Good morning, it's Paul here.
I'm up early today, to finish yesterday's report, so let's start with that.
Firstly, this section was sent in by Graham
Northamber (LON:NAR)
Share price: 46p (-10%)
No. of shares: 27.3 million
Market cap: £12.5 million
Sale of Warehouse Facility for £16.4 million
Graham writes - This is a share that I feel obliged to keep an eye on, as it was once a major holding for me. Aware of the "deep value" in its balance sheet, I attended the AGMs for a few years and, with one or two other shareholders, tried to impress upon the Chairman the logic in releasing that value.
I first invested in it in 2013 when NAV per share was around 81p. NAV had declined every year since 2007, after profitability evaporated. Tech hardware distribution became obsolete, and there was no economic reason to continue these activities. Northamber has been loss-making for almost a decade and has not made a meaningful profit for many years.
Unfortunately, the Chairman (also the majority shareholder) disagreed with our analysis, and ploughed on with the distribution activities.
After three years, I gave up and sold my shares for a tiny profit.
If I had held on to them until today, I would currently be sitting on a >50% gain from my entry price. But I would have had to wait six years for this outcome. The annualised return would have been ok, but nothing to write home about.
This is the problem with deep value investing - you need a catalyst to unlock value, and the catalyst can be totally unpredictable. How could it be predicted that the Chairman would choose to sell the company's warehouse in 2019, rather than 2021 or 2025? There is a massive opportunity cost in leaving your funds locked up for an unknown length of time in a dead business, waiting for payday, rather than simply buying shares in a good business which you can predict will continuously generate profits and shareholder value.
Indeed, even the sale of this warehouse doesn't guarantee that shareholders are destined for a big payday. NAR shares initially jumped much higher from their prior level of 29p, but that excitement has subsided today.
The reason is that the Chairman appears as determined than ever to carry on with distribution activities. Instead of giving the money back to shareholders, he is going to use it.
From the RNS:
"...the Sale provides an excellent opportunity to release a significant capital sum, whilst also providing time to source a more appropriately sized facility and location for the Company's warehouse requirements. The proceeds of the Sale will be used for general working capital purposes in support of the Company's strategy."
And the Chairman's comments:
"The proceeds from the Sale provide more tangible support to our business and the future development of our evolving strategies."
It doesn't get much more clear than this!
Being an honourable man, the Chairman doesn't draw a salary, so he is not enriching himself by carrying on. He would be much richer if he had invested Northamber's NAV into a basket of equity index funds ten years ago, which is something he could easily have done.
My feeling is that he has an emotional connection to the company he founded, and its employees, and continues to run it for that reason.
So where do we go from here? Northamber's official NAV gets a £10.4 million uplift from these sales, or 38p per share. NAV was just below 62p at December 2018, so let's call it 100p now. I haven't made any adjustment for tax on the sale.
NAV is due a further boost, some day, from the unrealised gains on Northamber's other freehold property. Until then, my best guess is that we will have modest ongoing losses from the legacy business. Perhaps the appreciation in the remaining property (a large office in Chessington) can offset its operating losses, as the appreciation in the warehouse has done?
If I adjust the December 2018 balance sheet for the warehouse sale, I get a pro forma balance sheet like this:
- PPE: £1.9 million
- Inventories: £3.4 million
- Receivables: £8.1 million
- Cash: £21.5 million (much higher than the company's market cap)
- Liabilities: (£7 million)
- Net Assets: £27.9 million or approx 100p per share.
It is a no-brainer for the company to buy back whatever shares it can pick up at current levels, and I am tempted to bet on this happening. At the same time, I'm reluctant to get involved in another waiting game which could last another 6 years or more. Life's too short!
Many thanks to Graham for this contribution - what a bizarre little company!
Back to Paul:
Solid State (LON:SOLI)
Share price: 445p (down c.10% yesterday, at market close)
No. shares: 8.5m
Market cap: £37.8m
Solid State plc (AIM: SOLI), the AIM listed manufacturer of computing, power and communications products, and value added distributor of electronic components, is pleased to announce its Final Results for the year ended 31 March 2019.
Key points, which all strike me as positive;
- Adjusted profit before tax up 18% to £3.5m
- Adjusted diluted EPS 16% to 35.9p
- PER of 12.4 - which looks quite good value
- Revenue growth of 22% splits into 10% organic, and 12% from acquisitions
- Order book recently (31 May 2019) is £35.9m, up 56% on prior year. An acquisition (Pacer) contributed most of the increase, but organic growth was still 20%. Impressive.
So why the share price fall? Is there something untoward in the outlook comments?
Outlook - this all sounds positive to me.
Macroeconomic headwinds "continue to be a challenge", but everything else sounds upbeat. It concludes with;
Over the next three years of our five year plan, we will remain focused on securing quality orders as we drive to achieve our goal we set at the beginning of 2017 to double the size of the business through a combination of organic growth and strategic acquisitions.
The Board is confident that the achievements of the last year and the growth in our open order book demonstrate that Solid State is making good progress towards achieving its goals and that the prospects for the Group remain very positive.
Current trading - a slight glitch here, with Q1 (Apr - Jun 2019) has seen a softer than expected order intake. Despite this, the group is still on track to deliver in line with expectations results for 2019/20.
Balance sheet - looks fine to me. Positive NTAV, decent working capital position, and net debt of only £2.0m - I'm happy with this.
My opinion - this looks a good value share, with management seemingly executing well.
It's done 10 acquisitions to date, which usually puts me off, but in this case the balance sheet remains sound, and diversification spreads risk.
I'm not entirely sure why the share dropped 10% on these results, given that they produced EPS slightly ahead of forecast (35.9p vs 35.0p forecast). Maybe I've missed something?
Overall then, this looks quite a nice GARP (growth at reasonable price) share, in my view, although it's not a sector that particularly interests me.
Stockopedia - loves it, a StockRank of 97, and Super Stock classification.
Also, note that this share qualifies for the "Tiny Titans" stock screen, which I've found to be historically a very good screen, picking up some excellent small caps. That screen has a very good long term track record too, so is worth checking.
IMImobile (LON:IMO)
Share price: 324p (unchanged yesterday)
No. shares: 66.9m
Market cap: £216.8m
IMImobile PLC (AIM:IMO), a cloud communications software and solutions provider, today announces its Unaudited Preliminary Results ("Preliminary Results") for the year ended 31 March 2019.
The headlines read well for this international group, e.g.
- Revenue up 28% to £142.7m, of which 17% is organic - impressive
- Adjusted profit after tax up 39% to £10.8m. Whenever PAT is quoted, I always check to see if there's been a favourable tax reduction! Only slightly in this case, as adjusted PBT is up 36% - so it looks like the company cherry-picked the better number for the highlights section
- Adjusted diluted EPS up 35% to 15.1p giving a PER of 21.5 - not cheap, but if growth continues apace, then it could soon grow into the valuation
Outlook comments sounds upbeat;
The Group is at a very exciting stage of development with technology developments creating momentum in the customer communications sector for more automation and use of digital channels. We are ideally placed to capitalise on this momentum and we believe there is no clear category leader in this market and that, due to our leading position in the advanced UK market, we have an opportunity to play a leading role globally.
The financial year has started well with trading in line with expectations. We continue to have good earnings visibility due to our established client relationships and healthy pipeline of new deployments and high proportion of recurring customer revenues.
We are confident in delivering continued organic growth across all parts of the business.
Lots of positives above. I think management has a lot of credibility here, having established a good track record. I've mentioned here in previous SCVRs, that I've met the CEO, Jay Patel, several times and been briefed on the business by him. Each time I came away highly impressed.
Other points;
Note the massive share based payment charge of £8.9m (versus £4.6m last year)
Balance sheet - not great, with negative NTAV - also receivables look extremely high, which would need looking into.
Cashflow - heavy capitalisation of intangibles (probably development spend) of £6.6m. Nearly £20m spent on acquisitions, part-funded by new bank loan. No divis paid.
My opinion - I like management, and the company. I'm less keen on the balance sheet & cashflow statement. So overall, probably not one for me, although it does look interesting in other ways, e.g. revenue & profit growth, sticky recurring revenues, etc.
Stockopedia's view is middling, with a StockRank of 53, but a positive "High Flyer" classification.
Malvern International (LON:MLVN)
Share price: 3.15p
No. shares: 258.6m
Market cap: £8.1m
(at the time of writing, I hold a long position in this share)
This is an education group, with operations in the UK & Far East. It operates language schools, accountancy training, and various similar activities. The story here is all about a turnaround under new management.
These 2018 results were issued in the nick of time, just before close of play on 28 June 2019. Any later, and the share would have been temporarily suspended. I see that as clearly unsatisfactory, and embarrassing for the company, highlighting gaps in the skill set of management. That's been addressed with the recent appointment of an experienced NED.
Apparently, the accounts had been prepared months earlier, but the various international auditors delayed things, and raised queries at the last minute. So the problem was more about the auditors not being well managed by the company, as opposed to the company itself being in a muddle with its figures, which it doesn't seem to be. Even so it's not good enough, and management realise that, so I don't expect this problem to recur, which is really all that matters. Mistakes happen, people have to learn how to do things at micro caps.
I'm philosophical about these things. At an £8m market cap company, you're going to get a few things going wrong from time to time. The more important thing for me, is that management seems focused on the turnaround. The attraction of which is the operational gearing.
To save me time explaining the business model, this video from our friends Tamzin & Tim at PIWorld is a useful introduction to Malvern (filmed at Mello London, in May 2019).
Outlook - sounds positive to me. Although the implication seems to be that the company was ahead of budget up to end April, and then slowed down to be just in line with expectations now. It's not the most clear wording, and could have been better explained, I think. Note the 2nd half weighting is normal, due to summer schools falling into H2;
"Trading in the current financial year has started satisfactorily and is in line with the Board's expectations for the year as a whole.
Trading up to the end of April was ahead of budget. Sales to the end of April plus sales booked for delivery in the remainder of the year stood at £6.9 million (2018: £3.9 million). As in 2018, trading in 2019 as a whole will be second half weighted as revenue in the second half will benefit from summer enrolments in London and Singapore, enrolment of the universities in the second half, and chartered accountants' courses in more demand through the second half of the year in Singapore."
My opinion - there's not really any point in me delving into the 2018 figures, as it was a turnaround year, with restructuring costs, etc.
The interesting numbers should be in 2019, with new contract wins, better focused sales, and restructuring largely done.
I bought at 4p in a placing some time ago, and see this as a 2-3 year turnaround. The current year is forecast to produce £1.1m adjusted profit before tax. If that's achieved, then the share could re-rate upwards, being seen as a successful turnaround.
There have been a few bumps in the road so far, so I'm probably about 50% confident in this share.
Sosandar (LON:SOS)
Share price: 17.5p (down c.11% today, at 10:24)
No. shares: 116.2m
Market cap: £20.3m
(at the time of writing, I hold a long position in this share)
Sosandar PLC (AIM: SOS), the online women's fashion brand, is pleased to announce its financial results for the year ended 31 March 2019.
I'll split this section into two parts - the detailed numbers for FY 03/2019 are largely academic, as we knew what to expect from the last trading update. So I'll come back to a detailed look at the numbers later.
Of more importance now is the outlook & current trading comments, which have spooked some investors (understandably). I contacted the company first thing, to ask about the outlook comments, which say;
"The new financial year has started strongly and in line with our expectations with June setting a new record for the number of units sold in a month.
Repeat orders for Q1 increased 122% year on year and Q1 has seen c.23% year on year revenue growth. This revenue growth has been achieved through strong repeat business with deliberately less emphasis on new customer acquisition as external factors resulted in a tougher acquisition environment.
Being an agile e-commerce business, we have been able to respond quickly to external forces, making the prudent strategic decision to hold back funds to invest for customer acquisition in future months where we expect to achieve a better return on marketing spend.
"With a clear growth plan, we are confident in the outlook for the year and very excited about Sosandar's long term prospects."
Here's a summary of my telecon with management this morning;
Q1. To my mind, it seems contradictory to say that the year (FY 03/2010) has "started strongly", and then to mention that Q1 sales are up only 23% (way below the 100%+ revenue growth forecast for the full year).
A1. The key number to focus on is the +122% repeat orders (from existing customers), which they are very pleased with. New customer acquisition spending was deliberately dialled down in April & May because the weather was awful (compared with blistering heat last year). They took the view that is was nonsensical to be spending the fixed marketing budget, trying to sell summer frocks, when it was cold & raining, which clearly makes sense. An example given is that the direct mail brochure for the start of June was held back, until the end of June, then sent out once the weather started improving.
Therefore management say the underlying performance, when adjusted for weather & reduced marketing spend, was as expected. They are not changing full year forecasts, and sound confident they can achieve it.
Q2. Surely the company now has a mountain to climb, to achieve full year forecast of c.£9.5m revenues?
A2. There's a bigger marketing war chest for the autumn season now, due to holding back in the poor spring weather period. A big expansion of the range is planned for autumn, with new designers & buyers being used for new categories (e.g. denim, which is doing well), plus footwear, and accessories ranges will be greatly enhanced. New factories are coming on stream, lots going on with product, which is why they are confident about the rest of the year. Some Sosandar designs are becoming perennial sellers, e.g. the fit & flare dress - Julie noted that Charlotte on Good Morning is today wearing one of these from Sosandar.
All in all, the tone of the conversation was really upbeat, they feel targets are attainable, and there is no change to the full year expectations.
Q3. I've noticed more discounting on your website, will this hit margins?
A3. Management took a tactical decision to clear slow-moving lines earlier. The discounting on website only applies to certain lines, they haven't done any across-the-board discounting. Have to respond to competitor activity, if other retailers go into sale early, Sosandar has to follow suit to a certain extent.
Slightly dodging the question there, but if margins were significantly different to expectations, then the company would have to say so.
Q4. Will you need to do another placing, as the cash looks sets to run out in early 2020, based on current burn rate?
A4. I got a rather generic reply on this, something like, we keep funding requirements under review, etc.
Cash - my view is that there is clearly enough cash for the time being. It may need a top-up placing next year, in my opinion. If this is done from a position of strength, after a strong autumn season, then it's not a problem at all - similar to the last placing, which was dilution of under 10%, and the money was offered to Sosandar unsolicited, by two institutions that were keen to buy in, in size not available in the open market.
The worry is that, if Sosandar has a bad season in autumn/winter later this year, then it could be forced to dilute existing shareholders more, with another fundraising at a lower price.
Therefore, being realistic, I think there's probably an increased chance of the company needing a bit more cash next year.
My opinion - obviously I'm biased, as I have a large long position here. Even so, I always try to think & act objectively, but unconscious bias can always creep in.
Trying to be even-handed, I'm not impressed with the growth rate slowing to only 23% year-on-year, but the explanations given by management do have credibility. If the weather had been warmer, and marketing spending higher, then the growth rate probably would have been 50-100%, instead of +23%. So on balance, I accept the explanations given. Although there has to be an element of doubt.
I feel that maybe the spring/summer range this year possibly didn't have the same impact as last year's? So there could be a mixed situation here - some external factors have had an impact, but possibly the product wasn't as good as it could have been too?
The repeat business statistic of +122% is very important, and that's the key driver of the business. The idea is that once a customer has been acquired, then the lifetime value could be enormous, as unlike say BooHoo or Asos, where customers have a fairly short lifespan, the Sosandar customer of 35 might still be buying Sosandar styles 20+ years later.
The share price has come down so much, that I feel the increased risk has already been factored into the valuation.
The tone of the conversation was very positive - management clearly do believe that they can hit the full year numbers. If they didn't believe that, then the forecasts would be lowered, but they're not being lowered. In the past, management have been straight with investors. Obviously they're putting their best foot forwards, as all companies do, but Sosandar has a history of beating forecasts on revenues - it had several upgrades last year. So I'm comfortable that management here know what they're doing.
For me, this has always been a long-term investment. On balance, I feel that the long-term picture is unchanged, and very positive. However, a soft Q1 certainly increases risk that full year numbers may not be achieved, despite management sounding very confident they can hit those numbers.
Therefore, I can understand why shorter term, or less committed shareholders, might feel that it's better to watch from the sidelines for now. There again, a £20m market cap, for the UK's fastest-growing pure play online fashion business, with enough cash for at least 12 months, is probably not going to be far from the lows. With the weather now improving, and marketing spend going back up again, it wouldn't surprise me if the next trading update sees an acceleration of the growth trend again.
Time will tell!
LoopUp (LON:LOOP)
Share price: 129p (down 44% today, at 14:11)
No. shares: 52.5m
Market cap: £67.7m
(at the time of writing, I have a long position in this share)
Trading update (profit warning)
LoopUp Group plc (LSE AIM: LOOP), the premium remote meetings company, is providing a trading update for the six months ended 30 June 2019 ("H1 2019").
The first bullet points lulls us into a false sense of security;
The Group continues to see strong demand for the LoopUp product. In addition to a £2.34 million contract renewal with leading global law firm, Clifford Chance, new landmark accounts wins during H1 2019 include a major European investment management association, a leading television broadcaster in Australasia, the world's largest private dispute resolution provider, and numerous major international law firms.
This is followed by a second bullet point which pulls the rug out from under investors;
However, due to:
(a) subdued revenue across its long-term customer base, which the Group believes has been driven primarily by general macro-economic factors rather than any material change in customer loss rate; and
(b) more senior quota-carrying pod staff than expected being diverted into management and training activities required to accommodate the dramatic increase in the number of pod staff,
the Group now expects revenue and EBITDA for the full year to 31 December 2019 ("FY2019") to be approximately 7% and 20%, respectively, below market consensus.
Quantifying the problem - the only recent broker note I can find is from Progressive Equity Research (who?! They seem to be a commissioned research company). It's a fairly detailed briefing note, published on 18 June 2019.
Existing forecast: Revenue £50.1m, Adj EBITDA £10.1m, Adj PBT £5.3m, Adj EPS 10.0p
My revised estimate: Revenue £46.6m, Adj EBITDA £8.1m, Adj PBT £3.3m, Adj EPS 6.2p
I've had to make some broad brush assumptions in the PBT & EPS figures above, so this is a best guess, rather than a forensic analysis.
Is it fixable? To my mind, this looks like a setback rather than a disaster. Although it does raise the question as to why existing customers are using the LoopUp service less? Are they using something else instead perhaps? Can it really be down to macro factors? I find that difficult to believe, because we're not in a recession.
Last year revenues were split 53% UK, 34% USA, Other EU 12%. LoopUp revenues should be doing OK, based on those geographies, in my opinion.
The problems with sales "pods" looks like a self-inflicted problem, due to over-ambitious speed of expansion. Still, things like that happen with fast growing companies, and is fixable, so I'm not too worried about that. It could even be a buying opportunity perhaps?
Other points in today's update;
Revenue split - expected to be 48% H1, and 52% H2
New video functionality - strong customer feedback, will accelerate roll-out in Q3. Sounds positive, and should generate additional revenues from existing clients
Revenue erosion of 7% in its long-term clients, is worse than net growth of 1% in 2018 - this is a concern. On the plus side, it says that it's down to across the board subdued activity, rather than client losses. Could this be an early indicator of a recession looming, perhaps? There have been other warning signs lately (e.g. the very poor building sector PMI this week in the UK).
Pod staff - increased from 63 at end 2018, to 112 currently - that sounds bonkers to me. What were they thinking, trying to expand so fast? However, it does help explain the profit warning - as new sales staff are useless to begin with, have to be trained, which takes time & money. The benefit is then felt the following year. So at least this should lay the groundwork for improved performance next year.
Management speak - described as growing pains, which I think sounds about right;
"We are experiencing some broad macro-economic headwinds in our business and have needed to take on board some learnings and growing pains resulting from what is essentially a very positive expansion of team size in our new business pods.
However, we believe the LoopUp product remains strong and differentiated in a very large addressable market, we continue to see excellent demand for that product, and we remain confident in our ability to deliver strong future growth."
My opinion - the LoopUp product is indeed excellent - I've tried it a while back.
I had to grit my teeth this morning, due to my spectacularly ill-timed initial purchase yesterday. Never mind, we just have to deal with profit warnings from time to time. I've learned to quickly put the disappointment and emotions behind me, and make a rational decision on whether to sell, hold, or buy.
This particular situation looks to me like a buying opportunity. The company has hit some bumps in the road, but still has a great product, and is growing. The market cap is, amazingly pretty much back to where it started, when the company listed in Aug 2016. It was only about one fifth of its current size (in revenues) back then, and operating around breakeven. Now, it's much bigger, and decently profitable. Therefore, I think the share is very considerably better value now, than it was back then.
I am minded to see today's profit warning as falling into the fixable, short term blip, category. Therefore, with the price having been smashed by such a large extent, this looks to me like a good buying opportunity. With a bit of patience, I could see this share recovering well. That's providing nothing else goes wrong, of course.
Reviewing the last balance sheet, I think it's adequate for now, but not strong enough to withstand a further, more serious downturn in trading - due to the bank debt. So if it warns on profit again, then I would be inclined to ditch it.
For now though, this looks a potentially good entry point, in my view, at c.130p. I think it's a fundamentally good growth company, now priced at an attractively low level. There could be bidding interest for the company at this level. As we were discussing here recently with Cloudcall (LON:CALL) - the Americans, and private equity, put very much higher valuations on these type of companies than AIM investors do - especially if there are any disappointments in the growth story.
Redde (LON:REDD)
Share price: 113.6p (up c.6% today, at 16:09)
No. shares: 306.7m
Market cap: £348.4m
Redde collaborates with insurance companies, to provide courtesy cars for the no-fault party in car accidents.
A quick recap - this share was a dividend paying cash cow, trading sideways between 150-200p per share, from 2016 to early 2019. It issued a profit warning in Mar 2019, due to the loss of a large client, and rumours of further possible contract losses. Insurers seemed to have realised that they're paying too much, and are trying to squeeze Redde's margins. Hence why the share price has been languishing either side of 100p lately.
Trading update for FY06/2019 - sounds reassuring;
Trading in the second half of the year ending 30 June 2019 has been in line with the Board’s expectations for both revenue and adjusted operating profits.
Contracts update - the big contract that was lost, is set to partially (for higher margin work) extend from July 2019 to Nov 2019. Whilst that mitigates the contract loss, it's still a lost contract, so getting 4 months more work is only deferring the loss in profits. I suppose the hope might be that Redde could regain the contract after that?
Further good news re other contracts;
In addition, since the 8 March announcement there have been a number of new contract wins in other parts of the Group as well as a contract renewal with a major insurer which have contributed to the Board’s confidence in its expectations for financial year 2020.
That considerably de-risks the outlook, at least for the next year.
Net debt figures, and news on a protocol agreement (whatever that is) are also given.
My opinion - things are looking up for shareholders here. This strikes me as a good update.
Forecast is for diluted adj EPS of 13.5p in FY 06/2019, then 13.1p in FY 06/2020
That's a PER of 8.4 and 8.7 respectively, nearly all of which is being paid out in divis, giving a stunning yield of 10.3%
A yield that high is rarely sustainable. If it is sustainable, then the share price would probably rise. Although the shock caused by the big contract loss has highlighted that Redde is vulnerable to insurers trying to squeeze its high margins down.
On balance, I don't have a strong view either way with this one, because future performance depends on how the various contracts with insurers pan out. That's unknowable to anyone outside the company.
Topps Tiles (LON:TPT)
Share price: 68.6p (up 2.4% today, at close of play)
No. shares: 194.9m
Market cap: £133.7m
Topps Tiles Plc (the "Group"), the UK's leading tile specialist, announces a trading update for the 13 week period ending 29 June 2019.
Sales were up +3.8% on a like-for-like ("LFL") basis, which looks rather good. Although the prior year comparative was soft, at -2.3%.
There's positive-sounding commentary in the announcement, which I won't repeat here.
My opinion - I like this share, but don't own any personally. The valuation looks reasonable (PER c.10, and 5% divi yield), and the business seems to be weathering tough retail conditions well.
Stockopedia loves it - a StockRank of 98, and "Super Stock" classification.
Purplebricks (LON:PURP)
Share price: 95p (up 2.2% today, at market close)
No. shares: 306.4m
Market cap: £291.1m
A leading online estate agency. The headline figures look rather scary;
- Revenue up 55% to £136.5m (this bit is OK)
- Operating loss of £-52.3m
- Cash down from £152.8m to £62.8m - massive & unsustainable cash burn (a fair bit on those annoying TV ads, no doubt)
- The CEO founder Michael Bruce, stepped down on 7 May 2019, following botched overseas expansion
- Australian business has been closed (previously announced)
- USA - PURP is also withdrawing from this market
- That seems to leave a profitable (£5.3m) UK operation, and Canada (small loss-making)
Outlook - wants to gain 10% of UK estate agency market. Current trading;
Current economic and political uncertainty in the UK means market conditions remain challenging with volumes continuing to trend downwards, partially offset by higher revenues per instruction.
My opinion - it's got £62.8m in net cash left, but I wonder how much of that will be remaining once the USA & Australian operations have been shut down? There could be balance sheet write-offs relating to those markets closing maybe?
Purplebricks shot for the stars, with an expensive overseas expansion, and it hasn't worked.
I'm struggling to see how the UK + Canada businesses are worth anything near the market cap of £291.1m. This looks a busted flush to me.
Works co uk (LON:WRKS)
Share price: 69p (up 10% today, at market close)
No. shares: 62.5m
Market cap: £43.1m
TheWorks.co.uk plc ("The Works", the "Company" or the "Group") the multi-channel value retailer of gifts, arts, crafts, toys, books and stationery, announces today its preliminary results for the 52 weeks ended 28 April 2019 (the "Period" or "FY19").
We've not looked at this company before here. It floated in July 2018, and has been going down in price ever since listing;
Results - the highlights look quite good - e.g. adjusted PBT up 58.6% to £6.7m, on revenues up 13.2% to £217.5m. That's only a 3.1% profit margin though, so profits could be wiped out easily, if revenues were to fall sharply.
Adj EPS is 9.0p (up 25%) - giving a PER of 7.7 - cheap, but why pay more for a low margin retailer? Confusingly though, a different EPS of 8.4p is mentioned below, which looks a more meaningful number, being pro forma figures. That would give a PER of 8.2
Store openings - this looks rather good actually. It opened 50 new stores (total now 497), and claims a payback period of 1 year on new sites. That's outstanding. They must be getting great deals on new sites from landlords.
Current trading - 9 weeks to 30 June 2019, LFL sales are marginally down.
Balance sheet - looks reasonable, almost debt-free. Trade & other receivables looks unusually high for a retailer, so I'd want to know what is in there.
My opinion - I wasn't expecting to like this share, but it's actually not bad. High gross margins, and getting good deals on new shops, mean that it's still profitable when other retailers are dropping like flies.
Its website looks to have some bargains - e.g. in books, Ed Sheerin's biography is only £3.50, and Linda Nolan's is an even bigger bargain at just £2.00, a saving of 89.5% on list price. Guess what my family will be getting for Christmas! I'm searching for Gordon Brown's autobiography, and am hoping that they will pay me to read it.
The trouble is, who wants to invest in retail shares at the moment? We've seen so many look cheap, and then get cheaper & cheaper, until they expire. Does The Works have enough of a niche to continue growing its profits? I don't know.
Phew, what a marathon today's report was! If you got to the end, well done you!
See you tomorrow.
Best wishes, Paul.
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