Small Cap Value Report (Tue 29 Oct 2019) - BMY, ECK, FRAN, DODS, KOOV

28th Oct by Paul Scott

27 comments 5149 reads

Good morning, it's Paul here.

Monday's complete report is here.

It's a quiet day for news - please see the header for the shares I'll be covering today.

Estimated time of completion - should be done by 1pm or earlier. Scrub that, I'm running late, as I spent so much time on BMY. Let's make it 3pm revised completion time. Update at 3:20 pm - today's report is now finished.

Bloomsbury Publishing (LON:BMY)

Share price: 254p (down 2% today, at 08:04)
No. shares: 75.3m
Market cap: £191.3m

Interim results

Bloomsbury, the leading independent publisher, today announces unaudited results for the six months ended 31 August 2019.

I'm writing this just after the market has opened, so we'll have to wait and see where the share price settles down, as only a few small trades have been printed so far.

There's a nice summary at the top of the results announcement, which is the best format - I wish all companies would do this, providing it's accurate of course!

The Group delivered an encouraging first half and performance is in line with the Board's expectations for the full year. Traditionally, sales of trade titles peak for Christmas and sales of academic titles at the beginning of the academic year in the Autumn. With our strong Consumer list in the second half, our sales are therefore expected to be even more second-half weighted than in previous years.

Seasonality - I recall from looking at BMY's previous interim results, that there's not much point in getting into detailed analysis, because it makes nearly all its profit in H2 each year - e.g. adjusted operating profit was 20% H1, 80% H2.

Hence it's the outlook comments for H2 and the full year which really matter, and in this case they're saying performance is heading to be in line with full year expectations. There's always the risk something could go wrong in H2 of course. In this case, I'd say that's a fairly low risk. It's not like this is a software or contracts company, relying on large lumpy orders. Demand seems fairly predictable, evidenced by a fairly stable level of profits, in graph 2 below;

Forecasts show a decent growth in profits this year. As you can see in graph 4 above, the PER band…

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DWit199

29th Oct

Sorry. Please ignore. Misread the date of an announcement.
Is it possible to delete a post?

Martin Verlaine

Paul any chance you could look at Fulcrum Utility Services?

FREng

I was looking at the Piotroski High F-score screen and noticed that the share price of Ms International (LON:MSI) has taken off vertically. The Interims last year were on Dec 4th, so maybe something has leaked. It's a quick bounce from the September profit warning.

Paul Scott

Hi Martin,

I report here on the day's more interesting results & trading update RNSs.

There doesn't seem to be anything of that kind announced by Fulcrum Utility Services (LON:FCRM) today.

Here's our archive for Fulcrum - Graham wrote something about it on 20 Sept 2019.

Regards, Paul.

Hi Simon,

By all means discuss Greatland Gold (LON:GGP) with other members, but Graham & I don't cover the resources sector at all here. Reasons being that many small caps in that sector are utter junk (run by spivs & liars often, who plunder investors for money as their main business activity, to line their own pockets), there are so many of them, and the sector requires specialist knowledge, and also because we have to draw the line somewhere, in terms of numbers of companies we cover.

Good luck with it!

slartybartfast

Bloomsbury Publishing (LON:BMY) Hi Paul. You say "The whole point of leasing properties, is so that you don't have debt, and property assets on your balance sheet, and that you can walk away from the property when the lease expires, if you wish." But surely that is the point, they can't walk away before the lease expires so they do have the effective debt and asset.

When the lease does expire, both the asset and the liability will have been written down to zero.

andrea34l

As per Paul's reply, he and Graham don't cover resource stocks.

Why not start a discussion thread of your own, a general one for resource/mining stock discussion?

ppdrs

For anyone following Scientific Digital Imaging (LON:SDI) there's an interesting spike up in SP today, despite no news? I guess there's some information leaked out...?

alexdonnelly

Maybe is just people noticing how good the company is.

The market can be slow at noticing good companies

Hi slartybartfast,

Yes that's a fair point, and is one way of looking at it.

I come at it from a different point of view, with a background in multi-site retail. The way we looked at each individual property lease, was like this;

Profitable sites - the lease is actually an asset, not a liability (and not both). Since we are generating a profit from that site, then there is no logical reason to put its future rental payments into liabilities on the balance sheet, nor match that with a theoretical right-of-use asset. It makes no sense at all to put anything on the balance sheet. The only thing that might be worth putting on the balance sheet, is the asset value for what we could sell (assign) the lease to another retailer, as other retailers chase the sites that they know must be profitable. Therefore, to reflect commercial reality, there should be no liabilities for the rents at all put on the balance sheet, and only an asset recognised if we could prove that a competitor has offered us say £100k to sell the site to them.

Loss-making sites - these are the problems, and the only sites that should appear anywhere on the balance sheet. The logical thing to do, is to calculate on a prudent basis, how much the site is going to lose on a P&L level up to the lease expiry or break clause, and stick that in liabilities as a provision. Review that every year, and adjust if necessary. This is pretty much how the old system worked, and it worked great. There wasn't any need to change it. All that might have improved things, would be to include a note in the accounts, setting out more detail about length of lease on loss-making sites. That's actually the key information that investors need above all else - i.e. how quickly can a problem lease be exited? I don't see how IFRS 16 helps us at all in that regard.

Lease liabilities are completely different to other types of debt. For example, bank debt can be withdrawn if covenants are breached, or if not renewed at expiry. It also carries interest cost. Whereas property leases are not debt at all. You just agree a rent, sign a lease, and then trade from that site. The debt lies with the landlord, not the tenant, that's the whole point of leasing.

This notional debt involved with a lease only becomes a problem, if the tenant can't pay the rent. In which case, the tenant is probably not a going concern any more. There's only interest cost on leases, if the rent payments are paid lease.

Therefore, to my mind, it's nonsensical to include lease liabilities within net debt calculations, and I understand that banks & brokers are taking the same view. In which case, why have the liabilities on the balance sheet at all? Business rates also have to be paid alongside rents, so why aren't they shoved on the balance sheet too?

It all just seems completely illogical to me. But I appreciate there are different ways of looking at it, so thanks for your comment (a good point, well made, I thought!)

Above all, what's the point of introducing an accounting standard that many accounts users find unhelpful, and will manually cancel out? Surely accounting standards should be more closely tailored to what investors & analysts actually want?

I can think of at least 3 areas, where accounting standards need reform;

Pensions - it's nonsensical having 2 sets of figures - the accounting basis (which often overlooks serious pension problems), and the actuarial basis.

Goodwill & similar - everyone just adjusts out the amortisation charge, and the balance sheet entries. So why put them there in the first place? We can all see if a company is stretching its balance sheet, and boosting profits, through acquisitions. The goodwill entries just aren't necessary. People use the adjusted figures, apart from Graham, who seems to like the statutory figures! I suppose you could argue that showing us both adjusted and statutory figures, keeps everyone happen!

IFRS 16 - comments as above. I just find this so unhelpful, as I have to re-work the figures now, wasting a lot of time.

Paul.

David Bagley

Paul, where is this? Maybe I am just being dim but I can't find it! ".....the StockRank (now integrated into the little share price chart on the StockReport - a terrific new feature I think) ".

Paul

RNS out this morning that follows EU decision that appears good for the company’s business. Might be worth looking further

jules2k6

Hi David.
The stock rank is shown under the price chart in the new system as a sub graph.

Hello again Martin,

I see there was a technical-sounding announcement yesterday about an EU Commission ruling. That's way outside my remit here & my area of knowledge, so I'll leave it to you!

Oliver Cooper

Hello David - this is available on the new version on the site. You can access this by hovering your mouse over 'You' on the top right of the page and then clicking on 'Access the New Site'

I've started writing these reports in the new site, and the pictures display very nicely on there. However, on checking the old site, I've just noticed that the pictures appear too large, and go off the page. So I've gone back into the article, and reduced the size of the pictures, so that they now display properly on both the new & old sites.

My apologies if this made the article difficult to read earlier, for subscribers still using the old site.

clarea

Thanks for the Bloombury write up Paul mega detailed stuff I remember you from your early Mike Walters days and your blash strategy making a mint out of Indigo then getting blown up in the credit crunch and then nailing Trinity Mirror to cement the comeback.

Good on you sir you really should write a book one day you have a fasinating story to tell about the high's and lows and back to the high's of this fascinating game we call the stock market.

Regards

Andy

Gromley

Thanks Paul,

Speaking as someone still using the old site, I have to say that is definitely "going the extra mile" - much appreciated.

jonthetourist

30th Oct

"I'm not doing any talks this year, as there's no point, I've got nothing to say other than, "Everything's crap at the moment, and hardly any of my shares have done what I thought they would do". "

Can anyone imagine any other commentator coming up with that line? You're a one-off, Paul. Never change!
(happy for your luck in the market to change of course)

Jon

JonBirdy

3rd Nov

Hi Paul, meant to thank you too earlier for the Bloomsbury write up. Really useful for me as someone not ‘terribly au fait with analysing accounts.’ Always learning!

(Hope you’re enjoying Malta, if still there. Amazing Caravaggio painting to see in the cathedral if you’re into that kind of thing)

Jon

Small Cap Value Report (Tue 29 Oct 2019) - BMY, ECK, FRAN, DODS, KOOV

Bloomsbury Publishing (LON:BMY)

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Paul Scott

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