Small Cap Value Report (Weds 12 Aug 2020) - WGB, BOO, HSW, APP

12th Aug '20 by Paul Scott

50 comments 8886 reads

Good morning, it's Paul here. I'm late with the placeholder, as my alarm didn't go off. Apologies for the inconvenience.

Superb reports from Jack on Mon & especially Tuesday, covering a lot of ground. The only additional share I want to flag from yesterday, is a trading update from upmarket wallpaper & furnishings group, Walker Greenbank.

Today's report is now finished.

Walker Greenbank (LON:WGB)

Share price: 45p
No. shares: 71.0m
Market cap: £32.0m

(I'm long)

Trading Update

Walker Greenbank PLC (AIM: WGB), the luxury interior furnishings group, announces its half year trading update for the six months ended 31 July 2020.

Note the unusual H1 period end, 31 July. The next year end is 31 Jan 2021.

Covid - significant impact in H1 (as already reported, so no surprise there)
Improving trend since April, gaining momentum
H1 sales down 28% on LY (strikes me as not too bad, in the circumstances)
Core licensing revenues down 10% (OK)
Third party order book good, and demand growing
"Robust" liquidity - £19.5m headroom, including bank facilities (that's good, but it is not disclosed how much creditors have been stretched (e.g. VAT, payroll taxes)
Outlook for H2 uncertain
H1 results to be published in Oct 2020

My opinion - I think that's satisfactory. We all know H1 will be a write-off, due to lockdown, for this and many other companies,. Therefore the focus should now be on how well companies are recovering. WGB sounds as if things are improving, but the company has withheld the figures (e.g. it could have told us the month on month trend of performance, but decided not to).

All in all then, this is a bit of a nothing update, as a reader commented yesterday. Nothing much of concern, but inadequate information to properly ascertain how the company is performing. I'm not very happy about that.

Overall, I don't think this update makes me want to buy more, or sell any. I'm happy to hold for hopefully further recovery. A few years back, this share settled around 200p, and seemed rock solid at that level. It's now under a quarter of that level, after a few mishaps. £32m mkt cap seems very low for a nice collection of brands, with great heritage, and licensing revenues from the historic back catalogue of e.g. William Morris famous designs. I wonder if it could be a bid target, at the currently bombed out valuation?

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SundayTrader

12th Aug '20

Not sure. I would have thought paint was a rather different business to Walker Greenbank (LON:WGB) 's wallpaper and fabrics.

As I understand it, a lot of £WGB's sales go to trade outlets - many of which have been closed for some time. They could be in line for a stronger than expected rebound as these re-open. I don't hold, but thanks for your commentary Paul, I feel these are looking interesting.

MichaelFBS

Thank you for you take on Paul.

I sold my original holding back in Feb/March (mistake) at an average price of 231p. Never expecting to be able to re-enter but have now managed re-build my holding to the same number of shares at an average of 275p (including a top up today). I have expectations of 400p to 450p By the end of he year.

The only thing I would say on the ethical issue is that the same manager that dumped Boohoo (LON:BOO) also holds British American Tobacco Corporate Debt. Figure that one out.

Regards

Michael.

TamzinPiworld

Just published Empresaria (LON:EMR) H1 2020 results with Rhona Driggs, CEO & Tim Anderson, CFO. EMR is an international recruitment & staffing company across diverse sectors. The interview covers the operational & financial highlights and outlook.

Video or podcast

Also, Appreciate (LON:APP) FY20 results presentation with Ian O’Doherty, CEO & Tim Clancy, CFO. Although performance interrupted by CV19, trading has started to recover. Update on strategy, including the adaptation of the business to digital products & delivery.

Separately, we have a Creightons (LON:CRL) webinar coming up on Wednesday 26th August at 11am. Bernard Johnson, Group Managing Director, Pippa Clark, Joint Deputy Managing Director & Paul Forster, Group Finance and Commercial Director, will present results followed by a Q&A. Register here.

ezlifeme

Re the Farrow & Ball gross Margins being part of their brand moat

You would be surprised how many people have confided in me that they get the F&B Colour chart then go to the local B&Q (other DIY Stores are available with the same service) to have it mixed to order. You can apparently take your favourite jumper and they will get you the paint to match

https://www.diy.com/ideas-advice/how-to-use-the-valspar-paint-mixing-service/CC_npcart_2100010.art

Thornabian

£ASOS has been one of the trades of the year, April 3rd at 1000, now over 4500. Only a few like SEA Ltd and Tesla have beat that share price increase this year.

I almost bought it at this time and instead went for Just Eat Takeaway.com Nv (LON:JET) which is doing very well too but the share price hasn't rallied quite so much, although, it never really had a depressed period like £ASOS and the risk:reward was better with £JET.

Hindsight can be a dangerous thing.

GN100

I live in the South of Spain and you can go into paint supply shops and get them to mix the F & B colours by name. They are already in their machine's database.

peterg

If a shareholder believes they can make more money by investing their money in different shares, why are they holding the stock in the first place?

That's moving away from the point I was responding to (which was the short term impact of a scrip only div on the SP), but following that through would suggest that you shouldn't invest in shares that pay dividends at all, which is a subject in itself. There are shares I hold that I would be very unhappy to see paying out cash, as they need/have good uses for it . But I hold others, generaly more mature, that I'm very happy to accept cash from as dividends.

nathantrader

F & B paint haves very flat finish compared to other paints, but do not take knock or scrapes very well, yes you can get other paints mixed to match and not pay the premium in price.

Blackbelt

many thanks HollandSmith-a very valuable summary each day-much appreciated.

mort1980

Good point Mike. These managers' actions re Boohoo (LON:BOO) appear to be show off rather than anything else.

Dojosan

Appreciate (LON:APP) appears to thrive when the economy is booming, in particular, when the interest rates are high, they milk the customer's money by earning interest from it. Current climate, no milking I'm afraid!

Haha that's what I do!

Paul Scott

Hi maxistaxis,

Good point, thanks. I've just watched the APP results video. Another point this flagged re cash, is that the move from paper-based, to card-based and digital products, is absorbing cash, because the new (higher margin) products are regulated, whereas the old paper-based versions were not regulated. Hence why they needed to put the £15m (unsecured) RCF in place. That must surely restrict the ability to pay future divis somewhat?

I'd rather invest in companies that are throwing off free cash, not absorbing it.

Overall, I've decided against buying any Appreciate (LON:APP) for now, but will keep it on my watch list & report progress here in future SCVRs.

I think I'm correct in saying that voucher businesses benefit from some vouchers never being redeemed. People lose them, forget them, or just can't be bothered to go through the pallava of redeeming them.

The ONS recently picked me to randomly participate in a survey, and the letter included a £10 Love2Shop card. I spotted that this is a Appreciate company, so registered the voucher, which I have to say was not particularly easy, and I disliked having to provide my address & phone number. So presumably I'm now on a database, that Appreciate can monetise in some way?

Regards, Paul.

Hi johnsmith68,

I've had a quick look at Checkit (LON:CKT) trading update, and unfortunately there's not really anything much in it that I can interpret. It just tells us detailed sales figures for Q1, and Q2, and says covid impacted performance. The stand out feature is the cash pile, which looks large relative to market cap.

There's not anything more I can add.

Gromley

Interesting spot re the comparison between Farrow & Balls and Walker Greenbank (LON:WGB) tufty.

F&B's Annual Report is more detailed than many you see for unlisted companies.

F&B describe themselves as making and selling paint and wallpaper, whereas WGB are wallpaper, fabrics and paint (but the don't seem to talk about the paint much) - but close enough a match to be interesting.

F&B's FY had only one week of lockdown in it, although they do say (credibly) that they were seeing impacts in the prior week.

They are not totally forthcoming with how they have traded through the lockdown (neither are the obliged to be), but they do say they have seen year on year growth in the "post balance sheet event review period" - which I take to mean from April to early July. This contrasts with WB being down by my estimate 60-70% during the full lockdown improving to -15% during July.

It looks like before the crisis WGB were doing less well than F&B, that was probably reflected in the pre crisis share price in the 70s-80s. WGB though had largely blamed the tough retail environment, which was credible, but F&B's figures suggest that it was a market in which it was possible to prosper.

It appears also that F&B have performed better during and coming out of the crisis.

We briefly touched yesterday on the fact that WGB's year on year numbers seemed to still be negative. I think a lot of this has to be out channels to market, WGB are accelerating their digital effort whereas it looks like F&B have already nailed it. Mention was also made in this thread of the point that a lot of WGB sales are through trade outlets that may have been closed during the crisis. I have also read conjecture that a significant portion of WGB products are deployed by decorators rather than DIYers (don't know if that is true or not, but it seems credible). Even now we are out of lockdown I think many people are still reluctant to have "trades" in their house.

I am encouraged to see that F&B seem to be seeing positives post the lockdown, even if WGB look set to lag that trend. It is also interesting to see that WGB's recent lack-lustre performance may have been more about the company than the wider market - but as I say that was probably already in the price, and when I say lacklustre I could have been kinder and said sluggish but resilient - I don't know when (even if) WGB last failed to make a profit - they certainly traded profitably through the GFC.

So whilst the comparison with F&B isn't flattering to WGB; I am actually encouraged rather than discouraged by what I read here. Maybe "read-across" is the reason for today's 9% rise for WGB?

As a bit of an aside it is interesting to read some of the comments suggesting that maybe F&B's products are not all they are cracked up to be at that there are ways to get better and cheaper. If so, you have to applaud their brand management, that they look to be growing nicely - they seem to have mobilised the "you get what you pay for" buyer mentality.

Anyway, for the record, I still hold WGB - but would be tempted by F&B if they were on the market.

johnsmith68

Thanks for looking at it Paul and thanks again for another sterling effort today on the SCVR.

Or maybe today's rise for Walker Greenbank (LON:WGB) , rather than being read-across from F&B was as a result of a positive note from Edison . It is actually a pretty poor analysis IMHO it hints at having a greater degree of insight into the situation, which may be true given they have access to management. But then completely misses the fact that the July number was improved by a major contract completion in the month, which I surmised yesterday is probably of the order of £1.5m revenue.

jonno

20th Aug '20

Shares in Walker Greenbank have ticked up over 25% since the trading update on 11 August, which I am sure will not have gone unnoticed by other Stocko subscribers. As to why I have no idea.

It is likely to be the meanderings of Mr Market. Alternatively it may be that investors have started to come round to the view, which I subscribe to, that the share price fails to reflect the value of the company's brands and archives, or that trading is perceived to have improved, or perhaps that Messrs Farrow and Ball or other parties have been having a conversation with management.

Who knows...answers on a postcard please!

abtan

26th Aug '20

Air Partner (LON:AIR) (I hold)

For any interested parties, I draw your attention to the following paragraph in a recently published interview:

"When travel restrictions in Europe began to ease, Air Partner saw a boom in private jet travel demand as people regained appetite for travel.

Initially, it saw a 210 per cent increase in private jet requests for future flight bookings compared to last year. This grew to 321 per cent by June."

The 321% figure has not previously been disclosed by the company as far as I am aware, though a note of caution - in the last update (dated July 15th), the company said the Private Jet business was returning to pre-pandemic levels, so that's quite a contrast to the 321% figure from just a month earlier.

Cheers

SOURCE: https://www.mailonsunday.co.uk/money/holidays/article-8643455/How-does-cost-charter-private-jet-UK.html

sharw

abtan -

Thanks for that (I also hold). You say 'recent interview' but a google shows the information was given to the press on July 3rd see -
https://www.evaint.com/european-private-jet-travel-enquiries-up-321-this-june/
or even https://aviachartertour.ru/air-partner-soobshhaet-ob-rekordnom-kolichestve-zaprosov/ !!!
That was 12 days before the AGM trading statement to which you refer.

So probably the more significant event is that they didn't put out an early August press release boasting of the % increase in July cf previous year. That absence would fit with the 15/7 statement.

Small Cap Value Report (Weds 12 Aug 2020) - WGB, BOO, HSW, APP

Walker Greenbank (LON:WGB)

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Paul Scott

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