Small Cap Value Report (Wed 27 Sep 2017) - CNKS, RM2, BOO, KETL

Wednesday, Sep 27 2017 by

Good morning!

I didn't get around to covering requests yesterday but have now taken a look at Cenkos Securities (LON:CNKS), which did receive many requests. I'm posting my review of that stock first of all.  And then it will be time for Wednesday's updates.



Cenkos Securities (LON:CNKS)

  • Share price: 115.5p (+12%)
  • No. of shares: 56.7 million
  • Market cap: £65 million

Half-year Report

This is a stockbroker in the small and mid-cap space which provides corporate finance, market-making, research, etc. It acts as Nomad to AIM stocks, where it's one of the most active fundraisers.

I traded in and out of these shares back in 2015. It's one of those companies with lumpy revenues from occasional large, one-off transactions which are difficult to predict until they materialise. It is furthermore exposed to cyclical movements in equity fundraising activity, which are completely beyond its control.

Its stock market listing is very useful for it, however, since shares are a heavy part of overall staff compensation. So it can conveniently buy shares in the open market for its employees, who then also have a convenient place in which to sell them, should they choose to do so.

The company's staff compensation model is one of the best in the industry: base salaries are relatively low, but they come with high variable compensation. This results in motivated staff and a track record of never generating a loss in its entire history, all the way back to 2005.

Anyway, on to Tuesday's results. The cyclicality is evident:


The profit after tax and EPS increased by even larger percentages. This was thanks to a lower effective tax rate.

Funds raised for clients in H1 increased to £982 million from £529 million the prior year, helped by the £386 million Eddie Stobart Logistics deal.

Costs rose 82% to £25 million, reflecting variable staff compensation. It's a people business, so you don't get operating leverage working the same way as you do with other stocks!

The interim dividend recovers strongly to 4.5p.

Including share buybacks, Cenkos has returned £105.6 million to shareholders since flotation in 2006. I should point out that's significantly greater than the current market cap!

This is what…

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

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Cenkos Securities plc (Cenkos) is a United Kingdom-based independent institutional securities company. The Company's principal activity is institutional stockbroking. Cenkos provides corporate finance, corporate broking, research and execution securities services to small and mid-cap growth companies, and other companies, across a range of industry sectors, as well as investment funds. The Company offers its clients access to equity finance at various stages of their development. The Company's activities also include institutional equities and market making. It provides technical advice on all forms of corporate transactions, including initial public offerings (IPOs), fundraisings, mergers and acquisitions, disposals, restructurings and tender offers. The Company's subsidiaries include Cenkos Nominee UK Limited, Cenkos Securities (Trustees) Limited and Cenkos Securities Asia Pte Limited. more »

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RM2 International S.A. is a pallet development, manufacture, supply and management company. The Company is principally engaged in developing and selling shipping pallets and providing related logistical services. The Company's product for moving goods, BLOCKPal, has impermeability to water and contamination, fire retardancy, and resistance to damage and weight. The Company also offers systems for tracking asset movements and for optimizing the utilization and logistics of those assets. The Company's ERICA system provides real time intelligence to monitor and manage the movement of any transit equipment. The Company also offers a pallet rental program. The Company also offers supply chain auditing and consulting services, including measuring a supply chain's efficiency, determining the viability of a closed loop system, weighing the advantages of an open architecture and monetizing inbound pallet movements. more »

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Boohoo Group PLC, formerly plc, is an online fashion retail group. The Company is based in the United Kingdom and has a presence in the United Kingdom, the United States, Europe and Australia, selling products to almost every country in the world. The Company owns the boohoo, boohooMAN, PrettyLittleThing, Nasty Gal, MissPap and Karen Millen and Coast brands. These brands design, source, market and sell clothing, shoes, accessories and beauty products targeted at 16-30 year old consumers in the United Kingdom and internationally. more »

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

46 Comments on this Article show/hide all

prem14 27th Sep '17 27 of 46

With such a positive appraisal of Cenkos (CNKS) which I agree with as well, I wonder why it does not qualify for any stockopedia screens? Looks like the algorithms need to be updated a bit. It should qualify for some screen or the other as Cenkos has been around for a while.

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gus 1065 27th Sep '17 28 of 46

It's hard not to have some sympathy for Boohoo.Com (LON:BOO) management (and shareholders for that matter) after today's events. At face value the interims shot the lights out beating expectations across the board for its three primary business lines while also upgrading future expectations yet the shares ended down about 15% on the day. Doubtless some profit taking probably compounded by PI stop losses being triggered on the was down, especially after the 50 day moving average was breached but possibly a bit overdone?

It may be that the high water mark has been reached, but I've thought that in the past with this company and been confounded trying to trade out and back in again at a lower level on what I think will be a long term success in its increasingly international niche. I recall similar "top of the market" commentary in September 2016 when the shares went up through 100p and onto 120p before a similar 15% or so readjustment saw a lot of people selling (me included) before a further series of step ups in valuation. Having previously taken more than my original invested funds out of this one I was possibly one of the few buyers today and believe it will grow into its apparently fanciful valuation in time. As ever time will tell.


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xxx 27th Sep '17 29 of 46

In reply to post #223018

Good question. I should say I do not know their area of operations, but having said that the attractive points are.
1High recurring revenue
2 A clear plan to service selected industries
3 The acquisitions do seem accretive, eg allowing the closure of several data centres and better service for customers, via a company they bought which has a presence in NZ, allowing 24hr cover.

The problem for me is that, whilst that is the narrative, the cost line has not fallen, but I am not sure whether that is due to closure costs being loaded in the H1 results...hence my request for further scrutiny !

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steviej 27th Sep '17 30 of 46

Volume today in Boohoo.Com (LON:BOO) was impressive and very unlikely to be due to stops triggering.

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clarea 27th Sep '17 31 of 46

In reply to post #222898

Hi unless I;m missing something Stocko shows Strix as having net cash ?

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bestace 27th Sep '17 32 of 46

In reply to post #223183

They had net cash up until the point they listed 6 weeks ago, as long as you're happy to exclude loans from related parties from the calculation of net debt (which is what Stockopedia does). At IPO, the private equity backers exited stage left, taking all the IPO proceeds as well as some of the new debt facility. So now the company has net debt and negative net assets to boot.

The Stocko figures are out of date as they are only reporting figures up to 31 December 2016. Presumably they will update in the next day or so to reflect the interims released today, but as I pointed out in my last post the reported balance sheet as at 30 June 2017 is meaningless because it is pre-IPO and reflects none of the capital restructurings that took place at that time, so the Stocko figures will continue to be out of date for another 6 months or so until the 2017 finals are released.

Have a look at the pro forma balance sheet towards the end of the RNS to get a more accurate and up to date picture.

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Jenny Williamson 27th Sep '17 33 of 46

In reply to post #223053

Slightly off piste, but as you mentioned it, I noticed that Boohoo, PLT, Quiz etc etc etc all new brands with NEXT - a much needed step change in their model and enough to convince me to buy back into NXT. They have a great website, logistics and growing international presence and have demonstrated their ability to adapt to this fast changing market.

As a long term holder of BOO (and a big fan - they just seem to be getting it right again and again) I am holding, albeit with slightly reduced profits after today! I also see a very bright long term future.
I wouldn’t worry about the app too much - people seem to place a lot of focus on having an app, but I have never yet downloaded an app for an online clothing retailer nor have my teenagers who regularly receive asos/boohoo packages. Instead I receive appealing, almost daily email alerts from them with enticing offers - e.g. 25%off before midnight. I am not exactly their target market ( far from it! ) but there is enough going on to keep me interested in their tall ranges, which is ever increasing, and, I noticed on a pair of trousers I was looking at, the reviews were predominantly from American customers. All good signs to me.

And to Simoan, honestly, I have no concerns re Amazon- certainly at the moment, it is the BRAND that is important - to buy your clothes from Amazon would be deeply uncool!!

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simoan 27th Sep '17 34 of 46

In reply to post #223228

And to Simoan, honestly, I have no concerns re Amazon- certainly at the moment, it is the BRAND that is important - to buy your clothes from Amazon would be deeply uncool!!

But that's the point - it would be the brand that Amazon would be buying for this very reason. No-one wants to buy food from Amazon either and that's why they bought Whole Foods.

All the best, Si

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Nick Ray 27th Sep '17 35 of 46

Interesting price move and volume by Boohoo.Com (LON:BOO) today. It almost exactly mirrors the move and volume from the June 8th trading statement, except in the opposite direction. It is slightly odd that a statement which is inline with previous guidance has taken off the gain from the previous guidance but that is how sentiment works sometimes.

The big question now is whether the support will hold. At the moment I would say that over longer time periods Boohoo.Com (LON:BOO) is likely to continue to be a strong performer, but it is a fairly volatile share so in the short term it may well fall further. [NB: log scale chart below]


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clarea 28th Sep '17 36 of 46

In reply to post #223193

Many thanks had a feeling you would be more on the money than myself out of interest do you know on average how far Stocko normally are behind updating stats against most recent information ?

I guess from what your saying if using the Stocko stats it might be wise with new issues to wait until the first set of stats have caught up to get a truer picture unless your iike Paul or yourself people who are good with balance sheets ?

Thanks again

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gus 1065 28th Sep '17 37 of 46

In reply to post #223173

Fair comment. Something like 65m shares traded being about 10x the daily volume and roughly 10% of the "free float". I see an RNS out this morning that joint CEO Carol Kane sold 4.65m (about 10% of her holding) shares at 230ish-p which might have compounded the fall into the second half of the day. Interesting to see if other senior management or institutional investors were other big sellers.


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purpleski 28th Sep '17 38 of 46

Saw the RNS about joint CEO Carol Kane selling 4.65m shares yesterday, which one could say is unhelpful.

When I see this I always contrast with Buffett, who has not sold one share of Brooks Macdonald (LON:BRK) in his 50 years at Berkshire. I have made £65k on £18 on Boohoo.Com (LON:BOO) (after the current fall) and am happy to hold on but I am always disappointed with insider sales like this.

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purpleski 28th Sep '17 39 of 46

In reply to post #223268

Sorry meant to give you a thumbs up and my arm jogged. My apologies.

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purpleski 28th Sep '17 40 of 46

In reply to post #223278

My guess (and it is only a guess I really have no specially insight in to these things) is that there were a lot of short term traders who bought into the news flow expecting an impossible announcement yesterday (you know sales up 300% and Nasty Girl turnover at $300m) and when they get an inline they all sell out of the stock.

As I say below Kane's insider trade yesterday is sunhelpful but for now I am holding firm.

I have held for 22 months and still think that in November 2025 this will considerably bigger than it is now and will outpace the market.

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harry34 28th Sep '17 41 of 46

In reply to post #222833

Hi Imran,

I've just seen that Cenkos are acting as sole broker for a £350m fundraise for Civitas Social Housing. I presume their fees will be less than for that of an IPO, but it is a very similar capital raise to the Eddie Stobart IPO in H1. Further evidence that this is a very good year for them, and should mean that they will be paying out at least 5p final dividend - but I suspect higher.

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imranawan 28th Sep '17 42 of 46

In reply to post #223393

Thanks Harry. I noticed that also.

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bestace 28th Sep '17 43 of 46

In reply to post #223313

out of interest do you know on average how far Stocko normally are behind updating stats against most recent information ?

I don't know for sure but I think it's normally a day or so. You are probably best off directing that question to the Stocko management.

I'd recommend always going back to the original source - RNSs, annual reports, company presentations and (in the case of recent IPOs) the listing prospectus. That might seem like additional work, but if you have a lot of money at stake I think it would be a false economy not to.

If you rely solely on the figures provided by Stocko, there is scope for errors, omissions, lack of context and poor interpretation of the original source (Strix being a prime example), bearing in mind that Stocko are themselves two steps removed from the original source as they rely on Thomson Reuters as a data source.

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Jenny Williamson 28th Sep '17 44 of 46

In reply to post #223268

Apologies Si, I misinterpreted what you were saying - I hadn’t considered a buy out, though personally, I believe the directors are the key to BOO’s success and would have to be involved for that to continue.

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simoan 28th Sep '17 45 of 46

Apologies Si, I misinterpreted what you were saying - I hadn’t considered a buy out, though personally, I believe the directors are the key to BOO’s success and would have to be involved for that to continue.

No need to apologise at all. I sometimes post quickly and don't make myself as clear as I should. The only reason I mentioned the Amazon thing was to make the point that Boohoo is not really that expensive when you compare it some companies for whom it would still be an earning enhancing addition :) I don't really expect it to happen. 

I think it would be difficult for anyone to execute the design-make-test-sell loop any better than Boohoo but Amazon is basically a logistics company that could improve everything else and give it instant scale, and as we know, they really don't give a stuff about margins in their quest for world domination!! 

All the best, Si

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Graham Ford 28th Sep '17 46 of 46

In reply to post #223423

The timeliness of the updates to Stockopedia are in the bottom right hand corner of the screen and generally updates overnight as far as I am aware. But as you say the data can on occasions be wrong, sometimes due to wrong data from Thompson Reuters.

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 Are LON:CNKS'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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