Small Cap Value Report (Tue 24 Sep 2019) - PARK, FA., IDP

Tuesday, Sep 24 2019 by

Good morning folks,

As far as yesterday is concerned, extra sections were added late in the day by Paul to Monday’s report.

There's quite a lot that I might cover today.


  • Share price: 54p (unch.)
  • No. of shares: 186 million
  • Market cap: £101 million

AGM Statement

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

This is one of those stocks which makes me feel a little unlucky at the moment.

My entry price was 86p in November 2017, for something like 3% of my portfolio. It was just a small position in a company which I admired.

Using Stocko's look-back feature, I am able to go back in time and get a StockReport from that month, showing roughly what the share looked like when I bought it.

This is what I get:


As you can see, it had a fairly average valuation (ValueRank 62) and a super high Quality score (Quality Rank 86).

Now let's fast forward to today.

It's true that Park missed its earnings forecasts over the past two years, with a 2019 miss of over 20% compared to the forecast when I bought into the company.

That miss had a lot to do with the company moving to modern new offices in Liverpool city centre, which created a big (£1.2 million) impairment charge for FY March 2019. The new office, according to the company, will help it to attract staff and have positive benefits for its corporate culture.

In the absence of the impairment charge, Park's FY 2019 result would have been very similar to its FY 2018 result, which was only a tad short of original expectations.

So on the basis that moving offices was a one-off event with positive long-term effects, I don't think that the company has done very badly during the period in which I have held it. But the share…

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

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Park Group plc is a multi-retailer gift voucher and prepaid gift card business, which is engaged in delivering rewards and prepaid products to the consumers and corporates in the United Kingdom. The Company focuses on consumer prepayments and corporate reward and incentive programs. The Company's segments include consumer and corporate. The consumer segment includes the Company's sales to consumers, utilizing its Christmas savings offering. The corporate includes the Company's sales to businesses, offering primarily sales of the Love2shop voucher, flexecash cards and other retailer vouchers to businesses for use as staff rewards/incentives, marketing aids and prizes and all online sales. Love2shop is the multi-retailer gift voucher and prepaid gift card, accepted at over 140 retailers with approximately 20,000 stores in the United Kingdom. It offers flexecash, which is its information technology infrastructure. Its Park Christmas Savings Club operates through a network of agents. more »

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Fireangel Safety Technology Group plc, formerly Sprue Aegis plc, is engaged in the business of design, sale and marketing of smoke and carbon monoxide (CO) detectors and accessories. The Company also operates its own CO sensor manufacturing facility in Canada. The Company is also a provider of home safety products. The Company's principal products include smoke alarms and CO alarms and accessories. Sprue manufactures CO sensors for use in all its CO alarms. Sprue serves in the United Kingdom retail and the United Kingdom's fire and rescue services. The Company offers a range of brands, including FireAngel, AngelEye, Pace Sensors, First Alert, SONA, BRK and Dicon brands. The Company's subsidiaries include Sprue Safety Products Limited, which is engaged in distribution of smoke and CO alarms, and Pace Sensors Limited, which is a manufacturer of CO sensors. more »

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InnovaDerma PLC is a holding company. The Company develops a range of male and female at-home and clinically proven treatments for hair loss, hair care, self-tanning and skin rejuvenation. It operates through hair and beauty division. Its products include Leimov Personal Hair Laser Starter Kit, Leimov Hair Treatment Pack, Leimov Bio Cleansing Shampoo, Leimov Thickening Conditioner, Leimov Scalp Therapy Day Treatment, Leimov Scalp Serum Night Treatment, Leimov Deep Cleansing Scalp and Body, Leimov Hair Treatment Pack for Her, Leimov Personal Hair Laser Starter Kit for Her, Leimov Vitality Shampoo, Leimov Follicle Boost Therapy, Leimov BioPlex Scalp Serum, Leimov Scalp and Body Exfoliating Spa, Leimo Instant Hair Introductory Pack, Leimo Instant Hair Regular Pack, Leimo Instant Hair Building Fiber, Skinny Tan-Ab Shader, Skinny Tan-Dermabrasion Pre-tan Primer, and Tan and Glow. It operates in the United Kingdom, the United States, Australia, New Zealand, the Philippines and South Africa. more »

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

56 Comments on this Article show/hide all

Gromley 24th Sep 37 of 56

Thanks VERY much for those observations mojo - I will have a more careful look tomorrow. I will confess to only have a relatively superficial look in advance of taking my initial position, so those cautions are very welcome so that I can complete a more thorough review. From what you have said i am not really sure I see any major concerns, but I will defo look to examine all of the potential concerns.

I do love the open declaration of concerns one can get amongst the stockopedia community.

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mojomogoz 25th Sep 38 of 56

In reply to post #516261

No worries Gromley. Like I said, I had a potential interest in Innovaderma (LON:IDP) and feel somewhat disappointed that I don't see an opportunity develop...however, I accept my observations are quick and not based on fulsome appraisal and the negative feel yesterday let a residual emotion about the stock from the past compound in to colour my mood darker

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Cockerhoop 25th Sep 39 of 56

In reply to post #516216

Innovaderma (LON:IDP)

'Capitalised development costs have a finite useful life and are amortised on a systematic basis based on the future economic benefits over the useful life of the project. At this stage, the useful life of the project has not been determined as development is incomplete, hence amortization has not commenced.'

Aggressive i'd suggest.

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Cockerhoop 25th Sep 40 of 56

In reply to post #516416

Innovaderma (LON:IDP)

Movement in capitalised development costs:

Table doesn't look correct to me. They appear to have taken last years dev expenditure as a base for this year rather than last years YE balance.

I'd expect £872,328 for YE19 with no amortization.

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mojomogoz 25th Sep 41 of 56

In reply to post #516431

I agree...which is why I assumed they must have written off the starting CD quoted in FY18...but obvs that should have a note explaining (and I wasn’t motivated to read through definitional notes or old reports). Even if a short case was valid a story company like this could rise a lot from here and get a higher rating first...

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Gromley 25th Sep 42 of 56

In reply to post #516296

Right, I have had a look through the Innovaderma (LON:IDP) cashflow properly now.


Actually I quite like the way they present their cashflows ; the present the actual cashflows and then you have to consult the notes to see the reconciliation to profit. This compares with the “normal” presentation of cashflow which starts with a profit number of some description and you have to go into the notes to identify what it means. Personally I would rather that accounting standards stipulated that the entirety of the cashflow should be in the cashflow statement, not the notes, but that’s another argument. 

 Anyway there are a few oddities in the cashflow.

What they call “Net cash used by operating activities” (and “Net cash outflow from operations” in the notes section) is actually cash GENERATED by operating activities. I can only guess that they are using an old spreadsheet left over from before they became cash generative.

Comparing the FY with the H1 there are a couple of question marks.

In H1 they itemised a £73k outflow for acquisition of subsidiaries, in the Full Year I think they have rolled this into the general “Payments for product development/Intangibles”.

Also in H1 they recognised a cash outflow  of £50k for transaction costs for shares issued. I cannot work out where this appears in the Full Year, but I think it must be netted off with Repayment of borrowings.

These are potentially quite trivial, but mysteries can hide other things so I have asked the company to clarify.

There are two more material things that come out.

Receivables increased by £1.5m. Bearing in mind that revenues in H2 increased to £9m from £3.8m in H1 I do not find that increase in receivables at all worrisome. In fact they did comment on this “Receivables increasing to £3.3 (FY2018: £1.9m) as a result of strong season opening Boots and Superdrug sales.” I am perfectly satisfied with that explanation.

 Intangibles they increased intangibles by £0.9m in the year, more than all of this was for an intangible called “customer lists”. I am uncomfortable with this especially as PBT was £1.4m so on a more conservative measure would have been only £0.5m.

That is not in this case a killer for me, but it is certainly a number I will be keeping a very close eye on.

In the round I still like what I see and have brought my position up to “normal size” this morning, but do agree there are things here to keep a very close eye on.

Edit : I hadn't read the last few posts when writing this, but agree more cause for caution.

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Cockerhoop 25th Sep 43 of 56

In reply to post #516431

Innovaderma (LON:IDP)
Further to my point in post 40 they appear to have carried out the same calculation for FY18 results. It has the effect of only adding capitalised development costs for the last 2 years (ignoring any earlier capitalised development costs - but with no sign of amortization).

Very strange or i'm mistaken. Gromley's point regarding old spreadsheets etc is giving me confidence that perhaps they have miscalculated.

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mojomogoz 25th Sep 44 of 56

In reply to post #516496

Interesting stuff Gromley and Cockerhoop

I'm interested in how they justify the £0.9m intangibles and in particular customer lists. This seems like it must come from direct sales and not their big retailer relationships? In which case is the prosaic description of what they have done is to ascribe future resell value to customers they have transacted with online?

A positive take on that would be that the intangibles represent recurring revenue. A negative perspective would be that they are double dipping earnings on these new clients.

Obvs my interpretation itself is speculative and I have not read the accounts as closely as either of you, nor have I been in contact with the company.

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GavSmith01 25th Sep 45 of 56

In reply to post #516261

Re £IDP I was put right off them when, on 15th February 2018, they said:

"The Company has made considerable progress, both in terms of revenue growth and new product development across multiple categories which it believes will create additional revenue channels and substantial profitability in the second half of this financial year, and therefore the Board remains confident in meeting market expectations for this financial year."

... but then, just 21 days later, on 8th March 2018, they said:

"The Company has made considerable progress and the Board continues to expect the second half year to outperform the first half significantly, however revenue growth for the year will now be less than anticipated at the time of the interim results."

Three weeks between a bullish RNS and a profit warning - either they have very poor visiblity, or were not quite telling things how they were, neither of which are good in my book. The CEO's narrative is always excitable and bullish, both in RNS statements and on the many appearances he makes on the (paid for) Proactive Investors website, and having watched this stock for a while, my personal feel is that he is guilty of repeatedly overpromising and underdelivering. It's no longer one I would consider investing in.

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Gromley 25th Sep 46 of 56

In reply to post #516556

Thanks for that on the management speak Gav it is certainly something that I always take into account.

With that and the concerns about intangibles I am getting a much better feel for why this is so "cheap".

I need to kick a few more tyres on this to get really comfortable, but as it stands I would still stick with the view that the valuation anomaly (as I see it) is just to big, unless it is an outright fraud.

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davidjhill 27th Sep 47 of 56

In reply to post #516556

Gav - but you are not really comparing like for like. The entrepreneur became chairman and they brought in an experienced hand as CEO to run the ship. Since then the excitable posts have declined considerably and they have performed in line with the expectations set.

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paraic84 28th Sep 48 of 56

In reply to post #517386

I was put off buying Innovaderma for the reasons stated above but since new management has come in they seem to have managed market expectations much better... albeit we only have about maybe 6 months of evidence of that so far.

I calculated this morning that H2 revenue growth was 54% which is very impressive. Also H1 FY2020 results will presentationally benefit from the fact that H1 FY2019 was quite weak with a fall in revenue so I think the current share price is very attractive. I can't work out why it has fallen back since the start of the week.

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Gromley 28th Sep 49 of 56

In reply to post #517466

Actually I think the Innovaderma (LON:IDP) H2 revenue growth was only  38% (£9.0m vs £6.5m in the previous H2) there is a degree of 'step-change' in that figure too from the roll out of new retail channels, plus improvements in the DTC channels.

Of these channels will improve the H1 numbers, but I really don't know what to expect for H1 as there is a degree of seasonality in skinny tan, but I suspect it is much less than the historic numbers suggest.

The updated revenue forecast for growth of 19% in 2020 (excluding new products which it is prudent to ignore for now) looks a little light to me, so I would be hoping to see upgrades during the year.

I suspect the two things needed to convince the market here are (i) positive cash-flow more closely in line with profits (I see the growth in H2 receivables as being entirely consistent with revenue growth, but others may not view it so generously) and (2) profits that are not so reliant on growing intangibles.

If both of those are delivered (along with the growth) then I would personally hope the share price gains an extra digit.

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paraic84 30th Sep 50 of 56

In reply to post #517471

How did you get to 38%? Isn't it £3.5m difference, over a denominator of £6.5m? Apologies if I am being dumb. 

I need to find some time to look more thoroughly at the potential accounting discrepancies you and other commentators have pointed too which look more concerning to me. I wonder if these issues are the reason for the flat price post results?! Interested to hear if the company replies to you.

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Gromley 30th Sep 51 of 56

I thought for a moment there that I had had a "senior moment" but no, it's 2.5 on 6.5m I think?

As mentioned earlier up the thread I did contact their IR about the factual discrepancies. They have outsourced their IR department which worried me slightly, but if the Stock-report is correct they do only have 34 staff  so perhaps that is not unreasonable.

I did get a swift acknowledgement but nothing more yet, will chase them up later and also see if I can reach out more directly to the UK based CEO.

I can see a few things beyond the potential factual issues with the accounts that I'd like to get clarity on.

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mojomogoz Sat 8:39pm 52 of 56

In reply to post #517831

Hello Gromley. Any response from Innovaderma (LON:IDP) ?

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paraic84 Sun 4:23pm 53 of 56

In reply to post #517831

I'm sweating here that I might be getting some basic maths wrong! But:

H1 17/18 = 4.2m

FY 17/18 = 10.7m

Therefore H2 17/18 = 6.5m

H1 18/19 = 3.9m

FY 18/19 = 12.9m

Therefore H2 18/19 = 9m

Difference of 3.5m over 6.5m surely?

On your other points:

  • I agree with you that the increase in receivables is in line with it increasing its revenues and customers. It's also not massively out-of-line with other cosmetic companies like Creightons.
  • I am less worried about GavSmith's comments now that the CEO has changed and the company seems to be more cautious with its statements
  • As a real beginner on reading accounts, am I right then in thinking that the increase in intangibles gets fed through as profit as a revenue?! I know nothing about how intangibles might affect profits so forgive my ignorance.
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stehuk Sun 4:56pm 54 of 56

In reply to post #520831

9m - 6.5m = 2.5m

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paraic84 Sun 5:38pm 55 of 56

In reply to post #520841

Oh dear. I'll get my coat. 

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Gromley Sun 10:42pm 56 of 56

In reply to post #520851

To be fair, you did say in your earlier post "I'm sweating here that I might be getting some basic maths wrong! "

It happens to us all at some point, so no need to get your coat.(In any case I'm worried you might take mine by mistake!)

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

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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