Small Cap Value Report (Tue 26 June 2018) - CRL, CRPR, CPR, DSG, RDT, VEL, PRSM

Tuesday, Jun 26 2018 by

Good morning, all.

Today I am interested in:

Lots of updates today, let's see how far I can get!



Creightons (LON:CRL)

  • Share price: 27.75p (+7%)
  • No. of shares: 60.6 million
  • Market cap: £17 million

Please note that I currently own shares in CRL.

Creightons Plc (the "Group" or "Creightons") is pleased to announce its preliminary results for the year ended 31 March 2018.

This is a small company in the sector often referred to as "FMCG" - fast moving consumer goods. It makes haircare, skincare and beauty products.

I bought into it after its "good" profit warning a few months ago. I've topped up my holding today

The issue was that Creightons couldn't handle all of the demands upon its manufacturing capacity. So as not to let down external customers, it outsourced the manufacture of its own branded products.

Unfortunately, manufacturing own-branded products is where it makes its highest margin.

As a consequence, gross and operating margin were reduced by £229k in these results.

Even without this problem, gross margin would have fallen due to rising raw material costs and other input prices.

By my maths, even without the capacity shortage, the gross profit margin would have fallen to 41.3%, from 42.5%.

From a more positive point of view, we can say that on an absolute basis, the gross margin contribution still rose rather impressively, due to rising sales:


The capacity shortage increased Creighton's distribution costs, too - an operating expense.

The operating profit margin reduces by 0.2% to 4.7%. In the absence of capacity issues, operating profit margin would have increased to c. 5.6%.

So the quality of the performance clearly deteriorated from an operating margin point of view, due to this problem.

But again, on an absolute level, operating profit increased, due to the higher sales throughput.

I believe the capacity issue has now been addressed, to meet recent levels…

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

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Creightons plc is engaged in the development, marketing and manufacture of toiletries and fragrances. The Company operates through three business streams: private label business, contract manufacturing business and branded business. Its private label business focuses on private label products for high street retailers and supermarket chains. Its contract manufacturing business develops and manufactures products on behalf of third party brand owners. Its branded business develops, markets, sells and distributes products it has developed and owns the rights to. Its product portfolio includes bath and shower care, haircare, body care, baby and maternity, and fragrances, among others. Its services include market analysis, creative concept generation, product development, brand development, manufacturing and logistics. Its brands include Frizz No More, Volume Pro, Argan Body, Argan Smooth, Keratin Pro, Perfect Hair, Bronze Ambition, Sunshine Blonde, Beautiful Brunette and Just Hair. more »

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James Cropper PLC is engaged in the manufacture of specialist paper and advanced materials. The Company operates through four segments: James Cropper Paper Products, James Cropper 3D Products, Technical Fibre Products and Group Services. The James Cropper Paper Products segment consists of JC Specialty Papers, which relates to James Cropper Speciality Papers, a manufacturer of specialist paper and boards, and JC Converting, which relates to James Cropper Converting, a converter of paper. The James Cropper 3D Products segment manufactures molded fiber products. Its Technical Fibre Products segment manufactures advanced materials used in aerospace, defense, automotive, and energy and construction applications. The Group Services segment consists of central functions providing services to the subsidiary companies. The Company operates in approximately 50 countries. Its subsidiaries include Tech Fibers Inc, Metal Coated Fibers Inc and Melmore Limited. more »

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Carpetright plc is engaged in providing floor coverings and beds. The Company operates through two segments: UK and Rest of Europe (comprising Belgium, the Netherlands and Republic of Ireland). The Company trades from approximately 440 stores and concessions in the United Kingdom, as well as over 140 stores across Holland, Belgium and the Republic of Ireland. The Company offers free home estimating services. The Company's product range includes carpets, mattresses, headboards, laminate flooring, engineered wood flooring, rugs, vinyl flooring, luxury vinyl tiles and flooring accessories. Its luxury vinyl tiles are available in a range of designs, including tile, oak, pine and stone. It offers a range of beds and bed products, including divan beds, roll up mattresses, bed frames and others. It offers a range of options from memory foam mattresses to open coil and pocket spring mattresses. Its brands include Kosset, Essential Value, Storeys, Carpetright Clearance and Carpetright. more »

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

40 Comments on this Article show/hide all

marccrosby 26th Jun '18 21 of 40

Blue Prism: I wouldn't buy the stock at these levels but agree with Grahams comments above and certainly woundn't short it. I work in the IT sector and Blue Prism is the most common RPA software that large blue chips i come across are starting to use.

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Graham Neary 26th Jun '18 22 of 40

In reply to post #377864

Thanks for the James Cropper (LON:CRPR) suggestion and for your comment - it was worth a look! G

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dscollard 26th Jun '18 23 of 40

Re Blue Prism (LON:PRSM) - An egg or a tennis ball?

I sold out on Blue Prism (LON:PRSM) a bit early (if very profitably), it is a real tricky one to value but their channel and GTM is super and having huge outsourcers like Accenture selling your products into incumbent clients is no mean source of scaleable low cost sales .
Added to this both Gartner and Forrester really rate this from a vendor PoV so it has pedigree. No doubt it is stretched (he says having sold early ;P) but I would be a reluctant short unless I saw some real volume conviction selling from a blow-off top. Blue Prism (LON:PRSM) hasn't even gone near its 200MA since July 2016 when it was 110p

That said it did double top yesterday and rejected the previous high, price action today is fascinating  with a real bull-bear fight going on . It will be interesting to see how this finishes the day as the bulls seem to have it for now (13:40): 10% of today's volume went through off-book at 12:20 in a couple of big trades ...we will see who and what later I suspect ( if there is a TR-1) but price is holding for now just flat on the day having been down over 10%)  .

In any case a short from here should be relatively low risk - just set a stop at above 2000p and sit back albeit the 10 day average volume is just 210K so it is relatively easily pushed around

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rogergreen 26th Jun '18 24 of 40

Hi Graham,

I see you have VEL on your list - woudl be really interested to hear your views, the sp seems to have moved up a little today (I hold).


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peterthegreat 26th Jun '18 25 of 40

In reply to post #377894

Thanks abtan for your post about D4T4. 62% of total revenues from one customer does indeed sound worrying and I was wondering if you could tell me where this figure came from as I have seen it suggested on another board that this large customer is actually a reseller who sells to a range of other customers. Do you think this might be the case? Thanks.

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HornBlower 26th Jun '18 26 of 40

anyone following Ramsdens (LON:RFX). CEO has just sold 25% of his shares to raise £900k. salary and bonus of £175,000 so the shares are a substantial amount relative. first sale since IPO. seems not unreasonable thing to do. shares marked down 8%. great buying opportunity. just topped up

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Graham Neary 26th Jun '18 27 of 40

In reply to post #377824

Hi Emmett, Dillistone (LON:DSG) is in the report now. I am struggling to find positive features of the stock but admittedly it is not one that I have studied in massive detail.



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willhampson 26th Jun '18 28 of 40

In reply to post #377974

Hi HornBlower, thanks for this. The coordinated sale of three PMDRs at Ramsdens Holdings (LON:RFX) all yesterday is a little strange. My hunch is perhaps yesterday was the final day before the beginning of a closed period. It may well be about 30 days until the AGM and they may intend to give a trading update at that time; a TU was given last year a few days before the AGM so as to coincide with the data breach announcement, but I suspect - but for - that data breach the TU would have been given at the AGM.

I can understand why this has spooked some people, particularly large CEO sales, but I intend to hold for now. I still find the valuation compelling and the growing dividends are worth having.

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shanklin100 26th Jun '18 29 of 40


This year's AGM is on 18th July as per

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Graham Neary 26th Jun '18 30 of 40

In reply to post #377804

re: Rosslyn Data Technologies (LON:RDT)


Are you excited, too?

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TheShareWhisperer 26th Jun '18 31 of 40

In reply to post #377944

I also work in IT, I am a very experienced developer, like someone else said. I came across Blue Prism when dumb management were telling everybody how great it is. So I was intrigued at the claims. But we couldn't find a single use case for it, a single case where you couldn't do it better with existing free software. And so were left scratching our heads at the hype.

So I have to give it to the BP marketing though. They have marketed it brilliantly calling it a Software Robot. But there is nothing Robotic about it. The Product or Robot (chuckle it's not) does not 'learn' the Process, and breaks when the process changes. It also needs to be configured by a Developer which is a very expensive cost on top of the licenses. There is also fierce competition in this space, there is no way imho that BluePrism will ever grow into it's current crazy valuation.

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brballs 26th Jun '18 32 of 40

Graham, thanks for the excellent piece of analysis on Creightons (LON:CRL). I think Paul might have some competition for "Journalist of Year" next year!

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Gromley 26th Jun '18 33 of 40

In reply to post #377944

Re Blue Prism (LON:PRSM)

In any case a short from here should be relatively low risk - just set a stop at above 2000p and sit back albeit the 10 day average volume is just 210K so it is relatively easily pushed around
I do not think I can agree with the "relatively low risk" description.

I have been doing quite a lot of navel gazing over shorting recently given that as discussed elsewhere I'm moving to becoming market neutral(ish) by using a diversified short portfolio.

My (very limited) past experience from memory in the past I think I have had maybe half a dozen short positions. The two most memorable (both over a decade ago) were Carpetright (LON:CPR) & Countrywide (LON:CWD).

Countrywide subsequently delisted and relisted whereas Carpetright is still with us (for the time being anyway.)

Countrywide (LON:CWD) was quite horrible (although thankfully quite a small exposure) given that despite being "ludicrously overvalued" it actually got acquired for a premium, IIRC by Private Equity.

Carpetright (LON:CPR) wasn't quite so dramatic, but despite also being "ludicrously overvalued" the price just would not go down, in fact it continued going up. This wasn't so much a case of the market staying irrational longer than I could stay solvent, but more a case of longer than I could remain confident.

Without checking my records I think I was probably "about even" on the other smaller short positions, there were certainly no memorable winners.

In actual fact though, these past misadventures should have no bearing whatever on what I am undertaking now. As mentioned above what I am now looking at is a diversified portfolio of shorts. These are mostly companies I know very little about, but that on the SRs statistically should under-perform. This does not totally stop me from "price watching" and flinching at each little tick up in any of them, but so far I am being good and not trading outside of plan.

My past failures, however, were "conviction shorts" I went short because I was convinced they were grossly over-valued.

Let me repeat that "over-valued". Now I cannot go back in time and prove it, but I know that both Countrywide and Carpertright  had "momentum", I suspect that they also had a degree of "quality". They were I suspect "high flyers" in Stockopedia parlance.

Guess what? so is Blue Prism (LON:PRSM)


This dear readers is a winning style - you are statistically more likely to do better long than short.

It may well be a bubble (I'm inclined to think so) but the thing about "bubbles" is that the killer play is to be 'long' in the early phase and 'short' at or around the peak. Sadly most of us will either go short too early in the stratospheric rise or go long near the top (maybe even both).

Certainly I cannot think of a reason to invest here (other than the winning style) but that doesn't mean on should automatically consider a short.

You may strike gold shorting at these levels, but that is only similar to the chances of picking the correct sucker stock to go long.

Good luck to anyone that is short here, but for me, I'm more than happy to leave the tempting half volley outside off-stump.

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abtan 26th Jun '18 34 of 40


Hi peterthegreat

The reply function doesn't seem to be working so I'm re-posting my response here. Apologies for any duplication.



The 62% figure came from near the top of the Notes section within the results released today. 
£12.4m from x1 customer, out of total revenue of £20.1m (62%)

Screenshot here:



A reseller could make sense, however, the following makes me doubt this is the case:

  • Revenue from the #1 customer in 2017 was £9.8m (55% of total revenue). Gross margin in 2017 was 56%
  • Revenue from the #1 customer in 2018 was £12.4m (62% of total revenue). Gross margin in 2018 is up vs 2017 to 57%

If a reseller was this #1 customer I would have expected gross margin to go down in 2018 if that same seller contributed proportionally more to the top line. Unless of course D4T4 sell their own product at a lower price than their partners, but I find this highly unlikely.

I could be wrong, or possibly even over-thinking it. Either way, this was a short-term punt based on the trading update in April. I generally don't like companies making most of their profits from project work as they can be lumpy (see * below), but I thought there might be something in the recurring revenues. However, 6% recurring revenue growth YOY doesn't give me enough conviction to continue to hold.

Good luck!



H1 2017 sales = £10.0m

H2 2017 sales = £7.7m

H1 2018 sales = £4.8m

H2 2018 sales = £15.3m

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drvodkaquickstep 26th Jun '18 35 of 40

In reply to post #378049

D4T4's major customer is SAS whom they have worked with since 2006.

At a previous AGM there was a discussion concerning this reliance on one customer and the Board noted that they were acutely aware of this, however, they noted that SAS are a multi-headed Client (they sell into various parts of the SAS organisation) and thereby the risks are mitigated to a degree.

I will raise this again at the upcoming AGM.

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peterthegreat 26th Jun '18 36 of 40

In reply to post #378049

Thanks very much abtan for answering my query about D4T4's biggest customer. I have also received help from drvodkaquickstep who indicated that SAS is this biggest customer and sales are to various parts of SAS. Assuming this to be so, it sounds more like a partnership agreement with SAS as the SAS web site describes D4T4 as a partner and they have been working together since 2006, including both providing input for SAS products. The web site also suggests that D4T4 is actually a reseller of some SAS products, although the much larger size of SAS suggests to me that it is likely to be the senior partner in its relationship with D4T4. Nevertheless, this is arrangement is likely to be more durable than a simple customer/client relationship (at least I hope it is). I agree about the lumpiness of the profits at D4T4 and more recurring revenues would certainly increase the attractiveness of the company.

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dscollard 26th Jun '18 37 of 40

by low risk I mean if the entry is around the current price of 1860 with a stop at say 2020 so a defined loss of 180p depending on spread ..assumes Blue Prism (LON:PRSM) isn't acquired or gaps up over one's stop (and if it does you get out and suck it up).. that is controlled by stake size with a scaling in on positions (i.e trade management).

I also have rules on ATR and liquidity so Blue Prism (LON:PRSM) simply isn't liquid enough for me to short (I need min daily volume of 800K in "normal" trading so not distorted by price dislocations).

Technically one has to use price action and chart analysis to identify shorting opportunities. Particularly volume behaviour around price changes. I never short on a principle or a hunch but always based on analysis and with rule for when my shorting hypothesis is violated (So I am wrong)

Finally, I build stakes in a short so start small and scale-in if the short is working , I use staggered stops which shadow each other to maintain risk/reward and stake sizes. I also analyse and follow short interest to make sure I am aligned but not too late as short squeezes can be spectacular.

£PRISM has only a 1.9% opn interest atm which is low when one considers IQE (LON:IQE) is at 9.7%

Need rules, discipline, process, structure and above all else, consistency. The right risk:reward ratios outdoes the percentage of right: wrong shorts if managed correctly

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abtan 27th Jun '18 38 of 40



Interesting that the big customer is SAS. I saw the list of partners in the last Annual Report and was impressed to see the more familiar Microsoft and Adobe in there (the others mentioned being Teradata, SAS and Pegasystems).

I still don't understand why GM% has gone up though. Have they lost sales through other partners? I notice that there were x2 customer who contributed >10% of revenues in 2017, reduced down to just the x1 in 2018.

I certainly agree that risks will be mitigated if partnerships are with sub-groups within a larger organisation.

My understanding is that the cross-selling of SAS solutions by D4T4 will be included within the £232k "agency" revenue that was in the screenshot in my previous post.


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ridavies 27th Jun '18 39 of 40

In reply to post #377974

and two of the other senior management have sold too, halving their stakes.
The price of 180p for all 3 was around half of the SP fall on Tuesday. The total of nearly 1m shares must have found a home though, and I wold guess they have gone to an institution. (It is unusual for 3 top managers to sell so much at the same time, unless there has been a request from an institution to do so or unless the company news is doubtful) Not surprising really, after the great prelims.
I'm not sure that this is bad news - often director selling is, indicating that the SP has reached a peak - though there are one or two hints of caution about trends in the retail sector. Then they counter that by saying they intend to continue to extend their estate.
I have been an enthusiastic holder here and can understand why one would want to ones holding. I will maintain my stake at its current substantial level for now.and see whether an RNS comes out about where the near 1m shares have gone.

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hawkipa 27th Jun '18 40 of 40

In reply to post #377974

Thanks for flagging Hornblower. I have been pondering this since I saw it. I decided this morning to add to my already very small holding. The reasons I decided are:
1, It probably was the last day before the closed period before the AGM,
2, This is the key point for me. These are likely to be material sums for each individual, though I do not know that for a fact. However, I assumed they are and I mostly focused on the CEO sale. We are all working for a purpose and to take out £900k is probably a life changing amount of money, so is not unreasonable to do. This then becomes a point of timing. If he really is signalling the top, why not sell them all? I am probably being naive but am taking the view that he is entitled to take some profits and that his fellow directors may have simply followed him. If the next update is poor then it will certainly be (another) lesson learnt but I am hopeful that the sales weren't the warning shot that many fear.
3, The CEO still has a material stake and I can't believe he won't be working extremely hard to at least maintain its value, but ideally increase it.

Finally, what I don't know (or perhaps been too lazy to figure out) is how much cash they may have taken out at IPO and whether this amount is material in that context. Compared to £175k salary £900k is substantial but not if he took out a greater figure earlier.

One final scuttlebut point that is an amber flag to me. I emailed the IR email address some time ago to ask about their status as regards BPR and IHT. I have yet to receive a reply. This kind of thing does make me wonder about the professionalism at the organisation. Its not hard to reply even if its 'we don't know'.
For now I'm holding.

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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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