Small Cap Value Report (Tue 11 Dec 2018) - MYSL, ZYT, PRES, CPR, BILB

Tuesday, Dec 11 2018 by

Good morning, it's Paul here.

I've got to finish yesterday's report today, as well as write a new one, so plenty to do. I'll focus on today's report first.


Share price: 16.2p (down 53% today, at 10:08)
No. shares: 154.3m
Market cap: £25.0m

(at the time of writing, I hold a long position in this share)

Trading update (profit warning)

  • Turning the RNS into bullet points;
  • Challenging conditions during Q4 (Oct-Dec 2018) 
  • Revenue & profits for FY 06/2019 will be "significantly below market expectations"
  • Small underlying EBITDA loss in H1
  • Actions taken should lead to a "significantly improved" performance in H2 (Jan-Jun 2019)
  • Small underlying EBITDA profit expected for full year

Overall then, this is clearly a disappointing update, but it's not a disaster. Yet the share price has been is such steep decline, that it's almost pricing the company to go bust. This is starting to look like a considerable market over-reaction. Has the company really lost nearly 90% of its intrinsic value in the last year, as the share price suggests? I don't think so.


What's gone wrong?

The principal challenge has been greater than anticipated market disruption arising from changes to general sales tax (GST) regulations in Australia, the group's largest market...

Really? I'm surprised at this. Although given that I don't know anything about these tax changes, probably shouldn't comment further. But I will - surely companies should take changes to taxes in their stride?

It sounds like there have also been internal, logistical problems;

... exacerbated by the product mix and an insufficient proportion of the 1P (own-buy) inventory being located in the local distribution centre.

What's being done to fix things?

 Action is being taken to improve the product mix and inventory availability with immediate effect. All senior management and product teams are being centralised in the Sydney head office to facilitate more local sourcing and margin improvement.

That all sounds pretty basic stuff to me. Leaving an impression that this business is perhaps not terribly well managed? Still, at least they are taking the necessary actions to improve trading.

Directorspeak says;

In response to this underperformance we have significantly accelerated and expanded our existing plans to streamline the business, reduce the cost base and…

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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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Zytronic plc is involved in developing and manufacturing of touch sensor products. The Company is also engaged in the development and manufacture of customized optical filters. Its geographical segments include Americas (excluding USA), USA, EMEA (excluding UK and Hungary), Hungary, UK, APAC (excluding South Korea) and South Korea. Its products incorporate an embedded array of metallic micro-sensing electrodes. Its technologies include projected capacitive technology (PCT) and multi-touch mutual projected capacitive technology (MPCT). PCT touch sensors can be constructed from one, two or three layers of laminated, toughened glass. Its sensing products offer touchscreen solution for applications, such as leisure, digital signage, retail, surfaces, banking and industrial applications. Its touch sensors are used in video jukeboxes and slot machines. The PCT touch sensors are used in a range of workplace applications, from medical diagnostic equipment to oil field machinery controls. more »

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Pressure Technologies plc is a holding company. The Company's Cylinders segment is engaged in the design, manufacture and reconditioning of seamless high pressure gas cylinders, and consists of Chesterfield Special Cylinders Limited. Its Precision Machined Components segment is engaged in the manufacture of specialized, precision-engineered valve wear parts used in the oil and gas industries, and includes Al-Met Limited and Roota Engineering Limited. Its Engineered Products segment is engaged in the manufacture of precision-engineered products, air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs, and consists of Hydratron Limited and Hydratron Inc. more »

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

41 Comments on this Article show/hide all

WhaleHQ 11th Dec '18 22 of 41

How does ‘founder hugging staff’ place within that Venn diagram?? :D

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herbie47 11th Dec '18 23 of 41

In reply to post #426203

What's Simon Thompson got to say, he been tipping in Investor's Chronicle? I don't subscribe anymore. Last I can see is he said it was a buying opportunity on 24th October, 2018.

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hayashi22 11th Dec '18 24 of 41

Everything is a buying opportunity for ST.

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fdthomas 11th Dec '18 25 of 41

In reply to post #426353

I think Simon Thompson is a commission agent for ( tipping) these companies. My tip for a good recovery is ITV ;I bought 10,000 at £1.25 this morning

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alpha2 11th Dec '18 26 of 41

I like the look of Easyjet. Marked down on project fear warnings, strong revenue growth, competitors all imploding no debt. Am I missing anything on the balance sheet?

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alpha2 11th Dec '18 27 of 41

In reply to post #426358

Hi FDT, I looked at ITV side by side with EZJ and can't for the life of me see why EZJ is lower rated. Both look good value at present.

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barnetpeter 11th Dec '18 28 of 41

Nearly all the micro caps are being crushed. Even those that put out good news and rally are hit by a wave of selling. The first of the small mining companies suspended today and I expect to see a wave of them follow. Mysl halved today and I expect it to at least halve again. Distressed stocks are just going lower and lower and it seems to me investors are not prepared to take any risk at the moment. So many falling knives around..,,,

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andrea34l 11th Dec '18 29 of 41

In reply to post #426363

I hold Easyjet (LON:EZJ) and don't know why they have fallen so far, apart from possible impact of the oil price on fuel costs... which is now moderating. However, although the recent prelim figures were pretty good, the outlook seems a bit flat.

My preferred not-defensive FTSE stock at present is Ashtead (LON:AHT) - their interims are out today showing high-teen growth and yet the PER looks to be about 10, FY also seen ahead of expectations.

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truegent 11th Dec '18 30 of 41

thank you for the venn diagram paul - small but powerful. seriously, its time like this you need to keep a level head and you'll come out on top - its all psychological !

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paraic84 11th Dec '18 31 of 41

In reply to post #426403

I have held Easyjet (LON:EZJ) in the past. It's share price is sometimes heavily correlated with the oil price plus the value of sterling (which then exaggerates any oil price further) - they haven't been on the right side of those recently.

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sharmvr 11th Dec '18 32 of 41

In reply to post #426333

Strong balance sheet, fallen a lot, trading updates not so positive.
I hold!

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dmjram 11th Dec '18 33 of 41

In reply to post #426403

You've missed the B word.
Without a ratified deal/A50 extension, EasyJet can't fly between the UK and EU come March 2019.

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harrinr 11th Dec '18 34 of 41

In reply to post #426428

I think Easyjet Europe in Vienna gets around that - I'm open to correction

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dmjram 11th Dec '18 35 of 41

In reply to post #426448

It will allow EasyJet to fly within the EU.
If doesn't allow it to fly between the UK and the EU.

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ACounsell 11th Dec '18 36 of 41

Last two days SCVR from Paul has highlighted a number of criteria should consider in the current climate:

1. Share price down a lot in recent sell off
2. Positive and recent trading update
3. Sound balance sheets, with little to no debt (I think 1x EBITDA is probably a sensible cut-off point, to reject anything above that)
4. Good, and consistent free cashflow
5. Good net profit margin, which is evidence of pricing power

Using Stockopedia can construct a screen using proxies for these criteria ((except point 2). Specifically price fall over last 3 months greater than 30%, net debt less than or equal to 1 x EBITDA, Price to Free Cash Flow <8 and average 5 yr net margin > 15%. This would then need further analysis regarding the trading update situation and the consistent nature of cash flow. Across all indices the basic screen only had 3 qualifying companies Jupiter Fund Management (LON:JUP), Indivior (LON:INDV) and Numis (LON:NUM). All 3 fail on the trading update criteria with negative recent updates & only Jupiter Fund Management (LON:JUP) and to lesser extent Numis (LON:NUM) have consistent history of strong free cash flow.

The screen rules can be flexed but this only confirms the view that there is very little out there at the moment that represents a ‘safe’ investment. Probably explains why Paul is very reluctant to invest in anything in the current climate!!

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Gromley 12th Dec '18 37 of 41

In reply to post #426458

Did I misinterpret your suggested screen?

I read it as  :


Which actually (for me) gives 7 results and only Indivior (LON:INDV) & Numis (LON:NUM) shared between your list and mine.

Actually though I disagree with the general hypothesis at this time.

I do not think that now is the time to be looking to catch falling knives or stocks with beaten up valuations (even if apparently irrationally  so).

I do not claim any great skill in "timing the market" or even understanding which "phase" we are in (except with the long lenses of hindsight); but it seems to me that we are far more likely to be either early or mid-way through a downturn than we are to be at the bottom of a small correction.

My experience has been that when we are in a gloomy market, shares that get irrationally beaten down due to poor sentiment can see that sentiment (and the share price) much further suppressed even apparently beyond reason.

Personally I would very much rather at this stage be in the stocks whose valuations have remained more resilient - although cautiously.

I am reminded of a JP Morgan cyclical factors  chart shared by Howard Marx back in the summer, to which I annotated the SR styles (incorrectly - the top right box should read "turnaround")

Both my personal observations and the JPM view suggest that momentum remains important at this time so before buying a bombed out stock, regardless of value and quality, I would still want a clear  indication that either  the market has bottomed or that the stock has .

My opinion (and I should be clear here that I am just expressing a - non-expert - view) is that for every bargain you see today more than half will be on offer at a better clearance sale price in the near future.

Further, for those that saw Ed Croft's excellent presentation at Mello, I would also strongly suggest looking at "low risk" (ie low volatility) shares at this time.

In the past my 'buying finger' would have been very itchy at this stage, but I now find myself much more composed. Whilst I will no doubt miss the bottom on many stocks currently of interest to me, I still hope to do well buying when the odds are more in my favour.

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jonno 12th Dec '18 38 of 41

In reply to post #426113

Hi leoleo73

I haven't read the telegraph article, but I hold and have added to Walker Greenbank (LON:WGB) on recent weakness. My view is that trading, although challenging appears to have stabilised and the company is in reasonable health financially. Current figures for ROCE and free cash flow are good and the view of brokers is that the dividend of around 5% is safe and well covered. What has made me 'pin my colours to the mast' is that I do not think the current price reflects the value of the company's brands, which apart from recovery potential would be attractive to a potential suitor.

On the downside there is minimal growth in the short term according to broker's forecasts and trading could deteriorate further given the current retail malaise. There is also the uncertainty created by the shambles that is Brexit.

The shares are cheap like many UK small caps currently. I think that the shares are trading below intrinsic value and hope in due course that this will prove to be the case?

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ACounsell 12th Dec '18 39 of 41

In reply to post #426468


Unfortunately I don't seem to be able to replicate my screen into the comment box in the way you have done - a degree of IT illiteracy I'm afraid.  However, the only differences in my screen were:

1. It used the basic ratio P/FCF rather than calculating it from the numerator and denominator.

2. All screenable indices were specified under the index selection criteria

3. Net Margin % 5 year avg was used rather than Op Margin % 5 year avg

I guess this is why we have a difference and re running the screen this morning Jupiter Fund Management (LON:JUP) fails to qualify as its 3 month fall is less than -30% today!

As to the rest of your comment I tend to agree - my main intention was to highlight that Paul's criteria isn't going to throw up many opportunities and those that there are will tend to have 'special situations' (e.g £INDV)

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Edward John Canham 12th Dec '18 40 of 41

In reply to post #426348

Bilby (LON:BILB)

The great man has spoken - surprisingly recommends a buy.


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herbie47 14th Dec '18 41 of 41

In reply to post #426653

Thanks Phil, yes I did see that, no surprise there, I would say buyer beware.

I know his history, he usually supports his tips all the way down.

If I followed him I would have stop losses on all his tips I bought.

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 Are LON:MYSL's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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