Small Cap Value Report (Wed 11 Apr 2018) - GMD, AIR, BLV, NXR, SRT

Wednesday, Apr 11 2018 by

Good morning, it's Paul here!

I'm up early today, to finish off the unfinished sections from yesterday. There seems to be so much going on at the moment, which sometimes distracts me from the task in hand here.

Here are a couple of interesting situations which I've been immersed in recently, GAME Digital (LON:GMD) , and Air Partner (LON:AIR);

GAME Digital (LON:GMD)

Share price: 38.7p (up 7.6% yesterday, at market close)
No. shares:  172.9m
Market cap: £66.9m

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

Takeover bid speculation

NB. This is speculation on my part, but the reported trades yesterday do seem to suggest something might be going on.

I monitor all positions in my portfolio pretty much in real time, and when there's unusually large volume traded, I sit up and take notice. This can occasionally be a precursor to a takeover bid, if a potential acquirer is buying stock in the market. The trouble is, we don't know who is buying or selling, until the "holding in company" RNS(s) come out, day(s) later.

Sometimes though, very large volume goes through, and you can work out who is selling (but not necessarily who is buying).

In this case, with Game Digital, I noticed traded volume of over 60m shares early yesterday afternoon. Bear in mind that a more typical daily volume for this share is under 1m shares, so something unusual seems to be happening.

I got my broker to email me over the list of >3% shareholders, from his Bloomberg terminal, as I couldn't readily find that information on GMD's own website. Next, I looked at the reported trades for GMD yesterday (courtesy of MoneyAM), and noticed this block of very large trades;


The "buy" or "sell" indicator is meaningless, as by definition every trade in the market has to have both a buyer & a seller, otherwise the shares wouldn't change hands at all.

The trades I have highlighted above stand out like a sore thumb, because they are;

  • very large
  • at the same price of 35p
  • bunched together, happening a few seconds apart, so are very likely to be the same seller (not…

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GAME Digital plc is a retailer of video games. The Company operates approximately 580 stores across the United Kingdom and Spain. The Company's segments include UK, Spain, and Events, Esports & Digital. Its UK and Spain segments are engaged in the sale of hardware, software, accessories and digital. Its Events, Esports & Digital businesses include SocialNAT and Ads Reality Limited (Ads Reality). The Company's activities include multichannel retailing and merchandising; supply chain management and distribution; software and technology development; marketing and customer relationship management (CRM); sourcing and procurement from suppliers, as well as range of individual customers; event management and production, and training, development and employee engagement. The Company's subsidiary undertakings include Game Retail Limited, Game Stores Iberia SLU, Multiplay (UK) Limited, Game Esports and Events Limited, and Game Digital Solutions Limited. more »

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Belvoir Lettings plc is a United Kingdom-based company engaged in selling, supporting and training residential lettings franchises. The Company operates a nationwide property franchise group with four brands that offers a range of services in property rental, property management, residential lettings, buy to let and property sales. Its property franchise group manages approximately 58,000 properties in Grantham, Lincolnshire. more »

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Air Partner plc is a United Kingdom-based aviation services company. The Company provides worldwide solutions to industry, commerce, governments and private individuals. The Company has two divisions: Charter division comprising air charter broking and remarketing and the Consulting & Training division comprising the aviation safety consultancies, Baines Simmons, Clockwork Research and SafeSkys, as well as Air Partner's Emergency Planning Division. In addition for reporting purpose, the Company is structured into four divisions: Commercial Jets, Private Jets, Freight (Charter) and Consulting & Training (Baines Simmons, Clockwork Research, SafeSkys and Air Partner's Emergency Planning Division). more »

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

60 Comments on this Article show/hide all

Zipmanpeter 11th Apr '18 41 of 60

Next (LON:NXT) vs ASOS (LON:ASC) - I also prefer Next (LON:NXT) but it is concentrated on UK vs ASOS (LON:ASC). IF the UK were to go into deep recession then it would be vulnerable (to topline sales and margin reduction, not solvency). ASOS (LON:ASC) has established a bigger proportion of international sales and has laid a groundwork for expansion - although I personally see its 'fashion' sense as more likely to fade than than the more boring, slightly older Next (LON:NXT) typical item. Next is safe middle class, middle age fashion, steadily going online......which is actually the heart of the market in the UK at least. Big shakeout in UK clothes retailer likely in next 2 years and Next (LON:NXT) will be standing tall. ASOS (LON:ASC) is something everywhere but nowhere irreplaceable.

On Next (LON:NXT) vs N Brown (LON:BWNG) - personally, I like Next (LON:NXT) best but I think the market has been over harsh on N Brown (LON:BWNG) although it got lucky at the interims when the excellent progress on the credit book bailed out the balance business (gross margins margins dropped). The fact it makes so much on the credit side is a strength so long as it keeps its customers happy and buying product.

N Brown (LON:BWNG) is now v. cheap for an 80% internet business with several well established brands that has recently completed a transformation to be fully digital and a major simplification of brands. Critical is whether
i) JD Williams relaunch as a Lifestore kicks on (I worry as they just replaced the Agency who had launched the idea after only 1 year)
ii) if Simply Be can fight off all the new entrants and increased focus on clothes for 'curvy' women.
iii) that they keep up customer service scores. This is my big worry as recent Feefo/Trustpilot ratings have been lamentable. I hope this is short term cock up/transition not a consequence of the all new digital systems!

With the US finally starting to motor and the UK business much more focused, it should really start to motor in next couple of years.

Disclosure I own Next (LON:NXT) (biggest holding) and also hold £BWNG

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sher3141 11th Apr '18 42 of 60

I remember when Anthony Bolton sold his stake in ITV to Sky and everyone got excited thinking a bid was in the offing. He sold it on the proviso of no bid happening otherwise he wouldn't have sold at the price he did. I would be baffled if a sophisticated investor sold such a controlling stake for nil premium if a takeover was around the corner, they would have been kingmaker in any deal. It'll be placed with various institutions. Ashley hardly ever, ever buys businesses at premiums. He prefers to pick them up out of admin. But fingers crossed something happens to for all GMD holders.

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Tristan_Treacy 11th Apr '18 43 of 60

A couple of thoughts on Superdry (£SPDY). I have recently started selling down a position in Joules (£JOUL) which has similar characteristics - strong growth driven by growing online, wholesale and international growth. Joules trades on a 24x PE vs 14x for Superdry. Clearly a big valuation gap for businesses with a similar profile.

I have two concern with Superdry.

1) High levels of stock - at HY they were carrying £200m of stock on forward sales of £850m = 85 stock days. That seems high to me for a clothes retailer and I wonder if they are building up stock they will have to write down. Last year write downs were minimal. Does anyone have an idea what is normal in the industry?

2) Capex is high - £56m last year on EBIT of £87m and the dividend was funded from cash reserves. Capex was running at a similar rate at H1 this year and cash continues to fall.

Any views on these concerns much appreciated as am considering opening a position.


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HornBlower 11th Apr '18 44 of 60

on EPWIN pretty good performance given input cost inflation due to FX and major issues with 2 biggest customers. if no other headaches FY18 will see divi 8% 2 x covered by EPS and cash. net debt down to 0.5x. I think management doing a good job in a tough market.

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Gromley 11th Apr '18 45 of 60

In reply to post #352393

On the other hand the remaining GAME Digital (LON:GMD) shares were arguably loose change to Elliott, given that they sold the other 60+% of the company at £2.00 & £2.60 per share some time ago.

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CliveBorg 11th Apr '18 46 of 60

Have you decided not to comment on Card Factory?

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Trident 11th Apr '18 47 of 60

In reply to post #352423

Card Factory (LON:CARD). Reasonably encouraging commentary in the The Times today, when I was expecting the same old dirge, about greeting cards being analogue in a digital world.

Seems young people like cards in the UK as well, according to their interpretation of Card's analysis.

Don't think Paul is going to being commenting on it, is my take.

The Special dividend is down from 15p, but still in the 5-10p range, if everything remains as is or better, giving a healthy yield. Counters to overhead increases are potential, because of easing of dollar headwinds, and also through an efficiency cost review, though not expecting profit growth in ye '19, I think. Sales were up, however, which shows the model is still generally working.

Steady as she goes, for the time being. Market seems to like the outlook so far. As mentioned by earlier commentators debt is up, but would imagine its ratio to EBITDA is still within range, and it would have been easy to not pay any special if they were worried. So it seems trim and review is the way forward, which seems fairly sensible.

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DJCP 11th Apr '18 48 of 60

A snippet of news to give the (possible) downside to online retailers (albeit one in private ownership):

Headline is just that, and only there to attention-grab.
"Littlewoods owner Shop Direct puts 2,000 jobs at risk"

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Crusty 11th Apr '18 49 of 60

I know it’s rather blue sky, but back on October 9 Graham commented on CPX, a small developer of super capacitors (no, I don’t either). Anyway just flagging up interesting rns today in which new prismatic mini capacitor is announced...
“The Company will develop its 3V technology first in thin prismatic form to meet demand for small, inexpensive, energy-efficient power solutions for thin wearables, key FOBs and other IoT devices. CAP-XX plans to then integrate the 3V technology into its larger prismatic supercapacitors, automotive modules and other products for high-energy, high-power applications.

The new 3V supercapacitors will eliminate the cost and inefficiencies of the low-dropout (LDO) voltage regulator or buck converter often required to step the voltage down to work with the industry's existing 2.7V-rated thin, prismatic super capacitors”.
Looks interesting.

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matylda 11th Apr '18 50 of 60


Just wanted to say thanks for the excellent coverage and insights provided in yesterdays and todays updates - Fantastic stuff that I know takes a huge amount of time.

The first drink's on me at Mello!

Blog: Briefed Up
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dscollard 11th Apr '18 51 of 60

In reply to post #352363

indeed, off-exchange transactions though I thought MiFID II was going to put the kibosh on those ... there are volume rules I think which trigger an auction

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brileen 11th Apr '18 52 of 60

Superb coverage of events. Thanks . Makes my task of trying to manage my portfolio so much easier and yes more enjoyable.


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Johnny2509 11th Apr '18 53 of 60

In reply to post #352403

I currently hold Superdry (LON:SDRY), bought in on the last price fall, although they've fallen a further 12% since I bought them! Timing's clearly not my strong point.

A quick read of the last accounts give an overview of Capex and working capital. 

The number of stores, both owner and franchised / licensed have increased by 17.7%.

Capex spending on the Store portfolio, £21.1m, infrastructure £8.1m, plus cash outflow (capital additions and intangibles) of £26.8m. Total Capex of £56m. The reasoning is as follows: contributions to support franchise growth globally and store refurbishment investment to introduce the brand's Next Generation store concept. Infrastructure investment to enhance our Ecommerce customer experience and strengthen our central capability and facilitate our future planned growth also continued. The most significant investments within this related to ongoing introduction of multi-channel capability to our distribution centres located in Europe and North America and the implementation of a new OMS within Ecommerce.

Full year guidance for capital expenditure remains at between £60m and £70m.

Capex this year is not too dissimilar to last year and has been increasing over the last few years due to the business expanding. The clear knock on effect is lower FCF per share in the short term, but hopefully increased ROCE (currently around 21%) thereafter.


Total retail sales Q1 17 - Q1 18 are YOY up 15.6% (although LFL down) with average floor space increasing 16%.

Inventories have thus increased from £160.5m to £200m or 24.6%, with total working capital increasing by 33.5%. 

Again, the reasoning is - 

The increase of 33.5% partly reflects the impact of currency and planned acceleration of seasonal inventories to ensure high levels of product availability in the key trading period. The remaining inventory growth is broadly in line with the revenue growth of the Group.

.........Trade and similar receivables remained well managed with a reduction in debtor days since the previous year.Trade and similar payables increased by 22.0% to £151.5m (1H17: £124.2m). This growth, which is marginally lower than the corresponding growth in inventory, reflects the timing of seasonal deliveries, outlined above, and the progressive movement of suppliers to standard trading terms.

I'm more than happy to hold this stock (unless something fundamentally changes to the detriment of the business) as my time frame is medium term at least. 

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threeputt 11th Apr '18 54 of 60

Great write up today Paul, thanks - I was particularly taken by that last paragraph on balance sheet recs, I too have seen both sides as a FC when I was working, one was managed perfectly as you say on a spreadsheet recc'ing each balance sheet, a very good company, the other the intention was there but it just took one unknowledgeable person to just chuck unknown items into sundry debtors/creditors, suspense etc without narrative and leave it to the next person to sort out to wreck a companies accounts, I know which one I preferred.....
Some very interesting write ups, none of which I hold but garner an interest lol, I look forward with interest to your write ups on Epwin (LON:EPWN) and Universe (LON:UNG) as they are both shares I am watching keenly for an entry

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TheArb 11th Apr '18 55 of 60

In reply to post #352073

I think you have read the situation correctly, also the price at which the transaction is done is normally a good indicator of who initiated the deal, a discount to prevailing market price would imply the seller, and a premium would imply the buyer. That’s not to say that the clearing of an overhang, even at a discount can be positive for the share price. It’s also unlikely that anyone but a very naive shareholder will sell their stake to a potential bidder at a price significantly lower than a bid for the whole company shortly afterwards without conditions attached.

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LeoInvestorUK 11th Apr '18 56 of 60

In reply to post #352358


Yes, both SCS (LON:SCS) and Bonmarche Holdings (LON:BON) have considerable surplus of current assets over liabilities in the form of cash. However according to their 2017 annual reports, the vast majority of SCS's operating leases are 5 years plus (a total liability far exceeding their market cap), whereas Bonmarche has a fair few within one year and the vast majority less than 5 years (total liability somewhat less than market cap). Plus Bonmarche Holdings (LON:BON) is much cheaper on a P/E basis and (as a homeowner) I prefer to avoid too much housing market exposure.

Of course, I read your article before buying UP Global Sourcing Holdings (LON:UPGS) , and very helpful it was too - thank you! The callable borrowings was the thing that really concerned me, but it appears to be being paid off (even with the excessive dividend) and I was reassured by the current ratio and positive NTAV.

Blog: LeoInvestorUK
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mojomogoz 12th Apr '18 57 of 60

In reply to post #352493

Hi Leo

I see the attraction in Bonmarche Holdings (LON:BON) and thought about it. It’s probably better value than SCS (LON:SCS) but my bias is that SCS has the clearer growth path and higher quality earnings. It can double earning thro it’s cash and then has organic capacity over a few years to open 30 new stores in targeted that’s 200% earnings growth without LFL top line. I think SCS is on a clear-ish path to this absent retail Armageddon. I also think SCS has a securer niche and for whatever reason others aren’t trying to take them on in the bargain basement and are aiming mid market and up. I too was concerned on leases. I beleive they overreached in their mega store opening circa 2005-2007 and did it with long leases. So being worked thro and I think manageable plus it’s part of why cash earning will keep outperforming accounting earnings driving value.

Bonmarche is a growth business :) ...oldies are still going to shop on high street. Plus I like that they have so many shops in less flash places. Cheap and sounds like cash flow to me if they have their product right. Of course they do have some competition, more so than SCS IMO.

I’ve spoken to CFO at SCS with detailed list of questions and feel really satisfied that they run business well. I’m not as on the case with Bonmarche partly as Sun Capital IPO’d both and still hold big stake in both that they want to exit soon. I don’t see a prob and think these were well executed IPOs but 1 of the 2 is enough for me. It may be you have the winning horse and I’ve not done my work!

I agree with your point on UP Global Sourcing Holdings (LON:UPGS)

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CliveBorg 12th Apr '18 58 of 60

In reply to post #352428

Thanks very much Trident, for your excellent post.

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smatthews1 12th Apr '18 59 of 60

Enjoyed reading this report with regards to GAME Digital (LON:GMD) really useful insight with interpreting the volume of trades. I personally think there is a lot to be said about volume, but you don't hear about it very much.

its good for short term entries and exits anyway.

if any one can recommend and good books on the subject, that would be very much appreciated.

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gus 1065 12th Apr '18 60 of 60

Series of RNS just out confirming Duodi have completely exited from GAME Digital (LON:GMD) and shares have been picked up by IIs in batches. Milton have taken the largest 13% chunk.


(Edit: Oops - sorry just read Willhampson post on another thread with same update).

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


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