Small Cap Value Report (Wed 10 Jan 2018) - QUIZ, SDRY, MOSB, SHOE, TUNE, COG, ZTF

Tuesday, Jan 09 2018 by
93

Good morning, it's Paul here.

Please see the article header above, which shows the companies I intend reporting on today - quite a lot to cover, so it would be helpful if we could keep reader requests to a minimum.


FCA review of CFDs

This is an interesting RNS. It's the FCA's findings from its review of CFD/Spread Bet companies. The prices of spread bet company shares have dipped this morning in response to this report, which is critical of the sector, although it doesn't name the worst offenders.

What puzzled me is that, at the start of this RNS from the FCA it says;

We recently carried out a review of the CFD market. It looked at where firms offer these complex, high-risk instruments to retail customers on either an advisory or discretionary (including limited power of attorney) portfolio management basis.


As far as I'm aware, the vast majority of CFD/Spread Bet accounts are execution-only, hence would not fall within the scope of this review. Therefore, maybe it's a storm in a teacup, and could be a buying opportunity? There are some nice dividend yields available, e.g. with IG Group (LON:IGG) it yields just over 4.5%, and CMC Markets (LON:CMCX) (in which I have a very small long position) yields about 5.0% currently. These companies have very strong balance sheets too.

The FCA is very critical of the processes, but short of any draconian penalties, it's difficult to see how this will actually harm earnings at these companies.


Crypto-currencies (again!)

Spread bet companies must be coining it in (geddit?!!) with crypto-currencies. I know personally that I've handed wads of money to IG on a plate, punting unsuccessfully on Bitcoin (no current position). I've now given that up as a bad job.

The trouble with these ridiculous crypto-currencies, is that they're so volatile that you just constantly get stopped out, if you punt on them via spread bets. So they're ideal (i.e. highly profitable) instruments for the spread bet companies to offer to clients, as the provider is usually the big winner, scooping profits from people who are long or short, as prices violently spike up & down. Both long & short punters tend to have very strong opinions on the value (or not) of crypto-currencies,…

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QUIZ plc is United Kingdom-based global women's wear brand company. The Company is focused on providing occasion wear and dressy casual wear primarily for 16 to 35 year olds and offers clothing, footwear and accessories. The Company’s occasion wear provides maxi and mini dresses, matching tops and bottoms, and footwear, bags and other accessories that are designed to complement a particular outfit. The Company’s dressy casual is designed to provide the latest on-trend clothes, shoes, bags and accessories that have a glamorous edge. In addition, the Company’s products includes denim, playsuits, shirts, tops and skirts. The Company also provides a range of outerwear such as faux fur jackets, parkas and biker jackets. Footwear offers dune River Island, missguided and ASOS. The Company’s brand operates in 19 countries through 65 international franchise stores, concessions and wholesale partners. more »

LSE Price
186.75p
Change
-0.4%
Mkt Cap (£m)
232
P/E (fwd)
22.5
Yield (fwd)
1.0

Superdry PLC, formerly SuperGroup PLC, designs, produces and sells clothing and accessories under the Superdry brand in approximately 670 points of sale across the world, as well as online. The Company offers a range of products for men and women. The Company operates through three segments: Retail, Wholesale and Central costs. The Retail segment's principal activities consist of the operation of the United Kingdom, Republic of Ireland, European and the United States stores, concessions and all Internet sites. The Retail segment is involved in the sale to individual consumers of its brand and third party clothing, footwear and accessories. The Wholesale segment's principal activities consist of the ownership of brands, wholesale distribution of its brand products (clothing, footwear and accessories) across the world and trade sales. It offers a range of products, including t-shirts, polo shirts, hoods and sweats, joggers, tops, dresses, jackets, shirts, footwear, bags and accessories. more »

LSE Price
1390p
Change
1.8%
Mkt Cap (£m)
1,135
P/E (fwd)
12.8
Yield (fwd)
2.6

Moss Bros Group PLC is engaged in retailing and hiring formal wear for men. The Company operates through Moss Bros branded mainstream stores. The Company's segments include Retail and Hire. The Company offers various types of suits, skirts, jackets, trousers, coats, casualwear, ties, shoes and accessories. The Company offers clothing and accessories for various occasions, including weddings, prom, race day suit, tuxedo and black tie, interview attire and graduation. The Company also trades through Savoy Taylors Guild fascia. It has approximately 100 Moss Bros and Savoy Taylors Guild branded stores and over 20 Moss Bros outlet stores, which trade Moss Bros own brands and selected third-party brands, including Hugo Boss, Canali, Ted Baker, DKNY and French Connection. The Company has approximately 120 Moss Bros Hire outlets, which are contained within Moss Bros Retail and Savoy Taylors Guild Stores. The Company's sub brands consist of Moss London, Moss 1851 and Moss Esq. more »

LSE Price
45p
Change
-3.1%
Mkt Cap (£m)
45.4
P/E (fwd)
19.8
Yield (fwd)
9.1



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


59 Comments on this Article show/hide all

seismo101a 10th Jan 1 of 59
2

Frontier Developments (LON:FDEV) please

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MrContrarian 10th Jan 2 of 59
12

My morning smallcap tweet:

Sigma Capital (LON:SGM), Moss Bros (LON:MOSB), Interserve (LON:IRV), Strategic Equity Capital (LON:SEC), Focusrite (LON:TUNE), Zotefoams (LON:ZTF), Cambridge Cognition Holdings (LON:COG)

Sigma Capital Group (SGM) guides FY pretax £4m, slightly ahead of management expectations. Lifts profit expectations for current FY.
Moss Bros Group (MOSB) guides FY pretax £6.5m to £6.8m, slightly below current market expectations due to weak Dec. "We expect these challenging retail conditions to continue for the foreseeable future, the Board anticipates that this will impact anticipated profits for FY2018/19."
Interserve (IRV) FY trading still in iine. "As a result of the 'Fit for Growth' initiatives, the Group's operating profit for 2018 is now expected to be ahead of current market expectations."
Strategic Equity Capital (SEC) negotiates lower fee schedule payable to GVQ Investment Management Limited from 1 Jan.
Focusrite (TUNE) AGM stmt "strong growth has continued in November and December."
Zotefoams (ZTF) guides FY rev beat and adj pretax at the top end of the range of market expectations.
Cambridge Cognition (COG) Two large contracts not signed yet - warns FY rev marginally down YoY, EBITDA (before share based payment charges) broadly break even. The contracts are now expected to commence in the first half of 2018.


Also FCA slams CFD providers and distributors https://www.investegate.co.uk/financial-conduct/rns/fca-publishes-findings-of-review-of-cfd-market/201801100700284545B/

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InvestedGeordie 10th Jan 3 of 59
8

Hi Paul,

I'd like to request Frontier Developments (LON:FDEV) as well, please.

All eyes really are beginning to focus on their Jurassic World release, this summer. It will coincide with the new movie Jurassic World: Fallen Kingdom. What I find really exciting is Frontier Developments (LON:FDEV) have huge expertise in both Park Sims (Planet Coaster) & animal animation (Kinnectimals). Having seen sneak previews via YouTube, I really am liking the way the game is coming together: 


I also see it as an opportunity for maybe 3 paid expansions - perhaps more. I'd be amazed if the movie wasn't successful, therefore, expect perhaps one more film, and probably another game from £FDEV? We should start to see a few more tit bits emerge from Frontier Developments (LON:FDEV) around the game in the forthcoming weeks and months.

Most importantly this is a global, multi-platform release with Universal as a key partner. Could this be the start of a future relationship? It remains to be seen, but with Tencent increasing their stake and having a board presence, I wouldn't be surprised to see increased support from that part of the world in helping Frontier Developments (LON:FDEV) reach a truly global gaming audience

Thanks,

IG


Disclaimer: I hold a long position in Frontier Developments (LON:FDEV)

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leoleo73 10th Jan 4 of 59
4

Paul, I would be interested in your comments about Shoe Zone (LON:SHOE) .

I am concerned about their (slightly?) changed dividend policy and their capex requirements:

In recent years, the strategy has been to pay out around 60% of post-tax earnings as a normal dividend and any surplus cash above £11m as a special dividend.

For the year ended 30 September 2017, the board is proposing to pay out 65% of post-tax earnings as a normal dividend.  The £0.8m surplus cash over and above the £11m [they had £11.8m at year end] that is required for the business to operate effectively will be reinvested in the business.

...

We expect the business will continue to convert cash effectively but anticipate a small increase in capital expenditure to support store openings, refits, new till systems and head office improvements.

Which makes me concerned that they have been underinvesting and that the previous exceptional total dividends (a key reason for my purchase) was not sustainable.

But then they say:

The Board is proposing a final dividend of 6.8p (2016: 6.8p) per share, resulting in a total dividend for the year of 10.2p (2016: 10.1p) per share.  The Board continues to believe the business can operate on an opening/closing cash position of £11m and any excess above this level will be paid out to shareholders unless there is a change in business requirement. 

Which is a strange thing to say after just implying there had been a change in the business requirement to the tune of £0.8m.

Hopefully this all means that a smaller special dividend will be paid later in the year, perhaps after interim results, if/when cash balances are higher.

Elsewhere the results look pretty much as expected, bright spots (and of wider interest) are the 25% yoy rent reduction and a 50% evaporation of the pension deficit. I thought they might manage flat profits and better cashflow though. I'd guess the share will be open down on no special dividend, but they have already drifted a fair bit.

Edit: Regarding cashflow: £2m (4p / share) that went towards special dividends prior year went on purchase of property, plant and equipment this year.

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Paul Scott 10th Jan 5 of 59
4

In reply to post #295588

Morning seismo101a,

I can't see any results/trading update news from Frontier Developments (LON:FDEV) today. Ah no, I see that the company has (rather stupidly) put out an RNS entitled "Notice of Results", but it actually contains a trading update too. So a lot of people might not see this trading update.

I'll add it to the list of things to mention in this report later. It's an in line update;

... the Board remains confident about achieving its expectations for the current financial year ending 31 May 2018.

That doesn't look exciting enough to justify such a high rating. Not sure I can add much value commenting on this company, as I'm not very good on the computer games sector.

Regards, Paul.


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lemonjar 10th Jan 6 of 59

Hi I'm interested in Liontrust Asset Management (LON:LIO) , in case that tickles a fancy. Cheers

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matylda 10th Jan 7 of 59
3

In reply to post #295638

Frontier Developments (LON:FDEV) - Muppets!

Yep - I missed it "Notice of Results and Trading update" is the underlying title.

A valid mistake?

An attempt to delay investors reading the not so great news?

Hopefully a valid mistake.

Blog: Briefed Up
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James RH 10th Jan 8 of 59
1

Hi Paul,

If you're looking at Quiz and Superdry, maybe a quick look at Moss Bros (LON:MOSB) trading update? Results seem flat on lfl basis blaming challenging consumer backdrop and lower footfall. They give an estimated profit which is nice to see though lower than market expectations.

They seem to have a healthy cash balance and wonder whether the generous dividends will continue?

Thanks

James

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ppdrs 10th Jan 9 of 59
2

If time allows, your thoughts on the (very brief) trading statement from Focusrite (LON:TUNE) today? Thanks!

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herbie47 10th Jan 10 of 59

Good Morning Paul, I would be interest in your review of Zotefoams (LON:ZTF) update today, looks like things are still going well.

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mammyoko 10th Jan 11 of 59

Hi paul please could you cover £ZOTE or £EMAN? Thanks

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mammyoko 10th Jan 12 of 59

Sorry Zotefoams (LON:ZTF) or £EMAN

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clarea 10th Jan 13 of 59
1

In reply to post #295713

Apologies hit the wrong button by mistake meant to thumbs up doh

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brentpease 10th Jan 14 of 59
1

Hi Paul,

Would welcome your thoughts on AAZ. Stockopedia has it listed as a super stock and results are due on the 16/01.

Kind regards

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Damian Cannon 10th Jan 15 of 59
1

In reply to post #295738

I don't know if Focusrite (LON:TUNE) prefer to under-promise and over-deliver but there's not much meat in their trading statement. OTOH at least there aren't any nasty surprises.

Also Burford Capital (LON:BUR) put out a statement covering their new investments and the large, sequential growth which this implies. They also indicate that it's in the nature of their business that they cannot give an actual trading statement. Definitely an interesting company with potential.

Blog: Ambling Randomly
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seadoc 10th Jan 16 of 59
1

Paul,

On 27/2/17 you commented on Dialight (LON:DIA) It seems your analysis was spot on: Today I spotted an RNS sneaked out at 0824 on Monday, we have had a Trading Update (profits warning) and immediate resignation of CEO. Graham was equally unimpressed on 24/7/17. I am not asking for any further comment, just flagging it up for any lucky holders.

Regards, Seadoc

 

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Trigger14 10th Jan 17 of 59
2

Paul - when looking at Superdry (LON:SDRY) it might be interesting to compare to the Ted Baker (LON:TED) short trading update also issued today. The market has reacted very positively to it, while negatively to the Superdry (LON:SDRY) one. I’m a bit puzzled by this as they are v similar businesses with similar strategy and profitability and both just announced they are are trading ‘in line’ with expectations. Superdry (LON:SDRY) seems to be growing faster (though has made losses on FX hedging in the first half). I’m sure I must be missing something - hoping you can tell me what!

Blog: Quality Share Surfer
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herbie47 10th Jan 18 of 59
1

In reply to post #295713

Moss Bros (LON:MOSB) shares are down 15% seems quite harsh as forecast looks negative anyway, dividend is very attractive if it can be maintained. Ted Baker (LON:TED) had a good Christmas so some clothes retailers are doing alright.

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James RH 10th Jan 19 of 59

In reply to post #295803

I agree Herbie,

15% does seem harsh. Moss Bros (LON:MOSB) is still highly cash generative with plenty of cash in the bank. Divis are barely if at all covered however with the cash on the balance sheet reckon they'll keep the divis going.

It seems that Aug to Nov, while broadly flat in lfl sales, indicated nothing untoward and they only seem to have had a bad December from lower footfall. Outlook statement appears negative but like you say, other clothing retailers are upbeat.

I'm tempted to have a nibble at them at these prices.

James

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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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