Small Cap Value Report (Wed 31 July 2019) - TPFG, BHRD, NXT, EKT, THAL, DTY, ARGO

Wednesday, Jul 31 2019 by


This list is final.

Property Franchise (LON:TPFG)

  • Share price: 169.5p (+2%)
  • No. of shares: 26 million
  • Market cap: £44 million

(I have a long position in TPFG.)

Half Year Trading Update and Directorate Change

This is a collection of estate agent brands, from whom TPFG collects management service fees, which we can think of as royalties. The standout brand is probably Martin & Co. It also has a small, hybrid agency called Ewemove (like Purplebricks (LON:PURP), but much smaller and managed more carefully).

I've had a tiny stake in TPFG since April, to give me a chance to study it more fully and decide if I want to promote it to a full-size position. Please note that these shares are illiquid - if you take out the top shareholders, what's left for private investors is tiny.

Also, the dividend yield is quite high (>5%), which creates a tax problem for me. So I'm probably just going to keep my tiny stake in it, for now. I'll have to reflect on it some more.

Apart from paying too much for the acquisition of Ewemove, it has been disciplined when it comes to capital allocation and has generated a nice stream of cash flows for shareholders.

Today's update shows a small increase in total revenues. Reduced sales market activity has been offset by improvements in lettings and by 11% growth at Ewemove.

Within total revenues, management service fees are "the Group's key, recurring revenue stream", and these are up from £4.4 million to £4.6 million. Trading is in line with expectations.

Balance sheet and cash flows are a big attraction with this one. Despite paying out healthy dividends, TPFG's cash position has increased by £2.3 million to £2.8 million over the past 12 months.

CEO retirement - the long-standing CEO intends to retire at the end of the calendar year 2020, giving TPFG 17 months to find a replacement. This is a great length of time to work on the succession plan and it reflects well…

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

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The Property Franchise Group plc, formerly MartinCo PLC (MartinCo), is engaged in residential property franchise business. The Company operates as a franchise model focused on the United Kingdom residential lettings and property management services offered to private clients. It also offers estate agency services. Its brands include Martin & Co, Xperience, Ellis & Co, CJ Hole, Parkers and Whitegates. Martin & Co is a national brand with approximately 200 offices distributed across the United Kingdom. Martin & Co is a specialist lettings and property management business. Xperience brand includes is the property franchise business. Ellis & Co has over 20 offices within the M25 and one office in Tonbridge, Kent. CJ Hole is engaged in selling property within the estate agency market in the South West with over 20 offices throughout Bristol, Somerset and Gloucestershire. Its subsidiaries include Martin & Co (UK) Limited, Xperience Franchising Limited and Whitegates Estate Agency Limited. 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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NEXT plc is a United Kingdom-based retailer offering clothing, footwear, accessories and home products. The Company's segments include NEXT Retail, a chain of over 500 stores in the United Kingdom and Eire; NEXT Directory, an online and catalogue shopping business with over four million active customers and international Websites serving approximately 70 countries; NEXT International Retail, with approximately 200 mainly franchised stores; NEXT Sourcing, which designs and sources NEXT branded products; Lipsy, which designs and sells Lipsy branded younger women's fashion products, and Property Management, which holds properties and property leases which are sub-let to other segments and external parties. Lipsy also sells directly through its own stores and Website, to wholesale customers and to franchise partners. The Company's franchise partners operate approximately 180 stores in over 30 countries. more »

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

26 Comments on this Article show/hide all

Redtop 31st Jul 7 of 26

Have you had a look at Elektron? Looks like a good deal selling Bulgin for £105m, more than the market cap of the company but interested in your views. thxs

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yellowdog 31st Jul 8 of 26

Re Elektron - I am, also, not sure about the sale. And the share price rise is muted.

Last year Bulgin had £30m sales & op profit of £9m.

Checkit had £1m sales & op loss of £4.5m. However they have acquired Next Control Systems. Cost £9m - Op profit £1.2m

So shareholders will end up with some cash - much less than £95m after tax and stuff and a small loss making business ( subject to the NCS figures )

The return of cash to shareholders by way of Tender is also dilutive as there will be CGT to pay

It all depends on the mkt cap of the company when the dust settles and the value of the Checkit business can be calculated. So probably best to wait.

I think !!!!!

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rmillaree 31st Jul 9 of 26

Next (LON:NXT)
I had been toying with selling my Next shares at around the 5700p - i was lucky enough to buy around the 4100 level and that's a decent profit to bank with retail being what it is. Lucky for me (at present) i hadn't clicked the sell button.

I would say the figures today are very robust and an "expected" increase in profits of £10 mill this financial year and an increase in EPS of 5% (sharebuybacks mainly) are some very decent number - and deffo more than i would perhaps have expected. Perhaps this is mini period of peak optimism - good numbers always make the next year comparatives that much harder - so right now may be a selling opportunity perhaps? - but the base level we are at now is higher than i would have expected previously so i think for now i may continue to do nothing unless i see some compelling value elsewhere.

Finally looking at the historic numbers 2016 was peek "reported" EPS and i think they are on target to beat that this year so although profits are well behind 2016 the results the return for shareholders (using the eps number) could effectively be their best year ever - fair play to management for achieving this result in such a difficult retail environment.

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Graham Neary 31st Jul 10 of 26

In reply to post #499011

Hi redtop and others, I will say a few words on Elektron Technology (LON:EKT) later but please be aware that I am not an expert in this share! Will do my best. G

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LeoInvestorUK 31st Jul 11 of 26

I would welcome your views on Volex (LON:VLX) who made a couple of intra-day announcements yesterday.

I think the obvious objection to them is their low operating margin, but the FY 2019 results contained a number genuinely one-off items which if selectively adjusted out give something closer to 4.6%. While this isn't good enough yet there is a clear path to further improvements.

This is now a top 5 holding for me.

Blog: LeoInvestorUK
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ISAallowance 31st Jul 12 of 26

Not quite a small cap, but nice set of interims from 4imprint (LON:FOUR) - revenue +16%, eps +22%, div +20% (+29% in sterling terms!). "Slightly ahead of expectations" outlook for the full year. Excellent quality metrics, stockrank high-flier, qualifies for 5 screens, has net cash and is investing for further growth. Can't see anything not to like, other than that promotional items could be viewed as a discresionary spend when the (US) economy turns down and hence that it's effectively cyclically exposed.

Share price very suspiciously shot up about 6% yesterday afternoon immediately prior to results. I have held since the last finals and will continue to hold on this update, and possibly add.

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Trident 31st Jul 13 of 26

Hi Graham

Like you I have a small stake in Property Franchise (LON:TPFG) and the stats of the Company are generally satisfactory given overall market conditions. But it does worry me that the CEO is bowing out. He is not elderly, and I hope he is not ill. He seems at 52 a bit young to be 'retiring'.

Admittedly being a CEO on a publicly quoted vehicle is not for everyone, and takes its toll - particularly in bad times. There has been a spate of youngish CEO's exiting out of AIM companies, and I wonder if IPO's are often seen as a prelude to an older GAP year plan than in previous generations of CEO's.

By the same token we also see some elderly CEO's who seem wedded to the job.

I guess we will know the worth of the Property Franchise (LON:TPFG) model without Ian Wilson's input in due course. He has a circa 5% stake. Maybe institutions will pick this up?

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sharmvr 31st Jul 14 of 26

In reply to post #499051

Wholeheartedly agree - as someone who does not hold - I don't like the valuation!

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AlanJenkins2 31st Jul 15 of 26

Why does TPFG appear [from Stocko] to have negative Tangible assets ? [Just curious].

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InvestorJohn 31st Jul 16 of 26

In reply to post #499061

Same here I watched 4imprint (LON:FOUR) since when the price was sub £14 and always thought metrics were good but a bit overvalued - look at it now! My concern was always that they didnt have much of a competitive edge

And to add insult to injury they regularly send me a promotional brochure to work to rub my nose in it!

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abtan 31st Jul 17 of 26

In reply to post #498961

Re Shearwater (LON:SWG)

Thanks for the heads up Michael. It's the first time I've looked at this company and it does indeed look every interesting.

Without the loss-making part of the Xcina segment this could indeed make Shearwater (LON:SWG) an attractive buy. What has stopped me from pulling the trigger is that I couldn't find any reference to whether some of those losses would simply be allocated to other parts of the company.

I also note that reference has been made to reductions in Head Office expenses:

"In addition to this, we have also sought to remove duplicative back office functions across the Group by centralising certain shared services including finance, HR, legal, IT and operations. This has enabled us to create a more efficient operating structure and generate a number of cost savings, which have already started to be realised."

To me this paragraph implies redundancies, so I remain wary of more "one-off" costs in 2019/20.

Another thing I picked up was a deferred £3.0m payment for an acquisition. I'm not sure when this might need to be paid out, but cash balances, whilst growing, are still relatively low.

I'm not exactly sure what they do, but having contracts with large companies and the UK government is certainly not a bad thing. An interesting one that I plan to keep an eye on.



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Graham Neary 31st Jul 18 of 26

In reply to post #498961

Hi Michael, I'm afraid I don't have a view on Shearwater (LON:SWG). Best, G

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tomps3 31st Jul 19 of 26

WH Ireland (LON:WHI) FY19 results today. Here is an overview by Phillip Wale, CEO, which gives a little more colour.

The plan is to build the business by reducing costs, retire legacy systems and improve the quality of earnings across both divisions.

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HornBlower 31st Jul 20 of 26

Thomas Cook (LON:TCG) up over  30% seems optimistic after a Turkish tourist operator investor buys 7% stake?

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fred9566 31st Jul 21 of 26

Electron Technology (EKT ) - I bought shares in this company a few months ago and the latest move is positive in my view .For some reason Graham does not seem to have noticed the acquisition of Next Control Systems Ltd in May  - the RNS noted  "The acquisition of Next, which is a compelling strategic fit, will add immediate scale to Checkit, increasing turnover eight-fold and providing significant opportunities for further sales growth and improvements to operational capabilities, including 

Financial Impact

In the year ending 31 December 2018 Next's audited operating profit was £1.2 million on turnover of £10.7 million (2017: £1.2 million on turnover of £9.8 million). Next's 2018 audited accounts state that 57% of income (2017: 54%) was in the form of recurring revenue relating to software services provided. The remaining income related to one-off charges for consultancy and other IoT services and hardware.

The management accounts for the four months to 30 April 2019 show an operating profit of £0.5 million year to date on turnover of £3.7 million (2018 £0.4 million on turnover of £3.3 million). It is expected that the acquisition will be immediately earnings accretive for Elektron.

So not only do we have a return of cash we are left with what is in effect a new business with revenue of between £10 and £15 million and profit of between £1 and £2 million .On this basis I was surprised that the shares only went up by about 10%

It will be interesting how it pans out 

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abtan 31st Jul 22 of 26

In reply to post #499121

Hi Fred

Re Elektron Technology (LON:EKT)

I can't seem to reconcile the operating profit figure you mentioned.

For the year ending Jan 31st 2019 Checkit posted revenues of £1.0m and an operating loss of (£4.5m)

For the year ending Dec 31st 2018 Next posted revenues of £10.7m and an operating profit of £1.2m. But let's assume the 4 month operating profit of £0.5m up to April 2019 continues for the remainder of the year, so £0.5m * 3 = £1.5m.

Total operating loss for 2019 = c (£3.0m)

I'm only looking briefly, but presumably all head office expenses will need to be included after the sale of the core Elecktron business.

I appreciate that is a VERY rough estimate of operating profit for 2019, but it certainly doesn't seem to be a guaranteed foundation for the future success of the company, at least from a quantitative perspective.

Thoughts appreciated.


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SundayTrader 31st Jul 23 of 26

In reply to post #499151

re Elektron Technology (LON:EKT), the historic price to sales ratio for the combined group, after losing Bulgin, looks to be about 0.5. Successful software businesses with a healthy level of subscription revenue trade on P/S ratios of 2 and upwards. Both Next and CheckIt are growing revenues rapidly - I would have thought £15 million was achievable in 2020. A 5 million price tag doesn't look that bad, if you can swallow the current level of losses. I don't hold - I am still not sure I share the Board's enthusiasm for CheckIt.

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MBFP 31st Jul 24 of 26

In reply to post #498946

Hi B2V,

Yes Bulgin was the really profitable business.
The other 2 are Checkit and EET (for sale and just turned profitable).
Yes moving from an Electronic company to SaaS company.
A lot of cash will be returned to shareholders and the rest invested in development of Checkit.- see RNS today.
Checkit is early stage but the recent acquisition of NCS (NEXT) is expected to speed up the development of Checkit substantially - see recent RNS.
The team have been incredibly successful with Bulgin and the hope is that they can also make a big success of Checkit.
I think you have to decide if you believe in the ability of management and also if you think that Checkit can be a success.
Management have significant skin in the game and have proven themselves.
Clearly if you are a shareholder, it is important to keep a close eye on the development of Checkit.


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MBFP 31st Jul 25 of 26

In reply to post #499096

Thanks for the reply Graham.

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sharw 31st Jul 26 of 26

In reply to post #499186

Elektron Technology (LON:EKT)

SundayTrader writes " Both Next and CheckIt are growing revenues rapidly"

Next revenues calendar year:
2018 £10.7m
2017 £9,8m
2016 £10,2m


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 Are LON:TPFG'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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