Small Cap Value Report - Tue 22 May 2018 - PIL, BMY, TPT, R4E

Tuesday, May 22 2018 by

Good morning, it's Paul here.

CVA newsflash

There was an interesting twist in the topical theme of retailer/hospitality companies seeking to restructure their property portfolios using CVAs.

CityAM reported via the Sunday Times, that Next (in which I have a long position) is asking for a "CVA clause" in new leases. This would trigger a rent cut for Next, if any of its neighbours gain a rent reduction through a CVA.

If a landlord is desperate to attract or retain Next as an anchor tenant in a struggling shopping centre, then they might agree to this.

Therefore, if Next is successful in gaining favourable CVA clauses in new leases, then that could result in landlords voting against some future CVAs. My feeling is that landlords may start to dig their heels in, and refuse some future CVA proposals. Otherwise, the flood gates would open, as numerous struggling retailers chanced their luck with a CVA proposal.

Landlords might start refusing CVA proposals, as a deterrent & warning to retailers seeking to exploit the process unreasonably. Perhaps landlords should demand equity (through options or warrants) as part of agreeing CVAs? After all, why should landlords take all the pain, only to see restructured retailers emerge as highly profitable, and shareholders receiving all the benefits from the CVA process?

Let's start with a profit warning:

Produce Investments (LON:PIL)

Share price: 149.5p (down 8.8% today, at 08:49)
No. shares: 27.3m
Market cap: £40.8m

Trading update (profit warning)

Produce Investments plc, (AIM:PIL) ("Produce," "Company" or the "Group"), a leading operator in the fresh potato and daffodil sectors, is today providing an update on current trading...

It's quite a nasty profit warning today;

... the Board now expect the Group's profit for the year ending 30th June 2018 to be substantially below current market expectations.

The reason that the share price is only down about 9% today, seems to be because the weather issue was pretty obvious, and was mentioned in detail with the interim results commentary on 22 Mar 2018, here. Although management seems to have been too optimistic about the full year outcome back in March.

Other points mentioned today;

  • Impairment of intangibles will be incurred this year.
  • lower margins on UK potato crop, in an "oversupplied market"
  • Moving year end…

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Produce Investments PLC is engaged in growing, sourcing, packing and marketing potatoes, daffodils bulbs and flowers. The Company operates through three segments: fresh, processing and other. The Fresh segment comprises the sites, staff and assets that grow, source, pack and deliver fresh produce to customers, ranging from large retailers, wholesalers to small private businesses and this segment covers potatoes, daffodils and bulbs. The Processing segment comprises the staff and assets that supply pre-prepared potato products, which are ultimately sold as ingredients for food manufacturers. The Other segment comprises seed sales for both the United Kingdom and export, and traded volume where the Company acts as an intermediary between the farmer and the end customer. The Company is vertically integrated with activities covering seed production, own growing, processing and packing with supply to the retailers, wholesale and convenience sectors. more »

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Bloomsbury Publishing Plc is a global publisher. The Company is involved in the publication of books and other related services. The Company operates through four publishing divisions: Adult, Children's & Educational, Academic & Professional, and Information. These divisions derive their revenue from book publishing, sale of publishing and distribution rights, management and other publishing services. It specializes in the humanities and social sciences, and publishes over 1,000 books and digital services each year. The Company's digital products include Berg Fashion Library, Bloomsbury Collections, Bloomsbury Fashion Central, Churchill Archive and Drama Online. The Company's subsidiaries include A & C Black Limited, Bloomsbury Publishing Inc, Bloomsbury Information Limited, Bloomsbury Professional Limited, Bloomsbury Australia PTY Limited, The Continuum International Publishing Group Limited and Osprey Publishing Limited, among others. more »

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Topps Tiles Plc is a United Kingdom-based retailer of tiles. The Company is engaged in the retail distribution of ceramic and porcelain tiles, natural stone, and related products. It operates in the Topps Tiles stores and online business segment. It supplies tiles and associated products to both trade and retail customer base, primarily for the refurbishment of the United Kingdom domestic housing. Its product categories include new products, bathroom wall tiles, kitchen wall tiles, mosaic tiles, kitchen floor tiles, bathroom floor tiles, ceramic tiles, porcelain tiles, underfloor heating, wet rooms, outdoor tiles, fireplace tiles and metro tiles. Its brands include Tile Adhesive, Tile Grout, Tile Preparations, Hardiebacker Board, Rubi Tools and Accessories, Warmup, and Homelux Tiles Trims. It offers tiles in various colors, such as beige tiles, black tiles, blue tiles, brown tiles, cream tiles and gold tiles. It has over 350 stores across the United Kingdom. more »

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

26 Comments on this Article show/hide all

Crusty 22nd May '18 7 of 26

Uninspiring interims from Renew Holdings (LON:RNWH) (Renew if the £ thingy doesn't work). Steady as she goes with the dividend up 10% and the all important margin still edging upwards to 4.9%. Main hope is that the new QTS acquisition boosts performance in the railway engineering field. I know you have criticised the balance sheet in the past but would value your update. I'm long.

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nicobos 22nd May '18 8 of 26

In reply to post #366034

Mountfield (LON:MOGP) - a tiddler but seems to be on a roll with new contract wins so must be doing something right. Needs to turn these wins into decent Net Profit to re-rate the share price imho.

Edit - I believe results are out soon so will keep an eye on its progress!

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jonno 22nd May '18 9 of 26

Good morning Paul
Excellent results from Bloomsbury Publishing (LON:BMY) this morning and confident outlook statement in which it says the performance for 2018/19 will be well ahead of previous expectations, The company is generating a significant amount of cash, £25m on the balance sheet, that it is reinvesting in developing its non consumer division (academic publishing and related digitisation) that has higher margins and more predictable earnings that the consumer division (publishing Harry Potter etc.). The former in my view has similarities to £RELX that at some point might be a potential suitor for Bloomsbury Publishing (LON:BMY). Wishful thinking perhaps but stranger things have happened.

I am aware that you have been somewhat 'lukewarm' on publishing companies in the past and am conscious that books are subject to the fickle of the consumer, but nonetheless would appreciate your views time permitting.

All the best


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jonno 22nd May '18 10 of 26

Apologies Paul

With reference to my earlier post got the ticker wrong, it should be Relx (LON:REL).


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barnetpeter 22nd May '18 11 of 26

GAN mentioned in yesterdays report is moving up strongly. A long way to go to catch up to micro stock Web. The entire sector is on fire after the USA ruling.

Gan, the gaming software company headed by Dermot Smurfit Jr, has said that its medium-term strategy is to seek a listing on New York's Nasdaq Exchange.

Speaking to the Irish Independent, Mr Smurfit said that investors in the US represent "a natural audience" for the company, where it is easier to explain Gan's equity story than in the UK.

Gan yesterday announced that it had raised £7.5m (€8.6m) as it continues its expansion in the US.

The funds have been raised on the back of a US Supreme Court ruling that last week struck down a federal law severely restricting sports betting.

The ruling is expected to lead to a liberalisation of US betting laws.

Gan said that it would use the funds - which were raised through a share issue - to "substantially" increase its engineering resources to better serve US clients' services, seek new US clients and launch new services there in anticipation of the more widespread internet sports betting.

Proceeds will also be used to repay in full a £2m loan note issued in April 2017 "in order to strengthen the company's balance sheet".

The company is now debt-free and capitalised to levels the directors of Gan believe "are reasonably required to serve major multi-property and multi-state casino groups in the US".

"This strategic capital-raising exercise positions Gan to consolidate its US market position and capture substantial incremental revenue opportunities available resulting from both internet gaming and sports-betting regulation in New Jersey, Pennsylvania and other US states expected to regulate internet gambling in the near future," said Mr Smurfit.

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AnonymousUser252054 22nd May '18 12 of 26

Just a mention that Bloomsbury Publishing (LON:BMY) spent some of its £25m a few weeks ago when acquiring academic publisher IBT Tauris for £5.8m, of which £4.8m was satisfied in cash. IBT is expected to contribute £3.5m revenue in the current year to end of Feb 2019.

Also, in case anyone missed it, £13.2 m profit before adjustments and 'Due to the strong trading in the year, the Group was able to make a management bonus provision of £2.3 million'.

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Beginner 22nd May '18 13 of 26

Produce Investments (LON:PIL) seems to be on a hiding to nothing, no matter how good the metrics seem at any one time. A good crop means oversupply and lower prices. A poor crop means fewer sales and lower profits. The company has niche products, but even these are subject to the vagaries of our perfidious weather.

Bloomsbury Publishing (LON:BMY) taking on IBT Taurus is a new venture for them, as they are shifting into academic publishing.  This is a good move. Universities subsidise publications by their staff, generally to a level that covers production costs.  The results is the publisher gets a cart load of free books, which are then sold at HORRENDOUS prices to academic libraries.  Print runs are small, but profits potentially very high.  What a contrast!

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daveinthelakes 22nd May '18 14 of 26


On Bloomsbury Publishing (LON:BMY) you ask "The question is how high can the valuation of a book publisher go? It's likely to face a permanent headwind of investor scepticism in the long-term prospects for the sector."

I think you may wish to consider the growth in digital with regard in particular to the academia market-

"The Bloomsbury 2020 strategy to leverage our academic and professional assets into the academic library market, is delivering well with digital resource revenues up 20% to £4.7 million. Five major new digital resources were launched in the year, ahead of plan. On track to deliver targeted £5 million of profit and £15 million revenue in 2021/22"

  If this was a retailer moving from bricks and mortar to online sales I believe you may have a different view of the growth prospects? This and not Harry Potter is the main reason behind my long term conviction in the company. I am particularly interested in the development of the Chinese literary collection to be translated into English.


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runthejoules 22nd May '18 15 of 26

In reply to post #366059

Yes John, I believe Jinan already have a factory, and Versarien (LON:VRS) machines, picked out. PWC are working on the China contract with them so I think if anyone can protect the IP it would be them. Other leverage they have with Jinan is access to future 2d material developments from manchester & Cambridge, which will not be forthcoming if ip is infringed. Worth googling molybdenum sulphide & boron nitride to see what they can do. As ever, however, there is a risk a university or ici or the like might invent a better mousetrap for producing even thinnergraphene nanoplatelets, or cvd sheets (the actual one-late stuff produced by chemical vapour deposition). As ever, dyor. Even if you don't buy vrs the potential in graphene / 2d materials is mind bogglingly interesting.

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jonno 22nd May '18 16 of 26

In reply to post #366154

In full agreement Dave, although I think that Harry Potter and the various spin offs will contribute for several years to come. As mentioned earlier, the non-consumer side of Bloomsbury Publishing (LON:BMY) appears to have some striking similarities with Relx (LON:REL).

In fairness to Paul his review of the company is much more positive than previous, although I think that the longer term prospects for Bloomsbury Publishing (LON:BMY) are under appreciated.

All the best


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Collector 22nd May '18 17 of 26

Hi Paul, I always particularly enjoy your analysis around NXT, and wondered if you might make a comment about MKS their 'competitor' and rapidly emerging small cap considering they have basically halved in the last couple of years, wihen they report this week, I have never read any opinion from you on these so would appreciate even a one liner.

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daveinthelakes 22nd May '18 18 of 26

In reply to post #366214

I agree Jonno that HP will continue to contribute to Bloomsbury Publishing (LON:BMY) for many years to come. The high gross profit and recurring revenues (schools and uni's) from digital is very appealing. Their stable of other top authors is also excellent but both writers changing publishers and the public's taste can be fickle.

Impossible to put a figure on it but if they become the leading platform for english language translations of chinese literature there could be huge upside.

Paul's report was excellent and very positive. I just don't think the market fully appreciates the potential for digital publishing.


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Paul Scott 22nd May '18 19 of 26

Many thanks for the excellent reader comments today on Bloomsbury Publishing (LON:BMY) picking up on a few things that I didn't cover in the main report. I don't usually have time to read all the narrative that goes with figures, so I particularly like it when readers pick up on stuff that I've missed, and add comments here, it really adds value, so thank you!

I've added a note in the main report, flagging up the excellent reader comments, so hopefully other readers will see them.

Investing is a team sport, so thanks for your input everyone!

Best wishes, Paul.

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LittonOwl 22nd May '18 20 of 26

Hopefully its ok to post the link here, but there's a nice video interview with Bloomsbury Publishing (LON:BMY) CEO Nigel Newton talking to Proactive Investors earlier today:

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dahokolomoki 24th May '18 21 of 26

In reply to post #366154

The risk is always that Harry Potter sales will tail off quickly in the next few years.

Over the past few years it has been supported by movies, theme park openings, and new musicals. All these have driven interest in the books.

But where is new interest /demand going to come from in the next few years for HP?

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simoan 24th May '18 22 of 26

In reply to post #367159

But where is new interest /demand going to come from in the next few years for HP?

There's one born every minute... new customers that is! :-) 

All the best, Si

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matylda 24th May '18 23 of 26

In reply to post #367169

Exactly - Like with Peppa Pig for example - Watched the original Wizard of Oz with the little one (almost 6) last night - She loved it - Classics - Just saying.

Blog: Briefed Up
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daveinthelakes 24th May '18 24 of 26

In reply to post #367159

I was just about to reply then noted Si and Matylda's responses and could not have put it better. Perhaps the best example is a little company called Disney, Mickey and pals have been making money for over half a century.

However it may be that HP has peaked, all I want is for it to produce reasonable sales whilst the digital growth comes into play. I maintain the market doesn't fully realise the potential for digital. Bloomsbury Publishing (LON:BMY) are conservative by nature but they expect annual digital profits of £5M within three years.

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simoan 25th May '18 25 of 26

In reply to post #367239

However it may be that HP has peaked, all I want is for it to produce reasonable sales whilst the digital growth comes into play. I maintain the market doesn't fully realise the potential for digital. Bloomsbury Publishing (LON:BMY) are conservative by nature but they expect annual digital profits of £5M within three years.


Yes, I increased my holding following this weeks excellent FY results. I can't remember such bullish outlook statements either from a usually understated and conservative management. It's easy to miss the ongoing value of  Intellectual Property such as the Harry Potter franchise and its endowment like quality, which I'm sure will generate earnings for many years to come.

All the best, Si

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HumourMe 1st Jun '18 26 of 26

Someone Aberforth Partners LLP/Nortrust Nominees Ltd is showing some interest in Topps Tiles (LON:TPT) (from 5 to 10%) :

Announcement: Wed 23rd May, 2018 3:46pm

... or maybe it is just an annual thing ...

Announcement: Fri 26th May, 2017 4:02pm

In 18 years they might get to 100%.

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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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