Small Cap Value Report (Tue 19 Mar 2019) - BON, NAH, SCS, TUNE, JDG, BMY, ZTF, TRB, ELCO, BGO

Tuesday, Mar 19 2019 by

Good morning, it's Paul here - with my rather erratic reporting schedule - apologies - we get there in the end.

Monday's report is here.

Rightly or not, I reckon the premium bid for FOOT could be what we need, to highlight value amongst small caps. The trick is finding the ones that are under-priced, and avoiding the ones that are in permanent decline. If any of us could do that perfectly, we'd be billionaires! In truth, we're trying to predict the future, so it's educated guesswork.

I'll do my best, as your small caps guide. But please remember that I'll be right:wrong about 60:40 in a good year. 75:25 in an amazing year (e.g. 2017). And maybe 40:60 (or less?) in a bad year. So the onus is to figure things out for yourself. If I can help, by pointing out a wobbly balance sheet, etc., then I'll try.

Ultimately, your success comes from your own skill and luck (and genius!)!

Bonmarche Holdings (LON:BON)

Share price: 29.5p (down 20% here today, at market close)
No. shares: 50.0m
Market cap: £14.8m

Trading update (profit warning)

It's remarkable to see that this womenswear retailer has now lost about 90% of its share price since its series of profit warnings began, in Dec 2015.

As you can see from the Stockopedia broker consensus graph, expectations for the current financial year (ending 31 Mar 2019) have collapsed, and this is before any downgrades resulting from today's profit warning have been taken into account;


My notes from the last trading update in Jan 2019 are here. I concluded then that there's little likelihood of the business recovering, and the divis would probably soon stop altogether. A slowly dying business, by the looks of it.

Current trading - is grim. When I last reported (in late Jan 2019) the company was expecting a loss for FY 03/2019 of around -£2m. Today things are looking much worse;

... However, trading since the beginning of March has been significantly weaker, reversing sales gains made in the previous months. In light of this, we now believe there is a likelihood of sales levels for the remainder of the month continuing to follow this trend, which would…

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Bonmarche Holdings plc is a multi-channel retailer of womenswear and accessories. The Company offers clothing and accessories in a range of sizes for women through its own store portfolio, Website, mail order catalogues and through the Ideal World TV shopping channel. The Company's subsidiaries include Bluebird UK Topco, Bluebird UK Holdco and Bonmarch Limited. The Company has approximately 310 stores across the United Kingdom. more »

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NAHL Group plc is a United Kingdom-based company, which is engaged in consumer marketing business focusing on the United Kingdom legal services market. The Company's operating segments include Personal Injury, which is engaged in the provision of enquiries to the panel law firms, based on a cost plus margin model, plus commissions received from providers for the sale of additional products by them to the panel law firms; Conveyancing, which is engaged in the provision of online marketing services to target home buyers and sellers in England and Wales offering lead generation services to panel law firms and surveyors in the conveyancing sector and the provision of conveyancing searches for solicitors and licensed conveyancers; Critical Care, which is engaged in the provision of witness reports and case management support within the medico-legal framework for multi-track cases, and Other segments, which include activities related to the share-based payments. more »

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ScS Group plc is engaged in the provision of upholstered furniture and flooring, trading under the brand name, ScS. The Company specializes in fabric and leather sofas, and sells a range of branded and ScS branded products sold under registered trademarks, including Endurance and SiSi Italia. The Company also offers a range of third-party brands, including La-Z-Boy, G Plan and Parker Knoll. The Company operates from approximately 100 stores nationwide along with an online sales and also has approximately 10 distribution centers across the United Kingdom. The Company has operations in retail park locations and in House of Fraser stores across the country-as far north as Aberdeen and as far south as Plymouth, offering a range of upholstered furniture and floorcoverings. The Company also runs a made-to-order sofas, furniture and flooring concession within House of Fraser. The concession operates from approximately 30 House of Fraser stores across the United Kingdom and online. more »

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55 Comments on this Article show/hide all

Glorenfeld 19th Mar 36 of 55

In reply to post #459418

Re Judges Scientific (LON:JDG), I think that some of the weakness today will be due to the current year's performance being enhanced in no small part by favourable exchange rates ("the best we've had since 2009"). With it (seemingly) being more unlikely that we'll have a no-deal, it's hard to believe that this will persist over the coming years.

Also, a huge portion of their revenue comes from Europe, So the (small?) Risk of no deal should probably weigh a little heavy here.

Finally, what's going on with RoW? Especially given that exchange rate is so favourable. What's going on happen when exchange rate moves against them?

I hold, but am contemplating selling.

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Zipmanpeter 19th Mar 37 of 55

In reply to post #459333

Re GYM (LON:GYM) – I agree. A lot to like in today’s results about the mid- to long term future, with 2018 admitted as a good but slightly below stretching goals year (since acquisitions rebranded/re-opened a bit late).

Financially, proven long term ROCE of >30% with a big runway of growth is an exciting combination especially as I think they can fund organic growth of 15-20 new gyms pa from free cash flow already (EBITDA-new site opening -depn at 16% of revenue is positive) ie it is a profitable self funding roll out.

Strategically, I like
• Plans for a trial small box Gym of 5-8,000sqft (vs 16.000 sqft current standard) – allows placing of uncontested low cost gym in smaller towns (as Sam Walton used to do at Walmart!) and also allow infill and innovative new sites in cities, strengthening the network advantage of being a national chain of gyms
• This links to the growing success of LIVE IT, a yield tool offering premium services like access to all GYM sites for a couple of quid extra per month (now at >13% penetration of GYM users)
• Emphasis on dynamic pricing – GYM dropped pricing in roughly 1/3 of sites in Q4 18 at sites with either low gym utilisation or high pricing pressures, achieving 50% higher volume growth than balance estate …and with half of these sites back up in price already. A pessimist would say this illustrates commodity nature of low cost gyms but the optimist in me says this is sharp, entrepreneurial management on top of things and with the systems in place to do it
• New physical trainer model set up (PTs work for 12 hours/wk and get rent free access to GYM site). Seems a good way to employ good PT at low cost helping retain gym users
• Starting TV advertising in Q1 19 (with sensible “So I can”…..insert your goal) campaign that looks well set up to attract specific target groups. I think TV will really accelerate growth in new to any users – already 30% of GYM users when they open a new site
I think low cost national chain gyms will gradually kill off a lot of more expensive private/local authority gyms – especially if we have some economic turbulence - as well as continue to attract more new-to-gym users as so many more people try to stay healthy/live longer/look buff. I bought into GYM last year after seeing my 16 yr old son join and the quality of the place for the money but also because of the variety of punters being pulled in – students, shift workers, retirees, working mums

GYM is clear no 2 within low cost gyms and the top 2 have every chance to pull away from the pack. This is a landgrab moment and building share is key but they are already profitable and cash generating. Unless they make a big acquisition, there will be no need for further equity dilution

Too much worry and focus on the short term. On a 3-5 years timescale, I am increasing confident about GYM and will likely buy more if it or the market as a whole gets the wobbles.

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danchamp 19th Mar 38 of 55

In reply to post #459293

Volvere (LON:VLE) bought Impetus for £1.3 million in March 2015 and sold it for £31 million in October 2018 - I believe the incentive payments of £2.5 million relate to that performance. Price has about trebled over that period.

As a holder I'm quite happy with that level of incentive, directly linked to performance. It's what Volvere is supposed to do - turn around distressed businesses. So the bull case is that there will be more opportunities out there, and it's up to the directors to identify them and then deliver the turn around.

Neither Shire nor Sira are particularly sparkling, but the company's now sitting on a pile of cash.

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HornBlower 19th Mar 39 of 55


I know not a small cap anymore but popular with retail investors, any thoughts on ASOS update

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gsbmba99 19th Mar 40 of 55

In reply to post #459428

Mortgage Advice Bureau (LON:MAB)1 is one of my holdings. I think the share price reaction is down to a more cautious near term outlook. The company's operational goal is to grow advisers by 15% a year and in a flat market this should lead to revenue growth of 15% without any increase in adviser efficiency. Of the 15% target growth in advisers, about half has come from the natural expansion of existing clients (ie organic growth in advisers is about 7.5% with many of these advisers embedded within estate agents) with the remainder from attracting new advisers to the platform. It sounds as if the rate of growth at existing estate agency customers is lower than anticipated. This is probably a reference to Belvoir Lettings (LON:BLV) who are by far the largest MAB customer (127 ARs post-acq of MAB (Gloucester) or ~10% of MAB ARs). Or it could be Purplebricks (LON:PURP) with whom, I believe, MAB has a relationship.

There was mention of possible forecast trimming by Jeremy Grime on his blog. Unfortunately MAB is now a Numis client which means that only shareholders who are Numis clients are entitled to know if the house broker has amended their forecast.

The level of profitability at MAB is much higher than it at first appears. The model is to provide the software to run an AR business, to provide the panel of lenders and to provide the compliance oversight in exchange for a (roughly) 25% revenue share from the AR. As a result, the revenue of £123m includes the revenue they are collecting on behalf of the AR. Revenue less commissions paid back to the ARs of £93m leaves you with £30m of net revenue for the company which produces net income of £13m. Net profit on net revenue >40%. They also don't "adjust" their EPS for share based payments so "adjusted" EPS would £447k/£13m higher.

I think the idea is eventually to provide lending advice across a broader life spectrum. You can see that recent initiatives are focused on both the under 35 and over 55 areas. This should hopefully mean that they can generate more revenue over a longer time-frame for advice provided to a single customer.

The company references the product transfer market of £160bn+/year in addition to the market for new mortgages of £270bn/year. Product transfers are new mortgages with the same lender (aka "rate switch") and is a market that has only recently (last 2 yrs) developed. The overall market is obviously large. What surprised me was the "velocity" of fee earning events. Last I checked, the total level of outstanding mortgages in the UK was about £1.3tn which means that new mortgages (£270bn) and product transfers (£160bn) indicate there's a fee earning opportunity on the average mortgage every few years (£430bn/£1.3tn).

They expanded into Australia about 2 yrs ago. The JV is currently still loss-making (A$0.7m/annum for 100% of which they own 45%) but there's an agreed plan to accelerate growth. Australia, from memory, about 1/3 size of UK mortgage market. Longer-term potential to expand into other countries.

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patrick00 19th Mar 41 of 55

Focusrite (LON:TUNE) please Paul - good results published today, but the p/e is quite high now at almost 30...

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wildshot 19th Mar 42 of 55

In reply to post #459588

Many thanks for your detailed and very considered comments. It'll help with my context on reviewing the full announcement tonight.

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jombaston 19th Mar 43 of 55

Fulcrum Utility Services (LON:FCRM)

In response to posts above, I wonder if you are aware that Fulcrum Utility Services (LON:FCRM) is a Cayman registered business?

I think this is worth pointing out since Stockopedia list the UK address, not the registered office of the company according to AIM Rule 26.

I have no position in this one (long or short) as I only hold UK companies)

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tomps3 19th Mar 44 of 55

piworld have just published an excellent interview with  (LON:DUKE) CEO, Neil Johnson by Downing's James Lynch, Fund Manager. Downing bought in the placing in 2018.  This covers all the DUKE questions investors have, and helps to explain the royalty finance model, which is new to most of us (who haven't already investigated DUKE!)  It covers the key features why Downing have bought in, both in their Micro Cap IT and the Monthly Income Fund.

Separately, we also published (LON:ECSC) investor presentation given last Wednesday at ShareSoc London (13.3.19), by CEO, Ian Mann. He was a great speaker. An interesting company in the cyber security space.

Finally, we've published an interview on the Non-Exec Director, with Chris Spence Phillips, who is a ShareSoc Director, and recruits NEDs.  AND it includes a guest appearance by Lord Lee, with his famous NED joke!  For those of us who don't really 'get' NEDs, this interview covers all those questions you never dared to ask.

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Graham Ford 19th Mar 45 of 55

In reply to post #459563

Thanks for that Peter.

One thing that I would add about GYM (LON:GYM) is that the shake up of the property world with retailers and restaurants dropping like flies and causing immense pressure on landlords/freeholders should mean that they can acquire new sites more cheaply than they otherwise would have done. So, if that turns out to be the case it should make it easier to absorb any pricing pressures in these new sites.

I continue to hold.

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Richard Vasey 19th Mar 46 of 55

In reply to post #459488

Thanks for your thoughts. Pleased to see that the price has recovered somewhat during the day, so perhaps short term traders are responsible. In effect, all that has happened is that yesterday's big gain has been lost.
On balance, I am going to stick with it and take a more long term view - for now at least !

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Gromley 19th Mar 47 of 55

In reply to post #459438

"I think in some respects we just have to trust the board here [ Zotefoams (LON:ZTF) ] they will know the long term prospects [of MuCell] much better than us , i look at it unit as a bit of a safety net in that they could ditch this section and presumably that would improve results. They have indicated 2019 will be better so i take the woeful performance one year as a bit of a one off in exactly the same manner as when a bumper year boosts profits - they do at least seem to be reasonably transparent with regard to prospects (or lack of them) in this regard. I am still guessing it will though be further losses to advised otherwise."

If only it were just one bad year for MuCell, though!

It has been loss making for almost the entire time Zotefoams (LON:ZTF) has owned it (since 2010!). My glass-half-empty appraisal is that it is excellent green(ish) technology that a materials scientist might fall in love with but that offers so little economic value that the only way to get customers to adopt it is to offer them more than 100% of the net gains from its use.

I would like to think that I am being unduly negative with that view, but I have yet to see or hear anything to disabuse me, but I live in hope.

I agree though with it being a bit of a safety net, they could boost group profits by c. 20% by closing MuCell down (or bringing it to break even). I had hoped that the strategic review of this business was going to be fix it or ditch it, but disappointingly the outcome seems to be to do more or less the same, but to expect different results!!

Anyway I've just started to dig into the further detail (results presentation now online) and a couple of interesting things hit me.

  • What a fantastic performance in the higher margin HPP segment - Revenue up 67% and Segment Profit up 84% (26% profit margin)  - there is a degree of concentration risk here with footwear representing 50% of the business (presumably most if not all with Nike) and a significant aeronautics firm as well.
  • The more commodity Polyolefins segment shows more modest growth at 8% and profits down 8% (17% vs 19%) - this is not wholly bad news given that they were previously operating at (or above) 100% capacity - it does though reinforce the view that with even more capacity inline for the next couple of years, they do need to see demand growth continue in order to accelerate profits.

Good to hear that they are seeing a "strong start to the year" - will be interesting to see what this does to the analysts forecasts for 2019, which look quite modest to me.

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Edward John Canham 19th Mar 48 of 55

In reply to post #459613

Fulcrum Utility Services (LON:FCRM)

Thanks for pointing that out. I've held these in the past but I've never noticed. Never considered a company that connects structures to the national grids would be domiciled in a tax haven.

Does anyone here know why they are Cayman Island company? Seems a bit weird to me.

Whilst looking at this I note that 14% of the shares are held by James Sharp & Co - a stockbroker in Bury - which again is a bit strange.


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Jonathan C 19th Mar 49 of 55

In reply to post #459528

I agree that Fulcrum Utility Services looks attractive but Stockopedia gives it a high earnings manipulation risk and Investor's Champion also gave an "iffy" analysis in 2015: "It’s looking encouraging but we would like to see greater clarification of the material Trade and other payables line which dominates the balance sheet".

I would welcome an explanation from Paul or some other clever person.

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Michael Mortphew 19th Mar 50 of 55

In reply to post #459698

Fulcrum Utility Services (LON:FCRM)

Last year's Pre-close trading update was at the end of March so we should soon have an indication of whether December's positive report was justified.

I've bought a couple of times in the low 40s.

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MBFP 19th Mar 51 of 55

In reply to post #459593

Hi Patrick,

I have had a holding of Focusrite for some time now and it's been an excellent investment.
I like to buy and hold and agree it is quite highly rated. The trading updates regularly beat expectations and it has excellent metrics:
Return on Capital 27.3%
Return on Equity 27.4%
Operating Margin 15.9%

I have thought about selling or top slicing but it is an excellent company.
If it has been successful in the past, there is a good chance this will continue.
I look at stocks like flowers and you don't go round cutting off all the blooms.


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JamesS 20th Mar 52 of 55

Hi Paul,
Dont worry about it being late, the quality of the comments make it worth waiting for.


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Meldrew 20th Mar 53 of 55

Paul, I'm sorry to go off topic and trouble you about something you probably have no more answers for than the rest of us
Some time ago you offered the very reasonable opinion on one of these threads that the UK would never crash out of the UK without a deal because the consequences would be so bad that no Government would allow it.

I am very much afraid that we will crash out of the EU on Friday of next week.

This evening, Theresa May addressed the Nation to tell us that her strategy for the UK to leave the EU with a deal had failed. She offered no alternatives or comfort or any hint of compromise. She blamed Parliament for the mess then she abruptly turned her back on the camera and stalked away. It didn't look good.

I think we could see a fall in share prices tomorrow. I think it could be the beginning of something very unpleasant.

What do you think we should do to protect ourselves?

I am loathe to sell everything but I am worried

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Paul Scott 21st Mar 54 of 55

Cheese!! Lovely :-)

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gus 1065 2nd Apr 55 of 55

Mandatory bid triggered for troubled retailer Bonmarche Holdings (LON:BON) this morning as the prospective buyer has acquired over 50% of the shares from a bloc purchase from another holder.

Put the bunting away, the offer is at 11.455p per share, about 37% below last night’s close. If successful, company will be delisted. Rock and a hard place for any residual holders of this former “Super Stock”.


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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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