Small Cap Value Report (Tue 29 June 2021) - D4T4, TAST, MER, APP, CSSG, ELTA, VARE

29th Jun '21 by Paul Scott

49 comments 9328 reads

Good morning, it's Paul & Jack here with Tuesday's SCVR

Timing - today's report is now finished (15:07)

Agenda -

Paul's Section:

D4t4 Solutions (LON:D4T4) (I hold) - a quick review of its FY 03/2021 results. Numbers look in line, or ahead, depending on which forecast you're using. Very strong balance sheet. Difficult to value. Certainly not cheap on a PER basis, but the software seems to have great potential.

Tasty (LON:TAST) (I hold) - trading update from this minnow casual dining chain. Trading well since re-opening, but no figures given. Reminds us of the many headwinds the sector is facing as things normalise.

Electra Private Equity (LON:ELTA) (I hold) - my notes from today's Capital Markets Day (online). Comprehensive information provided about the forthcoming float of (TGI) Fridays restaurant chain. Looks a really good business to me, and I think ELTA shares remain a cheap way in.

Various Eateries (LON:VARE) - my brief notes from an online results presentation today. Interesting company, and good concepts, but impossible to value at this stage.

Jack's Section:

Mears (LON:MER) - a solid update from this housing services provider, but financial and business risks remain so it's hard to see a great deal of long term upside.

Appreciate (LON:APP) - disappointing results and short term outlook statement but management appears to be creating a more focused operation that is investing for future growth, so could be worth researching on share price weakness.

Croma Security Solutions (LON:CSSG) - micro cap, so liquidity must be considered. Good trading momentum though and nearly half of market cap in net cash.

Disclaimer -

A friendly reminder that we don’t recommend any stocks. We aim to cover notable trading updates & results of the day and offer our opinions on them as possible candidates for further research if they pique your interest. We tend to stick to companies that have news out on the day, and market caps up to about £700m. We avoid the smallest, blue sky type companies, and a few specialist sectors (e.g. resources, pharma/biotech).

A central assumption is that readers then DYOR (do your own research) and discuss in the comments below. The comments, incidentally, sometimes add just as much value as the articles. We welcome all rational…

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Mark Penney

29th Jun '21

what is know, I think is thatUBS will seed the fund with $750m and at 0.5% fees per annum this could increase turnover. I feel this is an early development to leverage their currency skills ( I hold).

James Kerr1

Well, there's the bear case for React React (LON:REAT), in response to my more bullish presentation below! I dismissed BOTB ages ago as 'that gimmicky prize company' and I think to do likewise with a cleaning company is also a mistake. It's always good to get both sides of the coin though. The price is about right for now , but I think it will be buttering its bread in a year or two when a lot of other tiddlers are still chasing jam tomorrow.

JSLDUK

keen to hear your thoughts on various eateries, like their product, management have great cv's but the valuation looks very steamy

GloucesterBob

I have held Record (LON:REC) for just over a year and at 85% up, I am more than happy, however, its the one share, I have no real idea what they do.

I bought them because they hit all my "Stocko mechanical" criteria, and thought reluctant to buy them as I didn't understand the business, they wouldn't move from my entry criteria.

When people ask me, the best I jokingly say is they sound like a legalised money laundering outfit, but can someone educate me, in simple terms please.

Thanks in advance.

MichaelFBS

Yes it was a great letter that I need to re-read. The trouble is the scary answer is "everything could go wrong". But when?

shipoffrogs

GB - Record (LON:REC) manage currency for institutional investors (eg. pension funds, fund managers). Often these clients want to hedge currency exposures where they have invested overseas. They can also be more proactive and speculate in currencies (higher fees for Record). Now they are engaging with UBS to launch a fund targeting private investors (fees will be a lot higher).
In the past they made a lot of money out of the carry trade, but this disappeared with interest rates around the world heading to zero. (Carry trade - selling a currency with a low interest rate (this was the Japanese yen), and buying a high yielding currency - making a turn on the interest rate divergence and crossing your fingers that the currency equivalence doesn't unwind too quickly - which of course it ultimately does).
Record has been very consistent in its earnings in recent years and at c30p seemed a safe place to park some funds. The price has been particularly strong lately, but not on profit improvements. I suspect it's been driven by a new CEO taking the company in a new direction - time will tell how it works out.

davidjhill

well everyone has an opinion. FinnCap think it should trade comparably against peers at roughly 6* EV/Sales or 30* EBITDA so that suggests north of 450p so clearly your ludicrously overvalued remark, my fair value remark and analysts 30% undervalued remark is what makes a market.

I bought in the low 100's so I'm not complaining at 300% returns but I am now at a crossroads. From a personal perspective I think 400p is around fair value but longer term I can see considerable upside. If it bounces back I may take profits and look to buy back in a year, as I do see the next 12 months consolidating and there may be better returns elsewhere in that 12-18 month timeframe.

Frontrunner72

Huge thanks for the swift and superb write-up on Electra Private Equity (LON:ELTA) , Paul.

I hold.

Tortoise investor

Just to say thanks for the coverage of £APP. Very helpful for when I go back over the RNS when I have more time this evening. I sold at 34p today - still in profit for the year and will revisit at half-year report or if this falls into the 20s.

RichardK

Re Fridays. Can someone tell me what the menu looks like? Does "American themed" mean that it is burgers, fried chicken and some Mexican food? The web site doesn't help. I just want to try to understand its positioning in a competitive market.

Richard

gus 1065

Here you are.

https://uk.menuwithprice.com/t...

Heart burn to go …..

Gus.

JohnEustace

Re Fridays, add in a sprinkling of Cajun and that's it. Though I would like to say that it's Tex-Mex as opposed to real Mexican food.

Zipmanpeter

Re £ELTA and Fridays - after reading their slide deck, some Marketing caution FWIW.

Fridays 3 key occasions are to be : Family Dinner (4+ people from, Date Night (30-50s) Girls Night (30-50s) but the deck says current Fridays crowd are 47% 18-30. The archetype Maria is in her 30s ("but there are many Maria's in their 30s, 40s and 50s). Maybe but is Mandy aged 24 going to go to the same place as Maria, a young 48.

The brand decor in the back looks like Cheers.....a show closed in 1993. I also think that 'Brand USA' is a lot less cool than it was (or at least has moved on a lot). I think the decor and menu looks very dated and 'old' for a UK urban brand- and I am 55!

It also says that American themed restaurants have been hardest hit (29% net closure) and it has 32% of current estate in shopping centres. That could be a contrarian opportunity but (buying from PE) .......

Also the newly assembled Mgt team look fine but are not steeped in Foodservice. Hotels and consumer facing gambling/leisure sites are not F&B centric.

Whilst I buy into a big recovery in eat-in casual dining and a positive story for brands ready to expand (I hold Fulham Shore (LON:FUL)), I don't see a big potential for Fridays.

Good luck :)

shamusj

As if by magic, a few minutes ago another three large inside buys from the CEO, CFO and group MD.

mark1308

Me too !

Boon

Wasn't the other big issue with Indivior (LON:INDV) the generic competition to its blockbuster drug?

simoan

FinnCap think it should trade comparably against peers at roughly 6* EV/Sales or 30* EBITDA so that suggests north of 450p so clearly your ludicrously overvalued remark, my fair value remark and analysts 30% undervalued remark is what makes a market.

Just back got from A&E after reading that Finncap valuation method which split my sides from laughing so hard. I must have missed the Stockopedia screen for that one! I particularly like the random large multiple of EBITDA element - two made up numbers multiplied together to create an even larger and more meaningless number! Wish I was a rocket scientist and could get a job at Finncap...

Well, I'm very happy for you. I'm not sure why you felt the need to add this and don't understand why others do it either. We're here to discuss shares not enter some kind of p***ing contest!

Paul Scott

Appreciate (LON:APP) - I've also taken a quick look at its results today, and am distinctly underwhelmed. If this business didn't exist, would it be invented? Probably not. I can't see much point to it.

Incidentally, I was asked at random to contribute to an ONS consumer survey, and they sent me a £10 card from Love2Shop as a thank you. I spotted that it was one of APP's products, so tried it out.

I found the sign up process clunky (e.g. it had a very poor facility for entering your address), and intrusive (it required my date of birth and phone number, which I would rather not give out).

The card sat on my desk for a while. I retrieved it today, logged in, and found it had expired in Jan 2021! So I've lost the £10. This leaves a sour taste, so my perception of Love2Shop is now very negative. That must happen to plenty of people, and maybe that's where the profits come from (expired cards)?

All in all, it strikes me as a pretty rubbish business model. Hence not something I would invest in. Sorry about that.

Regards, Paul.

All very interesting Zipmanpeter, but I'll follow the money thanks! Fridays is highly profitable, and performing well. This is what tells me customers like the format, which is what matters.

Ellinas

2nd Jul '21

Given the 12% drop in D4T4 share price could you do a follow-up to your report above? That would be very helpful

Small Cap Value Report (Tue 29 June 2021) - D4T4, TAST, MER, APP, CSSG, ELTA, VARE

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Paul Scott

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