Small Cap Value Report (Wed 20 Nov 2019) - TPFG, CRL, BAR, AGFX, RFX, IDP

20th Nov '19 by Graham Neary

31 comments 8048 reads

It's a busy day in RNS-land. I'll probably work through the afternoon to cover as much as possible.

This list is final:

Property Franchise (LON:TPFG)
Creightons (LON:CRL)
Brand Architekts (LON:BAR)
Argentex (LON:AGFX)
Ramsdens Holdings (LON:RFX)
Innovaderma (LON:IDP)

Property Franchise (LON:TPFG)

Share price: 156.65p (+3%)
No. of shares: 26 million
Market cap: £40 million

Trading Update

Please note that I have a long position in TPFG.

This is a very pleasing update.

TPFG is a franchisor of estate agent brands, e.g. Martin & Co. It can be compared to Belvoir (LON:BLV).

The successful franchise model has resulted in an admirable track record of high returns and cash conversion. To help demonstrate this, I'd note that TPFG gets a QualityRank of 99 from Stocko (BLV isn't bad either, at 85!).

The best counter-arguments versus these shares have been:

they operate in a low-growth, mature industry
the tenant fee ban and other regulatory threats
the potential for a bear market in property.

This update should help to allay some of these fears.

Firstly, trading is in line with expectations. I can see forecasts for EPS of 14.6p this year, and 15.3p next year.

Secondly, franchisees appear to be doing well when it comes to letting income: they earned nearly £6 million in lettings revenue last month, which is a new record. The success of franchisees should in turn benefit TPFG, as franchisor.

This new record comes despite the introduction of the tenant fee ban over the summer.

TPFG reports that tenant fees were previously responsible for 16% of lettings revenue. This income has very quickly been replaced, partly through growth in the sheer number of tenants but also through "shifting the burden of cost" over to landlords.

Following this success, TPFG advises that it expects to achieve "full mitigation" of the tenant fee ban by June 2020, earlier than expected.

My view - I like this stock. It's simple and easy to understand, generates lots of cash despite not deploying very much capital, and enjoys some diversification across estate agent brands and local geographies. There…

Unlock with Email

Unlock with Google

Already have an account?
Login here

rmillaree

20th Nov '19

Fevertree Drinks (LON:FEVR)
Disappointing number today from fevertree with 3% miss on expectations - this is mostly down to poor uk market wide numbers compared to strong numbers the previous year - they have held onto their strong market share
despite having more competition in the sector so sort of acceptable delivery under the circumstances.

Overall though i think the decent overseas numbers are enough to ensure i am still positive on this share - all important US sales up 34% (ahead of expectations) - Europe up 19% and ROW up 35%. I have always though that fevetree needs to be a worldwide brand to justify its valuation and it seems they are still heading in the right direction in this regard.

Note overall sales last year were 237 mill - so this years 266 mill is decent increase - it does seem sensible though that as they have higher overseas growth this extra revenue is likely to have somewhat less dropping thorough to the bottom line - eps growth will be below 5% so less added to bottom line.

Note per my calculations 48.5% of sales this year will be non uk - so i expect from 2020 onwards over 50% of sales will be non uk. Moving away from such reliance on the uk market is a good thing.
Sales splits this year are £48 mill us £66 mill europe 16 mill row and 137 mill uk.

I think pe for 2020 will be in the region of 30 - although the price has spiked up this morning after opening down. Not cheap but i like the strong brand presence (this will be a takeover candidate at some stage) and strong margins this company delivers - with very strong decent balance sheet to boot.

Gerard88

Mr Market doesn't seem overly impressed; I was expecting a more positive reaction.

Graham Neary

Cheers for the comment Paraic (and thanks for your previous comment on APPG's too - don't think I responded at the time!)

I remember CRL saying something about R&D credits before. They didn't realise how much they could claim back, if I recall correctly!

Cheers

Graham

Thanks for the comment Damian. As I say above, 70% of TPFG's income is from lettings. Organic growth is modest, that's true. They seem happy enough with a steady ship, for now.

Graham

SundayTrader

Hi

There seems to be some interesting points in Cambria Automobiles (LON:CAMB) finals.

- Value of property freeholds greater than market cap
- Spending on buying more freeholds, instead of wasting it on paying dividends to shareholders
- The report makes a big point of the staff training programme - unusually I think for a garage group
- Doing well despite the rubbish new car market
- Shift to selling more "supercars" - I thought these were supposed to be vulnerable in a recession?

Generally seems to stand out from the pack.

Damian Cannon

No problem. It's interesting just how similar Property Franchise (LON:TPFG) is to Belvoir (LON:BLV) in terms of size, quality metrics and yield. I'd say that the latter edges it with higher forecast growth and a slightly lower rating although the franchise group achieves a higher ROCE by requiring less capital.

Lennart

Would it be possible to have some comments on Argentex (LON:AGFX) please.

Thanks for the suggestion - I'll see what I can do on Argentex (LON:AGFX). I've not studied it before, so can't promise much! G

Effortless Cool - I planned to look at that, and then had trouble finding it using my usual sources. Weird! Thanks for pointing out the problem. G

FREng

Does anyone know what triggered the late rise in Sosandar (LON:SOS) today?

Tommy H

Hi Graham

Please could you have an “I have finished the report” statement in the top section, similar to Paul does? Just easier for those trying to keep up at work.

Thank you

Tom

Hi Tom, ok - I'll see about implementing that.

Chris Archer

The FX share to invest in is Alpha Fx (LON:AFX) Its fully priced at the moment after a strong re rating. However, its certainly one for the watch list.

timarr

The FX share to invest in is Alpha Fx (LON:AFX)

Why?

Lion Tamer

Re Sosandar (LON:SOS)

Hi FREng

Since the Company is due to announce its interim results on 27 November 2019, seven days from now (see the the end of the trading update 28th October), my best guess is that someone expects (or knows) the results will be better than expected. Mind you, I'd have thought the update 28th October would be the more significant date for price sensitivity.

Gromley

I do not know much about either Alpha FX (LON:AFX) or Argentex (LON:AGFX) but I do recall that at Mello, Ken Wotton (Gresham House) recounted that they helped bring Alpha FX (LON:AFX) to market and sold when their 4 (?) price target was reached in about 6 months. They were then responsible for bringing Argentex (LON:AGFX) to market.

What that says about the relative investment merits I cannot really say,although I think he felt that Argentex (LON:AGFX) was today's news.

bryans1311

I was considering the FX options a while ago, and someone pointed out that Alpha FX (LON:AFX) have an excellent culture that brings the best out of its employees and subsequently returns. I checked glassdoor, and indeed it does seem to have a very content workforce.

https://www.glassdoor.co.uk/Overview/Working-at-Alpha-FX-EI_IE870450.11,19.htm?countryRedirect=true

In the end I did the typically irrational thing, and went for Argentex (LON:AGFX) !

21st Nov '19

Thanks, Lion Tamer. I look forward to seeing what happens with Sosandar (LON:SOS) when the market opens today.

john652

23rd Nov '19

Hi Graham,

Alpha FX (LON:AFX) or Argentex (LON:AGFX)

They are both similar in set up by highly experienced fx traders focusing on being better than the banks corp FX teams, which is not hard to do having worked with banks fx teams.

Argentex (LON:AGFX) have digby Jones and whole loads of other names. But as you rightly say they are really a people business and as far as I can tell, not focusing on technology, they have a portal but doesn’t seem central to what they are doing. I recently asked them a number of questions about technology, credit risk, how they set the spread etc I got this:

‘’Unfortunately, from a compliance perspective the Directors are not in a position to provide specific information that is not available in the public domain. I appreciate that these questions are not price sensitive, but the compliance policy is comprehensive in this matter.’’

Hmm.

Alpha FX (LON:AFX) on the other hand are very focused on their platform & technology so for me, I went with Alpha FX (LON:AFX)

I think they will both do well as the banks are poor & very expensive.

J

Brilliant Leader

24th Nov '19

Damian, I have just seen your comment comparing Belvoir (LON:BLV) and Property Franchise (LON:TPFG)- I own the former but not the latter. Yet, on paper, Property Franchise (LON:TPFG) has a cleaner balance sheet. Two things of note - 1) The CEO is leaving next year and 2) They are weaker on financial services (and will probably need to weaken their balance sheet to address this). On balance, I concluded that Belvoir (LON:BLV) was more advanced in their strategy and therefore, a slightly better play on the sector. It was a close call though.

Small Cap Value Report (Wed 20 Nov 2019) - TPFG, CRL, BAR, AGFX, RFX, IDP

Property Franchise (LON:TPFG)

Unlock the rest of this article with a 14 day trial

About the Author

Graham Neary

31 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...