Small Cap Value Report (Tue 16 July 2019) - BRBY, FUL, MPAC, BAG, XLM

Tuesday, Jul 16 2019 by

Hi everyone!

Thanks for all the fantastic feedback yesterday on the subject of tablets. I wandered around a couple of department stores for a few hours, and in the end decided to wait another few months before making a bigger purchase that could also be used as a laptop. There are some amazing new hybrid devices (with both laptop and tablet functionality), and I think I'll choose the Surface Go or Surface Pro from Microsoft.

Burberry (LON:BRBY)

(Please note that I have a long position in BRBY.)

More portfolio news this morning, with a Q1 update from Burberry (LON:BRBY). This was already my second-largest holding, and the shares are up 8% as I type. The company has reported a return to like-for-like store sales growth (around 4%) thanks to a strong response to the company's new product range.

The outlook for FY 2020 is unchanged, including the previously-announced H2 weighting. But I think that investor uncertainty surrounding the new designer is evaporating. Like-for-like store sales growth, the closure of some underperforming stores, and £120 million of cost savings are all reasons for encouragement. I'm happy to continue holding for the foreseeable future.

Note also that this share has a StockRank of 87. I'm not ashamed to buy quality big-caps, sometimes!


Ok, time to check out some small-caps.

Fulham Shore (LON:FUL)

  • Share price: 12.4p (+8%)
  • No. of shares: 571 million
  • Market cap: £71 million

Final Results

This restaurant has really grown on me. It started out as a research project, but I found that the sourdough pizzas at Franco Manca were so good and the meals were such good value that I was happy to keep going back.

I also tried out The Real Greek in Covent Garden this year - not such a compelling format, but still a good experience.

These are some decent results:

  • Revenue growth is 17%. The total number of restaurants increased…

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

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Burberry Group plc is a manufacturer, wholesaler and retailer of luxury goods. The Company also licenses third parties to manufacture and distribute products using the Burberry trademarks. The Company's segments include retail/wholesale and licensing. The Retail/wholesale segment is engaged in the sale of luxury goods through Burberry mainline stores, concessions, outlets and digital commerce, as well as Burberry franchisees, prestige department stores globally and multi-brand specialty accounts. The Licensing segment is engaged in the receipt of royalties from the Company's partners in Japan and global licensees of eyewear, timepieces and European childrenswear. The Company's product divisions are Womens, Mens and Childrens apparel, Accessories, and Beauty (which includes fragrance and make-up). Its subsidiaries include Burberry Latin America Holdings, S.L, Burberry (Suisse) SA, Burberry (Taiwan) Co Ltd, Burberry (Thailand) Limited and Burberry FZ-LLC. more »

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The Fulham Shore PLC is engaged in the management and operation of The Real Greek, Franco Manca and Bukowski restaurants in the United Kingdom. The Real Greek food centre serves dishes of Greece and the Eastern Mediterranean. Franco Manca serves Neapolitan sourdough pizza, which is baked in a wood burning brick oven. Bukowski is a London-based, charcoal-grill restaurant and bar, serving breakfasts, burgers and grills. The Company operates 45 restaurants, comprising 32 Franco Manca, 12 The Real Greek, and one Bukowski Grill franchise in Soho. The Company’s subsidiaries include Kefi Limited, FM6 Limited and Souvlaki & Bar Limited. more »

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MPAC Group PLC, formerly Molins PLC, is a United Kingdom-based technology and services company. The Company is engaged in providing instrumentation, machinery and analytical services to the fast-moving consumer goods (FMCG), healthcare and pharmaceutical sectors, together with aftermarket support. The Company’s Packaging Machinery segment supplies automated product handling, cartoning and robotic end-of-line packaging machinery and systems, and operates from three locations, in Mississauga, Canada; Wijchen, the Netherlands, and Singapore. The Packaging Machinery segment provides technical consultancy and machinery to solve packaging and processing challenges from its base. more »

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

59 Comments on this Article show/hide all

dscollard 16th Jul 20 of 59

Albert Technologies (LON:ALB) joins the IPO "D" Listers: placed at 133p in Nov 2015, now at 2.5p as it announces its intent to delist.. another Israeli Tech company gone south.

Adds another reinforcement to the Tel Aviv investing pariah

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Gromley 16th Jul 21 of 59

In reply to post #492991

Yes, good results from Fulham Shore (LON:FUL) that have encouraged me to take a small position here (after a long time watching).

One concern though is the management speak - all very self congratulatory (which is fine if justified) but also not very transparent about where the growth is coming from.

Revenue growth of 17% to £64.0m (2018: £54.7m) driven primarily by good trading in the Company's existing restaurant estate

The make the point that the net three openings in this year had little impact on the overall growth number.

However, what they fail to make clear is that they increased the size of the estate (number of venues) by 30% in the prior year and therefore a portion of this 17% growth (from the "existing estate") will come from the full year impact of these new venues from last year.

Not a mention of like for likes in the results, so therefore caution about this growth number is needed IMHO.

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sherpa 16th Jul 22 of 59

In reply to post #493096

I think you mean £call not £cbuy. In the words of Mick Jagger "Hey you, get off of my cloud!"

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Robert Smith 16th Jul 23 of 59

In reply to post #493116

Don't think it makes a lot of difference to the average customer, consumer leveraged as they are. How else can one justify £1 a 500ml. bottle of tap water and probably half thrown away.

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patrick00 16th Jul 24 of 59

HI Graham, can you please have a look at £xlm’s tender offer?

They say “The Board is of the opinion that the full potential of the Company is not reflected in the current share price and this Tender Offer accelerates our current share buyback programme, further capitalising on our current share price."

That sounds great, although it doesn’t reconcile well with the fact that no members of the board have actually bought shares in the past few months (the CEO being the only exception)...

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Graham Neary 16th Jul 25 of 59

In reply to post #492991

re: Fulham Shore (LON:FUL)

Hope you like my degustation. G

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davidjhill 16th Jul 26 of 59

In reply to post #493096

Cloudcall (LON:CALL) There is a good piece by Cenkos on Research Tree worth a read if you are a holder or follower. I am long.

In essence it looks like the "timing" noted in the announcement does have a read through of something around -8% vs broker revenue expectations for this year. So a minor profit warning.
The missed revenues do however, feed through to next year and so expectations remain broadly the same over 18 months.

Seems like the overall story is intact though and to be fair the US could be a very big market compared to the UK so that is some good news. Also, the user run rate is good exceeding 1000. However, I'd say the company seems to be now looking at enterprise licences of several thousand, which dwarfs existing customer base. What we really need to know is how margins are expected to stack up as this volume comes through as that is going to be the important thing for profitability.

hmm - a mixed bag I'd say and share price has had a run up so not unsurprising to see it down a few %.

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Housemartin2 16th Jul 27 of 59

In reply to post #493021

Cloudcall (LON:CALL) Yep serial disappointer does not fail to deliver. Hope someone does not bring out a better mousetrap before it reaches cash positive. Sigh !

Long Cloudcall (LON:CALL)

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Graham Neary 16th Jul 28 of 59

In reply to post #493111

Yes, health trends in UK and other developed markets are bad news for fizzy drinks, and that's another reason why you might want to own a much bigger company than BAG with its UK-centricity.

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jombaston 16th Jul 29 of 59

Fulcrum Utility Services (LON:FCRM), mentioned above, is a Cayman-registered business. I highlighted this in March on this channel.

This is worth pointing out since Stockopedia list the UK address, not the registered office of the company according to AIM Rule 26. I requested Stockopedia to list the registered office but they decided not to.

I don't know why the listed entity is not a UK-company.

Apologies if you are already aware of this. I don't have any financial interest in this share.

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Graham Neary 16th Jul 30 of 59

In reply to post #493051

Hi Jim!

Thanks for mentioning Fulcrum Utility Services (LON:FCRM) - it's not in my sector coverage, but it's a good example of the complexity for some companies when they change accounting rules.

Fortunately, the rule changes have absolutely no bearing on the fundemental value of businesses  - except to the extent that they have to pay accountants and other people to sort out the mess.

The Group has had to undertake significant work to determine the above changes and is now in the final stages of audit.

Fulcrum's reported EBTIDA will reduce, but its reported balance sheet position will strengthen by the same amount. There is no difference to cash, which is the only thing that is not a matter of opinion!



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peterthegreat 16th Jul 31 of 59

In reply to post #493251

If I could act as devll's advocate for Graham's comment on health trands and fizzy drinks. I think you can argue that the fizzy drinks industry is a good example of an industry which has successfully responded to health concerns. You can check this out by looking at how many reduced sugar or no sugar fizzy drinks are on the supermarket shelves. This has also been done whilst maintaining equally healthy profit margins. I note that the Barr statement does mention a number of problems in relation to its recent performance and the transition to low/no sugar is certainly a challenge, but one that has been met. I think the industries with greater health concerns are the huge confectionary and fast food sectors as here we still have high sugar and, importantly, we also have high fats in many cases. These industries are, for the most part, yet to respond to health concerns.

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LittonOwl 16th Jul 32 of 59

Thanks for today's report Graham. Despite the column's name, nice to see some big cap coverage too, especially when its quality.

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FREng 16th Jul 33 of 59

I bought some MPAC (LON:MPAC) today, as the pension deficit could be gone as early as 2022 at the next triennial review.

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purpleski 16th Jul 34 of 59

Thank you for your few on XLMedia (LON:XLM)

"I have no idea what it might do over the long run but for now I do think that shareholders could potentially get showered in cash."

I have held this all the way down to 46p (from 180p) and back to the current price. I should have bought some more at 46p but I was rabbit.

On tablets I still think the best combination is WinPc, iPad and iPhone using Chrome, Office 365 and Dropbox. It covers all bases and works well across all platforms. Yes over a 5 year time frame that probably costs about £20 a month but compared with other costs of running my portfolio that is reasonable.


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Wimbledonsprinter 16th Jul 35 of 59

In reply to post #493236

The RNS this morning just stated that Cloudcall had obtained an increased £3.0m facility from Shawbrook to replace its existing £1.85m facility at Barclays (maturing 2020). No terms are disclosed. The Cenkos note on Cloudcall (LON:CALL) states that the interest/ facility charges on the new £3.0m Shawbrook facility is Libor +9.0%. This sounds steep and higher than the previous Barclays RCF which was at Base+7.45% on drawn balances and a non-utilisation fee of 2.98%. Cenkos also refers to the new Shawbrook facility as a term loan (not an RCF).

At the CMD in January, CEO Simon Cleaver went to some length to explain why banks are happy to lend to Cloudcall (despite it being negative cash flow), explaining that the banks could cut sales and marketing expense and then run the company for cash, where it should make c£200k per month. Assuming Cenkos is correct about the terms of the Shawbrook loan it shows that banks are demanding a high interest rate to take this risk.

Cenkos has also revised down again its FCF forecasts for Cloudcall (LON:CALL) - it now assumes net cash of £0 at end 2019 and net debt of £1.5m at end 2020 (respectively £1.2m and £1.9m worse than in its note in March). If these forecasts are correct, that does not leave a lot of headroom by end-2020, even with the new £3.0m facility.

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Apocryphal Now 16th Jul 36 of 59

In reply to post #493286

Looking at the comments section of the BBC article about the A.G.Barr (LON:BAG) profit warning, it would suggest that there are a number of people still deeply unhappy about the recipe change of Irn-Bru. I've no idea of the scale, but people seem to want the old recipe back, even if they have to pay sugar tax on it

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Edward John Canham 16th Jul 37 of 59

In reply to post #493271

Fulcrum Utility Services (LON:FCRM)

On cash, this from the TU 28/3/19:-

"As at today the Company has drawn £3.0 million of its debt facility of up to £20.0 million supporting its external purchases of utility assets."

I find this a bit of a concern given the disclosed cash position of £10.4m at 30/9/18.


No position

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Gromley 16th Jul 38 of 59

In reply to post #493136

Just trying to get a bit closer to the "like for likes" with Fulham Shore (LON:FUL) I have come up with the following.

Start Year5744+30%
End Year6057+5%
Simple avg58.550.5+16%

So from this over-simplification, it looks to me as though LFLs might be c. +1%. In fairness, many chains would probably be very happy with that number, but it is a long way short of the +17% that we seem to be steered towards by the management speak.

I'm sure with a bit of spade work, one could identify the precise opening dates (maybe someone here has that detail) which might give a slightly different picture.

I'll keep my small position opened this morning (for now) as I do think those figure are pretty good anyway, but I am somewhat dismayed by the scale of the apparent mis-direction.

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Investornot1 16th Jul 39 of 59

A.G.Barr (LON:BAG) might be victim of sugar tax and related recipe changes. Rubicon is popular in the South Asian market which notoriously has a sweet tooth so I think a lot of people were not happy with that. Also the old recipe for Rubicon was branded as 'premium' but also came with a premium price tag.

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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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