Small Cap Value Report (Tue 12 Feb 2019) - SOS, PLUS, DEB, LOOP

Tuesday, Feb 12 2019 by
70

Good morning, it's Paul here.

I finished off yesterday's report in the early evening, adding new sections on Avation (LON:AVAP) and Stride Gaming (LON:STR) . So if that interests you, here's the link.

I will be busy this afternoon, planning & recording my telephone interview with management of  Sosandar (LON:SOS) (in which I hold a long position). That should be published by early evening today. I will tweet out & put a link into Weds SCVR here. There seems to be a lot of interest in the company from you, so many thanks for the interesting questions you submitted to me. Time constraints mean I probably won't be able to cover all of them, but will do my best. We can always do a follow-up interview after the FY 03/2019 results are published in the summer.

On to today's trading updates & results statements.



Plus500 (LON:PLUS)

Share price: 1105p (down 32% today, at 12:35)
No. shares: 113.7m
Market cap: £1,256m

Preliminary results - for year ended 31 Dec 2018

Only a brief comment, as it's far too big for a small caps report. However, lots of us are fascinated by this company - the key questions being whether its massive profits & cashflow are real - that's an easy one, the answer is yes. But are those profits/cashflows sustainable? That's the big question mark - hence why the shares have only attracted a fairly low PER, and huge dividend yield in the past.

The 2018 financial results look absolutely stunning; 

  • Net profit us up 90% to $379m
  • Cash generated from operations is up 78% to $495m
  • Dividends of just under $2 were paid (c. 155p per share) - a yield of  14% at today's share price


Profit warning - here's the problem, in the "current trading" section;

Following our latest assessment of the impact of the ESMA regulatory measures, FY19 revenue is expected to be lower than current market expectations.

This, combined with our intention to maintain our marketing spend, is likely to result in 2019 profit being materially lower than current market expectation...


Directorspeak - The CEO doesn't sound too worried about this downturn;

"In summary, our highly…

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Sosandar PLC, formerly Orogen PLC, is a United Kingdom-based company that operates an online women’s wear platform. The Company’s clothing categories include dresses, jackets and coats, knitwear, shirts and blouses, tops, skirts, trousers, jeans, leggings, footwear, leather and suede, occasion wear, work wear, autumn trends, velvet and holiday shop. Its footwear products include Pewter Metallic Chelsea Boot, Red Leather Ankle Boot, Velvet Cylinder Heel Ankle Boot, Black Leather Stud Detail Ankle Boot, Black Suede Closed Toe Mule, Grey Velvet Court Shoe With Jeweled Brooch, Black Suede And Pewter Metallic Court Shoe, Black Leather Front Zip Ankle Boot, Leopard Print Leather Chelsea Boot, Steel Blue Leather Snake Print Ankle Boot And Black Suede Knee Boot. It also offers latest edit of day-to-night dresses, on-trend separates, luxe leather and outfit-topping shoes through its platform. more »

LSE Price
29.2p
Change
-2.7%
Mkt Cap (£m)
33.9
P/E (fwd)
n/a
Yield (fwd)
n/a

Plus500 Ltd is an Israel-based online provider of Contracts for Difference (CFDs). The Company develops and operates an online trading platform for retail customers to trade CFDs internationally over more than 2,200 different underlying global financial instruments comprising equities, indices, commodities, options, exchange-traded funds (ETFs) and foreign exchange. The Company enables retail customers to trade CFDs in more than 50 countries and in over 30 languages. The Company's trading platform is accessible from multiple operating systems, such as Windows, smartphones (iOS, Android and Windows Phone), tablets (iOS, Android and Surface), Apple Watch and web browsers. The Company conducts operations in the European Economic Area (EEA), Gibraltar, Australia and certain other jurisdictions across Asia, the Middle East and elsewhere. Its subsidiaries include Plus500UK, Plus500AU, Plus500CY and Plus500IL. more »

LSE Price
780p
Change
-5.3%
Mkt Cap (£m)
885
P/E (fwd)
5.8
Yield (fwd)
13.0

Debenhams plc is a United Kingdom-based company, which is engaged in multi-channel business. The Company’s brand trades through approximately 240 stores in 27 countries. The Company's segments are UK and International. The UK segment consists of stores in the United Kingdom and online sales to the United Kingdom addresses. The International segment consists of international franchise stores, the Company-owned stores in Denmark and the Republic of Ireland, and online sales to addresses outside the United Kingdom. The Company's stores trade under the name of Debenhams other than the Danish stores, which operate under the Magasin du Nord banner. Its stores offer customers a range of services, including restaurants and cafes, personal shopping assistance, hairdressing and beauty treatments, nail bars and wedding or celebration gift services. Its Debenhams Direct (www.debenhams.com) offers a range of products and services for online customers. more »

LSE Price
3.26p
Change
1.2%
Mkt Cap (£m)
40.1
P/E (fwd)
45.5
Yield (fwd)
n/a



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


30 Comments on this Article show/hide all

wildshot 11th Feb 1 of 30

Hi Paul, would appreciate any comment on GB (LON:GBG) after hours announcement of a large $300m acquisition. I say large because the market cap of GBG is around £600m. The bookbuild to support this is for $160m however management seem to have committed to put in a reasonable amount to contribute to this.

For a $300m acquisition of a company with an EBIT and PBT c. $16m with a fairly decent annualised growth rate, is this a good deal or biting off too big an acquisition to chew?

| Link | Share | 3 replies
Paul Scott 11th Feb 2 of 30
2

In reply to post #446058

Hi wildshot,

My main focus here is on trading updates & interim/final results statements.

So I haven't got anything of use to say about GB (LON:GBG) 's acquisition.

Sorry about that.

Regards, Paul.

| Link | Share
gus 1065 12th Feb 3 of 30
5

In reply to post #446058

Hi wildshot.

The GB (LON:GBG) announcement says the placement is £160m (not US$) so more dilutive to existing shareholders but probably sensible in that one of the main criticisms of this growth by acquisition company in the past has been the weakness of the balance sheet.

https://www.investegate.co.uk/gb-group-plc--gbg-/rns/proposed-acquisition-and-vendor-placing/201902111645066809P/

Either way I agree it’s quite a big bite to take on and digest. It does give the company immediate scale in their target North American market and to date most of their previous acquisitions have been well integrated. Short term I suspect the market may be unimpressed (it’s already seen a marked sell off from its previous highs last summer and is now something of a “Falling Star”) but if you buy into their strategy and management track record, I think longer term it will be seen as a good deal.

Gus.


p.s. placement done at a 3% discount to closing price.  Details below:-

https://www.investegate.co.uk/gb-group-plc--gbg-/rns/result-of-vendor-placing/201902120700076978P/

| Link | Share
MrContrarian 12th Feb 4 of 30
11

My morning smallcap tweet: DEB's Damoclesian debt danger deferred

Touchstar (LON:TST), LoopUp (LON:LOOP), Zambeef Products (LON:ZAM), Debenhams (LON:DEB), Wincanton (LON:WIN)

Touchstar (TST) gudes FY loss onsiderably better than market expectations despite a rev miss. Also review of structure and operations to simplify and focus on sectors with the best prospects.
LoopUp Group (LOOP) guides FY in line with consensus expectations and profitability comfortably ahead.
Zambeef Products (ZAM) CFO resiigns. He is thanked.
Debenhams (DEB) as rumoured, one year £40m secured facility to allow refinancing and recapitalisation. I;m short.
Wincanton (WIN) selected by HMRC to provide logistics services to support air and sea freight inspections. Five year deal.

| Link | Share
mfhmfh 12th Feb 5 of 30
1

Hi Paul, I'd be grateful if you could cover LoopUp Group's (LOOP) trading update. It's a company you have covered before:

'The Group has traded strongly in FY2018, with revenue in line with consensus expectations and profitability comfortably ahead'

Another one of those where the share price has fallen from highs but may recover back to these levels.

| Link | Share
JohnEustace 12th Feb 6 of 30
4

I see that GB (LON:GBG) will have debt at 2X EBITDA post acquisition.
I’m thinking that’s the new ceiling on debt that lenders will support, and those companies that have been accustomed to 3X EBITDA will need to pay down debt or raise funds.

| Link | Share
Kaboom 12th Feb 7 of 30
2

Hi Paul,
Although now a FTSE250 co, any planned comments on PLUS, given the figures out yesterday and extreme share price movement this morning?

| Link | Share | 2 replies
Mohamed Bilal 12th Feb 8 of 30

Would be great if you could comment on the Debenhams (LON:DEB) cash injection!

| Link | Share
andrea34l 12th Feb 9 of 30
1

In reply to post #446163

The results from Plus500 (LON:PLUS) were out this morning. The actual results look fab... but the outlook is poor which has bombed the share price: "Following our latest assessment of the impact of the ESMA regulatory measures, FY19 revenue is expected to be lower than current market expectations. This, combined with our intention to maintain our marketing spend, is likely to result in 2019 profit being materially lower than current market expectations". Didn't they expect turnover to lower than expected for part of the year just gone... and were wrong?

| Link | Share
Reacher 12th Feb 10 of 30
2

In reply to post #446163

Hi Kaboom

I had a quick look at the highlights of the preliminary results announcement from Plus500 (LON:PLUS) this morning.

The section on current trading has spooked the market with a somewhat contradictory statement:positive start to 2019 with new customer and active customer numbers and trades which are ahead of the end of 2018, but ESMA regulations will result in 2019 revenue being below market expectations with profit being materially lower due to market spend being kept at similar levels to 2018.

I wonder whether PLUS has adopted a prudent approach to 2019 revenues being below expectations only a month and half into FY 2019 as operational metrics and current trading seems to be better than Q4 2018. Or whether expectations have been set too high? There is nothing contained in the announcement outlining what those expectations are.

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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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