Small Cap Value Report (Tue 11 Jul 2017) - MKS, BEG, MCB, IKA, AMO, BGO

Tuesday, Jul 11 2017 by

Good afternoon, it's Paul here.

I see that Marks and Spencer (LON:MKS) has dropped about 5% today, on a soft-ish Q1 update. This is my largest short position, so good news for me. Shorting things seems rather unsporting, or downright evil. However, it can be a great, albeit dangerous, way to hedge long positions. It seems to me that the retail sector is facing such serious headwinds, that it's only sensible to bet against some of the weaker retail giants.

Costs are rising, but it's very difficult to achieve LFL sales increases, and maintain margins. That tends to squeeze out wafer thin profits. So the retail sector remains a blindingly obvious shorting opportunity, in my view.

Begbies Traynor (LON:BEG)

Share price: 49.7p (up 0.4% today)
No. shares: 127.7m
Market cap: £63.5m

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

Final results - for the year ended 30 Apr 2017.

Begbies is a firm of insolvency practitioners, which is a highly regulated profession, something like specialist lawyer/accountants. They manage insolvency procedures, such as company administrations & liquidations, according to a strict & complex set of laws.

Begbies core insolvency market has been subdued since the financial crisis, because near-zero interest rates have allowed many struggling companies to survive. Banks have been more tolerant of struggling companies than in previous recessions, as recoveries of debts have often been better by allowing companies time to restructure.

I interviewed the Exec Chairman here in Oct 2016.

In recent years, Begbies has kept careful control of its overheads, and bought in some growth, by making complementary acquisitions - e.g. property auctioneers.

As you can see from the financial highlights section, progress has been steady, rather than spectacular;


The PER is 15.1 on the actual adjusted EPS. That may seem a tad pricey, given the tepid earnings growth. However, I think this should be seen in context, as possibly low point in the cycle for earnings. The company says insolvencies are at the lowest point since 2004.

One broker note I've seen had 3.2p forecast EPS for 4/2017, so it looks like a slight beat.

Dividends - the 2.2p divi is maintained,…

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Marks and Spencer Group plc (M&S) is a retailer in the United Kingdom, with over 1,380 stores around the world. The Company is the holding company of the Marks & Spencer Group of companies. The Company operates through two segments: UK and International. The UK segment consists of the United Kingdom retail business and the United Kingdom franchise operations. The International segment consists of Marks & Spencer owned businesses in the Republic of Ireland, Europe and Asia, together with international franchise operations. The Company is engaged in delivering own brand food, clothing and home products in its stores and online both in the United Kingdom and internationally. The Company sells womenswear, lingerie, menswear, kidswear, beauty and home products, serving customers through approximately 300 full-line stores and Website, M& It has approximately 910 United Kingdom stores, including over 220 owned and approximately 350 franchise Simply Food stores. 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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McBride plc is a provider of private label household and personal care products. The Company is engaged in developing, producing and supplying its products to retailers across Europe. Its segments include Household and Corporate. The Household segment consists of UK; North, including France, Belgium, Holland and Scandinavia; South, including Italy and Spain, and East, including Germany, Poland, Luxembourg and other Eastern Europe. The Company's brands include Surcare, Clean and Fresh, McBride Direct, Limelite and Ovenpride. Its Surcare product range includes Surcare Sensitive Capsules, Surcare Sensitive Non-Bio Powder, Surcare Sensitive Non-Bio Powder and Surcare Sensitive Fabric Conditioner. The Company operates approximately 18 manufacturing sites in over 12 countries. more »

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

46 Comments on this Article show/hide all

dahokolomoki 11th Jul '17 27 of 46

Wow, Begbies Traynor (LON:BEG) is really an unloved share amongst the Stockopedia user base! Paul's started to write it up (in fact its the only thing on today's report so far at 10:58pm) and not a single comment so far on the share.

It is definitely a sleepy share that has gone nowhere in the past few years, but a great natural hedge if the economy starts to become wobbly, and the pain of Brexit starts to be crystalised in terms of companies going to administration this year. So very much a "contrarian" play, although the Stockopedia computers don't rate it as contrarian!

Another interesting play I would highlight is Park (LON:PKG). Again, not moving much over the past year or so. Boring share, issuing high street gift cards and the likes. But it sits on a huge cash pile earning 0% at the moment, which will start earning some £££ once interest rates start to rise....

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garbetklb 11th Jul '17 28 of 46

In reply to post #198879

Toolstation (owned by Travis Perkins - who also own Wickes) are normally significantly cheaper than Screwfix. In my experience, Screwfix carry a wider range but seem less reliable on having stuff in stock.
You can also order online from Toolstation - free postage for a £10 order......

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nicobos 12th Jul '17 29 of 46

In reply to post #198867

Thanks Truegent - that's very helpful! Looks like I may have missed the retail short opportunity in the short term as the sector looks to be in a base at the moment. Would potentially make a good shorting opportunity on a bounce (a dead cat one !).

Is there an easy way to find UK sector etfs on IG or another website that lists U.K. sector etfs which are tradeable on IG?

I find it quite useful to monitor sectors to check their momentum before looking at their constituent parts. For example, a share which is highly rated but in a dog sector may not be worth buying into until the sector is back in vogue. Likewise, it may be worth looking into shares in sectors that are in a strong upturn (a rising tide lifts all boats ! And the sunseekers should benefit the most...).

Much appreciated !


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fwyburd 12th Jul '17 30 of 46

In reply to post #198875

It would be great to get Paul's opinion on this.

Next (LON:NXT) is particularly interesting to me as it's core strength was and is mail order but I don't know how costly it would be for it to reduce its retail business costs and in what time frame (eg how long its existing leases are). Their shares dipped below £36 today lower than its been for five years ( I bought back in at £37 but got cold feet yesterday when I realised the shorters now have just over 5%).

On another note, thanks to Graham, Paul and others here for their brilliant Game Digital (LON:GMD) analysis. Really insightful.

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Graham Neary 12th Jul '17 31 of 46

In reply to post #198967

You're welcome! Cheers.

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vik2001 12th Jul '17 32 of 46

Marks and Spencer, Next etc will all struggle as their fashion is OOF (Out of Fashion). they have not kept up with the trends, only older people will shop their 40+
saying that I used to go to Marks to buy my boxers and work shirts, but you wont really see the younger generation shopping at these places much anymore.

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ISAallowance 12th Jul '17 33 of 46

In reply to post #199083

I realised just how OOF Next is when I came to sell some of my sons grown-out-of clothes on ebay. Nike, Addidas, etc, could often get over £10 for a single item or set. Next, no interest even in lots of 6 or 7 clean items at 99p.

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vik2001 12th Jul '17 34 of 46

In reply to post #199103

just goes to show how similar Debenhams, Marks and Spencer and Next are with their trends. They still in the 80s and havnt moved in line with trends and changes in their own world of fashion, and are paying for it now in some respects

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FREng 12th Jul '17 35 of 46

In reply to post #198879

JohnEustace. I use Screwfix. They have always delivered next morning. Good prices and astounding service, in my experience. I avoid Amazon because of their near monopoly and their tax avoidance.

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jonesj 12th Jul '17 36 of 46

Still looking forward to seeing the Begbies report.

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Jenny Williamson 12th Jul '17 37 of 46

In reply to post #198875

I think you are right that there is a place for physical retail space, but like others think M&S and Next ( by their own admission) have lost touch with their customer base. There are high street successes visible with Primark ( no online presence) and Supergroup examples. My perception is that like supermarkets, hotel rooms, and airlines, the shopper loves a no frills bargain and/ or shops for aspirational brands- they are not mutually exclusive - but there is no room for Malcolm in the middle - mediocre is dead!

As for pets at home they have a dreadful reputation for high speed grooming services - not somewhere I would dream of taking my pooch!

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Paul Scott 13th Jul '17 38 of 46

My apologies for the length of time it took me to finish today's report, but got there in the end!

I'm totally inefficient. Sometimes everything flows, other times it doesn't. Hopefully the good reports make up for the occasional crap/delayed one!

Regards, Paul.

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rpannell 13th Jul '17 39 of 46

Posting at 1:31am is beyond the call of duty Paul. Thanks for all your reports and dedication.

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BlueFrew 13th Jul '17 40 of 46

In reply to post #198967

The last annual report for Next (LON:NXT) had a section which explored the question of why they still have physical stores. It discussed how profitable they were, how long the leases were and modelled various scenarios and how that would affect their physical stores.

I was long Next (LON:NXT) but sold on the spike up in April. Watching brief at the moment as I think it may have another profit warning in it.

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fwyburd 13th Jul '17 41 of 46

In reply to post #199351

Thank you Blue. The breadth and depth of insight I get from this community is much appreciated and I really value the positive and constructive pointers people offer.

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rhomboid1 13th Jul '17 42 of 46

In reply to post #199295

Good morning Paul,

I think your high quality analysis is far more valuable than the mundane skin deep guff that I get regular as clockwork on radio tv or some print media, these sources are also deficient in providing Chaka Khan lyrics & pithy demolition of Question Time panellists that you provide gratis on your Twitter feed.

Keep up the good work!

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Bluey68 13th Jul '17 43 of 46

In reply to post #199295

No apology needed Paul. Quality write-ups often need time.

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Fegger 13th Jul '17 44 of 46

In reply to post #199119

I do buy from Next as they offer some sizes in kids clothes and in shoes that are hard to find elsewhere. I think it is a better bet than Debenhams and Marks long term which seem much less efficient operations to me

Next have noticeably tightened up their customer service locally. Their kids clothes were very samey for a long time but recently sharpened up with everything from Lego to Pokemon. They also now stock a huge range of external brands now from Boohoo to Joules to Armani and Armani Exchange. This gives them the ability to change quickly and cover all age groups demands as they of course have an efficient online operation. They still are strongly profitable. And I am also always impressed that management do seem competent and open and honest. I have a sizeable amount in my SIPP as long term I wouldnt write them off .

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Paul Scott 14th Jul '17 45 of 46


I'm on the fence re Next (LON:NXT) - it seemed great on a value basis, especially when including the special divis, but the whole sector seemed to be drifting down, so I decided it was best to play it safe & sit on the sidelines with the whole physical retail sector (as mentioned lots of times in SCVRs in recent months).

I also have a hunch that Next might have another profit warning in it. So why take the risk???

Regards, Paul.

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23jez Tue 4:28pm 46 of 46

In reply to post #198783

Hi Seadoc.

Long time no chat, with you or my other old  ii friends. 

I took out a subscription for Stockopedia about 16 months ago and then disaster struck last August: 2 femoral neck fractures,  2 THR, pulmonary embolism, riveroxibam, blood loss, transfusions anaemia etc . My surgeon says I could have died had I not been so fit on first admission.

Problems did not end there. I had to change my GP (refusal to implement my care plan specifically pain relief but also to complete the course of Riveroxiban, (GMC stuff but life is too short).  New GP fabulous he is an holistic physician,.  These are getting to be a rare breed. He looks and probably is younger than my son. 

The trauma unit, Mr Whitwell, and gastroenterology unit , Dr Subramanian were all  excellent.  Thank goodness for the NHS.  It was a very educative experience being on emergency admission wards.

Since achieving proper pain relief I have started to recover. Over the last few weeks my short term memory and cognition have improved, not yet quite normal for me, but getting there,

I am starting to feel like engaging with the world again.  Contacted Dr M.  I knew Gus had a Stocko account and was looking for him.  If you know where he blogs could you please let me know.

The only good news is that the stock markets did not crash. I was about 40%  cash before the first hip fracture and am now about 70%.  The rest will either recover or is not worth selling.  Am currently reading Stephen Hoad's articles on Technical Analysis. I'm about half  way through.  

Are you still sailing round the world.  If you get this please let me know how you are and also let me know if you know where Gus blogs.

Best wishes "23Jez"

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 Are LON:MKS'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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