Small Cap Value Report (Wed 9 May 2018) - VTU, GRG

Wednesday, May 09 2018 by

Good morning, it's Paul here.

Apologies, I forgot to put the placeholder article last night.

It looks quiet for news today.

Vertu Motors (LON:VTU)

Share price: 49.9p (unchanged today, at 10:26)
No. shares: 379.3m
Market cap: £189.3m

(I do not currently hold any position in this share)

Final results

Vertu Motors plc, the UK automotive retailer with a network of 120 sales and aftersales outlets across the UK, announces its audited results for the year ended 28 February 2018 ("the Period"). 

This is a share that I've previously held, but ditched them in the market wobbles earlier this year. No particular reason, other than that something had to go, in order to de-gear. That's looking like a mistake now, as the share price has bounced back decently in the last month.

It's interesting to note how this share has traded in quite a tight range for most of the last 2 years.


It has been paying reasonable divis along the way though. The yield is 3% at the moment.

I wonder if the boffins at Stockopedia HQ could work out a way to show share price charts with dividends included? That would give a better indication of the total shareholder returns - capital gains and income. Share buybacks might complicate things though.

Today's results highlights section neatly encapsulates the main points, so here it is copied, to save me some typing;


Balance sheet

NAV:  £264.4m,  which includes £95.7m intangible assets, deducting those gives;

NTAV:  £168.7m.  The company's highlights section above says that NTAV is £174.3m, which is £5.6m higher than my calculation. I can't see any item of that amount which would reconcile the two, so it's an unknown difference.

Current ratio:  car dealers are unusual in that they have massive working capital, which usually nets off to about zero. The businesses are essentially funded by the vehicle manufacturers, and other trade creditors.

In this case, current assets are a huge £666.4m (mostly inventories - i.e. cars in stock), and current liabilities are also huge, at £679.5m. These are such large numbers, that the net cash balance of £19.3m is fairly trivial. Providing car manufacturers continue offering credit, then…

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Vertu Motors plc is an automotive retailer in the United Kingdom. The principal activity of the Company is the sale of new cars, motorcycles, and commercial vehicles and used vehicles, together with related aftersales services. The Company is engaged in the provision of management services to all subsidiary statutory entities. The Company operates a chain of franchised motor dealerships offering sale, servicing, parts and bodyshop facilities for new and used car and commercial vehicles. The Company also operates various franchise dealerships, such as Volvo, Volkswagen, Land Rover, Audi, Mercedes-Benz and Jaguar, and operates Honda dealerships in the United Kingdom. The Company operates approximately 125 franchised and over three non-franchised operations across England and Scotland. The Company's subsidiaries include Bristol Street First Investments Limited, Bristol Street Fourth Investments Limited, Vertu Motors (VMC) Limited and Grantham Motor Company Limited. more »

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Greggs plc is a United Kingdom-based bakery food on-the-go retailer. The Company's products and services consist of a range of fresh bakery goods, sandwiches and drinks in its shop. The Company also provides frozen bakery products to its wholesale customers. The Company owns approximately 1,698 shops, 12 regional bakeries, one distribution center and one manufacturing center. The Company has approximately 105 franchised shops operating in travel and other convenience locations. The Company offers pastries and bakes, sandwiches, breakfast, sweets, pastas, salads and soups, bread, platters, drinks and snacks. The Company's Balanced Choice products offer choices, which have approximately 400 calories. The Company's sales are made to the general public, as well as to certain organizations. more »

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23 Comments on this Article show/hide all

bluetonto 9th May '18 4 of 23

I would be interested Paul if you could give your view on WEY educations results yesterday, as i believe you still hold, was the big fall overdone ?

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drvodkaquickstep 9th May '18 5 of 23

Hi Paul - its a Microcap but perhaps you might like to take a look at the decent Trading Update from Ashley House (LON:ASH)?  A recent JV with Morgan Sindall (LON:MGNS) has been transformational so the next couple of years should see their prospects firmly improving.

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xcity 9th May '18 6 of 23

Slightly surprised today to see Stockopedia rating Trinity Mirror (Reach (LON:RCH) ) a priceless Highflyer.

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Roger Lawson 9th May '18 7 of 23

As a holder of Greggs, it is worth noting that the business has been undergoing substantial changes in the last couple of years under new management. Moving more into higher growth "food on the go" market and lots of new locations. The share price fall seems overdone bearing in mind that the profits were already forecast to be flat for this year as against last. I think the high rating on the shares is simply a reflection of the high regard for the changes wrought by the CEO, the good return on capital, the good cash flow, etc.

Website: Roliscon
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Paul Scott 9th May '18 8 of 23

In reply to post #362013

Hi bluetonto,

Re Wey Education (LON:WEY) - I don't think the numbers were any different to what was expected.

However, I think the figures very much reinforced to me that the share price had got ahead of itself last autumn, in the heat of a bull market. It's still a tiny company, not really making any money. However, it's not losing money either, so the cash raised recently should be put to good use, hopefully.

Therefore, with hindsight, it was a mistake on my part to over-pay for this share last autumn. However, I remain of the view that online is definitely the future for education. Putting a lot of bored kids in a classroom, who play up & the teacher struggles to control them, is such an outdated model, ripe for complete reform.

So I think WEY is in the right space, had valuable experience & track record (its InterHigh school has been going for quite a few years now, and has good reviews mostly online).

I'm not minded to buy any more, but plan on keeping what I've got for the time being. But that depends if any better investing ideas come along.

It's easy to get carried away with the future potential for small companies, whilst losing touch with reality, in terms of valuation!

Regards, Paul.

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Zipmanpeter 9th May '18 9 of 23


Worth reading the complete results.  Really like the mgt detail and focus on capital alocation for the long term and cash/control.  Not quite Next in presentation terms but Mgt feel really practical and in control.  Especially interesting was a table showing expected CAPEX needs which have been about £20Mn for last few years will peak at £34Mn this year and then drop to £15Mn in the 2020 year.  This is roughly x3 the annual dividend ie there will be free cash to distribute or buy back or acquire dealers.  

Also more detail about the property side that underpins balance sheet.  Very practical tone and evidence that mgt recognise they are running a property business as well as automotive and are doing it well. 

I sold out just recently on worries that Brexit and diesel concerns plus the review of car financing would worsen the situation for cardealers this year.  I now hope for a big downward spike because of these factors so I could would buy back in.  Vertu Motors (LON:VTU) 's strategy of being a winning consolidator looks to be on track.

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Paul Scott 9th May '18 10 of 23

In reply to post #362003

Hi hayashi22,

I don't think the touch screen approach would work in Greggs. The food offering and demographic is different to MaccyD.

Yes, that was the point I was trying to make. That I don't see what Greggs can do to automate things (unlike McDonalds), nor does it have the opportunity to sell online., since the price points are probably too low to justify doing deliveries.

Therefore, Greggs is totally dependent on High Street footfall, yet that seems to be the big problem area - especially in smaller towns, some of which seem to be in terminal decline.

I think the stock is likely to de-rate to a more realistic, modest PER.

Regards, Paul.

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miti 1000 9th May '18 11 of 23

Hi Paul,
Please take a look at St Ives(SIV.L) when you get a chance.They announced another disposal last week though you didn't cover them in your diary.Again they are selling loss making divisions to focus on where 85% of their profits are. Deferred considerations are an issue over next few years but I think they could well be rerated even after this run . I'd be interested in your thoughts after recent developments despite you having covered it previously before the latest news. TIA.

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sharw 9th May '18 12 of 23

Renew Holdings (LON:RNWH) this morning issued details of an acquisition and placing:

The placing at 355p (compared to yesterday's close of 413p) is for an amount equal to 20% of the existing capital. As far as I can see the most recent authority given was for 5% without pre-emption rights. Should there have been an open offer? Was this legal? Comments please.

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ezlifeme 9th May '18 13 of 23

In reply to post #362048

I thought you went to Holland recently Paul - Didn't eat on the go?

Not heard of Maison FEBO - The hot food vending machine business

A wall of hot food

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Kenb8 9th May '18 14 of 23

In reply to post #362058

Hi sharw,
If you read the full details of the placing document you will see that this transaction was effected by means of a "cashbox" arrangement by which the company is able to circumvent pre-emption rights as the new shares are, in legal terms, being issued to acquire a company rather than directly for cash. The only asset of the company being bought is cash which has been subscribed by the placees through Renew's brokers. This appears to me to be a gross abuse of the system and of the rights of those who are not able to participate. The placees, which here includes parent company directors, have the opportunity to enrich themselves at the expense of other shareholders given the juicy discount to the recent market price. Private shareholders are disadvantaged. The larger institutions on the shareholder list are no doubt all placees so they are unlikely to kick up a fuss.

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sharw 9th May '18 15 of 23

In reply to post #362068

Kenb8 -

Many thanks for your explanation of the "cashbox" loophole - gross abuse indeed.

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davetparkes 9th May '18 16 of 23

In reply to post #362048

greggs Greggs (LON:GRG) - have been overpriced ever since i bought in at around £4 , and probably before that .

i cant see why the touch screen ordering/payment system couldnt work - there are always queues into the outlets , i always know what i need . it would free up the workers for more prep activity .

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freshmatt 9th May '18 17 of 23

In reply to post #361993

Agreed, using IPO monies to fund x-selling acquisitions seems to be sensible, and something Keywords Studios (LON:KWS) has been doing very successfully. Hopefully, FFI Holdings (LON:FFI) can have similar effect in the film insurance market. The directors have certainly been buying in big chunks and today's trading statement, along with recent acquisitions, should help the shares re-rate.

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freshmatt 9th May '18 18 of 23

Agreed, using IPO monies to fund x-selling acquisitions seems to be sensible, and something Keywords Studios (LON:KWS) has been doing very successfully. Hopefully, FFI Holdings (LON:FFI) can have similar effect in the film insurance market. The directors have certainly been buying in big chunks and today's trading statement, along with recent acquisitions, should help the shares re-rate.

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Dieselhead2 9th May '18 19 of 23

In reply to post #362018

Hi Paul, I second drvodkaquickstep's request for your view on ASH's trading update. Things do appear to be warming up nicely now judging by the RNS today. I have been watching closely on the sidelines for some time, but didn't notice the RNS this morning. Then bought in reasonably early this morning. I think this will start to appear more on people's radar now.
Thanks Paul, DH2.

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IGotPoesJacket 9th May '18 20 of 23

In reply to post #362048

I agree Greggs relies on footfall.
Why does it have to be High Street footfall?
Plenty of scope to relocate to other places people are going to be - if they're not going shopping on a Saturday they'll be going somewhere else instead. That'll fundamentally change the business model, but there's no reason why they can't expand their Service Station offerings then branch into other touristy type places.

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Snoo 9th May '18 21 of 23

I actually think the FEBO thing would be a massive success in some locations, and Greggs already produces many products that might go well in there. With potential improvement in vending machine technology (FEBO's machines are not high-tech) a good product could be made. Many of the London mainline stations could offer 24 hour operations, and many surburban stations have a huge amount of people in them during commuting hours with few options for (hot) food.

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tomps3 9th May '18 22 of 23

We posted the second (of 6) Electric Vehicles presentation today, on the evolution of battery technology. Given by Stephen Irish of Hyperdrive, who design and build litium-ion batteries for cars, and other things. This offers interesting insight on how the battery market is playing out for suppliers in the industry:

As I mentioned, this is part of a Redleaf morning, given over to electric vehicles - the market, the challenges and opportunities for the investor. We wanted to hear it, and thought by filming it, we could bring it to other investors who might be interested.

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dahokolomoki 9th May '18 23 of 23

On lease flexibility, look at Shoe Zone (LON:SHOE) as interesting play. Their average lease length is short (2.5 years?), and their whole business model is geared towards signing short leases, minimal store investment/renovation.

They look ripe to be a nimble competitor on the high street for the next couple of years.

Of course, they might be strong offline, but can they still survive in the age of Amazon is something else...

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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