Small Cap Value Report (Wed 2 Aug 2017) - RBG, JPR, BHRD, ENTU, WGB

Wednesday, Aug 02 2017 by

Good afternoon.

Yet again, I'm running late, but have the rest of the day free now, to catch up with what's going on in the small caps space. So please update this article later for more sections.

Revolution Bars (LON:RBG) 

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

Have you sold your shares in the market (after the recent big rise), or are you holding out for the mooted 200p cash bid? Or possibly even a higher competing offer? I'm interested to hear what readers have done. I was tempted to bank some profit, but the share price settling around 175p was leaving far too much on the table for someone else. So I've not sold any to date. I think 190p+ might tempt me into banking some profit though.

The nice thing about RBG is that I think it's still good value at 200p. So it's an easy hold for me. If the bid does fall through (unlikely, in my view), then I reckon the share price would probably fall back to say 150p. The potential bid from Stonegate has flagged up that this share is undervalued. So even if the bid falls through, there's likely to be more stock market interest in the company, I reckon. Anyway, we'll see.

Note that the latest LFL sales (up 2.7% in the last 6 weeks) were improved. Plus the company recently confirmed results would be in line with market expectations. New sites are performing well. Also I recently saw a broker note which upped its forecasts. So it seems that the severe reaction to the profit warning in May 2017 was very much overdone. That created a fairly obvious buying opportunity.

Although I can also understand why many people feared that another profit warning might come. Bid interest on top of a recent positive trading update, makes me much more comfortable to hold this share. As with lots of undervalued stocks, it was a difficult hold at the time when the value was greatest, paradoxically.

Johnston Press (LON:JPR)

Share price: 10.9p (unchanged)
No. shares: 105.9m
Market cap: £11.5m

Interim results - for the 26 weeks to 1 Jul 2017.

This is such a fascinating special situation. It's still a substantial business - operating many local newspapers, plus the…

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Johnston Press plc is a United Kingdom-based local and regional multimedia organization. The Company provides news and information services to local and regional communities through its portfolio of various publications and Websites. The Company operates through two segments: Publishing (in print and online) and Contract Printing. Its portfolio contains approximately 190 paid for weekly newspapers, 10 paid for daily newspapers, 30 free titles and over 10 lifestyle magazines. It also has approximately 190 news sites and over 20 other sites, including entertainment site WOW247 and Jobstoday. Its brands include BallymenaTimes, BanbridgeLeader, Belfast News, News Letter, CarrickTimes, ColeraineTimes, Mid-Ulster Mail, Derry Journal, Sunday Journal, TyroneTimes, LarneTimes, LurganMail, Isle of Man Examiner and Yorkshire Post. Its titles span Scotland, the North East, West Yorkshire, the North West and Isle of Man, South Yorkshire, the South, Midlands and Northern Ireland. more »

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Revolution Bars Group plc is a United Kingdom-based operator of bars. The Company has a trading portfolio of approximately 60 bars located predominantly in town or city high streets, which operate under the Revolution and Revolucion de Cuba brands. The Company's bars focus on a drinks and food-led offering, and typically trade from late morning, during the day and into late evening. Revolucion de Cuba bars are characterized by their 1940s Cuban-inspired style, with dark woods, traditional bar counters, antique tiles, vintage furniture, Havana-style ceiling fans, and original Cuban artwork and photographs. Its bars are located in various places, such as Cambridge, Ipswich and Norwich in South East; Bath, Plymouth and Southampton in South West; Birmingham, Derby, Leicester, Loughborough and Milton Keynes in Midlands; Cardiff and Swansea in Wales; Blackpool, Chester and Huddersfield in North West; Sheffield, Sunderland and York in North East, and Edinburgh and Glasgow in Scotland. more »

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Be Heard Group plc, formerly Mithril Capital Plc, is a digital marketing company. The Company's segments include Be Heard and Agenda21 Group. It focuses on building a network of digital companies spanning the marketing services, technology and e-commerce sectors across the United Kingdom, the United States and Europe. Agenda21 is a digital media planning and buying and analytics agency. Agenda21 provides digital strategy, digital media planning and buying and the use of analytics to generate customer insight. It operates under the banner Engineered for digital. It plans, buys and manages multi-channel marketing campaigns, including paid search, search engine optimization (SEO), paid social media, programmatic and negotiated display media across desktop, mobile and other digitally connected devices. Its partner company, MMT Digital, is a design, development and user experience (UX) agency. MMT Digital specializes in architecting, creating and building Websites and applications. more »

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  Is Johnston Press fundamentally strong or weak? Find out More »

69 Comments on this Article show/hide all

dahokolomoki 2nd Aug 50 of 69

On Revolution Bars (LON:RBG) I'm unsettled about where the SP landed. Quite a discount to offer price.

Also Stonegate strike me as an opportunistic distressed consolidator in the sector. Their high ROI target suggests they usually buy assets in bad shape and a high chance of failing. Is that RBG?

The cynic in me thinks they spotted an opportunity to look at the books of a competitor for free. Even if they walk away and wasted money on advisors, it would still have been money well spent to look under the hood of the (somewhat successful) Revolution concept.

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herbie47 2nd Aug 51 of 69

In reply to Howard Adams, post #46

This has come up before, I think that site is biased, on Trustpilot they have over 23,000 reviews and they score 9.5/10:

I don't currently hold any shares in Purplebricks (LON:PURP).

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ambrosia 2nd Aug 52 of 69

Revolution Bars (LON:RBG)
I put a limit order at 190 which is similar to the target others have.

But now I think it through i'm not sure of my logic, if youre looking at 191 youre expecting the deal to go though and should be holding out for 200 or above, and if it does hit 191 it will be because people know its going through

if youre applying game theory, options would be sell it now before it drops or hold for the max,
if you want to sit on the fence then sell half youre holdings now and deal with the second half when dust settles

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gsbmba99 2nd Aug 53 of 69

In reply to Howard Adams, post #46

I spent some time looking at estate agents generally. Building on your observations:

There is a reasonably large portion of the Purplebricks customer base who are unlikely to be happy. These are the people who pay the fee (as every customer does sooner or later) but who a) never achieve an agreed price or b) do not complete after an agreed price. The sum of a) and b) is quite large, perhaps as much as 30% or more (100%-61.5%=39.5% here, though the company disputes this.

Normally, you have to be invited to leave a review on Trustpilot by Purplebricks. They do this at the time you have agreed a sale and they, apparently, aren't shy in asking for 5 stars. Other customers (ie ones who didn't agree a sale price) can also leave reviews on Trustpilot. Purplebricks policy appears to be to dispute every negative review. A disputed review, I believe, is immediately suspended and the reviewer then has to provide proof to Trustpilot that they were actually a customer. If this can be proven, the review gets reinstated. Some negative reviewers complained that Purplebricks challenged their reviews even though Purplebricks knew they were customers. The "policy" strikes me as pretty antagonistic. Trustpilot is probably unduly positive (since Purplebricks try to capture feedback when people are most likely to be positive) and allagents probably unduly negative each for sampling reasons.

Purplebricks is still relatively small so there are still lots of potential new customers who don't have first hand experience. However, the concern would be that customers who complain are a small subset of unhappy customers and that unhappy customers talk. A lot. There's a famous study from TARP Research that says that unhappy customers tell 10 friends ( If 35 customers are unhappy, that's 350 negative impressions that the 65 happy customers have to overcome for Purplebricks to breakeven in word of mouth.

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jonesj 2nd Aug 54 of 69

The PURPLEBRICKS terms and the reference to Close Brothers is very clear on their website and in their T & Cs. The consumer should take responsibility for his/her decisions.

Instead of investigating this, I suggest the busybody journalists could more usefully investigate the education system. How can they teach such dubious content as RE, yet completely fail to teach anything about personal finance ? People should be taught everything from how to read the T&Cs, to safe withdrawal rates & all about compound interest.
Actually, the last 4 Chancellors seem to have little grasp of the consequences of paying compound interest, so what hope do we have with incompetent politician ?

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simoan 2nd Aug 55 of 69

In reply to Steve Hill, post #48


I realise what the bear case is as I have heard over and over on these boards and I'm well aware of the factors you mention in the Stockreport. In fact I was first attracted to it by the amount of green in the "Growth and Value" section around the time Paul first mentioned it. I bought a first small tranche at that time at around the current share price as the operating cashflow looked good, the PER and PEG ratings were low and it had a well covered dividend (of course, it depends where you are in your investing life as to whether this is important).. 

The intention was for  Revolution Bars (LON:RBG) to form a small part of my SIPP that contained some unloved shares (high QV, low M) with solid balance sheets (net cash) and paid decent dividends - I guess Buffet would  call them "cigar butts". However, that changed with the warning and I bought lots more from 135p down to 117p because it looked an obvious overreaction - it was a warning about underestimating costs rather than outright accounting fraud which you might have expected from the size of the price drop. So it was something that reflected badly on management but seemed perfectly fixable. 

And now a very credible trade buyer may offer 200p for the equity. So I would say that has pretty much vindicated those of us who thought the company was undervalued following the warning in May because nothing else has changed and they have based their valuation on the same information available to all of us in the public domain. Of course, they could decide to drop the bid, save up another £100m and buy a Brazilian footballer instead...

All the best, Si

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roddy10 2nd Aug 56 of 69

A couple of questions / thoughts - would appreciate any input on:
1. Are the LPEs (local property experts) that PurpleBricks uses self-employed or employees of PurpleBricks? Y/N
1.a. If they are self-employed do they need to have their own registrations for anti-money laundering? Y/N
1.b. Ditto for offering consumer credit? Y/N
1.c. Ditto with respect to registration with the information commissioner re data protection? Y/N

(See the following for the background - )

2. Purplebricks CEO apparently claims that its loans (ie 10 month deferred payments) are 'an unregulated facility agreement' and that The Property Ombudsman is 'aware of the arrangement' (Source: )
2.a. In the Watchdog programme tonight he again seemed to have difficulty accepting that these are loans and that the terms are transparent. In law is there such a thing as 'an unregulated facility agreement'? Y/N
2.b. If these are really 'loans' then is PurpleBricks directly or indirectly (ie through its agents) encouraging consumer credit without full disclosure? Y/N
2.c. Is the appropriate regulator the 'Property Ombudsman' or it is the FSA or Financial Services Ombudsman (if there is such a thing) or someone else?
2.d. Does the lack of full disclosure lead to a mis-selling liability?
2.e. Any estimate for what the size of the liability would be?

3.The CEO, Michael Bruce, was adamant on Watchdog that PurpleBricks is transparent:
3.a. Any thoughts on why they are vague in their disclosures on how many houses go from registration to a _completed_ sale
3.b. According to one article* PurpleBricks has a 61.5% success rate vs 82.42% for a local agent. The same article also suggests that the top 100 local estate agent obtains 100.35% of the average selling price vs 95.85% for online agents (though confusingly the article also says that the national average is 95.69%). It seems to me that one could create a decision tree in the following way (assuming average selling price of £234k - actually the article says the _final_ selling price is this number so I am taking a slight liberty here):
- sell via PurpleBricks - cost £849 / 61.5% (ie only 61.5% are sold so true cost needs to adjust for this) = £1380.48
---------- actual selling price £234k * 95.85% = £224,289
---------- net result ==== £222,908.50

- sell via a 'top 1000 high street agent):
---------- actual selling price £234,819 * 100.35% = £234,819
---------- fees (assuming no sale no fee) = 1.3% * 234,819 = £3052.65
---------- net result ==== £231,786.40

Hence the high street top 1000 wins by £8,857.84
Any thoughts on the logic of the above and does anyone have any better data?
* Source:

(Note that the Chris Wood website link (first link above) suggests that the success rate for PurpleBricks is 25% vs 62% for a traditonal agent. He mentions that the average selling price is  - £295,514 for PurpleBricks but does not mention a price for traditional agents)

(For the sake of balance PurpleBricks have previously said that their conversion rates are 88% - but there have been questions raised whether that was to completion or to 'sale agreed subject to contract'. Furthermore more recently I think there has been some statements / comments saying it is 83%).

(And one of the comments to the Chris Wood article suggests that Jefferies think the true conversion rate is 17%)

4. Is PurpleBricks creating a legal liability by describing its 'agents' as 'local property experts'? Y/N

4.a. Is there a site / location to find the qualifications of PB agents?

(Background - the first link above suggests that some of the PurpleBricks agents may not be local and may not be considered experts in terms that the law would recognise).

5. What I have read seems to suggest that there is a two tier model at Purple Bricks with 'franchise area' holders and below them 'local property agents' - is this understanding correct? Y/N

5.a. Do either of the 'layers' pay monies to PurpleBricks or anyone else for 'franchise' rights? Y/N

5.b. If Y to the previous question - how is this accounted for in the numbers?

5.c. Are franchise payments paid to PB in the US or the Australian version of the business?

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Dinocras 2nd Aug 57 of 69

RBG: Agree that 175p leaves too much on the table for the other guy/girl. I added at 175p hoping for another bidder but expecting the bid to go through. But would be happy to hold should it all fall through.

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andrea34l 3rd Aug 58 of 69

I feel it's slightly alarming that the "Lettings Director" of PURP sold 60000 shares only 3 days before the BBC programs....

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aiminvesting 3rd Aug 59 of 69

Re: Revolution Bars (LON:RBG) : bought at 143p following your recent article (thanks!), and I am definitely holding to get at least 200p. I am actually hoping the deal falls through and that the shares will be worth north of 250p, in 2 to 3 years time which is my usual investing horizon! Thanks again for all the hard work, hope you get to take some holidays this summer! Thomas

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Graham Fraser 3rd Aug 60 of 69

In reply to clouds, post #29

My broker says the bonds are 66.5 bid 69 offered but the minimum dealing size is 100,000. They do look interesting.

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geraldappel 4th Aug 61 of 69

BHRD lots of billings but earnouts look onerous

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vik2001 11th Aug 62 of 69

Johnston press up 19% anyone know why?

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Weasel 14th Aug 64 of 69

In reply to Trident, post #28

They said the following:
"Bid restores Revolution Bars’ fortunes, but investors should hold out for more: Revolution Bars, which also owns the Revolución de Cuba brand, is the stock concerned. We tipped it first in November last year at 178p; the shares closed last night almost unchanged from that level at 176.5p. It has been a dramatic ride, however. After our tip the shares quickly soared to about 230p, and we reiterated our buy stance at 224.5p in March, but the price had fallen back to about 205p by May, just before a profits warning that caused the shares to plunge by 40% to 122.25p. Despite this we stuck with the shares, rating them a “hold” at 112p on May 24. The shares then fell further to a record low of 105.5p in early July, although they recovered somewhat to 134.5p later in the month following a trading statement that steadied investors’ nerves. But a much more substantial rise took place on Monday, when the announcement of a 200p-a-share bid from a rival group, Stonegate Pub Company, sent the share price 44.8% higher to 181p. The upshot is that readers who bought as a result of our first tip have regained almost all their losses, while those who bought at 224.5p in March have seen their paper loss narrow to 21%, compared with 53% when the shares hit their record low last month. Questor says ‘Hold’."

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vik2001 15th Aug 66 of 69

In reply to Blissgull, post #65

So RBG have refused their offer even if it was more attractive than the stonegate offer. they obviously must think Deltic is not a good fit for their company. anyone have any ideas of the reason behind it.

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Carcosa 15th Aug 67 of 69

Management personal interests?

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peterg 15th Aug 68 of 69

I suspect this has something to do with the response:

Deltic believes that a combination of its business with Revolution would transform the scalability of the enlarged group, provide scope for material synergies and enable the operational issues within Revolution to be better addressed through Deltic's management team taking responsibility for both businesses, creating a powerhouse group in its sector that can exploit further opportunities to both expand and consolidate the market.

So RBG are asked to approve handing over management to Deltic!

Even if you accept Deltic's argument - that they have a better management team (and I don't see that as clear cut - RBG have had problems, but they seem to be working them out, and probably over the worst - are Deltic's that much better?), then as a negotiating tactic Deltic score "nul points".

Are they seriously hoping to stir up a shareholder rebellion at RBG - say please, please come and rescue us? I suppose it could happen if Stonegate fall through - and perhaps that's the point, positioning themselves for a long shot should that happen?


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1milby30 15th Aug 69 of 69

I agree it may be in managements interest to be taken over, rather than to merge. Both groups portfolios' do not compliment each other what so ever, so I completely agree with the stance to reject the offer.

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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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