Small Cap Value Report (Weds 12 Dec 2018) - SDRY, FTC, DPP, FUL | Paul Scott

12th Dec '18 by Paul Scott

48 comments 11750 reads

Good morning, it's Paul here.

What fresh horrors has the market served up for us today? It looks like at least 3 profit warnings, judging from the top % fallers list, so I'll start with them.

Superdry (LON:SDRY)

Share price: 380p (down 33.7% today, at 09:10)
No. shares: 82.0m
Market cap: £311.6m

Half year report

Interim results for the 26 weeks ended 27 Oct 2018.

Good grief, I didn't expect this fashion brand to come back within my small cap remit again - its market cap was over £1.6bn at the start of this year, and is now just over £300m. I know this share is popular with private investors, so my commiserations to any readers who are holding this one.

The share price is all over the place, it's up 22p to 402p just in the time I wrote the above.

I reported on the profit warning in Oct 2018 here, fearing that it had another profit warning to come.

Note that Superdry has a profit seasonality leaning towards H2. So the H1 numbers need to be seen in that context.

The highlights today look grim, with profit down by almost half;

Although it's interesting to see that the dividend has been held.

Current trading & outlook

Unseasonably warm weather has continued through November and into December (Superdry's two biggest trading months in the year) across all of our key markets. Given Superdry's reliance on cold weather related product continues and a lack of innovation in some of its core categories, sales have remained under pressure despite a strong performance in the Black Friday week. This has resulted in an adverse profit impact of around £11m in November and the Company expects a potentially similar profit impact in December if trading conditions do not improve.

There is still considerable uncertainty in terms of the weather outlook, the changing shape of consumer behaviour in the peak trading period and the impact of wider economic and political uncertainty. Reflecting those impacts and the uncertainty in the remainder of the financial year the Company expects underlying profit before tax to be in the range of £55m to £70m.

It's very helpful when companies give specific profit guidance like this. My initial reaction is…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Lion Tamer

12th Dec '18

"please could you tell me what a share price gap is"

Gap down = open is lower than yesterday's low point (so a gap in the candlestick chart)
Gap up = open is higher than yesterday's high point (also a gap in the candlestick chart)

This is important to technical analysts, an area where I'm not much of an expert.

Rusty2

I thought it was the difference between the opening price and the closing price? Not the previous day's low or high points.

andrea34

The tone in the interim statement for JD Sports Fashion (LON:JD.) back in September sounded positive, with good +ve lfl too, although they did make a brief mention of the "uniquely weather-challenged trading period" in respect of Outdoor fascias which made only £2.9m EBITDA compared to £6.5m the previous year. Admittedly this is a small part of the business.

I do have half an eye on JD Sports Fashion (LON:JD.) but I'd be tempted to wait for a trading update given how Retail is generally doing so poorly, especially when Superdry (LON:SDRY) claim that the "unseasonably warm weather has continued through November and into December" - personally, I think the last 4-5 weeks have felt just as cold as usual and I've been out and about in thick coats and a woolly hat!

andrewdb

This is NOT scientific:
There is a (french) site calle vente-privee that sells on clothes. You have to log in and so the prices do not appear in google.
Superdry has come up there quite frequently over the last 12m or so.
That made me think they were under pressure.

In other news, John Lobb (shoes) came up as well about a week ago. The last time I remember something like that was in 2006 I saw some mauviel pans in TK Maxx.

Like I said not scientific, but tells me that people across a lot of the income spectrum are spending less.

Zipmanpeter

Much happier report today from Fulham Shore (LON:FUL) who issued interims today (up 12% at 10.6p). Revenues up 20% at £33.0m with only 2 more restaurants opened (now 59) and Headline EBITDA* of £4.6m. Bank debt starting to come down and good start to new year reported. Very experienced mgt team and founder directors in place and seem to be navigating casual dining sector issues well with skin in the game (eg Chm D Page/ MD N Mankarious both ex Pizza Express in growth days own 34%)

Even more interesting is the split between 2 key brands in the sector breakdown in the notes. The Franca Manca pizza side which first caught my attention is much bigger with 43 outlets contributing 64% of revenue. However, The Real Greek generates more headline operating profit (£1.5Mn vs £1.4Mn) from only 16 restaurants and uses far fewer assets (£8.2 vs £43.1Mn) to do so. (Accountants: am I missing something like freehold property in this as this seems to good to be true?!)

Presumably this shows the effect of less competition/need for promo discounts than in the heavily contested pizza sector. The Real Greek could be a real winner if it can be rolled out at scale over time as good, cheap lease emerge from the casual dining sector wreckage.

Personally, I still think Franca Manca will do OK long term since it is distinctive in a big pizza market (sourdough pizza, everyday-low-price, inherently low cost model - few variants, own label drinks, direct from source supply, deliberately smaller/cheaper 2y sites).

I bought to hold until national roll out is nearly complete and, frankly, am well under water on my investment for now having bought in at 17p 18monts ago before the whole casual dining sector went down. Nevertheless I remain optimistic that in 3-4 years time the investment will have come good (after sector consolidation) and would consider buying more if I didn't face a concentration risk.

EDIT - just refreshed to find the big boys are writing about FUL (ie Paul!) and nice to see (confirmation bias) has a similar opinion

dscollard

The above refers to the most common type of gaps which occur between the close of one day's trading and the open of the next. They occur owing to large imbalance between supply and demand for a share arising from a change in 1) fundamentals (from an earnings report, profit warning etc), 2) in sentiment (rumours, suspicions, impacts of other similar shares) or 3) overall market behaviour (when markets are very volatile or after a major event like 9-11). Often it is more than one of the above.

In practical terms they constitute a hole in a chart where no trades have occurred. Gaps occur in both directions of price and have different meanings.

What it tells you in the most immediate sense is that there has been a very significant change in the behaviour of the stock. The judgement comes in gauging whether the market has overreacted to the catalyst and what action you may want to take. There are also many other factors involved: very low liquidity stocks can gap regularly on news as it doesn't take many orders to disrupt the supply-demand equilibrium. It tends to be less common and more significant in high liquidity shares. Overall market volatility and sentiment also play big factors so at the moment many "investors" are nervous and are panic selling on bad news. This has a tendency to cascade and overshoot which can open opportunities (what is often called technical selling also occurs as stop-losses are hit and new liquidity enters in rapid succession).

The charts of Taptica International (LON:TAP) and Superdry (LON:SDRY) both show recent big gaps: Taptica International (LON:TAP) more on sentiment as the CEO has been forced to resign owing to fraud from a previous company: Taptica International (LON:TAP) have protested there is nothing fundamentally wrong with the company while Superdry (LON:SDRY) has some serious fundamental issues as Paul has shown.

Traders will often exploit gaps based on rules and metrics : they can be very profitable but need good risk management and discipline. Ditto with more patient investors who thoroughly understand when sentiment has become irrational. That said the market can stay irrational longer than one can satay solvent .

bsharman

I'm really not surprised by Superdry (LON:SDRY) - I have been saying for years that their products are dated and had a sweet spot around 2010 when their heavily branded T-Shirts & coats were being worn by young & trendy people (me excluded). They became very popular & successful and as a result everyone starting buying their gear including lots of middle aged men with beer guts. They are moving away from the stuff covered in brands and logos but the paradox is .... what makes them different to anything else? Don't like their products & they have tough competition from the likes of ASOS. Not a holder nor a buyer of their shares!

Disco Ball

What’s going on at RM2??! It’s up nearly 20,000%!

brballs

200:1 share consolidation. As boring as that I'm afraid!

Graham Neary

Edited: unnecessary, as brballs got there before me.

sharw

If you read the RNS you will know the answer (200:1 consolidation) so not a very good question for a financial advisor to ask!

Edit - yes, brballs got there first but left up for rest of comment.

JohnEustace

Surely Superdry (LON:SDRY) must be vulnerable to a takeover bid at this level? Or if Dunkerton wants to be back in charge his price to take it private just got a lot more affordable.
I’m sorely tempted to break all my rules on profit warnings and take a small punt.

ricardow

Many thanks for your very helpful (and much needed) explanation!
Ricardo

bobo

FTC lost its strategic direction at about the same time its core product became obsolete (about 5 years ago) and it lost out to larger players forcing it into areas with short term profits. Bad to worse, dump the shares if you have them

Oh, sorry! I knew I was not an expert, but clearly in saying so I still over stated my competency :)
Thanks for the correction Herbie.

Aislabie

...and Gap before that and Benetton and American Apparel and Laura Ashley and so on. Teen fashion brands have a life, and, when they are done, nothing brings them back to their former level.

It was not meant to be a correction, just my understanding and a query for the experts.

mr_spock

I think the advertising has always been directed at the teens/twenties, but the clothes are worn by all ages. This is nothing new, and is maybe one of the strengths of the brand.

Fangorn

Re Superdry
I'd suspect that it's more than just Weather. There's a political angle as well.

"Brexit vote campaign gets £1m from Superdry co-founder"
One of the co-founders of the fashion label Superdry has donated £1m to the campaign for another EU referendum. Multi-millionaire Julian Dunkerton said he was backing the People's Vote campaign because "we have a genuine chance to turn this around

https://www.bbc.co.uk/news/uk-politics-45235655

Not going to win you many friends in that population segment that voted predominantly LEAVE

Contrast that to Wetherspoons. TM has done pretty well out of Brexit over last couple of years. He backed Leave.
And I for one go out of my way to hit a Spoons if there is a choice of pubs where I happen to be.

Suspect I am not the only one changing my spending habits over Brexit.

ls2g08

I think given the vote was close to 50/50 you will have proponents from each side that would cancel anything like that out. Anecdotally many of my friends and I used to spend quite a bit of money in Spoons, but most now actively avoid their pubs due to the owner's stance and overbearing political messaging on beer mats etc. Admittedly they were never a choice destination before that.

Also from a cynical stance the 18-30 demographic which spends the most on clothing was heavily remain voting, so could actually be a PR stunt to boost sales!

Small Cap Value Report (Weds 12 Dec 2018) - SDRY, FTC, DPP, FUL

Superdry (LON:SDRY)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

48 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...