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 distribution and logistics company. The Company's segments include Connect News & Media: News Distribution (Smiths News); Connect News & Media: Media (DMD); and Mixed Freight (Tuffnells). Smiths News segment distributes newspapers and magazines to approximately 30,000 retailers across England and Wales from over 40 distribution centers. DMD segment supplies newspaper and magazines to airlines. Tuffnells segment provides next day business to business (B2B) delivery of mixed parcel freight consignments. more »

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

64 Comments on this Article show/hide all

Zipmanpeter 13th Jun 25 of 64

In reply to post #373369

Leoleo73 Norcros (LON:NXR) is now my 2nd largest holding and like you I am happy to hold as I hope & expect the share price to continue to drift up further whilst paying decent +/- 4% dividends on this delightfully boring stock. I like the continued focus on innovation and exports and they do seem to be pulling out group synergies. Plus all the acquisitions are all working - there seem to be reasons to trust the mgt. Triton seems to be finally improving and even the weak spot (Johnston Tiles UK) must have a decent chance of recovery after its latest round of restructuring to cut costs and decision to focus on a niche market of small tile formats. I also worried Merlyn might cause indigestion but no sign so far.

Big picture this share was held back by i) its pension deficit - now decreasing in both absolute terms and relative to group with (surely!) mid term help from interest rises ii) its focus on South Africa - where a new president promises better governance and growth and a chance for the whole Southern Africa region (Mugabe also gone, commodities on the up). There is still a risk of a UK housing or consumer recession but the group is larger and much more diversified now, with debt still under control at 1.2 EBITDA.

Share price as I write (212p) is the highest its been since it crashed in 2007 recession. A PER of 8 would equate to +/- 250p. Nothing is certain in life but risk/reward looks good for continued modest gains IMHO.

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Edward John Canham 13th Jun 26 of 64

Mulberry (LON:MUL)

Interested to see your comments on this one.

On a brief look it looks hopelessly overvalued - PER of @70 and low growth - guessing there must be something else in there.


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FREng 13th Jun 27 of 64

The Tern (LON:TERN) chart is starting to look like Bitcoin. Can it just be momentum investors? I'm long (and happy).

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Andrew L 13th Jun 28 of 64

In reply to post #373559

Yes that makes a lot of sense. It just seems to create bad will. If you paid full price for a ticket. Around £90 and can now see the last few are available at £30 then what would you think? Also I agree that speakers and companies were talked up a lot but as you say many of the fund managers initially talked about aren't going. I paid much more than £30. Why not just have a standard headline price to start with of say £45.

Also you have to book a ticket with no refund before knowing the schedule i.e. who is speaking etc. So it is a bit of a gamble and you have to take based on what is promised in advance.  As you state a lot of the fund managers discussed in reality aren't attending.  I think it is unfair to promise lots of speakers.  They can't make it now but there is a no refund policy.  I don't see how you can talk about XYX fund managers attending, sell tickets partly on that premise and then those people aren't in the lineup.

We are lucky to have someone organizing these events. However, I do feel they could be in London as it generally means much less travelling. I also think there should be a video option for people to pay just to see the presentations online afterwards. The cost of Mello South with travel etc can be over £100 for the day which is a far amount IMO.

Just to reiterate we are lucky to have someone organizing these events but I would prefer a London location. Perhaps a conference place in a relaxed area such as Hampstead. I think that would more easily attract fund managers. Or perhaps the small venue in Islington's business design centre.

I also think that as the price goes up these events become much more exclusive and hard for people to access.  What about early stage investors, students etc who want to attend but have limited means.  I am thinking about not attending now to be honest.  Due to the last minute discounted tickets and secondly the lineup being different to what was talked about.  If you are going to offer massive ticket discounts you should offer them to everyone.  Feels like you are mug if you bought a ticket early on:

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fredericktug 13th Jun 29 of 64

Afternoon all,

Is it too late for a shout out for commentary on Eckoh (LON:ECK)

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Gromley 13th Jun 30 of 64

I had a bit of 'gulp' moment this morning on reading the Connect (LON:CNCT) statement - I couldn't momentarily remember where I had set my safety net stop position.
I was forgetting that it was 55p and had been triggered a little while. I was going to say that was a stroke of good fortune, but of course that is not true to set these stops to cope with circumstances precisely like this (and the fact that it was a guaranteed stop means it would have still got me out at 55p even if it had survived to this morning).

None of this though takes away from the fact that I should not have had this small position anyway, I think I said in previous discussions that this position didn't fit with my current strategy - so why didn't I see - poor self-discipline. Betting (before the event) on issues such as those at Connect (LON:CNCT) being fixed might work in the percentages (after all the 25% I lost compares with a likely gain in excess of 100% had things gone differently) but it's just not what I do any more. I actually   one other similarish position, but significantly larger - I need to have a long hard talk to myself!

Anyway on to today's announcement - it was truly horrible, but I'm not sure it was -45% (-67% at one point) horrible especially on an already beaten up share price - it even had one piece of goodish news in it.

The Group has decided to close Pass My Parcel and wind down the associated Parcel Shop network

This business lost £6.3m last year and the play was that they either bring it to breakeven or close it; lifting group profits by nearly 20%.   I am actually surprised they are closing it as it seemed to me they simply mispriced it based on failing to understand the ration between shipments and returns - it is a service that retailers want so presumably someone will be able to meet then need and make money? Anyway, promptly closing it is superior to incurring years of losses failing to turn it around.

We of course, do not know what the exit costs are at this stage.

Moving on

Sales of core newspapers and magazines remain in line with expectations; however, the benefit of World Cup related product is currently weaker than anticipated.

Total revenue in Early Distribution (comprising Smiths News, PMP and DMD) was £1,026m, a decrease of 2.9% (FY2017: £1,056m).

Below expectations clearly, but not disastrous imho given that we already know news distribution is in secular decline.

The worst bit though is in Tufnells

For the first three months of the second half Tuffnells' external revenue of £43.5m is down by 12.3% (FY2017 £49.6m), and year to date revenue of £130.8m is down by 3.9% (FY2017: £136.2m). This has a disproportionate impact on profit for the full-year as the need to maintain Tuffnells' core service means costs cannot reduce in line with the shortfall.
Tufnells H1 revenue was £87.3m and if this is down in the region of 10% and falling directly to the bottom line that looks like a c. £9m hit on this years profits (excluding any impairments).

Against this backdrop I don't really understand the comment

We now expect Tuffnells full year performance to be no better than the first half.

Surely that implies a significant uplift in Q4? I delivered that would reduce the £9m I mention above.

Anyway it is not  clear why Tufnells' revenues are down, so we don't know whether they might get worse. A "volatile" market is really no description at all. (As an aside I would just say that I think most investors read "volatile" as being fluctuating as a trained Chemist I read prone to evaporation!)

There is a Tufnells' employee who posts from time to time on the ADVFN board and he has been warning for some time that Tufnells is a mess (although it is not uncommon for employees in a business under transition to think that), I don't think though that even he  picked up quite how bad things were.

At the end of May annoucing the sharesave option price of 43.6p (20% discount at the time) he said

"I'll take a no-lose punt at that. I've ended up cancelling all the Sharesaves I've been in so far. Surely it can't go much lower!" Hmm.

In summary though :

the Company has materially reduced its expectations for full year profit before tax

The Group has decided to close Pass My Parcel and wind down the associated Parcel Shop network

The Full Year Dividend for FY2018 will be substantially reduced from that paid in FY2017

As a consequence the Group is announcing senior executive changes

The CEO and CFO are both going, the latter immediately and interestingly they already have his replacement lined up to start on Monday.

Overall though whilst today's fall "feels" overdone, I don't think there is enough meat on the bone to take a proper judgement and there is still clearly a mess to sort out.

Net debt at £84m(end H1, H2 normally lower) shouldn't be a deal breaker although  cash closure costs for PMP and further restructuring in Tufnells could put this number under further pressure,

Not at all tempted to take a position currently until we have more clarity, but the FY results in November should make a fascinating read.

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Graham Neary 13th Jun 31 of 64

In reply to post #373619

Eckoh (LON:ECK)

Not at all - I will find a spot for it on the list. G

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leoleo73 13th Jun 32 of 64

In reply to post #373604

Mello - no event like this can undertake to refund people if a few presenters drop out. Anyway, I would draw an analogy with Glastobury Festival (where tickets are generally told out before the first act is announced) - the sum is greater than the whole and it isn't about the individual presenters.

As far as location is concerned, yes I'm inclined to agree that being South-East of London benefits a very small proportion of attendees compared to those it disadvantages. Derby in contrast was at least closer to the centre of the country than London, and had cheap accommodation. For what it's worth, I'm in the Midlands but central London would have been equally convenient as Derby.

Special offers actually make it more inclusive. Hopefully for most of the people who paid £90 the amount was irrelevant whereas for some people a £30 offer allowed (or persuaded) them to come when they wouldn't have otherwise done so. Yes, in an ideal world it would have been the early birds that got the discount, but leaving empty spaces is in nobody's interests.

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lyndhurst25 13th Jun 33 of 64

In reply to post #373499

I always mentally add in an extra word or two to meaningless company names so I can remember what they actually do. Company names used to be like that. So today we have "Mulberry Handbags", "Northern Bear Building Services", "Connect Parcels", "Charles Stanley Stockbrokers", "Biffa Waste", "Dewhurst Lift Controls", and "Norcross Bathrooms". Also, companies should be banned from calling themselves anything containing the word "solutions" unless they are actually in the business of selling solutes dissolved in solvents!

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Andrew L 13th Jun 34 of 64

In reply to post #373644

leoleo73 - This is not a few presenters dropping out. This is pitching it as a fund manager event but the three fund managers highlighted aren't attending. In reality no fund managers appear to be talking. My point was that you can't market it on one premise and the reality being very different. If these presenters weren't certain it shouldn't of been marketed using them. People book for the main headline acts - Slater, Brough - but these guys aren't attending it seems. It is like advertising Glastonbury with high profile headline acts that aren't now attending. That just comes across as false advertising to me. If speakers aren't confirmed don't use them to advertise the event.

South-East London - It just seems too far away for me. It takes the same amount of time to get to Derby by train!

Special offers - To me it comes across as trying to get the most out of attendees. I.e. those that can pay more we will sell high priced tickets to. Then we will try and get price sensitive people on other tickets. You can't do very high priced tickets to people that book early. Then do discounted tickets at the end. The people who bought the high priced tickets did so on the premise that this was the price you had to pay and that it might sell out. When Apple discounted its initial iPhone it offered receipts to early buyers too so they didn't feel annoyed.

I think Derby was about £80 for two days or something. This event is £90 for one day at the headline price and the headline people who they said were going to attend aren't going to attend. To me that doesn't seem fair but that is just my view. If you had booked Mello South for £90 and on the premise that it was the advertised "fund manager event" and now no fund managers are attending and tickets are £30 I personally think you would have every right to feel annoyed.

Obviously here I come across as a whiner.  I don't really see it like that.  I just think that events should deliver what they promise.  Secondly they shouldn't offer special deals as this just makes it seem unfair.  Instead of all these special deals why not just have one fair price.  If the £90 price is too high and you can't sell the tickets then the price should be lower.  It is like Lidl/Aldi versus other supermarkets.  We hate all the gimmicks of the supermarkets but like Lidl/Aldi's standard price without gimmicks.  It just seems fair.

If someone was coming from the North to see say Mark Slater, Andy Brough and had paid £90 I think they might be somewhat frustrated.  That is Just my view.  Event was marketed like this on 9 June (a few days ago).  Highlight is mine:

25 good quality companies, great speakers/fund managers & really interesting panel sessions & interviews lined up

My main point is that you can't use high profile fund managers to market an event and then mysteriously they aren't appearing.  How can that be fair?  I could market an event based on Robbie Williams headlining and then produce a schedule two days before without him on the roster. Not least given that Mello is quite expensive.  For Sharesoc you can go to events for free after you have paid the annual membership of about £50.  You see fund managers and companies at their events. UK Investor, Master Investor and Shares event are also free effectively (if you get tickets in advance). 

Looking at the companies at the event and Eserveglobal is rated as a sucker stock here.  Ten Lifestyle has a stock rank of 15, Corero stock rank 24, Non-Standard Finance stock rank 14, Redstone Connect ROCE of 6.5%.  So the general quality is quite mixed although there are some quality companies at the event.

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Graham Neary 13th Jun 35 of 64

In reply to post #373509

Thank you for your valuable contributions on Northern Bear (LON:NTBR). I have referred to them in the report. G

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carmensfella 13th Jun 36 of 64

In reply to post #373559

Mello pricing of tickets is based on those who are based in the City but choose not to be members of ShareSoc pay full price.....Stockopedia & ShareScope subscribers receive a discount and ShareSoc full members get the best discount and reduced membership as I personally want to encourage investors to join ShareSoc.....the rest is down to the very last minute offers if tickets are still available and we still had 30 this morning. I think that is fair and reasonable.

Speakers can change but we do have a great line up and although Andy Brough had to pull out last week we still have Ralph Baber ( Slaters) and John Warren (partner to Paul Marriage) who are both top fund managers and Guy Thomas is coming who could not be headlined months ago so clearly speakers can change....that is what you have to cope with running these quality events. I do not want a free show with poor quality companies on display.

Those who attended Mello2018 were delighted to have been a part of it. This event is a trial one day show....I may get it only part way to what we want to achieve and may get parts wrong....a learning curve but what we have is really worth having compared to seeing companies that most who read these reports would never want to invest in !

I do my best and if any of you want to try to run an event rather than being just an investor then please give it a go.....I will happily relax and attend. David

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jonesj 13th Jun 37 of 64

1 Anyone is free to organise their own events. I'm not planning to organise any, so would not dream of criticizing anyone else for minor pricing issues.
2 There is a choice between going to Mello & not. We can evaluate the programme & the pricing.
3 The organiser is entitled to try & make a profit & vary prices to do so (or to breakeven). Investors are entitled to take into account this when deciding when to buy tickets for future events.
4 The Derby event was worth every penny & very well done.

Incidentally, I cannot currently make a booking on the Mello website, as it goes to the payment page & freezes up.

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Paul Scott 13th Jun 38 of 64


The profit warning today from Connect (LON:CNCT) seems pretty awful to me.

Thankfully I'd got cold feet some time ago, as mentioned here on 1 May 2018 SCVR - pointing out the weak balance sheet, and lacklustre performance (which has clearly now worsened).

For me, it's over - I've today sold the last little scrap that remained in my portfolio. I can't see any reason to hold this share, now that there must be doubts over its solvency - it has too much debt, and we now know it is trading badly. The only upside I can see, is that profits should improve once PassMyParcel has been shut down.

The main reason for holding this share was for the high dividend yield. Although it's another reminder that very high divi yields are a red flag - in recent years the market seems to have been very smart at predicting which companies are likely to cut their divis.

I hope other readers here have not been too badly burned on this one.

Regards, Paul.

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TheArb 13th Jun 39 of 64

In reply to post #373634

I asked the Tufnells driver who made a delivery to my neighbour this morning what he thought of Connect's results. Perhaps not surprisingly he didn't know about them and didn't seem to care. I was surprised though when I suggested to him that he googled them when he got home in case his job was at risk when he said 'I don't give a stuff mate, I'm self employed, it's all part of the scam'. Not quite sure what to make of that.

I note that fuel costs are also on the rise.

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rhomboid1 13th Jun 40 of 64

I’d just say it seems a little like churlishness to criticise David & the Mello team for the fact that some high profile & very busy speakers have dropped out ...they’re not employees of Mello or indeed paid to attend so it’s unsurprising that diary conflicts will have an impact as the event looms. The Derby event was outstanding..if Mello South comes close (& I’m sure it will) then those paying £90 ....or £30 ...will have had exceptional value for money. As to location i’d prefer it to take place in my village...but understand totally that it won’t unlesss I personally organise the whole thing myself.

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tic_tac_toe 13th Jun 41 of 64

In reply to post #373689

jonesj I can get to the mello ticket area in this link

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jonthetourist 13th Jun 42 of 64

In reply to post #373714

Churlish looks like the word that fits.

Working in the travel industry, I am very familiar with the late discount model. There is a fundamental difference between a full-price early purchase and a late discount. The early buyer has a definite place. Anyone who waits for a discount runs the risk that the event is sold out, and they don't get to go. The two purchases are not the same thing, even though they supply the same thing.

If David has to attach caveats to every mention of Mello events that line-ups are subject to change, etc etc it will be a sad day. If we are investors surely we are all grown-ups with some appreciation of risk and reward?

My 2p.


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carmensfella 13th Jun 43 of 64

In reply to post #373714

Thanks Rhomboid and you are spot on. There are lots of variables to consider when running these events and costs can go through the roof very quickly especially if running an event in London or very close to it....the venues in London that are feasible for doing exactly what we did in Derby cost 5x the amount I have in my budget and it would then be prohibitive on ticket costs.

Mello covers the cost by charging good companies about a quarter of the price that the low grade companies pay to be at London events. I want to attract good companies and encourage investment into good management teams who are happy to engage. If I fail to attract good companies at the right price then my events are simply not viable. I naturally have a harder sell getting them to distant locations but I do try to be fair to everyone by moving it around the country.

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simoan 13th Jun 44 of 64

Working in the travel industry, I am very familiar with the late discount model. There is a fundamental difference between a full-price early purchase and a late discount. The early buyer has a definite place. Anyone who waits for a discount runs the risk that the event is sold out, and they don't get to go. The two purchases are not the same thing, even though they supply the same thing.

The trouble is that people will change their behaviour if they know the longer they wait, the bigger the discount. Hopefully timarr will be along soon to tell us why! And this is not really the behaviour David wants if he is planning an event with a lot of fixed costs. With all due respect to Mello, I would suggest that going to a one-day investing event does not have the same importance as planning your annual holiday for most people.

Pricing tickets for events like this is very difficult, and I feel sorry for David as I have been in a similar situation in the past organising smaller scale events for a not-for-profit society.

All the best, Si

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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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