Small Cap Value Report (Wed 4 July 2018) - DIS, TPT, CHH, STAF, NKTN

Wednesday, Jul 04 2018 by
64

Good morning!

Incredible drama in the footy last night - well done England.

In terms of the markets today, it’s holiday season in the US so watch out if you are trading any US instruments.


Stocks of primary interest today are:



Distil (LON:DIS)

  • Share price: 2.2p (+2%)
  • No. of shares: 502 million
  • Market cap: £11 million

Trading Update

(Please note that I currently own shares in Distil.)

I've been making some trades for my personal portfolio this morning.

As a consequence, I now own a starter position in Distil, having been encouraged by its trading update today.

Distil is a stock I've been covering regularly in this report since last year - see the archives. I've generally said nice things about it and thought the valuation wasn't too bad. So on the back of today's update, I thought I would finally put my money where my mouth is.

The company owns some premium spirits brands, of which the most important is RedLeg Spiced Rum. This is stocked by Tesco and is available through a variety of other channels (£20.50 for 700 ml).

5b3c8e3f40153rum_red4.jpg

Today's trading update is in line with expectations.

Q1 revenues (April to June) are up by 27%, and volumes up by 21%.

Since Easter fell in April last year, and in March this year, the company provides us with additional info:

To remove this phasing imbalance, we are also providing the unaudited six-month performance figures to 30 June 2018; year on year revenues increased 28% and volumes increased 27% over this six-month period.

On this six-month basis, the volume increase approximately matches the revenue increase. I think the six-month basis is the more meaningful approach.

The Executive Chairman remarks that "the gin and rum markets remain buoyant". As I've noted before, this segment of the alcohol industry appears to be far more vibrant these days versus beer/lager.

My rationale

As a value-oriented investor,…

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Disclaimer:  

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

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Distil Plc is a United Kingdom-based holding company. The Company is engaged in marketing and selling of Blavod Black Vodka, Blackwood's Gin and Vodka, Blackwood's Limited Edition Vintage Gin, Diva Vodka, Jago's Vanilla Cream Liqueur and RedLeg Spiced Rum domestically and internationally. The Company markets and sells its brands in various international markets, including the United Kingdom, the United States, Germany, Spain, Australia and Russia. RedLeg is a premium Caribbean rum, infused with spices. Jagos is the vodka-based cream liqueur with a vanilla cream flavor made with whole cream. Blavod is made using grain vodka, triple distilled and double filtered. The Company's subsidiary is Distil Company Limited. more »

LSE Price
2.26p
Change
-5.8%
Mkt Cap (£m)
12.0
P/E (fwd)
n/a
Yield (fwd)
n/a

Topps Tiles Plc is a United Kingdom-based retailer of tiles. The Company is engaged in the retail distribution of ceramic and porcelain tiles, natural stone, and related products. It operates in the Topps Tiles stores and online business segment. It supplies tiles and associated products to both trade and retail customer base, primarily for the refurbishment of the United Kingdom domestic housing. Its product categories include new products, bathroom wall tiles, kitchen wall tiles, mosaic tiles, kitchen floor tiles, bathroom floor tiles, ceramic tiles, porcelain tiles, underfloor heating, wet rooms, outdoor tiles, fireplace tiles and metro tiles. Its brands include Tile Adhesive, Tile Grout, Tile Preparations, Hardiebacker Board, Rubi Tools and Accessories, Warmup, and Homelux Tiles Trims. It offers tiles in various colors, such as beige tiles, black tiles, blue tiles, brown tiles, cream tiles and gold tiles. It has over 350 stores across the United Kingdom. more »

LSE Price
64.5p
Change
-1.5%
Mkt Cap (£m)
127.7
P/E (fwd)
9.9
Yield (fwd)
5.2

Churchill China plc is a United Kingdom-based manufacturer and distributor of tabletop products to the hospitality and retail sectors across the world. The Company's customers include pub, restaurant and hotel chains, sports and conference venues, health and education establishments, and contract caterers. The Company's segments include Hospitality and Retail. The Company primarily offers ceramic tableware. The Company also manufactures and sources product sold through Retail customers for consumer use in the home, in various markets across the world. The Company offers Churchill branded manufactured products. The Company offers various types of products, such as accessories, beverage pots, bowls and dishes, cake stands, cookware, cups, mugs, cutlery, dip pots and sauce dishes, glassware, jugs, melamine items, plate towers, plates, saucers and wooden items. Its collections include Alchemy Fine China, Churchill Super Vitrified, Art de Cuisine, Sola Cutlery and Lucaris Glassware. more »

LSE Price
1036p
Change
-2.3%
Mkt Cap (£m)
116.1
P/E (fwd)
15.7
Yield (fwd)
2.8



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


22 Comments on this Article show/hide all

matylda 4th Jul 3 of 22
5

I thought I was reading a Conan Doyle there with Distil (LON:DIS)

Like the thinking though, thanks for sharing the thought process.

My issue with shares such as Distil (LON:DIS) is the spread, I find it incredibly difficult to pay up on a 6.7% spread - OK, I know it may be slightly lower in a stable market but also maybe slightly bigger in a tumbling market.

Anyway, wondering how you and others cope with getting into such shares as I am not sure I have ever invested in anything >5% - Even >3% makes me think twice and I need a very strong conviction.

Thanks again for sharing that thought process.

Blog: Briefed Up
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Graham Neary 4th Jul 4 of 22
2

In reply to post #379659

Hi matylda... I'm not totally clear about the Conan Doyle reference I'm afraid...!

Illiquid shares tend to have higher returns than liquid shares. But the condition attached to this is that you have to be willing to hold them for a long time. It's very painful when you see how much the spread costs.

I keep my position sizes a bit smaller in illiquid shares these days. It's a horrible experience when you try to sell them, especially if you bought too much to begin with!

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matylda 4th Jul 5 of 22
3

In reply to post #379664

Sherlock!

That's all.

Thanks for the follow up.

I tend to also hold for the medium/long term - I just find it tricky to handle the 6% or so paper loss (on the spread) or perhaps 15% or so should it have a "wobble" soon after purchase. I hate giving up more than 20% on any purchase so I tend to get nervous not only on the initial purchase but also on any signs of a wobble.

Thanks once again for sharing the thought process and the follow up.

Blog: Briefed Up
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Mrken 4th Jul 6 of 22

In reply to post #379669

Matylda
I think I 've seen share writeup by you on Stockopedia.
What is the quickest on line method to access them?
Thankyou.
Mrken


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seadoc 4th Jul 7 of 22
1

In reply to post #379659

matylda,

Why does the spread on NMS affect your decision? Just interested. The ability to sell again. especially if you are thinking of buying above NMS depends on far more than the spread. Will your on-line broker not allow you to put a limit bid somewhere in the middle? Last month I got out of a position (about £50k) in Staffline (LON:STAF) . Ridiculous spread (from memory 10%) and would only give a price to sell at NMS which was a few hundred pounds. I put on a limit sale just below bid, got an e-mail back to say it was beyond market size but lower than indicated bid so could complete at once and therefore not able to be adjusted or cancelled. A couple of hours later it went through at 922p which is well below today's mid-price of 980p I see that today's trading update is positive so. yes with the benefit of hindsight. I could have waited and got more. I am happy to be out. I will be interested in Graham's view. especially about the 4 acquisitions.

Regards.

Seadoc.

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sharw 4th Jul 8 of 22

In reply to post #379659

I find it helpful to find out if the real spread is within the quoted spread as is often the case.

I have just been looking at Amino Technologies (LON:AMO) and the official spread was 202 - 206 (yes a modest spread compared to some) but I was actually getting quotes of 202.75 - 204 for a small deal.

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Lgarvey 4th Jul 9 of 22
1

In reply to post #379684

I find them interesting too....

Best way I have found is

https://briefedup.com/

| Link | Share | 1 reply
danielbird193 4th Jul 10 of 22
1

Haven't looked at Distil (LON:DIS) before, but wanted to add that it seems to have a top-notch Board including an Exec Chairman who was formerly Managing Director of Diageo UK. It's a bit too small cap for me at the moment, but if the brands prove able to build some traction then I may get interested in 12-18 months or so.

Tempting to compare it to Fevertree Drinks (LON:FEVR) but, on reflection, I think Fevertree created a new category (premium mixers) which didn't exist before. Distil's brands will be facing a huge amount of competition both from established brands and from independent "craft" distillers, so don't have anything new. But with the right branding and marketing I don't deny their potential to do very well indeed.

| Link | Share | 1 reply
sharw 4th Jul 11 of 22
2

In reply to post #379684

If you click on the author's name and then click on view profile you will get a list of posts which you can extend by clicking the 'read more' button at the bottom.

| Link | Share | 1 reply
RMundy 4th Jul 12 of 22
1

Hi Graham

"Incredible drama in the footy last night - well done England."

Indeed! Just like us to make things needlessly difficult...

Website: Research Tree
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Nick Ray 4th Jul 13 of 22
4

Yesterday you felt that Frontier Developments (LON:FDEV) was still a bit too risky for you but you've bought Distil (LON:DIS) today. I thought I understood your concerns about Frontier Developments (LON:FDEV) but then you have leapt into the very choppy seas of Distil (LON:DIS) and now I realise I don't understand.

Frontier Developments (LON:FDEV) are powering away, but on a low valuation so if they put a foot wrong they'll drop, and in practice they are very volatile because everyone is constantly wondering whether the moment has come.

But Distil (LON:DIS) are even more volatile (as well as illiquid) with quite a choppy last year.

So is it a case that you think FDEV might run out of jam but DIS still have jam to come?

| Link | Share | 1 reply
Beginner 4th Jul 14 of 22
6

Regarding Distil (LON:DIS) , I work in a bar and can confirm gin is now out, and rum is in. Finally sanity has returned to this world! (But I do resent selling the decent stuff to hairy young men wearing Fulham knots!)

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Mrken 4th Jul 15 of 22
1

In reply to post #379709

Thankyou very much Lgarvey.
Mrken.

| Link | Share
Mrken 4th Jul 16 of 22

In reply to post #379729

Thankyou very much sharw.
Mrken.

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Graham Neary 4th Jul 17 of 22
10

In reply to post #379744

FDEV is a fine company.

It's in an utterly different sector compared to DIS though. This is a bit like comparing apples to pears.

Game publishers are like film publishers. It takes a long time to prepare each game, and then it's hard to predict how the market will react to its launch. Consumers are unpredictable, and fickle.

Don't get me wrong - consumers are fickle about the taste of rum, too. DIS is a risky stock. The good thing is that once a product is launched, you don't have to worry about product cycles or product launches again. This is the drinks industry: you sell exactly the same product to the same person several times a year (more at different times of the year, naturally). And when a brand becomes loved, it is extremely valuable. There are signs that RedLeg could do this. It might not. We will see.

| Link | Share | 1 reply
Graham Neary 4th Jul 18 of 22
1

In reply to post #379724

Thanks for the insights re: Distil (LON:DIS) / Fevertree Drinks (LON:FEVR) !

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Edinburgh Investor 4th Jul 19 of 22
2

In reply to post #379769

I may have to buy a bottle to try it out for myself! Will let you know my thoughts.

| Link | Share | 1 reply
Banzii 4th Jul 20 of 22
4

Re Distil (LON:DIS) , I got interested in them after a UK Investor show video that came up on youtube. I've had a search and dug it out as it gives some useful insight in the company background and business model (developing and selling on brands) and also that they are a very small team with all production, etc, outsourced.

https://www.youtube.com/watch?v=f_x_IND2DvA only 11 minutes long.

I hold.

| Link | Share
lomcovaks 4th Jul 21 of 22

In reply to post #379784

Exactly my thoughts too!

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DJCP 4th Jul 22 of 22
6

How can Distil (LON:DIS) be an illiquid stock ? ... I'll get my coat :o)

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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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