Small Cap Value Report (Wed 8 Jan 2020) - RFX, GRG, MPAC, TPT, SHOE

8th Jan '20 by Paul Scott

28 comments 8733 reads

Good morning, it's Paul here.

Please see the header for the shares I will be looking at today.

Estimated time of completion is 1pm.
Edit at 12:17 - I want to spend more time on MPAC and SHOE, so am going to continue until 3pm. Hopefully there will be enough here to keep everyone happy in the 1pm email. Update at 15:09 - today's report is now finished.

Early snippets - no doubt MrC will cover these in his usual (very helpful) morning comment below, but this is what caught my eye on my first scan of the RNS today;

Ramsdens Holdings (LON:RFX) - strong Xmas trading, "comfortably ahead of market expectations" for FY 03/2020. Higher gold price helps pawnbrokers.

Greggs (LON:GRG) - exceptionally good year. FY u/l profit "slightly higher" than previous (already raised) expectations. Tough comparatives from now on. Cost inflation - wages & pork. Popularity of new vegan products. A remarkable success story, priced accordingly (PER of 26!)

MPAC (LON:MPAC) - trading ahead of upgraded forecasts

(all 3 of these companies are covered in more detail below)

Ramsdens Holdings (LON:RFX)

Share price: 249p (up 6% today, at 08:52)
No. shares: 30.8m
Market cap: £76.7m

Trading update

Background - Graham normally covers this one, but I'm trying to broaden my coverage a bit as a 2020 aim, so I'll have a go at interpreting this. It's a pawnbroker, with additional focus on other financial services, especially forex. Today's update is for the FY 03/2020.

Stockopedia likes it, with "Super Stock" classification, and a very high StockRank (before today's update);

One of the things I like about the StockRank system, is that it picks up on companies with improving trends, which we might otherwise miss, e.g. in this case note the steadily rising earnings forecasts;

Anyone who was buying companies with earnings upgrades in the autumn, whilst all the political shenanigans was keeping many other people on the sidelines through fear, will have done spectacularly well in the last couple of months, as money has flooded…

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lewisbabbage

8th Jan '20

Hi Paul,

Any idea if Sosandar is still advertising? I have been looking at the latest web stats for December released today and its difficult to analyse without that key fact.

Before advertising they were getting approximately 70k hits per month, which jumped to 130k in September then 180k in October and November. It was back to 130k this month. How I see it is if they are still advertising this 25% drop could be a concern, however if they have stopped the TV ads and tube advertising this could purely be organic and repeat customers. In that case their base without advertising has gone from 70k up to 130k which would be very good.

The stats are coming from similar web which obviously needs to be taken with a pitch of salt, but does still give a base to compare against.

Any idea?

Thank you

Vsihv

I like Greggs (LON:GRG) too - food and company - also missed the boat - there have been opportunities in the last year to 18 months.

Re expansion to Europe - I am not sure - Europe does not really rate UK culinary skills all that highly and bakeries are quite literally everywhere and your bog standard caf will have a reasonable offering (my sample is Barcelona where I spent some time).
Then again, they also speak ill of McDonalds and KFC, yet they usually had the longest queues (probably all tourists!)

I don't doubt that there is still room to grow especially in travel locations - service station stop, was clear that McDonalds and Greggs had by far the most customers.
My concern is on whether they can increase pricing to absorb cost rises - when you are known as the low cost operator, it creates an expectation among the customer base

MPAC (LON:MPAC) - nice write up Paul - share the sentiment - looks attractive on the face of it, but something stopping me pushing the button - does anyone have insight into their history - performance is far from consistent and that raises concern around stability - interims elude to legacy loss making contracts. Also I think at least part of the growth in US reported at interim was driven by tax benefits of CAPEX, which I don't think repeat (or at least not to the same extent).
Anyone have any insights into the history of the business - the volatility in earnings - view on sustainability going forwards.

Happy New Year Everyone.

davidjhill

Thanks 12barblues - that's a useful summary. Whilst I had always been aware of the "best estimate vs "prudent" distinction I hadn't appreciated that IAS19 liabilities discounted on corporate bond rates, so the difference is starting to make more sense now.

TerryHancock

Paul just to clarify - MPAC sold its tobacco machinry business in 2018 (I think roughly) it is no longer operatimng in that sector. It had a packaging business for many years and this is now its main activity.

Rusty2

Just went passed a Shoe Zone shop, empty, Clark's up the road had quite a lot of customers and were busy selling shoes even though probably well reduced in the sales. I tried a pair of Shoe Zone shoes once, rubbish, made in China, will not last very long, will buy Clarks for a bit more money and will last many years if my old ones are anything to by.

abtan

Re Sosandar (LON:SOS)

Hi Lewisbabbage

I personally wouldn't read too much into the similarweb numbers or trends.

I tried to do a similar exercise with another retailer a few years ago (I forget which one) and the online traffic from similarweb had pretty much no correlation with the final results.

As an aside, if you look at boohoo.com on similarweb you'll see a similar decrease in "web traffic" between November and December.

Cheers

wildshot

Interesting experience there herbie, the last time I bought shoes from Shoe Zone I wore them everyday for work and they lasted me 2 years! Either I got lucky or you got unlucky.

Looking forward to your write up on Shoe Zone (LON:SHOE) Paul, I note the pension deficit has increased notably since the prior valuation however I feel this is in control. Also interesting to read the potential impact of accounting for leases which comes into play next year. Overall it is a tightly held and well managed company with no debt.

Bonitabeach

For Ted Baker LON:TED fans only.

Sky News

Is anybody still holding?

Paul Scott

Oh blimey, I didn't realise that! Thanks for flagging, I'll amend the text.

Regards, Paul.

Frankly Walkoski

This comment is under review

ezlifeme

Shoe Zone (LON:SHOE) - I hold

I think the point re Shoe Zone v Clarke's from my local observations are:-

Clarke's expensive shoe, sites & customer retail experience (the type of customer who invests in shares?)

Shoe - Cheap site, look feel sells volume "Adequate" product continually at cheap price point - KNOW which end of town to be and how to make money (JAM individuals as customers?)

Roger Lawson

But the cost rises that might hit Greggs (LON:GRG) will also hit their competitors so they should be able to raise prices to cover. As regards possible foreign acquisitions, as a holder I would not be enthusiastic about that. The key to remember is that they are vertically integrated. Might be better to build from scratch in big urban centres but it would be risky to try that in Europe. While there is opportunity remaining in the UK I see little point.

Yes I agree with you but the ShoeZone were not that cheap around £20 but the quality is poor, for hardly anymore in the sale I can buy better looking and seem much better quality elsewhere. The choice of styles I found rather limited in ShoeZone, so I have not been impressed. I also find the chinese shoes to be too narrow for my british plates of meat. I have read that chinese shoes are narrow from someone who works in shoe manufacturing. I find generally many shoes are not wide enough now. So I have bought 2 pairs of Clarks and will see how they go.

rmillaree

Greggs (LON:GRG)
To be honest greggs probably have enough room to triple the stores they have in the uk before they reach full market saturation.

If we look at the experts on greggs cuisine the bods from newcastle clearly lead the way - in newcastle they average 10 shops per 100,00 of population (rumour is there are over 31 greggs stores in newcastle/gateshead area alone - thats probably compared to less than 5 maccy d's)

ok 65,000,000 / 100,000 * 10 = 6,500 units once everyone reaches the level of greggs consumption currently being seen in newcastle.

Dang - can't believe i sold my shares before doing that calc - sigh.

Richard Goodwin

I'm pretty sure Clarks manufacture in China too

Yes it seems some are.

castleford tiger

Mpac

I am a long term holder and have been buying many more from mid December from 173 to 200

The company is much changed with new management . The purchase of Lambert ( just up the road in Tadcaster ) looks like it’s fitting in really well.

With several upgrades behind us there are more to come.

The market is still well behind the curve of increased Eps here and 350 looks fair on what we know.

I think 40 p could be made in current year and with 35% of the share price in cash the shares in my opinion have much further to run.

It may look as if the price has jumped but that’s because the market missed this . Similar to Dart group that again is not understood by the market.

Advfn has some good posts.Paul I look forward to your detailed report.

Cleeve

ASLR was my tip I mentioned a coup,leg of weeks ago - there are warrants as well being given out at 130pm so clearly the new investors feel there is a long way to go yet

Andrew niven

I think there shoe products are pretty hideous to be honest , am amazed they are doing so well .

Lamb of Wall Street

10th Jan '20

I bought a few pairs of shoes from shoe zone a few months ago, I was quite impressed with the shoes and I have been watching the share price for a few months whilst doing some research into the company. I personally think the company is a good buy, as everyone always need shoes!

Small Cap Value Report (Wed 8 Jan 2020) - RFX, GRG, MPAC, TPT, SHOE

Ramsdens Holdings (LON:RFX)

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Paul Scott

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