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

16th Jul '19 by Graham Neary

59 comments 12025 reads

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) - results
MPAC (LON:MPAC) - trading update
A.G.Barr (LON:BAG) - trading update
XLMedia (LON:XLM) - tender offer

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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MrContrarian

16th Jul '19

My morning smallcap tweet: Albert squares up for delisting. "Leave it, AIM's not worth it."

Albert Technologies (LON:ALB), XLMedia (LON:XLM), Surface Transforms (LON:SCE), £James, Cloudcall (LON:CALL), MPAC (LON:MPAC), Management Resource Solutions (LON:MRS), Lidco (LON:LID)

Albert Technologies (ALB) proposed to delist. "To support further growth, it will be necessary to seek additional funds and the Directors believe that it is in the best interests of the Company to secure a strategic or financial investor with knowledge of the company's core markets...These types of investors are unlikely to be forthcoming whilst the company remains admitted to trading on AIM." Board thonk ALB is undervalued on AIM and "negatively impacts the company's business."
XLMedia (XLM) tender offer at 80p, a 10% premium, for 9.5% max of shares.
Surface Transforms (SCE) wins first order of €2m PA (before tapering off during 2026) from German car mfr (OEM5) for one model. SCE will be the 2nd supplier of carbon ceramic brake discs for this car. Hopes for more models. "Pricing has been agreed across the potential range of platforms providing a link between increasing volumes and reduced product pricing."
Fisher (James) (FSJ) wins orders in the offshore renewable energy sector with a combined value of circa £30m.
Cloudcall Group (CALL) H1 trading. Rev up 30%. New orders received up 44%. Q2 monthly net user growth exceeded the target of 1,000 per month. CALL seems very pleased though FY F/C is for 42% rev hike.
Mpac Group (MPAC) H1 trading: ahead of the Board's and market expectations, Guides FY profit ignificantly above current market expectations.
Management Resource Solutions (MRS) solicitors' report on the takeover of Alerion Consulting mostly exonerates MRS but says board was not sufficiently involved in the process. A separate report on valuation of Alerion will be completed by end of month. Alerion was a newly incorporated company and its principal assets were unregistered intellectual property. Hmm.
LiDCO (LID) get regulatory approval for commercial sale in China for its latest cardiac output monitor with non-invasive technology. "Group has made limited sales to its Chinese distribution partner, and this approval enables us to re-launch with our latest monitor to a very important, rapidly growing market."

runthejoules

Good results from Fulham Shore (LON:FUL), owner's of the excellent Franco manga pizza chain, breaking into profitability. A degustation would be sympatico, grazie mille...

mercury61

TP (LON:TPG) A Positive Trading Update.
No numbers, again.
TP Group plc (formerly Corac Group) designs and develops advanced technologies, engineers complex equipment and systems, and provides support throughout their operational life.
''a significant increase in our sales pipeline''
''The Board remains confident in current trading and expects the Group to deliver ful

full year results in line with market forecasts.'

ezlifeme

Who?

as for TP (LON:TPG) previous post. apologies for cut off.

rmillaree

Cloudcall (LON:CALL)
Another hopeless update from Cloudcall today - this company really takes the biscuit with regard to faffing around and ignoring the most important aspects of a trading update - clearly communicating how company is progressing compared to market expectations for the year - we are over 6 months in and i can't make any sense of what the overall situation with regard to how they are matching up to expectations for the year - a recurring theme with this company.

Ok despite my criticism i will give then kudos for using the user growth table - a decent metric and the numbers look very impressive in this regard - so however bad the rest of the news if i was a shareholder i would be looking at this main core stat as being bang on the money and that will likely make up for weakness elsewhere - caveat at the bottom.

Ok what about the comparison v expectations turnover wise
Stockopedia has £12.4 mill sale this year and the outlook section now says they are on target for only £11.7 mill but no comments as to why this is £0.7 mill lower than what stocky expects.

Even with the lag in revenue from larger enterprise customers, the board expects the Company to deliver full year revenue growth of over 30 per cent for 2019 and to report revenues in the region of £11.7 million. With an increasing recurring revenue run-rate this year, the Company has a high degree of confidence that it is on-track to meet its future goals.
Whilst costs will continue to be tightly controlled, they will be constantly reviewed to ensure the Company has adequate resources in place for onboarding and servicing large enterprise clients.

Ok so the reality is that this looks like a profit warning without them saying that - what a ridiculous situation if this is the case. It was probably to be expected though for those that know this company and particularly as they were trying hard to raise funds earlier in the year one had to expect that everything would be glass chokka full in everything they said when they raised funds - note i have closely monitored this share and i can't ever remember forecasts having been upped for 2019 despite the fact that they raised more cash.

final points

1 going back to the earlier mentioned growth in user stats - this is a decent metric and impressive but obviously the fact they are signing up bigger clients means those clients are paying significantly less per user - somewhat negating the goodness of the stats.

2 this company is still loss making and will probably be more so after todays news? if this is a profit warning. Do i even believe the "us business makes a profit bit" - does it pay its fair share of plc overheads? hmmmmm. This company really could do with someone other than the bod in charge doing the investor communications IMHO. Looks like it may be another 6-12 months added to the breakeven date with the "managing costs" mention again - not another fundraising surely? - i gues updated broker notes need to be looked at fast.

Martin C

Could you take a look at MPAC (LON:MPAC) please as it looks like an interesting turnaround. Valuation is cheap, appears to have net cash, returning to profit this year with FY profit "significantly ahead of market expectations".

They appear to have a large pension deficit, but appear to be making good progress on this.

"The actuarial deficit in the scheme has reduced from £69.9m at 30 June 2015 to £35.2m at 30 June 2018 on a technical provisions basis. The actuarial deficit is now expected to be eliminated in July 2024, compared to August 2029 under the previous valuation. The current annual deficit recovery payments have been maintained but will now cease more than five years earlier than was agreed under the previous valuation."

ambrosia

Cloudcall HY REVENUE UP 30% VERSUS H1 2018 WITH RECURRING REVENUE UP
34%
share price has so far tanked 9%

rmillaree's post was helpful and made things a bit clearer, but I still feel i dont fully understand

andrea34

Gateley Holdings (LON:GTLY) please Graham, results out are slightly above expectations although op margin is (temporarily?) down due to investment in IT and 'branding'

Brick Counter 8

Good morning Graham,

RE: A.G. Barr Plc

An 'unexpected' warning from A.G.Barr (LON:BAG) this morning. Or was it?! Share price has been taking out new highs in 2019 and got carried away with itself. Revenues down 10% with profits expected to be impacted by 20%. This against tough comparatives from 2018. Seemingly great weather in H12018 but poor weather in H12019. More likely the cause, A.G.Barr (LON:BAG) increased prices which impacted volumes in a competitive market, whereas in 2018 they did the opposite (held prices & focused on volume). This is a quality share, with strong brands, profitable, progressive and reliable dividend, innovative company, building a portfolio of brands to better enable them to meet the challenges posed by shifting consumer tastes/trends and regulation. They have launched new drinks this year, namely: KA Reload, Rubicon Street, St Clements (new range), IRN-BRU Energy and Funkin Nitro Cocktails in a can (all of which came late in H1). In addition, the 20% investment in Stryyk (non-alcoholic spirits) looks interesting too. They've invested in their MK factory, re-formulated, re-launched & re-positioned a large portion of the portfolio in the last 18 months, so a lot has been going on in the background. Funkin Cocktails looks to be growing well - trade & off trade.

I'm a bit disappointed with the news this morning i have to be honest. It will be interesting to learn whether other soft drinks companies have experienced a similar impact on revenues (weather) or if this is just a A.G.Barr (LON:BAG) problem given their relatively focused geography.

All in all, I believe they've invested for the future...I remain positive as a long term holder.

Appreciate your insights if you have any.

Thanks,
Andrew

Nothingventured

Any chance of a squiz at Fulcrum Graham?

I've noticed loads of companies recently re-stating accounts - and this is one of them!

Cheers,
Jim

timarr

RE: A.G.Barr (LON:BAG)

It's a great business but how does anyone justify a forward multiple of over 30 for a sub-billion pound company in a competitive and regulated market? Irn-Bru isn't Coca Cola (which is still trading on a lower PE than Barr).

This seems to be a trend - good companies pushed to high ratings justified by historical earnings resilience, which then get hammered when they misstep. In a low interest world a guaranteed growing earnings yield is very valuable, but investors increasingly seem to forget that you have to discount prices to take account of earnings risks.

Another Buffetology stock, of course. Highly moated companies are very rare indeed in the lower echelons of the market, no matter what historical figures suggest.

Gromley

Yes, something of a shocker from A.G.Barr (LON:BAG) - in fact the hit I think is > 20% on profits - given profits were forecast to increase this year.

I strikes me as wholly unacceptable that they wait until the scheduled trading statement to drop this bombshell, having indicated everything was fine in March and choosing to make no (public) statement whatsoever at the AGM at the end of May.

As this was only their 150th AGM, perhaps they have yet to learn the scope of their responsibilities as a listed company.

I'm out!

Timarr you should start doing your own regular blog, i like the clarity youre able to see in the market, after youve said that it now just seems obvious

what about fevertree, same opinion?

simoan

It's a great business but how does anyone justify a forward multiple of over 30 for a sub-billion pound company in a competitive and regulated market? Irn-Bru isn't Coca Cola (which is still trading on a lower PE than Barr).

I couldn't agree more. It's market is also highly constrained to the UK and so results susceptible to things like UK weather, which seems to be part of the issue. Why would you hold A.G.Barr (LON:BAG) on a PER of 30 when you can hold Pepsico on a PER of 23? It makes no sense to me.

Also one of the smaller holdings of Nick Train I believe. On another note though, nice numbers from Burberry (LON:BRBY) this morning, which is one of his larger holdings... and mine :)

All the best, Si

Cloudbuy (LON:CBUY)

share price has so far tanked 9%
rmillaree's post was helpful and made things a bit clearer, but I still feel i dont fully understand

That's the problem here the company knows whats up and the brokers know whats up and the money that matters knows whats up (probably) but we have to work from that gibberish released this morning until we get confirmation of where we are at (updated broker note?) - i am sure Paul will provide some clarity at some stage hopefully :). I do have to believe though its as simple as sales are now £0.7 mill behind expectations and that is thefore bad news (actual v expectations being probably the most important bit of any update) not good news whatever the fancy stats say - although i may be completely wrong in that assumption. I would say on a news day for a small company movement less than 10% isn't always massively indictive of much - the shareprice has been on an excellent run up over the last 4 months so a bit of profit taking may be at play here too from the lucky newer entrants.

iwright7

Yes agree about A.G.Barr (LON:BAG) - Fizzy drinks are now perceived as unhealthy and even natural fruit juices too high in sugar. The company is now ex growth and I was expecting a -50% drop at the open. Still too way to expensive for my book.

Any suggestions for listed water bottlers, or nil-cal flavoured water companies welcome? Maybe Treatt (LON:TET) will benefit.

jonesj

I agree.
Whilst the beverage sector is interesting, quite a lot of them seem to be on high valuations which make the investment case much less interesting.
Presumably the positive sentiment is a result of the quality characteristics long since identified in some companies such as Coca Cola and the multi-bagging returns in others, such as Monster Beverage & Fever Tree.
Having seen these examples, it's tempting to scour the beverage sector for other opportunities, so the price gets driven up. I don't see much value.

Whilst these are good businesses, I also cannot consider them as bullet proof. Surely the likes of Irn Bru are at risk from some of their customers figuring out that sugary drinks are very unhealthy ?

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

Burberry (LON:BRBY)

Fulham Shore (LON:FUL)

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Graham Neary

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