Small Cap Value Report (Wed 21 Mar 2018) - MOSB, AIEA, LPA, CPR, MTC

Tuesday, Mar 20 2018 by

, MTCHi, it's Paul here.

To get you started, here is the link to yesterday's completed report, where I looked at results from Cloudcall (LON:CALL) and Blancco Technology (LON:BLTG) , plus a positive update from Pennant International (LON:PEN) .

I'm not sure about timings for Wednesday's report, as I have to hire a car first thing in the morning, and take our dogs to the other side of London to the doggie hospital, to have a few things fixed. As they'll be under general anaesthetic, I could have to hang around all day. So will take my laptop with me, and I'll try to get something posted once I find a quiet corner with a plug socket and wifi.

EDIT: Good news! The dogs survived their operations, and are recuperating well :-)

Moss Bros (LON:MOSB)

Share price: 45p (down 23.2% today)
No. shares: 100.8m
Market cap: £45.4m

Trading update (profit warning)

Moss Bros Group PLC ("the Group"), the 'first choice for men's tailoring' today issues the following Trading Update for the 52-week period from 28 January 2018 to 26 January 2019

The first thing to note is that the current financial year has barely started, so it seems an odd time to be putting out a trading update. Particularly as full year results are due out in a week's time. So trading must have deteriorated, necessitating a profit warning.

This is clearly bad news;

Following a review of projections for the year ending 26 January 2019, the Board now anticipates that the Group will deliver profit at a level materially lower than current market expectations.

There are no changes to results for year ended 31 Jan 2018, which will be announced next week, on 27 Mar 2018.

What's gone wrong then? As you would expect, consumer confidence is mentioned for 2 of the 3 reasons given;

·      Hire sales continue to be challenging, although the peak trading period for Hire is still to come. As such the Group has remained prudent in its outlook.
·      The reduction in store footfall that was experienced towards the latter part of December, has continued, reflecting a more cautious consumer…

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Moss Bros Group PLC is engaged in retailing and hiring formal wear for men. The Company operates through Moss Bros branded mainstream stores. The Company's segments include Retail and Hire. The Company offers various types of suits, skirts, jackets, trousers, coats, casualwear, ties, shoes and accessories. The Company offers clothing and accessories for various occasions, including weddings, prom, race day suit, tuxedo and black tie, interview attire and graduation. The Company also trades through Savoy Taylors Guild fascia. It has approximately 100 Moss Bros and Savoy Taylors Guild branded stores and over 20 Moss Bros outlet stores, which trade Moss Bros own brands and selected third-party brands, including Hugo Boss, Canali, Ted Baker, DKNY and French Connection. The Company has approximately 120 Moss Bros Hire outlets, which are contained within Moss Bros Retail and Savoy Taylors Guild Stores. The Company's sub brands consist of Moss London, Moss 1851 and Moss Esq. more »

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Airea PLC is a United Kingdom-based specialist flooring company. The Company’s primary activities are focused on manufacturing, marketing and distribution of floor coverings, through its brand burmatex. Its burmatex brand is a designer and manufacturer of contract carpets and carpet tiles. It offers a product range spanning fiber bonded, structure bonded, loop pile, cut pile and textured loop pile carpet in sheet, tile and planks, as well as specialist barrier and entrance matting products. It also focuses on the designing and manufacturing of products to meet needs of architects, specifiers and contractors for the education, leisure, commercial, retail, residential, healthcare and public sectors. The Company also exports its products to Europe, the Middle East countries and to Asia-Pacific regions. more »

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Carpetright plc is engaged in providing floor coverings and beds. The Company operates through two segments: UK and Rest of Europe (comprising Belgium, the Netherlands and Republic of Ireland). The Company trades from approximately 440 stores and concessions in the United Kingdom, as well as over 140 stores across Holland, Belgium and the Republic of Ireland. The Company offers free home estimating services. The Company's product range includes carpets, mattresses, headboards, laminate flooring, engineered wood flooring, rugs, vinyl flooring, luxury vinyl tiles and flooring accessories. Its luxury vinyl tiles are available in a range of designs, including tile, oak, pine and stone. It offers a range of beds and bed products, including divan beds, roll up mattresses, bed frames and others. It offers a range of options from memory foam mattresses to open coil and pocket spring mattresses. Its brands include Kosset, Essential Value, Storeys, Carpetright Clearance and Carpetright. more »

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

43 Comments on this Article show/hide all

ken mitchell 21st Mar '18 24 of 43

Softcat seem to be dampening expectations a bit, perhaps partly because share has had such a good run.

e.g in addition to points posted by slopsjon:-

“We will continue to monitor potential impact of Brexit process, although the Company’s focus on the U.K. domestic market means that risk from this is centred round macro economic factors which may impact customer appetite for business investment.”

Share price down over 80p just now but up over 60p yesterday.

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ACounsell 21st Mar '18 25 of 43

Xaar (LON:XAR) share price reacted very positively (up 18% at close) to unexceptional results. Perhaps I am getting sucked into the world of conspiracy theories but why do I suspect the price has been forced down prior to the results announcement (see the chart over the last 6 weeks) enabling those 'in the know' to buy immediately prior (yesterday) to the announcement and make a tidy profit!

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LeoInvestorUK 21st Mar '18 26 of 43

Conviviality (LON:CVR) update:


Headline: Going to meet institutions to discuss a £125m placing. £5m open offer if successful.

Three things stood out for me.

1) They have payments overdue with their creditors and are not operating normal trading terms.

I don't see how this can have happened in the last few days and even if it has by not paying their dividend their cash position is better than expected. If they could have paid suppliers surely they would have done so to avoid default rather than saving money for the HMRC who they are certain to default with.

2) Expected adjusted EBITDA drops another £10m, if recapitalisation successful.

Detailed reasons are given, but this suggests they were hoping / expecting to push through quite a lot of lumpy earnings (like new franchises) in the last few weeks of the reporting year (ending 28th April) and this may have always been optimistic. Also some suggestion that wholesale customers have stopped purchases (whether through destocking or buying elsewhere). 

3) Confirmation that if it can't raise funds then they are toast.

Clearly management were completely clueless about what was really going on, their share dealings being proof if nothing else. It seems quite likely that PwC will discover more issues.

The recapitalised CVR would have a enterprise value of £125m raised  + £100m debt assuming no value for the existing equity, and EBITDA of £50m (assuming no more nasties). So looking at it simplistically, any valuation above 4.5 EV/EBITDA implies some value for existing equity, anything less implies they are bust.

Taking the best case as 8x EV/EBITDA, this imples a £175m premium. If the institutions target a 20% rise on the first day (again, optimistic), that's £25m leaving £150m for prior shareholders, only a 17% fall. That seems very unlikely.

Blog: LeoInvestorUK
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xcity 21st Mar '18 27 of 43

In reply to post #343103

Statement implies that profits have been overstated for some time.
If restated accounts don't come with the placing, then I'd anticipate a substantial period of even more price weakness. Any institution worth its salt would insist on seeing restated accounts before agreeing to put money in, whatever terms are offered.

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sharw 21st Mar '18 28 of 43

Paul writes I suspect we might see a wave of CVAs amongst household name retailers this year in respect of Carpetright (LON:CPR) and now another has just been announced for New Look:

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LeoInvestorUK 21st Mar '18 29 of 43

Micro Focus International (LON:MCRO) - Heavy director buys today after profit warning. I mention partly because it has many of the same red flags as Conviviality (LON:CVR) - high debt to market value, losing control of business after transformational merger, heavily negative NTAV and of course the director buying. The big difference is that they seem to have no covenants, loads of cash and debt headroom, plus good gross margins.

Blog: LeoInvestorUK
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Effortless Cool 21st Mar '18 30 of 43

A great write-up of Carpetright (LON:CPR) , thanks, Paul.

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Edward John Canham 21st Mar '18 31 of 43

In reply to post #343103

Conviviality (LON:CVR)

Following on from/expanding on your point two the RNS states:-

"On the 13 March 2018, Conviviality announced it expected adjusted EBITDA for the year ending 29 April 2018 to be in the range of £55.3 million - £56.4 million. In addition, net debt was expected to be £150.0 million as at 29 April 2018.

Assuming the Placing is successful, the Board would expect that the adjusted EBITDA* for the year ending 29 April 2018 to be in the range of £45.5 million to £46.0 million and net debt to be below £100.0 million. For the financial year ending 28 April 2019, the Board expects adjusted EBITDA* to show modest growth compared to the expected outcome for the current financial year.

The reduction in the expected adjusted EBITDA outturn for the current financial year from that announced on 13 March is principally due to (i) the Company managing its customer and supplier base through the issues associated with its short term funding requirements and (ii) the deferral of franchise income arrangements as a consequence of the Board delaying completion of further franchise agreements."

Adjusted EBITDA has gained a *.

" * References to adjusted EBITDA are stated before the application of International Accounting Standards Board's IFRS 15, Revenues from Contracts with Customers, which is to be adopted by the Company from 30 April 2018. While it has no impact on cash flow, it is expected to have an impact on the recognition of franchise income."

The implication is that EBITDA will fall on adoption of IFRS 15 in FY 2019, even allowing for prior years - can't see how they can get a fund raise off the ground without having these numbers. (IFRS 15 was brought in to promote more conservatism in revenue recognition - to go ahead and produce accounts on the current basis in the current circumstances is crazy).

Still seems a complete mess to me - the more they communicate the worse it seems.


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ed_miller 22nd Mar '18 32 of 43

In reply to post #342913

Re Premier Technical Services (LON:PTSG) & Bob Morton - well done for pointing that out - saved me a job. Those considering an investment should consider searching for his name on & on Google.

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Paul Scott 22nd Mar '18 33 of 43

In reply to post #343188

PTSG management come across as being super-efficient. However, the involvement of tainted Bob Morton, and the excessive level of debtors (with unsatisfactory explanation of - we make a high profit margin, so we allow customers to pay us slowly) simply didn't ring true to me.

Take a look at Director remuneration & share options, and what looks like nepotism to me too.

Looks great superficially, but I'm not convinced.

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abtan 22nd Mar '18 34 of 43

Re Airea (LON:AIEA) results released yesterday.

I don't hold, but was intrigued enough to do some digging. 

Despite initial enthusiasm I'm now in 2 minds on whether I like it or not. It's worth noting that I'm especially put off by the vast number of unknowns inherent in comparing 12m vs 18m figures.

Some thoughts below, which mainly focus on Burmatex, which will presumably (and essentially) become Airea going forward:

  • I found the last Burmatex accounts filed with companies house for 2016 quite useful (link here). Of particular note were a couple of references to intra-group movements (see note 12 debtors for an example). These adjustments always put me off as I never know how much intra-group sales increase the top line, but then have no effect on the bottom line as, presumably, commensurate COS are consolidated at a group level.
  • EDIT TO ABOVE BULLET POINT: Using Geographical splits published for Burmatex and Ryalux (link here) from companies house, and total revenue reported today for the 12 months to 2016, it appears as though intra-group UK sales were £960k. I do not know which subsidiary company booked this additional revenue in 2016.
  • Burmatex revenues haven't actually proportionally increased: 12 months to mid-2016 = £18m, 18 months mid-2016-to-end-2017 = £27m. This is despite a "58% increase" in non-UK revenue in the last 6 months  (presumably all in Burmatex)
  • Re. the 58% increase in non-UK revenue in the last 6 months (presumably all in Burmatex), what happened in the preceding 12 months? I don't like that management have cherry-picked what information to report on.
  • Non-UK revenue for Burmatex was 22% of revenue in 2016.
  • Burmatex dividend in 2016 was £1.4m, a potentially good sign of things to come.
  • Pension deficit reduction was mainly from "return on scheme assets" and not due to cash generation. 
  • OCF before working capital looked quite high for the 12 months ended 2016, but nothing special for the 18 months ended 2018. If Burmatex was doing so well I would have expected this to be higher.
  • I don't understand how Burmatex's operating profit % (pre-exceptional costs) has gone from 9% in 2015-2016 to 16% in the last 18 months, and whether this latter figure is sustainable. Staff costs seemed pretty consistent from 2014-2016 (£4.3m and £4.5m respectively) and there looks to be a new lease arrangement from 2016 (£600k per year, before 2016 it was £0 per year), which doesn't really explain the increased OP%. Revenue hasn't proportionally increased. That leaves raw materials, which I would have expected to go up. The company hedges it's FX risk, so perhaps these costs were low for the last 12-18 months, but will now shoot up?

I imagine I'll be kicking myself for not buying in, but for now, I'll wait on the sidelines until there is more clarity in the numbers.


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iwright7 22nd Mar '18 35 of 43

Paul - Agree about the poor LPA (LON:LPA) English. This is how Reuters "interpreted"...

March 21



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ed_miller 22nd Mar '18 36 of 43

In reply to post #343213

Yep, re Premier Technical Services (LON:PTSG) I couldn't concur more! Nicely summarised too.

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doublelutz 22nd Mar '18 37 of 43

In reply to post #343188

Not necessarily a bad idea to follow Bob Morton sometimes. I made a large profit a few years ago when I followed him in buying shares at a low price in a company (sorry the name escapes me at the moment) and then got out right at the peak a couple of minutes after a RNS disclosed that he had sold half his holding. A year later the company was as good as bust. So well done Bob Morton as far as I am concerned!

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mrosbiston 22nd Mar '18 38 of 43

Truly outstanding writing Paul, thanks very much for this. I don't care about the timing, we have plenty of great subscribers who provide timely information. However, for the depth and quality of your writing, there is no one else out there doing this to such a standard.

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ed_miller 22nd Mar '18 39 of 43

In reply to post #343313

Yes, Re Premier Technical Services (LON:PTSG) (I didn't give you a thumbs down but you were pushing your luck a bit with a "well done Bob Morton" - he's thoroughly unscrupulous)

Paul Scott makes good money too sometimes trading in and out of companies he is sure are fraudulent* (he did it with Globo for instance). Operators as canny, alert and aware as you and he can make money trading all sorts of dangerous situations: it can work a treat if you get your timing right, stay lucky and don't get caught with the crap you bought when it does actually implode (which usually happens over-night).

But for the benefit of those tempted by the apparent charms of Premier Technical Services (LON:PTSG) and considering a long-term investment you might be interested to know that, according to information on and from links provided there some time ago, that Bob Morton was censured by the Take-Over Panel for serious breaches of the Take Over Code as chairman of Amour Group and then founder-investor in Premier Technical Services (LON:PTSG). The Code requires an offer for all outstanding shares to be made if an individual or group acting in consort owns >30% but <50% of outstanding shares - Bob Morton has repeatedly arranged clandestine sales of shares to each of his four sons etc without disclosure and knowing he is, again, in serious breach of the Rules. My notes from 28/9/16: " Premier Technical Services (LON:PTSG) also took nearly 3 months to report results; it has ropy working capital, excessive share options and material 'adjusted' items to profit, plus net debt - see SCVR, 28/9/16, comment #27 (TMFMayn). Debtors (receivables) also excessive: 141 days!"

* I don't know of any other 'funny business' at Premier Technical Services (LON:PTSG) beyond that just described above and by Paul Scott - I haven't looked.

(No position.)

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doublelutz 22nd Mar '18 40 of 43

In reply to post #343468

Just for clarity I am not suggesting anyone speculates on Premier Technical Services - I don't know the first thing about it.

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Gupshall 23rd Mar '18 41 of 43

In reply to post #343218

Share abtan’s sentiment

Re: cherry picking the 58% export sales growth, they do not point out that it is offset by a decrease in UK sales.

Re: pension deficit. I do not like the fact that it is quite a mature scheme but all plan assets invested in equities/property, and consequential vulnerability to market correction. The scheme liabilities are quite large relative to the market cap

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hayashi22 26th Mar '18 42 of 43

Re LPA (LON:LPA): I think the writer of their releases needs to put himself into the mind of an average investor. What might be clear to him/her does not seem that way to the more distanced investor. A couple of years the ceo was using horse racing terminology to describe progress...'galloping along nicely '..that sort of thing.

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Geronimo9999 3rd Apr '18 43 of 43


I, too, appreciate your insightful analysis on Carpetright.

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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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