Small Cap Value Report (Wed 13 June 2018) - MUL, NTBR, CNCT, CAY

Wednesday, Jun 13 2018 by


On the menu today we have:

5.30pm Edit: had to cut this short here, due to time constraints.

Last call for Mello South: I've been informed that the last 30 tickets for tomorrow's conference are being offered at £30.60, i.e. at a 66% discount to the full price.

Besides the speakers I've already mentioned who will be there, the event will have Leon Boros and David Stredder on a panel with two fund managers, each discussing the secrets of their own stock-picking success.

There will also be a Dragons Den event which will herald "the rebirth of Hofmeister Beer - follow the bear" (I am too young to appreciate what this is referring to).

The complete schedule can be viewed at this link. Ticket-holders will be able to view all the sessions that are filmed at their leisure afterwards and the tickets can be picked up, with the 66% discount, at this link.

CEO Interview - I'm about to do an interview with the CEO of PCF (LON:PCF) (in which I have a long position), so if you have any questions you'd like me to ask, there is some time to post them in the comments below.

11:30am: I've finished the interview with Scott Maybury at PCF. Very interesting and helpful - I should be able to publish a report on this in the next few days.

Mulberry (LON:MUL)

  • Share price: 745p (-4%)
  • No. of shares: 60 million
  • Market cap: £447 million

Preliminary results

I've been writing very positively in the last few days about the luxury brands Burberry (LON:BRBY) (which I hold) and Ted Baker (LON:TED) (which is on my watchlist).

Despite my belief in luxury goods as an investment space, I am still very sensitive to the valuation multiples attached to these shares. And I've failed to understand the valuation…

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

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Mulberry Group plc designs, develops, manufactures, markets and sells products under the Mulberry brand name. The Company operates through two segments: Retail and Design. The Company's Retail segment includes sale of Mulberry branded fashion accessories, clothing and footwear through a range of shops and department store concessions. The Company's Design segment includes brand management, marketing, product design, manufacture, sourcing and wholesale distribution for the Mulberry brand. Its product range includes women's wear, accessories and footwear. It offers products under various categories, including leather accessories, such as bags; small leather goods; shoes; soft accessories, and women's ready-to-wear. The Company distributes its products through over 120 stores in approximately 30 countries; its digital site,, and selected wholesale partners. The Company has operations in the United Kingdom, Rest of Europe, Asia, North America and Rest of world. more »

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Northern Bear Plc is engaged in providing specialist building services. The Company operates in the support services sector. The Company's segments include Roofing activities, which provides a range of roofing services, including slating, tiling, leadwork, felting, refurbishment and maintenance for domestic, commercial and public sector properties; Materials handling activities, which includes supply, service and maintenance of fork lift trucks and warehouse equipment both on hire and for sale; Building services activities, which provides services, including fire protection and asbestos removal, and Corporate and other activities, which provides head office activity and consolidation items. The Company also provides services ranging from general building work, asbestos surveying, fork lift truck sales/hire, and health and safety consultancy. The Company's subsidiaries include Isoler Limited, Springs Roofing Limited, Wensley Roofing Limited and Jennings Properties Limited. more »

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Connect Group PLC is a United Kingdom-based distributor operating in newspaper and magazine wholesaling, and mixed freight distribution. The Company operates in three segments: Smiths News, DMD and Tuffnells. Smiths News segment distributes newspapers and magazines to retailers across England and Wales from its 39 distribution centers. DMD segment supplies newspaper and magazines to airlines and provides inflight services. Tuffnells segment provides next day business to business (B2B) delivery of irregular weight and dimensions consignments. Smiths News distribution network includes six hubs and 33 satellite depots. DMD supplies printed and digital media to travel points. Tuffnells provides parcel freight services for small and medium-sized enterprises. The Company’s subsidiaries include Smiths News Holdings Limited, Dawson Media Direct Limited and Tuffnells Parcels Express Limited. more »

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

64 Comments on this Article show/hide all

dscollard 13th Jun '18 45 of 64

RE: Mello South

I note that Mark Slater has a 3.25% in XLMedia (LON:XLM):  he has had a few screamers in the past year or two Lakehouse (LON:LAKE) amongst others springs to mind. Maybe worth a discussion with him on how he views these as clearly his capital seems to be more "patient!"  than others.  Many on here have become much more Minervini-like in handling losses.  

There's a useful discussion around investor versus trader in there somewhere and the spectrum of behaviours that vary across the fundamental to technical spectrum of styles and resulting timings (and tolerances)

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dscollard 13th Jun '18 46 of 64

In reply to post #373704

Love it - straight from the Peter Lynch philosophy of investing, even if it was accidental

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tomps3 13th Jun '18 47 of 64

Hardide (HDD) presentation just posted, from the Progressive Equity Research - piworld event held on Monday (11.6.18).

High margin. Patent protected IP. Dependent on oil and gas, so benefiting from oil price. Slowly diversifying into other sectors.

Here's Phil Kirkman CEO and Peter Davenport – CFO

With an introduction by Gareth Evans, MD Progressive Equity Research

Phil Kirkman, CEO
What is Hardide? - 01:55
The business model - 04:20
Aim listing & placing – 05:35
The group facilities – 06:00
Key facts - 6:43
Patented coating technology - 09:10
Intellectual property - 13:10
Key markets – 14:30
Accreditations - 17:38
H1 18 overview - 18:19

Peter Davenport, CFO
Financial trends – 20:45
Financial overview H1 18 v H1 17 - 22:40
Income Statement 23: 32
Balance sheet – 23: 40

Q&A - 25:30

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lyndhurst25 13th Jun '18 48 of 64

Dewhurst (LON:DWHT): operating profit for the half year down from £3.1m to £2.5m. However, last week the company announced that it would be acquiring A&A Electrical Distributors for £10.5m cash plus 25% of A&A's profits for the next two years. A&A made £3.3m profit before tax in the year to 2016, on a turnover of £11.4m. Sounds like Dewhurst got a bargain there. And don't forget that with Dewhurst there are the expensive DWHT voting shares (875p) and the cheaper DWHA non-voting shares (565p). I hold DWHA.

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Graham Neary 13th Jun '18 49 of 64

In reply to post #373619

re: Eckoh (LON:ECK). I've run out of time, after failing to cover as many stocks as I intended to. Too many distractions today. Maybe I will get to it on Friday. Sorry about that.


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skinner66 13th Jun '18 50 of 64

In reply to post #373639

i know you didnt have time on ECK, but if chance tom,, surorised so many selling, with postive results in usa, strong pipeline, and good growth expected,,am i missing something

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jonthetourist 13th Jun '18 51 of 64

In reply to post #373759

"The trouble is that people will change their behaviour if they know the longer they wait, the bigger the discount."

*Some* people may well. Personally I would book now for the next Derby event without knowing the price or line-up. I am price inelastic. I have no problem with selling off tickets cheap late in the day if (crucially) there are any left, to people who are price-elastic.


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Luthrin 13th Jun '18 52 of 64

In reply to post #373669

Thank you for the acknowledgement, Graham.

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Gromley 13th Jun '18 53 of 64
Tomorrow's report will be written over the course of two hours, when I arrive at Mello. Let's see how it goes!

I am very much looking forward to seeing how that works Graham - is panto style audience participation allowed or frowned upon?

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Julianh 13th Jun '18 54 of 64

In reply to post #373714

You are right Rhomboid1. There is no way that David or the Mello team can force people to keep their appointments. And as for the cost of the tickets..... I attended both days at the Mello Derby event, listened to and spoke to maybe 10 or 15 companies and bought shares in one. Talking to the founder and CEO of this company gave me the confidence to invest. These have gone up 24% so far, a very good return on the ticket, travel and hotel costs. The only reason that I won’t be at Mello South is that I am out of the country this week.

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MarkOR 13th Jun '18 55 of 64

Regarding Connect (LON:CNCT). My corner shop - despite multiple requests - has had no deliveries of World Cup stickers for my kids’ sticker book for two weeks now! The demise of Connect (LON:CNCT) has nothing to do with the market, it’s pure management incompetency. The recovery story is highly dependent on Monday’s incoming CEO. Does anyone know of him?

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TheArb 14th Jun '18 56 of 64

In reply to post #373864

I bet that was Alliance Pharma

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crazycoops 14th Jun '18 57 of 64

Or Beeks Financial Cloud (LON:BKS) ?

Blog: Share Knowledge
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Julianh 14th Jun '18 58 of 64

In reply to post #373949

Good guess but no cigar TheArb. crazycoops got it right. It was Beeks Financial Cloud (LON:BKS) . It'll be interesting too see how it does over the next few years. Will it be a confirmation that meeting management face to face improves our ability to select good stocks? Or does face to face makes it easier for management to pull the wool over our eyes?

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Andrew L 14th Jun '18 59 of 64

In reply to post #373864

Sorry you are just plan wrong. This is a ridiculous straw man's argument. Let me be clear. I think David is a very good event organizer and Mello Derby was very good. I am making a specific point about how Mello South was marketed and what the reality is. I think people have to be very clear about how they market things otherwise it is viewed as misleading consumers. This is what the law says so it is not me being "churlish" or a "whiner." If you think it is a good idea to market x but sell y then I would be happy to sell you lots of things. You just won't get what you ordered. I don't see how setting up a straw man argument when I am putting forward a specific point is helpful.

On your points:
1) If you are to market an event with high profile speakers - Slater, Brough - you can contractually ensure they will come. That makes sense if you are marketing the event. I personally paid a fair whack as both people were stated to be coming. They were the headline "stars" that I booked tickets for.
2) No refunds - Mello has a no refund under any circumstances policy. This seems odd and unfair given that the event is marketed in a certain way and the reality is sometimes different. The full list of the schedule only comes out a day or so beforehand. So you are buying a ticket in the dark.

I note that David has commented here. I don't think the argument that "if you think you can organize a conference better then do so" is very constructive. How can the two high profile speakers that were "booked" suddenly not be turning up i.e. Slater, Brough. These were the "headline" speakers.

But I think I will leave this here. Other people on this thread appear to think it is ok to advertise something as X and to deliver Y with a no refund policy. Fair enough and good for you!

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simoan 14th Jun '18 60 of 64

In reply to post #373834

*Some* people may well. Personally I would book now for the next Derby event without knowing the price or line-up. I am price inelastic. I have no problem with selling off tickets cheap late in the day if (crucially) there are any left, to people who are price-elastic.

In fact most people will, as observed by behavioural economists (Kahneman, Thaler, Ariely etc.) human beings are predictably irrational especially as consumers when it comes to pricing. Even when you identify a share you want to buy, who amongst us never waits for a pull-back to buy it slightly cheaper? Perhaps it's only me...

When you're organising an event you need an idea of demand as early as possible, particularly whilst you still have some flexibility in your own fixed costs in running the event. The low-cost airlines increase prices as the flight departure gets nearer because it engenders the behaviour they want from their customers. To do the opposite will only likely engender the wrong kind of behaviour and if the lower pricing is very visible it's likely to create some resentment from your best customers and change their behaviour when buying tickets in future.

It's not an easy problem to solve, and behavioural pricing is a whole subject in itself, but it helps a lot if you have a good idea of demand early on and get the initial pricing right, which is easier said than done. 

All the best, Si

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jonthetourist 14th Jun '18 61 of 64

In reply to post #374224

Hi Si

I actually work for a rare holiday company that doesn't do late discounting. They offer a small discount for early booking, which helps them to assess demand, and potentially consolidate dates that aren't selling well. But behavioural pricing is definitely a big deal in travel because fixed costs are high and marginal costs low.

But we have probably spent long enough on this topic. Perhaps I am unusual in thinking Mello events do have attractive initial pricing. Attractive to me, in any event :)

Maybe see you at a future one?


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Andrew L 14th Jun '18 62 of 64

Marketing for Mello South still on the Sharesoc website today:

Meet The Fund Managers 14 June: Expect to see...some well-known fund managers such as Mark Slater, Andy Brough...

If that isn't using high profile fund managers to attract attendees then what is it? The reality is that both fund managers used to promote the event are not attending.  These were the two managers that the marketing literature highlighted the most.  They were the first ones mentioned.  I personally booked as I wanted to see Mark and Andy.  If I had of known they weren't attending I wouldn't of booked.  Tickets are not refundable under any circumstances.

It seems to me strange that we criticise companies that over promise and under deliver.   But in this context I am being churlish and a whiner according to some posters here.  I only wanted to make one specific point which I think was fair to make.  David is a good event organizer and Mello Derby was very good.

But the simple point is that under consumer protection laws you can't promote something on one basis when the reality is different.  This is not a case of opinion or me being a whiner it is just the law.  So technically people who bought tickets on the basis of seeing these fund managers could ask for reimbursement.  Obviously this is a very strict way of dealing with things but I am just explaining UK law in this area as opposed to us debating things for ages.

If you feel the law is unfair you can always right to the advertising standards authority and the various consumer protection groups.  You would have to be making the case that a product can be marketed on one basis while the actual product is different.  Good luck with that!

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Julianh 14th Jun '18 63 of 64

In reply to post #374174

Dear ratioinvestor
Firstly many apologies for anything that I said that hurt your feelings. One of the things that I like about this site is that we usually find polite and supportive ways to agree or disagree with each other. And on re-reading this thread I find that I agree with some of the things you have said and some of the things rhomboid1 said. I am also not sure whether you were meaning to reply to my post or to rhomboid1 or whoever else joined in. I can understand the strength of your disappointment that the speakers who were advertised when you bought your tickets will not be speaking.
Probably most importantly, I did not call you either churlish or a whiner. Nor did I think of you in those terms. But maybe my wording was not clear enough. My objective was only to highlight the excellent value for money that these Mello events offer. As I said, I have done very well out of my one purchase of shares in a company I met at Mello Derby. And I had a similar experience at my first Mello event (in 2015, I think). At that event I was introduced to the qualities of Bioventix. I bought a day after the event. I have bought more since but the original purchase is now +260%. These two successful trades and all the things I have learned have made me more than friendlyly inclined to David and Mello events.
See you again another time on the SCVR
With all good wishes

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Andrew L 14th Jun '18 64 of 64

In reply to post #374299

Ok thanks. I think we all know and agree here that David organizes good events and is a great host. But if an outsider booked and saw the advertising for the two famous fund managers and then saw they weren't attending after they had paid they would think it is strange. I don't see why that is such an unreasonable or controversial point? I accept that David is a very nice person, a great organizer and Mello Derby was great. I am not arguing to the contrary as some appear to suggest.  One of the headline advertised speakers dropping out I could understand.  But both just seems odd.

However, if we extend the logic of the argument some have used here you could say this. I could organize an event next year highlighting Warren Buffett and Charlie Munger. Sell no refund tickets and then produce a lineup without both individuals attending. Does anyone seriously think that is something that would be appropriate? I am obviously stretching the point by using the world's most famous investors but the overall issue remains the same. If you do think that would be fine then please send me a message as I am organizing an event "definitely" with Buffett and Munger next week for £500. The actual lineup will have them both dropping out but I will only tell you later after you have bought your non-refundable ticket. If you think that is fine then fair enough I guess!

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

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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