Small Cap Value Report (Tue 11 Sep 2018) - JD., BRY, LUCE, UPGS, MAI, BLV, SBIZ, PIL, ONEV, MIDW, CYAN

Tuesday, Sep 11 2018 by

Good morning!

I've had a quick look at the sparkling interim figures from JD Sports Fashion (LON:JD.) - it just shows that, even in tough conditions, the best companies can still deliver good figures. The numbers benefit from an acquisition in the USA. The narrative talks about further international expansion, including in the biggest potential market, the USA - which could be exciting.  It looks very impressive, apart from the now loss-making outdoors division - affected by the hot summer (not many people buying outdoor coats for hiking, etc). Worth a closer look, when I have more time. Although I am uneasy about a highly profitable retailer distributing other brands' stock - there's the potential risk of big brands squeezing JD's profits at some point.

Here are some late comments from Monday's announcements. More people will see them if I put them into today's report (I wrote these comments below last night. They're brief, because I'm concentrating my energies more on companies which interest me.

Brady (LON:BRY)

A trading & risk management software company.

Interim results (6m to 30 Jun 2018)  look poor (loss-making), but it expects a better H2. With 95% visibility on 2018 revenues, that seems well underpinned.

Balance sheet looks quite weak, but software companies get paid up-front, so can often operate fine with a weak balance sheet.


With such a poor track record, it's difficult to understand why this company is valued at anything like the current market cap of £55m (at 66p per share). Maybe the client relationships would be attractive to an acquirer?

The narrative talks about a 3 year turnaround plan. It doesn't interest me. Why pay up-front for a turnaround that hasn't yet delivered profitability?

Luceco (LON:LUCE)

Poor H1 results, but a more positive outlook for H2;

The Group's outlook remains unchanged from the July 2018 Trading Update.  The second half of 2018 is anticipated to be a stronger period than the first six months with a return to profitability expected.

Although UK consumer confidence remains fragile the Group has moved into the third quarter with: a 30% increase in the UK Retail order book, lower commodity prices,…

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Brady plc is a United Kingdom-based provider of trading and risk management software to the global commodity and energy markets. The Company combines integrated and complete solutions supporting the commodity trading operation, from capture of financial and physical trading, through risk management, handling of physical operations, to back office financials and treasury settlement for energy, refined, unrefined and scrap metals, soft commodities and agriculture. The Company's business units are Commodities and Energy. Its clients include various financial institutions, trading companies, miners, refiners and producers, scrap processors, tier one banks, various London Metal Exchange (LME) Category 1, 2 clearing members, and other European energy generators, traders and consumers. It offers commodities solutions, energy solutions, credit risk, cloud services, and client services and support. more »

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Luceco plc offers a range of brands, including Luceco, BG Electrical, Masterplug and Ross. The Company's products include Luxpanel, Epsilon and ambient lighting. Luceco light emitting diode (LED) lighting provides commercial and domestic lighting solutions. BG Electrical is a wiring accessory manufacturing brand, which serves electrical trade and specifiers. BG Electrical's products include White Rounded Edge, Nexus Flaplate Screwless, Nexus Metal, Nexus Storm, Nexus Grid and Metal Clad. Masterplug supplies portable power equipment through do-it-yourself (DIY) outlets and street retailers. Masterplug offers products under various categories, including indoor power, such as plugs and adaptors, sockets, chargers and cables; outdoor power, such as case reel, weatherproof box and extension leads, and workpower, such as trailing sockets, inline connectors, cassette reels and cable reels. Ross offers a range of audio visual and home entertainment products. more »

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UP Global Sourcing Holdings plc is a United Kingdom-based owner, licensee, designer, developer and manager of a series of brands focused on the home. The Company develops, designs, sources and distributes a range of consumer products, focused on six product categories: small domestic appliances (SDA), housewares, audio, laundry, heating and cooling, and luggage. Its owned brands include Beldray, intempo, Constellation and Progress, and its brands under license include Salter and Russell Hobbs. It also offers products under brands, such as American Originals, George Wilkinson, Giles & Posner, Inspire, Portobello, Prolectrix and ZFrame. It products are sold to a cross-section of both national and international multi-channel retailers, as well as other national retail chains. It sells its range of products to over 300 retailers across approximately 40 countries. The Company caters to retailers, supermarkets, general retailers and online retailers. more »

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

46 Comments on this Article show/hide all

Beginner 11th Sep '18 7 of 46

Alumasc (LON:ALU) seems a curate's egg. The rhetoric is extremely bullish, but the figures are less than overwhelming. EPS is down 35%, and revenue down 7%. But the dividend, which seems well covered, is up. The punchline is a possible shift to AIM. Will this trigger institutional selling?
Net debt is £4.8m, and there is still a substantial pension deficit.

Belvoir Lettings (LON:BLV) seems rather more positive, with PBT up 66% off revenues rising 19%. There is no mention of the impending regulatory changes for lettings fees though.

Regional REIT (LON:RGL) seems a decent one for thos seeking dividends. They seem to trade property as much as lease it out. Yield is now c8%.

Does TP (LON:TPG) really have such a massive cash pile?

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greyster 11th Sep '18 8 of 46


I would be interested in your thoughts on Midwich (MIDW), (not sure how to show in blue link form). I hold. It has a great Roce and Roe, net margins a bit thinner. Strong growth and they have advised on target for their revised (upwards) target.

I can see them reaching £30mn Ptb full year from a rough and ready extrapolation of interims with seasonal weighting.

Slight concern is growing debt and poor cash flow being tied up in working capital, higher stocks and debtors, which can sometimes mask an issue. If they can hit 600k sales for full year higher stock will be justified.

Enjoy the analysis from yourself and Graham. Always look at Stockopedia as a filter before investing.

Best wishes


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runthejoules 11th Sep '18 9 of 46

£K3C & £TM17 look interesting, as does Alumasc (LON:ALU) thanks Paul & SCVRs...

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fredericktug 11th Sep '18 10 of 46

Another request for Alumasc (LON:ALU) and Belvoir Lettings (LON:BLV). Holding both!

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bwakem 11th Sep '18 11 of 46

Luceco (LON:LUCE) - does UK consumer confidence really affect whether people buy light bulbs or not? I'm a bit worried about the economy so I'm going to sit in the dark for a few months.

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clarea 11th Sep '18 12 of 46

Another for £K3C please Paul

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Andrew L 11th Sep '18 13 of 46

Hi Paul, A few you might want to glance at.

EU Supply (LON:EUSP) - Microcap that has been a triumph of hope over experience to date. They reported an H1 operating profit but that was only after they started capitalizing development cost. I can see that in their accounts but there is no mention of it in the update. Easy to either have a negative or positive view here. Could be making good profits in 2020! Market value to revenue looks low versus some other more loved SaaS businesses i.e. Cloudcall (LON:CALL)

DP Eurasia NV (LON:DPEU) - Domino's Pizza master franchisee in Turkey and Russia. Things are tough and lots of adjustments in the numbers. Hopefully they should be able to pull through. Fast growing and CEO says that he has gone through two crisis in Turkey before. Third time lucky?

OneView (LON:ONEV) - Sorry story here. Listed in March 2016 and now leaving AIM due to costs etc. Not exactly sure what it does or what has gone wrong.

JD Sports Fashion (LON:JD.) - Maybe one for your eagle retail eye?

Nucleus Financial (LON:NUC) - recently listed IPO. I haven't managed to figure out what it does.

Sanne (LON:SNN) - results but maybe too large for this report at £900m

A huge amount of results worth looking at today.

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JohnEustace 11th Sep '18 14 of 46

Encouraging maiden interims from Indy games publisher £TM17.

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jasjones80 11th Sep '18 15 of 46

Another for K3C please Paul.

Also am I allowed to ask if you have sold a lot of your NEXT shares as I was slightly surprised that they were not in BMUS?

Thanks for all the great commentary as someone who is relatively new to investing I have found it very educational.

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davidjhill 11th Sep '18 16 of 46

This is slightly away from topic but I sense a potentially big contrarian opportunity in Just (LON:JUST) that I would be interested to hear anyones opinion on.

In a nutshell you can buy Tangible embedded value of 230p for 69p : i.e. £1 of assets for 33p.

PE is just over 3* as EPS is now pencilled in at circa 23p with new business storming ahead.

The fall from 150p in last few weeks is all around the PRA consultation on new rules for part of Just (LON:JUST) business, the Lifetime Mortgages division. If the worst outcome is implemented it has a material impact on capital position, but there are a wide range of potential outcomes. Company has sensibly suspended divi until after consultation ends 30th Sep.

BUT......and here's the bit I'm left scratching my head on............

They very usefully in their results show excess capital and sensitivities : 

Excess capital is £671m. With rise in interest rates post results say circa £700m now

sensitivities to property values are £204m per -10% so a 35% fall in property, with no subsequent recovery, still leaves them at 100% of capital. The PRA consultation only applies to their back book (not business written recently or going forward) so has a limited time impact as back book gradually rolls off. 

They could issue tier 2/3 bonds as a capital buffer presumably. Interest would have an impact on profitability, but really only at the margin. Maybe £10-20m p/a or 1-2p of EPS.

So this feels as though share price is massively impacted by the uncertainty coupled with poor market conditions and could offer a very good entry point. 

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Trident 11th Sep '18 17 of 46

Hi Paul

As a holder I have taken a bit of a bath in UP Global Sourcing Holdings (LON:UPGS), so tempted to agree with your comment that it is not a very good company. Also your comment has value that Stockopedia is not infallible an indicator of what constitutes a good company.

However. Stockopedia does rank this company at 91, and it has strong metrics on ROC & ROE. Its been through a difficult phase, and seems to be indicating tough conditions ahead, so rightly caution should be exercised.

For those getting in at the right price it is now on a 6x multiple, and showing a dividend yield of 8.6%.

Perhaps all this statistics showing margins of safety will be eroded by current trading conditions, and reduced forecasts, but might be a future punt at this level.

As you can probably sense I am wrestling with the psychological anchor around my neck on this one.

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auldmart 11th Sep '18 18 of 46

Another vote for K3C. Seems to be offering a disruptive financial services model and the results look to support that view.

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wildshot 11th Sep '18 19 of 46

In reply to post #397779

Hi jasjones80, if I remember correctly Paul sold out of all Next shares in the summer when I think there was a currency/debt crisis related to Italy? He was closing various positions in a defensive move until the uncertainty had passed.

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LeoInvestorUK 11th Sep '18 20 of 46

In reply to post #397739

Luceco (LON:LUCE) - "I'm a bit worried about the economy so I'm going to sit in the dark for a few months."

:), but there is hardly any replacement light bulb market any longer - once you have replaced with LED (and they've made it through the first week or so), they pretty much last forever compared to previous types. Of course there will be a (decreasing) tail of older types in use, but given that (in most cases) it is irrational not to have replaced them early years ago, I suspect the remainder are more likely to be replaced early when people are flush with cash rather than needing to reduce running costs.

Luceco's main lighting market is surely integrated fittings for new build / refurbishment which is very dependent on consumer confidence

Blog: LeoInvestorUK
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jasjones80 11th Sep '18 21 of 46

In reply to post #397814

Hi Wildshot, thanks for that.

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LeoInvestorUK 11th Sep '18 22 of 46

In reply to post #397804

UP Global Sourcing Holdings (LON:UPGS) - I recommend lavinit's article and subsequent comments here:
He highlights a few red flags you may not have been aware of but is generally bullish.

Whatever Stockopedia says, I don't think anybody would describe UPGS as a high quality company - "ultimately" the net margin isn't high enough and the owned brands are not strong enough. But it is still very easy to construct a scenario for FY2019 forecasts to start improving significantly, the share price to double over the next 6 months and for continued growth from there.

I don't think much will happen before the results, but I'm going to stick my neck out and opine that the share price won't ever return to last Thursday's lows.

Blog: LeoInvestorUK
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ISAallowance 11th Sep '18 23 of 46

In reply to post #397819

"once you have replaced with LED (and they've made it through the first week or so), they pretty much last forever compared to previous types"

Unfortunately that doesn't seem to be the case, certainly for consumer bulbs. I've had a number fail, of several different brands, in time spans ranging from 6 months-ish to a couple of years-ish. It's quite possible that it's the control circuitry that's gone rather than the LEDs themselves, but it makes no difference to me as an end user. I wouldn't be at all surprised if replacing LED bulbs costs me nearly as much as the electricity saved vs. old fashioned filament bulbs.

Having said that, I personally wouldn't touch any company in this space unless they really seemed to have some protectable position, which Luceco (LON:LUCE) doesn't seem to at a cursory glance. Just too much comoditisation too fast to sustain returns in my opinion.

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Damian Cannon 11th Sep '18 24 of 46

Looks like you're going to look at SimplyBiz (LON:SBIZ) Paul? Seems off the radar for many perhaps but they seem to have a niche little, growing niche. My thoughts are:

Decent interim results with sales up 14% (some organic, 9% from acquisition of Landmark Surveyors) and EBITDA up 22%. All divisions seem to be performing well and I like how EBITDA margin is up from 20% to 22%. Looks to be in-line with forecasts assuming a bit more growth in H2. By my calculations the P/E for 2018 is 18 and this drops to 14 and then 12 over the next few years which seems good value for 16-22% earnings growth. Main issue is that revenue from the employee benefits software, Zest, fell from £3.3m to £2.5m as customers left legacy platform. Being redesigned though so may bounce back.

The question is how much organic growth they can create and how much growth they'll have to buy in?

Blog: Ambling Randomly
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gbjbaanb 11th Sep '18 25 of 46

In reply to post #397699

I'm interested in Redt Energy (LON:RED) now - following the recent announcement of their new generation of storage machines, they announced a pilot with Anglian Water (said there would be a "50% saving in energy by 2040") and today with Essentia.

I think from this, that they are on the cusp of turning from an interesting startup to a mainstream company. If they can pull off the energy saving (and I don't see why not as their kit will allow for arbitrage, peak demand management and renewable inputs) then these will be very attractive to other utilities that draw large amounts of power.

I think its too early to look at their numbers though, but its one to stick an eye on, unless you're feeling speculative (as I am).

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sheeza 11th Sep '18 26 of 46

In reply to post #397704

TP Group. They raised 20m for acquisitions a couple of years ago which remains talked about but almost wholly unused. I sold out today after long hold. Directors seem concentrated on being important rather than profitable - the word 'profit' almost never appears in their releases. But perhaps one day ………?

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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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