Small Cap Value Report (Tue 9 Jan 2018) - EHG, TPT, JOUL, NEXS, TAST, GAW, CARR, BQE, WINE, FOUR

Monday, Jan 08 2018 by

Hello, it's Paul here.

It's busy for updates today. Please see the header above for the stocks that I shall be reviewing today.

Elegant Hotels (LON:EHG)

Share price: 85.5p (down 10.9% at 08:32 today)
No. shares: 88.8m
Market cap: £75.9m

(at the time of writing, I hold a long position in this share)

Results - for year ended 30 Sep 2017. This company is;

...the owner and operator of seven upscale freehold hotels and a beachfront restaurant on the island of Barbados.

It listed on AIM in May 2015. This is a rare exception to my usual (personal) blanket rule not to invest in overseas companies on AIM. The reasons being that it's profitable, has freehold property assets, pays divis, seems to have sensible management, and operates in a country which seems to be politically & economically stable.

Its major shareholders list is pretty impressive too;


Results today have clearly underwhelmed some people, as the share price down 10.9%.

Dividends have been reduced today, which could have upset some shareholders. Although as I flagged here on 12 Oct 2017, the company was clearly over-paying, so a cut in the divi was to be expected. The final divi this year will be 1.75p (PY 3.5p). The 2018 divi will be 4.0p, split one third: two thirds between interim & final. That will still give a pleasing yield of 4.7%, and looks a much more sensible level of payout. So personally, I'm absolutely fine with this. I'd much rather the company sensibly balances its divis and capex, rather than paying out too much in divis and starving its hotels of capex.

Some key numbers for 09/2017;

  • Revenue up 5.1% to $59.9m - with one additional site.
  • Adjusted EBITDA down 7.6% to $18.1m - so nicely cash generative, but we do need to take into account maintenance capex, which is heavy for hotels.
  • Adjusted profit before tax is down 22% to $11.1m
  • Adjusted basic EPS is down from 13.1c last year, to 10.1c this year (converts to sterling of 7.5p). Note that there doesn't seem to be any potential dilution from share options, since the basic & diluted EPS figures are the same.
  • At 85.5p share price, the 7.5p EPS results in a PER of 11.4
  • EPS seems to have…

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Elegant Hotels Group plc is a holding company. The principal activity of the Company and its subsidiaries is the ownership and operation of hotels and restaurants on the island of Barbados. It owns and operates six freehold beachfront hotels and a beachfront restaurant in Barbados. Its hotels include Colony Club, Tamarind, The House, Crystal Cove, Turtle Beach and Waves. It operates Daphne's restaurant, which is located on platinum West Coast in Paynes Bay, adjacent to The House and Tamarind in Barbados. Its Colony Club hotel is spread across six acres of tropical gardens with approximately 300 feet of beach frontage on the Caribbean Sea and lagoon style pools. Its Tamarind hotel is on the Platinum Coast. Its Crystal Cove hotel has three freshwater lagoon pools, two restaurants, two bars, two floodlit tennis courts and a fitness center. Its Turtle Beach property is on the south coast of Barbados. Its portfolio consists of over 550 rooms. 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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Joules Group PLC is engaged in the design and sale of lifestyle clothing, related accessories and a homeware range, through the multi-channel business structure embracing retail stores, e-commerce, county shows and events and wholesale. The Company has three segments: Retail, Wholesale and Other. The Retail segment includes sales and costs relevant to Stores, E-commerce, Shows and Franchises. The Wholesale segment includes sales and costs relevant to the sale of products to other retail businesses or distributors for onward sale to their customer. The Other segment includes income from licensing. The Company's products include womenswear, menswear, Little Joule, Baby Joule, Wellies and homeware. The Company operates 97 the United Kingdom and Republic of Ireland stores (including five concessions) and three franchise stores. Joules branded products are sold through selected wholesale partners, primarily in the United Kingdom, North America and Germany. more »

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

67 Comments on this Article show/hide all

herbie47 9th Jan '18 48 of 67

In reply to post #295283

Yes you are probably right, but I find a bit bizarre that on good news the shares were up 7% this morning and now down about 12% from that peak, it's as if there is something nasty hidden in the detail. Apart from the missing outlook I can't see any problem in today's announcement and that's what I'm going on. I have seen this before good results and the shares fall on the day but then usually pick up in the following days as the figures are digested.

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willhampson 9th Jan '18 49 of 67

Re Games Workshop (LON:GAW), I find it very difficult to give any weight whatsoever to broker predictions. They have just reported 97p EPS in H1, where traditionally weighting is heavily towards H2 (see last year where H2 EPS was close to double that of H1). The current EPS estimate for this year is 161p which is clearly going to be smashed unless business begins to swiftly unravel, of which there is no current evidence to support. To the contrary, the half year report states December has shown good growth.

I suspect we will see another trading update within the next few weeks, perhaps next week if last year is mirrored, with an above expectations forecast. While I know it is imperative to not be too confident in a stock, I struggle to see many more attractive propositions on the UK market.

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martinthebrave 9th Jan '18 50 of 67

In reply to post #295268

#GAW Can't argue with that Cockerhoop. Hopefully, (for me) there will be a dip in which case I may well buy back in. All the best!

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Cockerhoop 9th Jan '18 51 of 67


Games Workshop (LON:GAW)

I've held the shares since the amazing TS in December 2016 - so approximately 13 months. I attended the Agm in Sept 17 which I would recommend any shareholder to do! Fascinating day out in Nottingham. My son had enjoyed a brief dalliance with the hobby a few years ago so I was vaguely aware of the in and outs of WarHammer.

In answer to your question regarding peak earnings there are in my opinion several moving parts in play.

Kevin Rountree became CEO 3 years ago and has changed the company culture, previously GAW seems to do ok almost despite themselves. Kevin has brought in better marketing, invested in social media content and overseen a very successful re-launch of the Warhammer 40k in June17. The previous launch of Age of Sigma in 2015 was considered to be somewhat of a flop. Customers appear much happier nowadays and the social media (Facebook, Youtube, is keeping them engaged and buying.

Online is growing more quickly than the other channels which is great as it's higher margin business. The vast IP held is also being exploited to greater effect with substantial increases in royalty income. Oversea territoriesare growing quicker than the UK.

As GAW enjoys complete vertical integration it has no real competition on price, no need to do sales etc

So 1 side of the argument is that GAW has produced a step change in customer engagement with more players, buying more of the hobby. This level of sales is the new normal or even we are only starting on the path to the new normal.

The counter argument is that last year revenue was inflated by currency effects and this year the Warhammer 40k release in June along with a major video game releases in March & September have caused a spike in earnings which may fall back to the old normal.

I'm clearly biased as I hold quite a few shares in GAW but all my research visiting shops, the agm and viewing online gamers comments suggest GAW is back to being a force in the gaming world after losing it's way somewhat.

If anyone can find me a share on a fwd PE of 12-13, Yielding 5%, massively cash generative and with a return on capital of over 100%, i'm all ears?

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Cockerhoop 9th Jan '18 52 of 67

In reply to post #295313

Games Workshop (LON:GAW)
I don't think they keep Peel Hunt in the dark. I just think they are since KR took over very conservative in their outlook.

2018 looks to me as the year where they'll look to develop Age of Sigma to keep sales momentum going.

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mammyoko 9th Jan '18 53 of 67

Games Workshop (LON:GAW) current period trading comment - "Our sales for the month of December have also shown good growth trends". 2017 comparatives are strong for Dec 2016 per last year's update on 17/1/17 - "Games Workshop is pleased to announce a significant increase in sales and profits for the period from 28 November 2016 to 15 January 2017". H2 FY17 sales were £87.2m so the current consensus of £86.7m for H2 FY18 looks conservative as the the new 40,000 launch was in H1 FY18.

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boothbym 9th Jan '18 54 of 67

In reply to post #295183

Thanks Paul

1.4m shares traded today. Last placing raised 6m at 50p per share.

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iwright7 9th Jan '18 55 of 67

In reply to post #295328


Excellent point about H1 into H2 2018 sales phasing, which others may have missed. Here's hoping. Ian

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IGotPoesJacket 9th Jan '18 56 of 67

Games Workshop (LON:GAW) should do ok this year imo, they've yet to release the rulebooks for several popular factions (armies) in the 40k game. They've also recently released a game called "Shadespire" which is a faster format game that requires less time and less kit to lug around which should compete well against the Fantasy Flight Star Wars offerings and perennial competition like Malifaux and this has fantastic traction in my local shop, lots of people are buying into it.
I'm impressed with how they have turned things around recently but they won't win back my loyalty (and around 2-3k per year spent on gaming products) for 2 reasons. 1. I won't forgive them what they did to Warhammer, wrecking the whole format to create "Age of Sigmar" (I've never seen anyone in my local games shop play AoS). 2 They bring out a game every year that they expect you to invest heavily into, then it just suddenly disappears for years with no ongoing support. No announcements, no warning, just gone. I give you Heroquest, Battlefleet Gothic, Bloodbowl, Space Marine, Space Hulk as evidence. Hopefully the new CEO will change this, but it's going to take a long time for me, and several of my gamer buddies, to forgive and forget the amount of wasted cash and hours spent painting now useless models..

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Cockerhoop 9th Jan '18 57 of 67

In reply to post #295383

Games Workshop (LON:GAW)

Great user comment IGotPoesJacket.

You'll understand better than me I'm sure but the GeekDad link I posted seems to suggest 2018 could be the year of deepening the understanding of the Realms in AoS.

I thought sales were approx 50/50 40k to AoS?

Are you refering to the original release of Bloodbowl? It's been re-released in the last year or so hasn't it? Chatting to my local store manager I thought armies from Necromundo could also be used in the main games, is this not the case with the older standalone games?

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IGotPoesJacket 9th Jan '18 58 of 67

In reply to post #295398

I'd be surprised if AoS to 40k was 50/50. I don't go in the GAW stores any more though. My local independent game store sees very little AoS demand, I've never seen anyone play it there in 2 years. It could well be why they created Shadespire though, to get people back into the Fantasy Universe, as that game has already got a lot of fans and GAW are doing a lot to create a regular in-store play experience to generate loyalty (Fantasy Flight games give away a lot of product as prize support and have generated a huge following for their Star Wars games, particularly X-Wing). This might hit margin but should be relatively small, they're not giving away gold trophies :)
Yes the older sets do have models that can potentially be used in other games but the business model of making old sets obsolete and forcing customers to buy new (the reason I don't buy GAW anymore) means this doesn't happen much.
Yes Bloodbowl did got its once a decade re-release. It's one of their most loved games but is back to being pretty much unsupported already.
The whole business model has traditionally targeted lots of short term sales. Hopefully the new management team has a more long term focus but I remain to be convinced.
As one of the other posters says, go to the AGM if you can, their HQ is something you'll never have experienced before - enter the world of the uber nerd/geek!

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Wimbledonsprinter 9th Jan '18 59 of 67

In reply to post #295248

Si. Correct re Topps Tiles (LON:TPT). If all weeks are equally weighted (simplifying assumption), then implied growth in the last 5 weeks is 3.7%. Interestingly, comparatives soon get easier, so if (big if) underlying numbers remaining resilient, you could see even better LfL numbers going forward. FY 2017 LfL numbers were: Q1: +0.3%; Q2: -4.1%; Q3: -4.7%; Q4: -3.0%.

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Cockerhoop 9th Jan '18 60 of 67

In reply to post #295418

Games Workshop (LON:GAW)

I was the other poster, the AGM was certainly not like any other I'd attended.

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Andrew niven 9th Jan '18 61 of 67

Hi paul 

Last year barbados government added a ten percent levy on every product imported into barbados.
This has significantly increased the cost of living or indeed the cost of coming on vacation to Barbados.
This season has not been affected as holidays had already been booked but my worry is this coming season could be another story .
The Hilton owned by government has just been sold at a figure of 80 million USA dollars , well below the 200 million it was valued at .
Election soon and difficult to see how the incoming government are going to avoid IMF intervention.

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Paul Scott 9th Jan '18 62 of 67

In reply to post #295458

Hi Andrew,

Re Elegant Hotels (LON:EHG) - interesting background re Barbados, thanks. As mentioned in the main article, I'm also sceptical about the valuation of the hotels. Although as regards bookings, the company today said;

Trading since the start of the new financial year has remained in line with market expectations, and our bookings are currently tracking ahead of the same period last year.

So your fears don't appear to be borne out in practice.

Given the big forex impact, I'm actually quite surprised that bookings & profit margins haven't fallen considerably. We discussed this here before though, and other readers suggested that UK tourists who go to Barbados regularly are not that price-sensitive. I've never been there myself.

Regards, Paul.

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Booboobeaker 9th Jan '18 63 of 67

Hi are you going to cover Superdry (just changed to sdry) in the AM? I think this internationalized, differentiated and compellingly valued fashion retailer is fundamentally undervalued. Look forward to your thoughts.

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Booboobeaker 9th Jan '18 64 of 67

Sorry it mashed my previous post - i know its a midcap but as a former head bod of a fashion co i thought you might be interested

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Andrew niven 9th Jan '18 65 of 67

Thanks for your reply paul
The new season will start next November and December so bookings for then is unlikely this early.
Elegant hotels are a well run company especially for the Caribbean and I think treasure beach their latest acquisition is a good move although I think they paid top dollar for waves the year before.
their group has all inclusive hotels as well as top of the range who are affected by costs and Many people have commented at the increased costs of coming to barbados .
I hope I’m wrong as I have a business supplying these guys but I do fear for 2018/2019 unless the new government introduce new policies to help the tourist industry which we all rely on

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Paul Scott 9th Jan '18 66 of 67

In reply to post #295473

Hi Booboo,

Probably, yes. Superdry (LON:SDRY) is one of my favourite growth companies, and I hold it personally & in BMUS.
Then it's Boohoo.Com (LON:BOO) (my 2nd largest long position currently) trading update on Thursday. So a tense few days!

Regards, Paul.

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Johnny2509 10th Jan '18 67 of 67

Below is an article from Directors Talk speaking to the Chief Executive Officer, Sunil Chatrani, of Elegant Hotels (LON:EHG).

Question 6 and Chatrani’s answer shows they are actively on the look out for opportunities to expand  the business in the region and further afield.

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

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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