a healthy profit, and have received some divis along the way too. The current share price looks about right to me, but over time I imagine there should be some more capital growth to be had here, plus more divis, so it's quite a nice thing to have buried in a portfolio, I reckon.

Regards, Paul.

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Paul Scott 10th Jul '18 31 of 35

Another company which interests me, which reported today is MySale (LON:MYSL) - in which I hold a long position - Graham mentioned it in the main article.

There are 2 broker updates available on Research Tree today, which I've read. The brokers both point out that the share price of MYSL inexplicably halved, from c.120p in Oct 2017, to c.60p yesterday. Given that the trading update today was positive, this fall in share price seem "anomalous" as one broker put it. I agree, so have bought back in to this share today, at 69p.

The group expects to report underlying EBITDA at least in line with the top end of market expectations of A$11.8 million (FY17: A$8.7 million). ...

The trouble with the company's use of underlying EBITDA, is that it flatters results, because the company is capitalising quite a lot into intangible assets - e.g. last year if capitalised A$7.3m into software on the balance sheet, but I suspect a fair chunk of that is internal development costs - because the company refers to its proprietary computer systems.

Its main focus is on Australia & NZ, which was 83% of H1 revenues. Its Cocosa UK business is very small beer, so don't judge the group on that.

MYSL hasn't managed to achieve fast enough growth to excite the stock market, and get onto an Asos or BOO style rating. However, it is generating decent revenues, and is unusually cheap on the usual PSR or EV/Sales measures which tend to be used for valuing eCommerce companies. A rating of 2-3 times is normal. MYSL sits on only just over 0.5 times, so I think there is good scope for a re-rating here.

At a meeting some time ago, management struck me as knowledgeable, experienced, and ambitious, so I certainly wouldn't bet against them. I've been waiting for an attractively-priced entry point, and think I got that today, at 69p - on the back of a positive trading update, that seems a good deal to me.

Its technology platform can sell products on all its websites simultaneously. I've been looking at its OzSale and Cocosa websites, and can see some products in common. It's also been acquisitive - buying up struggling websites, and bolting them onto its existing platform.

I had to chuckle at the unfortunate, but rather apt typo on a Versace product, on its UK website,



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Fangorn 11th Jul '18 32 of 35

In reply to post #380909

$190bn - purely African fraudulent extortion.
No merit to such whatsoever.

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VegPatch 11th Jul '18 33 of 35

In reply to post #381059

I Suspect potential investors in Non-Standard Finance (LON:NSF) look at the major shareholder, Woodford, then run a mile given the potential for sell downs if his outflows gather pace. It has happened in Newriver Reit (LON:NRR) amongst others. Hence investors vote with their feet now rather than waiting for large blocks of shares to sell to start appearing.

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Asagi 12th Jul '18 34 of 35

In reply to post #381094

Hi paulypilot and board,

We disagree on MySale (LON:MYSL). I am short the shares. JakNife (above) says that the balance sheet is a problem. I'd go further and say that the company is also struggling for relevance and growth.

As for cash, according to Stockopedia, net cash in recent years has been:

end-2014: A$76m
2015: A$39m
2016: A$28m
2017: A$9m

net cash at the 2018 half-year stage was A$8.3m, down from A$29.1m at the end of H1 2017. Net cash declined in a period which it had previously increased.

The recent trading statement makes no mention of net cash, or profit. Only "underlying EBITDA".

Let's look at growth.
for the six months to 31 December 2016...
Active customer base increased 19% to 870,000 (H1 FY16: 731,000)

for the six months to 31 December 2017
Total active customer numbers grew by 12%
Total active customer numbers grew by 12%

according to Stockopedia, revenue growth in the last five years has averaged +19.1% per annum. However, in the last four years, it has averaged just 10.2% per annum.

as I put on advfn recently:

H1 2017 revenues: A$136.7 million
FY 2017 revenues: A$268 million
H2 2017 revenues: A$132m

In 2017, revenues H1:H2 were 51:49.

H1 2018 revenues: A$152 million

now we are being guided that FY 2018 revenues were A$295 million.

This performance, which represents a significant year-on-year increase in profitability, has been driven by revenue growth of 10%, to approximately A$295 million

i.e. we are being guided to
H2 2018 revenues A$143 million

that is 8.3% sales growth on last year's H2 figures.

IF they need to place, as JakNife suggests, then who would buy the shares on a 2019 P/E of 31.6 with (being kind) 10% sales growth, when you can buy (say) Joules (LON:JOUL) on a 2019 P/E of 24, with online sales increasing 18.4% in the most recent period. Who would look to put more money into MySale (LON:MYSL) ?

you wrote:
The brokers both point out that the share price of MYSL inexplicably halved, from c.120p in Oct 2017, to c.60p yesterday

I'd say that the shares were inexplicably 120p in the first place!

You posit that MySale (LON:MYSL) shares are attractive on a Price/Sales basis. Stockopedia gives this as 0.62. In that case, you would love Tesco (LON:TSCO) and J Sainsbury (LON:SBRY) (totally different businesses) which trade on Price/Sales of 0.43 and 0.25 respectively (here my comparison with Joules (LON:JOUL) falls flat, their shares trade on Price/Sales of 1.6), make a profit and pay dividends. Something MySale (LON:MYSL) shows little sign of ever doing.

As for relevance, you enjoy a run. Try shopping for running shoes on MySale (LON:MYSL) and compare with and . I expect you will find a better choice at lower prices elsewhere easily, especially when you factor in the postage costs required by, say, As paraic84 says above, there are plenty of others. My suggestion that the MySale (LON:MYSL) sites lack relevance seems to be backed up by the reported growth.

Asagi (short £MYSL)

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Paul Scott 12th Jul '18 35 of 35

In reply to post #381634

Hi Asagi,

What a bizarre decision, to short MySale (LON:MYSL) - but each to their own.

Your figures on cash are a bit misleading. The company has been moving towards increasingly buying its own inventories, rather than third party consignment inventories, in order to improve gross margins. That requires more cash to be tied up in inventories. 

It has also made some acquisitions, using cash.

Overall the balance sheet looks fine, I don't have any concerns there at all, so I think you're barking up the wrong tree on this one.

Regards, Paul.

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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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