Small Cap Value Report (Tue 13 Aug 2019) - HAT, WOSG, PLUS, MMH, CARD, CNKS

Tuesday, Aug 13 2019 by

Good morning everyone!

There are some interesting releases for me to look at today. This list is final:


  • Share price: 341p (unch.)
  • No. of shares: 39.7 million
  • Market cap: £135 million

Unaudited Interim Condensed Financial Statements

(I have a long position in HAT.)

These are a good set of results and I've marginally increased my position size in H&T as a result. It was already a core position for me, and is now 9% of my portfolio.

Note that these results are before the acquisition of 65 stores from The Money Shop, including their pledge books.

The total store estate has therefore jumped sharply from 183 to 248, but we can't see it in today's numbers.

Indeed, the company recognised £0.5 million of transaction expenses so The Money Shop deal has had a negative effect on these interim results.

Without those transaction expenses, PBT would have increased by 16% to £7.3 million. This is in line with the 16% increase in "operating profit before non-recurring expenses", as reported by H&T.

Another factor which I would emphasise is that these results are on the back of an average gold price during the period of £1,010 per troy ounce. The latest gold price per troy ounce is £1,260.

For a long time, these shares have been a vehicle for me to express my goldbug instincts. There's a big part of me that wishes it was an even bigger part of my portfolio, as I do think that the prospects for gold are extremely bright, and I feel like I can analyse the prospects of a pawnbroker (by contrast, I have very little experience in the mining sector).

The other very nice thing about this share has always been my positive impression of the CEO and the culture of the company. To put it simply, I think that it treats its customers fairly and is focused on developing…

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

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H&T Group plc is a non-trading holding company. The Company provides a range of simple and accessible financial products tailored for a customer base, which has limited access to, or is excluded from, the traditional banking and finance sector. Its segments include Pawnbroking, which is engaged in providing secured loans against collateral (the pledge); Gold Purchasing, which is involved in buying Jewelry directly from customers through its stores; Retail, which is involved in retail sales of gold and jewelry, and the retail sales are forfeited items from the pawnbroking pledge book or refurbished items from its gold purchasing operations; Pawnbroking Scrap, which comprises various other proceeds from gold scrap sales other than those reported within Gold Purchasing; Personal Loans, which comprises income from its unsecured lending activities, and Other Services, which comprises third party check encashment, buyback, prepaid debit card product and foreign exchange currency services. more »

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Watches of Switzerland Group PLC is a retailer of watches in the United Kingdom. The Company also offers jewelry, fashion and classic watches and a range of watch and jewelry aftercare services to its customers. The Company offers watches through its own-branded Watches of Switzerland, Mappin and Webb, Mayors and Goldsmiths stores. The Company also operates mono-brand stores under a single watch brand and its own jewelry brands and third-party jewelry brands through its Mappin and Webb, Mayors and Goldsmiths stores; and fashion and classic watches through its Goldsmiths stores. In addition, the Company offers a wide range of watches and jewelries online through its own Watches of Switzerland, Goldsmiths, Mayors and Mappin and Webb branded Websites. more »

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Plus500 Ltd is an Israel-based company that develops and operates an online trading platform for individual customers to trade contracts for difference (CFDs). Its online trading platform allows its customers to trade CFDs on over more than 2,200 different underlying global financial instruments comprising equities, indices, commodities, options, exchange-traded funds (ETFs), crypto currencies and foreign exchange. The Company enables individual customers to trade CFDs in more than 50 countries. The trading platform is accessible from various operating systems, such as Windows, iOS, Android, and Surface, as well as Web browsers. more »

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

22 Comments on this Article show/hide all

jonno Tue 8:27am 3 of 22

Morning Graham
Would be interested in your views on the H & T (LON:HAT) interims. It is too early to judge the benefits of the increased Stirling gold price and acquisition of the Money Shop stores and pledge books, which should become apparent at the prelims. The near 19% increase in FX profit should provide a positive read across to Ramsdens Holdings (LON:RFX). Steady at she goes, so it appears.

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rpannell Tue 7:55am 4 of 22

In reply to post #503976

I think that this is the answer to the question of whether £PLUS is taking positions in the market:

Positive customer trading performance (Market P&L) reduced revenue by approximately $27 million in the first half of 2019 (H2 2018: Negative customer trading performance of approximately $61 million), the vast majority of which occurred in the first quarter of 2019.

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Snoo Tue 9:10am 5 of 22

In reply to post #504011

Thanks - I scrolled right past that!
Might be interesting to know how badly hit crypto has been for them, don't see to find much mention of it in the report.

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rmillaree Tue 9:12am 6 of 22

Marshall Motor Holdings (LON:MMH)
Margins here incredibly slim when you factor in the overheads, £1.1 billion of sales and 11.7 mill of profit after tax - so not much more than 1% of turnover feeds through to profit for shareholders. This doesn't leave much in the kitty for worsening trading or forced cost increases. I guess they have always made their crust in a similar manner but .....

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john652 Tue 9:14am 7 of 22

Paul, can I request Card Factory (LON:CARD) .The interims look ok, pretty good considering retail, but it’s the forward yield which interests me. I avoid retail but they are showing 8.7% !!! I think you previously said steady & safe. The shares keep falling and the yield is growing. Thanks

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FREng Tue 8:16am 8 of 22


I'd welcome your views on £CNKS (Cenkos - why have the £ signs stopped workinng?) which issued a profit warning at 3.02pm yesterday.

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jwebster Tue 10:12am 9 of 22

In reply to post #504026

Card Factory (LON:CARD)

Cheap, great dividend. Net debt 170m. Appreciate earnings around 60m means debt is affordable.

I looked at this, but I can't bring myself to buy a company selling printed cardboard products, when myself, I send a birthday message to people on-line (facebook, email etc).

Yes, they sell various items on their web site, but no brand presence here, all commodities. So I think this is vulnerable long term.

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Metatron Tue 10:46am 10 of 22

Card Factory is always my choice for buying cards and will be looking to buy the shares when the sellers have disappeared.

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rmillaree Tue 10:48am 11 of 22

In reply to post #504026

Card Factory (LON:CARD)
"it’s the forward yield which interests me. I avoid retail but they are showing 8.7% !!!"

Not sure if its a saying but it should be one - "dividend is for vanity and profit is for sanity". Looking in the trend of estimated profits for 2019 and 2020 - these have been on a steady decline over the last 12 months. So the company is probably 10-15% behind on profits compared to what they "promised" 12 months ago - to me this fully explains the lacklustre shareprice as they aren't delivering as per prior expectations - one just has to look at halfords to see how a slow and steady downgrading of profit expectations/results over time can destroy the shareprice if there is no end in sight. On a more positive note i think they are still just about increasing profits each year - so not exactly a business on the same downward spiral (yet?) as a company like halfords.

i think that's the problem with retail at present - once profits dip for whatever reason its very hard to get back to past glories.

I don't hold , haven't really been too tempted to buy but i think there are a lot worse stocks out there that one can have as part of ones portfolio.

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Graham Neary Tue 11:01am 12 of 22

In reply to post #504031

Cenkos Securities (LON:CNKS)

Thanks for pointing that out FREng. I will look at it. G

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jonesj Tue 11:23am 13 of 22

I don't entirely understand the segmental reporting for H & T (LON:HAT).

For the unsecured lending, they report revenue of £11.62m and gross profit of £11.62m I would be grateful if someone with a slightly better knowledge of accounting could tell me how this is achieved. If H&T borrow money wholesale and lend it out, surely the cost of the interest on this should affect the gross profit ?
Then that £11.62m is subject to impairments of £6.196m. An eye watering 53.2%, although better than the results one year ago. No wonder interest rates are high for non-prime credit.

This is the part of the business I dislike, as unsecured lending to people with poor credit histories must increase risk to shareholders in any economic downturn.  In comparison, the pawnbroking has the security of assets which may be sold & it's a well established business model.

The unsecured loan book is £19.4m, apparently down 5.3% since December 31st.   So perhaps they are being more cautious in this sector ?  

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Graham Neary Tue 11:37am 14 of 22

In reply to post #504111


Hi jonesj,

The group interest costs aren't allocated on a segment-by-segment basis but it would be reasonable if you wanted to deduct £X million of implied interest costs to analyse the net performance of unsecured lending.


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andrea34l Tue 12:10pm 15 of 22

Bango (LON:BGO) have announced a partnership with Spotify this morning - I know it's a microcap, but surely this will be a big boost for them going forwards

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abtan Tue 12:11pm 16 of 22

Hi Graham

Any words of wisdom on Essensys (LON:ESYS) would be much appreciated.

I hold and was attracted by:
1) the high recurring revenues (77%)
2) fast growth in the States (+67% YOY)
3) CEO owns large chunk of the company he founded (43% at time of admission)
4) Limited impact in a recession (there was a rise in people signing up to use shared workspaces after the GFC)

Possible negative was the high customer concentration (top 10 customers = 68% revenue, top customer 16.5% revenue) and the risk of having to reduce prices as customer grow in size.


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Zipmanpeter Tue 11:30am 17 of 22

In reply to post #504126

I am a big holder of £NSF which has been smashed in p12M by failed takeover of £PFG and  increased regulator pressure on guarantor loans.   But I was most optimistic about prospects for its "unique" 65+ strong national chain branded under EveryDay Loans mid-price range loans (25-100% pa) .  

Demand remains very strong for F2F lending and impairment in non-standard lending  is helped (ie reduced) by F2F interviewing as  lender gets gets to judge willingness/intent to pay as well as ability and it is harder to default on someone you have a relationship with.

£HAT with 248 stores nationally, a well known brand (especially to sub-prime customers) and a rapidly increasing focus on mid-price loans, is now very well placed to compete and succeed in the same field.  

The pawnbroking side is I think likely to be flat but stable and complementary to personal and they are the clear leader.  Pawnbroking must give them a great insight into a relevant customer base that no doubt also need loans as well.

My only question is whether £HAT have the IT systems/ large data sets yet to support this loan business - although I do like their turn away from the riskiest and short term loans.  Have to see how they get on in a downturn to find out.

Too much already invested in high risk non-standard counter cyclical firms to consider  buying but otherwise would be very interested.  

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john652 Tue 2:41pm 18 of 22

In reply to post #504071

Good points Rmillaree, Card Factory (LON:CARD)

Looking at my notes from 6 months ago they had a new management team, need to grow & CEO had a mightily substantial holding of 0.04% - Conviviality sprang to mind. Still doesnt really do it for me.

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Paul Scott Tue 2:48pm 19 of 22

In reply to post #504026

Hi john652,

Graham is writing today's report, but I will write a guest section about £CARD  as it's an interesting value share. Should be ready in about half an hour. I'll post it here in the comments, for Graham to copy into the main report later.

Regards, Paul.

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Paul Scott Tue 3:27pm 20 of 22

Card Factory (LON:CARD)

Share price: 156p (down c.4% today, at 14:50)
No. shares: 341.5m
Market cap: 532.7m

Trading statement

Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, announces the following trading update for the six months ended 31 July 2019. 

Like-for-like ("LFL") store sales are up 1.2% in H1 - a very creditable performance, given that we know how tough the High Street is these days - as increasing numbers of shoppers buy online instead, and footfall reduces. Note that the 1.5% LFL sales growth shown  in this highlights is just for Card Factory brand, not the whole group.

New stores - 26 opened in H1, another 24 planned for H2.  I bet the company is getting great deals on new shop leases.

Cash generation is very strong at CARD, and it's planning to "return of surplus cash towards the end of FY20" (01/2020) - sounds like another special divi is on the way, which is on top of the large regular divis - the main reason for holding this share is for the dividend income, which most importantly of all, *does* look sustainable in my view. I see this as a good share to consider for e.g. retirement income portfolios.

Overall trading is *broadly in line with previous expectations* - hence the slight dip in share price today. In the current retail environment, I see broadly in line as being a good outcome!

Getting personal - its personalised gifts website is still struggling, with sales down 10.5%

Brexit preparations have incurred extra storage costs - implying that they have been stockpiling, which is probably a sensible move. Although I imagine the cards would be manufactured in the Far East, which shouldn't be affected by Brexit.

Net debt was £170.3m at 31 July 2019 - this looks manageable in my view, although I'd be happier if it didn't have any debt at all.

My opinion - I like this share, as a solid dividend-paying business. The profit margin is huge, so even if sales do fall, it should remain decently profitable. I think CARD is doing very well to be generating positive LFL sales growth - clearly the product ranges are good, and they're managing to grow sales, even as footfall reduces.

The big question is, what happens longer term? I don't think online cards will ever replace physically handing someone a card, and it's quite an insult to send an online card, in my view. There's nothing quite like seeing someone's eyes light up, as they open your card, turning to thinly veiled disappointment when they realise there's no money inside the card. Then of course watching in horror as the cheeky and amusing message you wrote inside the card doesn't turn out to be anywhere near as funny as you thought when you wrote it the night before after a couple of sweet sherries.

It's difficult to see much capital growth occurring with this share. But for income seekers, I think it looks attractive.

In terms of valuation, the forward PER is 9.3, and the prospective dividend yield is 8.7%.  Maybe that's about right?

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Trident Tue 5:33pm 21 of 22

In reply to post #504231

I don't imagine with the amount of debt or borderline realistic p/e anyone will fancy seeing Card Factory (LON:CARD) as a cash cow acquisition, and certainly not at any fancy premium.

The level of board pay seems reasonable, and seems to have a generally sensible rewards structure, but I do wonder if it looks more like a sinecure to the incumbents. Maybe a bit too comfortable? But at least they are not ripping off shareholders as far as I can see.

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JohnEustace Tue 6:22pm 22 of 22

In reply to post #504261

£CARD say that 

“The majority of the greeting cards we sell in our stores are designed and manufactured within the Group in the UK. This vertically integrated model provides us with more direct control of this part of our supply chain.

The vast majority of the other products we sell in our retail stores and online are sourced directly from overseas suppliers based outside the EU. We also have a small number of UK and EU based suppliers from whom we source a small proportion of the goods we sell.”

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

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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