Small Cap Value Report (Wed 10 Oct 2018) - Market Volatility, CAKE, SOS, WGB, MGR, VTU, BOWL

Wednesday, Oct 10 2018 by

Good morning! Welcome to the Small Cap Value Report, our daily analysis of small cap share news. 

Some interesting stories out this morning:

Market Volatility

A quick word on "market volatility" (often a euphemism for market weakness, but there we are).

The FTSE 100 is testing support around 7200 as I speak. We have made a fresh six-month low.

Overall sentiment in the market has been a frustrating headwind for many investors. The measure that I particularly track is the FTSE All-Share Total Return Index: this is down 2.7% year-to-date.

Within that, the more domestic-focused FTSE 250 Index has under-performed (total return is down 3.6% year-to-date). I get these numbers direct from

Looking at the junior market, where many private investors are active, the AIM All-Share Index (AXX) has had a horrific sell-off over the past five trading sessions. 

It closed at 1092 on October 3rd. Only a week later, and it's at 1019: a sharp, fast fall of some 6.6%.

Some of the most popular and higher-valued AIM stocks have had a particularly nasty week:

My own portfolio hasn't gone unscathed. While I've had some success with Volvere

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

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Patisserie Holdings PLC is a United Kingdom-based cafe and casual dining company. The Company offers cakes, pastries, snacks, meals, and hot and cold drinks across the United Kingdom. The Company's segments include Druckers, Flour Power and Philpotts. It offers products, such as coffee, dairy, fruit, packaging, cocoa and wheat items. It offers cakes in various categories, including celebration cakes, gluten free cakes and wedding cakes. The Company operates under various brands, including Druckers-Vienna Patisserie, Philpotts and Flour Power City Bakery. The Company offers a range of cakes, such as Gluten Free Flapjack, Gluten Free Chocolate Chip Muffin, Cortina, Chocolate Box, Carrot Cake, Cheesecake, Blackforest, Exotic Fruit Tart, Pecan Tart, Citron Tart, Choc Mousse, Mixed Berry Mousse, Raspberry Tart, Madame Valerie Slice, Mille-Feuille, Gluten Free Chocolate Brownie and Gluten Free Marble Cake. more »

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Sosandar PLC, formerly Orogen PLC, is a United Kingdom-based company that operates an online women’s wear platform. The Company’s clothing categories include dresses, jackets and coats, knitwear, shirts and blouses, tops, skirts, trousers, jeans, leggings, footwear, leather and suede, occasion wear, work wear, autumn trends, velvet and holiday shop. Its footwear products include Pewter Metallic Chelsea Boot, Red Leather Ankle Boot, Velvet Cylinder Heel Ankle Boot, Black Leather Stud Detail Ankle Boot, Black Suede Closed Toe Mule, Grey Velvet Court Shoe With Jeweled Brooch, Black Suede And Pewter Metallic Court Shoe, Black Leather Front Zip Ankle Boot, Leopard Print Leather Chelsea Boot, Steel Blue Leather Snake Print Ankle Boot And Black Suede Knee Boot. It also offers latest edit of day-to-night dresses, on-trend separates, luxe leather and outfit-topping shoes through its platform. more »

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Walker Greenbank PLC is an international luxury interior furnishing company. The principal activities of the Company are design, manufacture, marketing and distribution of wall coverings, furnishing fabrics and associated products for the consumer market. It operates through two segments: Brands and Manufacturing. The Brands segment is engaged in the design, marketing, sales and distribution, and licensing activities of Sanderson, Morris & Co, Harlequin, Zoffany, Anthology and Scion brands operated from the United Kingdom and its foreign subsidiaries in the United States and France. The Manufacturing segment is engaged in the wall covering and printed fabric manufacturing businesses operated by Anstey and Standfast. It sells in approximately 80 international markets. It operates through its subsidiaries in the United States and France, and its own sales operations in Holland and Dubai. The Company has showrooms in London, New York, Paris and Dubai. more »

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

88 Comments on this Article show/hide all

LeoInvestorUK 10th Oct '18 69 of 88

In reply to post #406664

Patisserie Holdings (LON:CAKE) - the evidence rather points to the ex-FD (who is also the Secretary of Stonebeach) either not opening or not acting on letters addressed to him. This could be due to anything from being out of the office for an extended period, through mental health/incompetence, to a desire to avoid the embarrassment of telling management when he knew funds to pay would shortly be available. Deliberate fraud is also a possible explanation.

Is it possible HMRC didn't realise Stonebeach are basically Patisserie Vallerie and/or there is some other reason they didn't start contacting the other directors? Certainly nobody else seems to have spotted it before today (price falls are consistent with market moves).

Blog: LeoInvestorUK
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Beginner 10th Oct '18 70 of 88

In reply to post #406264


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Emperor 10th Oct '18 71 of 88

In reply to post #406254

Ramridge reply on Patisserie Holdings (LON:CAKE)/Paul Scott's observation.

Greggs has also had a good long-term run and arguably this only a more expensive version. Perhaps mixed more café than takeaway but they have a lot of those too. Will be fascinated to see what the issue ultimately proves to be and whether it is worth jumping back in on any return, at a significantly lower SP of course.

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Edward John Canham 10th Oct '18 72 of 88

Patisserie Holdings (LON:CAKE)

Company became aware of the accounting irregularities yesterday afternoon/night if I'm following the story correctly and issued a RNS this morning.

That they have "found" a winding up petition to report on this afternoon basically suggests they've started searching through the FD's office and found some worrying paperwork. Doesn't sound good.


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Steves cups 10th Oct '18 73 of 88

In reply to post #406334

Hi Vic2001 and GN,
I have a similar portfolio to Graham although a lot more equities. I have about 25% in uk bonds issued via the Order Book for Retail Bonds, a lot at time of issuance. Whilst most of these are referred to as junk bonds there are issuers such as Burford Capital, Paragon and many other well know names. Whilst coupons have dropped over the last 3 to 4 years one only has to hold for few years to maturity to get your money back (unless bankruptcy occurs) and get a decent yield over this year's. Preference shares are another area to look at but are probably more volatile and with high spreads.

Here above is the first place to look. This of course is direct investment rather than visit bond funds

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Steves cups 10th Oct '18 74 of 88

In reply to post #406409

Hi graham,
I have a similar portfolio to you although a lot more equities. I have about 25% in uk bonds issued via the Order Book for Retail Bonds, a lot at time of issuance. Whilst most of these are referred to as junk bonds there are issuers such as Burford Capital, Paragon and many other well know names. Whilst coupons have dropped over the last 3 to 4 years one only has to hold for few years to maturity to get your money back (unless bankruptcy occurs) and get a decent yield over this year's. Preference shares are another area to look at but are probably more volatile and with high spreads.

Here above is the first place to look. This of course is direct investment rather than visit bond funds

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Kenncam 10th Oct '18 75 of 88

In reply to post #406664

All good advice in terms of debt collection.

As the Board claims to have found out about it today possibly not as serious as the position where they did know about it but weren’t able to pay or do a deal in time to stop the petition being advertised?

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racthompson 10th Oct '18 76 of 88

Paul May and Christopher Marsh have been directors in Stonebeach Ltd since 2011 and 2007 respectively, and are also main board directors of Patisserie Holdings. Paul may is the chief Executive of the holding company. There is no way that they cannot have been aware of the HMRC order to wind up Stonebeach. Both should be fired for incompetence., and failing in their duties as directors

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herbie47 10th Oct '18 77 of 88

In reply to post #406499

I can understand it with records, they are often faulty or have minor scratches, also the postage costs are high so it makes sense to do that, many are quite expensive so you want to get one in decent condition. I know someone who bought a new double LP for £160 but one of the lps was badly warped, so he had the choice of sending it back for a refund, as it was out of stock it would not be replaced or get it repaired, he choose the later, the repair was fine but did cost about £10. If he had bought 2 he could have just returned the warped one, assuming the other one was better.

WIth clothes online I now will only buy items I know or I can return free of charge, I've had too many mistakes, they often look different online or the size is not right, I think you can always expect a high rate of return.

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Taff6 10th Oct '18 78 of 88

In reply to post #406424

Thank you, yes you are correct all investors are affected by governance issues not just PI apologies.

  • I'm puzzled. I can't figure out what it is about the Serica Energy (LON:SQZ) announcement yesterday that brings anybody or anything into disrepute.

Just thinking when a Government applies sanctions on a country, should it not be universal with no exceptions regardless of company and/or country interests? Or are we saying that its acceptable to have one rule for one and another for others here?

That said I'm also a happy holder, after following Serica Energy (LON:SQZ) initially on ShareProphets and subsequently the excellent posts here, the one you pointed out and that initiated by Noodle Hat.

In my view there's nothing wrong with taking a profit or loss before someone else takes one's slice of the cake, pardon the pun and sympathy to all holders, which won't help as this will probably be another whitewash.

Finally thank you and others for your commentary on Serica and congratulations due to your large position size.   

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tony akram 10th Oct '18 79 of 88

Hi Everyone ,

I unfortunately I hold CAKE please excuse my ignorance but does anyone know what this could mean for CAKE is it possible that company could go bust (and thus shareholders lose their money) and when is it likely to be reinstated on AIM (if at all ) I assume the price would fall around 50% I would welcome thoughts from investors who have experienced this type of situation before as this is new for me

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Snoo 10th Oct '18 80 of 88

I don't think it's going to be a Conviviality case unless it turns out that all the cash they said they had was actually a fabrication. Although I think it might be penalised harshly - can they be trusted going forward?

Doesn't seem the worst time to have the shares suspended, looks like most portfolios will be taking a bit of a spanking tomorrow. I have a strange feeling that this is far from the worst.

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DJCP 10th Oct '18 81 of 88

In reply to post #406874

@tony akram - re Patisserie Holdings (LON:CAKE)

No one really knows at the moment, but if you've read up on here, you'll see what we all know has happened, and get a range of sensible opinions on how it could have happened, and what may happen from now on - Lot's of 'happens' and IF's at the moment unfortunately !
If you've read the comments on another particular share-based bulletin board, then you'll see a whole range of extreme ideas, most of which are useless ! I'm waiting for Brexit, Trump, North Korea, etc. to be blamed over there ! lol

From what I've read so far, and my views:
1) Headline figure was of £20m black-hole, although not sure where that figure came from.
2) Official notification is mentioning £1.14m, but that's most probably not everything.
3) Will it go bust? I doubt it, but anything is possible. Even if there's £20m "missing", then that shouldn't be a final-nail-in-the-coffin for Patisserie Holdings (LON:CAKE)
4) Until we've more official information, then the price fall is a pure guess, BUT I think your 50% is probable. I need to (quickly) work out figures when it's all out in the open to decide if I'm going to bail-out (and take a hit from my £3.55 price), or buy more on a bounce (up, hopefully!).
5) Timing is also a guess, but I'd hope shareholders were updated with as much info, and as soon as possible. The court date is 31st Oct I think I've seen, so hopefully it will be resolved before then, but not guaranteed.

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LeoInvestorUK 10th Oct '18 82 of 88

In reply to post #406874


Yes, it is quite possible that they will go bust and you will lose all your money. This is the risk you always take when owning shares and why people spread their risk by owning several.

It is quite common for companies to go bust with little warning, but very rare for it to happen with no warning whatsoever as appears to be the case here. Especially because it is so rare it is very difficult to guess what will happen here and I think the best advice is to assume you have a 100% loss and treat any recovery as a bonus.

Here is a bull scenario: £20m stolen by the FD in the last few months who then has been covering it up [1]. Nobody else involved and no other problems. £20m is worth 5% of the share price, but as an absolute minimum you could multiply that for reputational damage, investigation costs and management distraction / discontinuity. Luke Johnson sees longer term value and takes advantage of the situation to buy them out for a 20% discount.

And the bear scenario: The business has been doing badly for years. A £20m discrepancy has been found in one part of the accounts and more is to be discovered elsewhere. Suppliers panic and piggy back on the winding up petition requesting immediate payment. As the business has hardly been making any money all the intangible assets are written off and onerous lease provisions made. The business collapses with no liquidity or asset backing.

[1] Disclaimer: I am absolutely not suggesting that this is what happened, only outlining the most optimistic scenario I can think of. Indeed, I think this bull scenario is spectacularly unlikely.

Blog: LeoInvestorUK
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tony akram 11th Oct '18 83 of 88

Thanks all for your comments lets hope in not too bad !!

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peterg 11th Oct '18 84 of 88

In reply to post #406904


I think at best it's worse than your "bull case".

We now know that there is not just £20m unaccounted for, but that there appears to be a complete failure of management - with BOD claiming to have discovered only yesterday that HMRC had issued a winding up notice some weeks ago. How could anyone have trust in a management that allowed that to happen, and one bad apple isn't a good enough explanation. Potentially more serious, as has been pointed out earlier, the HMRC notice now gives all other creditors a right to call in any debt. Either CAKE has to be able to tackle a potentially much larger issue than HMRC, or they are going to have to be very convincing to a lot of possibly very sceptical creditors.

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Dhanpal Panwar 11th Oct '18 85 of 88

Latest on CAKE on bbc says its brink of collapse

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Bezhe 11th Oct '18 86 of 88

Patisserie Holdings (LON:CAKE) - extract from last audited accounts (for year to 30/09/2017):
"Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Short term flexibility is achieved by overdraft facilities. The risks are managed by overdraft facilities and availability of a capital drawdown facility thus reducing exposure."

It seems to me like a catastrophic cash loss, given that it claimed that at 31/03/2018, it had cash of £28.8m and total liabilities, excluding deferred tax, of only £5.5m, with overall net tangible assets of £85m. It seems inconceivable that the cash was not there in the first place. I've no position here but I'm intrigued to find out what has happened. I can't wait.

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andyfwwrench 12th Oct '18 87 of 88

Really surprised to see so many comments here that Patisserie Holdings (LON:CAKE) will still trade. Surely the most likely outcome is that the business has never been profitable and right now is trading insolvent?

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Sniggolb 13th Oct '18 88 of 88

I have no position here but that is down to pure luck.. All investors rely on the competence of auditors, professional advisors and honest management.

The key here is to ensure that all the directors/advisors, accountants of all companies will never be forgiven when honesty is breached. investors can and do forgive trading hazards as part of life but we should be relentless in condemning fraud or maladministration.

It's too early to know what has gone on here but if it's fraud the perpetrators should be banned for life.

One thing's for sure. Luke Johnson knows all about Hubris and Nemesis.

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

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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