Small Cap Value Report (Weds 16 Dec 2020) - CPI, DRV, SDRY, CNC, EPWN, FRP

16th Dec '20 by Paul Scott

66 comments 11687 reads

Good morning, it’s Paul here with the SCVR for Wednesday. It's a quiet news day (Edit: actually it's not, a load more came through after my initial trawl! End of edit) , so I've messaged Jack to say that I should be able to handle things solo today, and make some inroads into the backlog list.

Timing - Today's report is now finished.

Agenda -

Capita (LON:CPI) - Agreement to sell Education Software Solutions for up to £400m - helps very strained balance sheet

Driver (LON:DRV) - I review the results for FY 09/2020, published yesterday

Superdry (LON:SDRY) - Directorate changes, and waffle about the (not very convincing so far) "brand reset"

Concurrent Technologies (LON:CNC) - Trading update - ahead of expectations. Looks a nice little company.

Epwin (LON:EPWN) - Positive trading update

Frp Advisory (LON:FRP) - Half year results are in line, and the outlook sounds encouraging

Capita (LON:CPI)

43p - mkt cap £720m

This complex, low margin outsourcing group briefly dipped into small cap territory in October, but along with many other bombed out shares, bounced strongly in November on positive vaccine news, in what fund manager Keith Ashworth-Lord recently described as a “dash for trash”!

I want to follow up on it, because I covered Capita’s Q3 trading update here on 10 Nov 2020, and was quite shocked at how weak its balance sheet is - one of the worst I’ve seen, with NTAV negative at £(1.6)bn. Therefore a large equity fundraising will be needed at some point - hence shareholders are hostages to that being done on reasonable terms. If it’s bungled, and results in large dilution, then that could damage existing shareholders. Why take that risk?

There were going concern and bank covenant problems. So despite its size, I saw this share as very high risk.

A lot hinged on the pending disposal of its Education Software Solutions business. The good news (announced Mon 14 Dec 2020) is that an agreement has been signed with a credible buyer, Montagu Private Equity, to sell ESS for an enterprise value of up to £400m, with £298m payable on completion, expected in early 2021.

This certainly reduces risk at Capita, once it completes, which looks likely…

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Bouden54

16th Dec '20

Agree with all the above. Would also note that they have a few litigation cases that could see very big payouts, but very little of this is reflected in the balance sheet or market cap. In other words a nice free option.

GloucesterBob

Boohoo (LON:BOO) On parliament TV now

https://www.parliamentlive.tv/Event/Index/2425b417-ad43-4885-8a8e-9c47c48d2698

Chairman standing his ground, quite well

Chriskay

I agree wholeheartedly. As expected, the highly competent senior management of a fantastically successful and ethical company like Boohoo (LON:BOO) responded to some quite hostile and biased questioning and questioner’s agendas, with straightforward clarity and remarkable restraint. I think I had better leave it there and put the kettle on LOL.

Paul Scott

Ooops, my bad! Thanks for pointing out that EPWN did explain what RMI meant! My apologies, I'll amend the article now.

Regards, Paul.

Momoko Miyamoto

Please could somebody ask the Narfeldts whether they intend to reduce their c. 75% stake in Ra International (LON:RAI) .At present they are effectively unaccountable to all other shareholders. I think it is a really interesting company with great potential but the current dominant ownership by the founders is a red flag for me.

I really enjoy your interviews Tamzin. Great questions which often reveal very useful insights.

Can think of more than a few instances where sellers (often private equity) have managed unload some highly priced turkeys onto the UK IPO scene and gotten away with the spoils. So maybe not so terrible.

sharw

Oh dear - one of the more confusing EPIC codes - Paul - you need to put RBGP in for RBG Holdings (LON:RBGP) because Stocko is saying that you have written about Revolution Bars (LON:RBG) !

Martin VT

Re £Boo - Thanks for the tip. I completely agree, it seems the Chairman has really got his head around these issues. Frankly it was the MPs who sometimes seemed out of their depth, to put it mildly! Must say, I’m really looking forward to the next performance update.

Harry Hindsight

Actually clears the brain. 20 mins not an hour. Drink coffee and takes 20 mins to work through. No noise - put earplugs. Have the dog touch the mouse on the works computer now and again so looks active - job done - except the dog thing. Automatic mouse mover - one of those big nap ideas :)

Someone is confused, but he did talk about Revolution Bars (LON:RBG) and not £RBGP

Gostevie

I know I really should be able to find this out for myself but I'm struggling.

Is there any connection between Frp Advisory (LON:FRP) , which listed on AIM in March 2020, and Fairpoint Group, which had the same ticker and whose AIM listing was cancelled in September 2017? They seem to operate in similar sectors but I can't find any other connection.

Many thanks,

Metatron

The UK govt is looking to go after the gambling industry in 2021.It may affect the spreadbetting firms who are trying to take precautions.IG are banning retail investors from betting on cryptocurrencies from january for instance.

No connection between FRP Advisory, and Fairpoint. Completely different companies.

Thanks for the link to BooHoo (I hold) testimony to the Parliamentary inquisitors.

I've listened to the whole BOO section, and taken detailed notes. They dodged some of the earlier questions, but there was tons of detail given about all the exhaustive actions BOO is taking to fix the supply chain problems. It's 100% clear the Chairman is totally committed to pushing through this agenda of transparency & sustainability.

The Leicester East MP did not come across at all well, in my view. Caroline Lucas is nice, but very naive.

From BOO's side, Andrew Reaney came across very well, once he was allowed to get into the detail. Poor chap, they kept shutting him down every time he tried to chime in, prior to that!

The overall message is very clear - yes we got things wrong in the past, but we're absolutely determined to fix this, and are throwing real resources at improving supply chain problems, and ESG generally.

I liked Mahmud's answer about trade unions - "Anyone who wants to join, is free to do so. Simple as that. I personally don't want to join the union, so I don't want a meeting with them!"

Kelly Byrne said, "We pay National Living Wage, we don't discriminate by age, staff have healthcare & free shares".

Most points successfully rebutted I thought, especially from about half way through, when the BOO team seemed to get into their stride. At first they seemed a bit scripted & awkward, but that's natural I suppose.

Key point - BOO asked to come along to this session, as they wanted to set the record straight & demonstrate their commitment to improve. Mahmud's closing comment;

"It's not one thing we want to improve, it's everything. We will make things correct, that I promise you".

I'm happy, I think that was a credible session, with lots of specific details of what BOO has already done, and clear plans for what they're doing next. It's a lot more than PR, or box ticking, what they're doing, that's obvious.

rmillaree

Bit of light entertainment here the dominion ceo has come out of hiding to explain why his fancy election counting machines couldn’t add up on election night - I can see clearly now (not).

https://youtube.com/watch?v=rqb5IHC96TA&feature=share

ISAallowance

"IG are banning retail investors from betting on cryptocurrencies from january for instance."

That is not at IG's initiative - the FCA has banned the sale of derivatives based on cryptocurrencies to retail investors by firms operating in or from the UK.

https://www.fca.org.uk/news/pr...

Personally I think that this is straying a bit far into nanny-state behaviour, but hey-ho. I don't want to speculate on cryto personally, but I don't see why others shouldn't. From my point of view as a holder of IG Group (LON:IGG) the most important thing to check was their likely exposure - not much fortunately, 2.8% of revenue from crypto last year.

17th Dec '20

Hi Caper4,

I've always had a very unreliable sleep cycle, which constantly changes. Usually I'm a night owl, and struggle to get anything done before lunchtime, which is a nightmare for an investor. I get this from my mother, we both just perk up at about 10pm, and are full of beans until 2-3am. Strange isn't it? I read a theory that in ancient times, tribes which had a good mixture of night owls & early risers, stood a better chance of survival, because they always had people awake/alert around the clock, who could raise the alarm & fight off attackers. Whereas a tribe of entirely one or the other, could be easily slaughtered when they were all asleep. Interesting theory!

At the moment I'm on the early shift, starting work about 05:30 each morning. So by lunchtime, I'm tired, especially my eyes, from staring at computer screens for a long time.

I was diagnosed with type 2 diabetes this year (entirely my own fault, from poor diet, sweet tooth, sedentary lifestyle & far too much booze, so no sympathy expected or due!) which started during/after I had covid. It's not properly under control yet, hence I get very tired & have blurred vision by lunchtime, despite taking medication. So I'm focusing on healthy eating, exercise, and no boozing, and that seems to be starting to help. Hence why I do need to take a nap of about an hour at lunchtime, mainly to give my eyes a proper rest. It's really refreshing actually, giving your body & mind a proper rest half way through the day. My grandmother was always very busy, but had a sleep for about an hour after lunch, so it might be something genetic?

Everyone's different aren't they! Whatever works best, as we all know our own bodies/minds better than anyone else!

Best wishes, Paul.

Try running a snoring / sleep apnoea app while you sleep. You may not be getting enough restful sleep.

Sensible move by the FSA to protect the foolish from the sharks.

UK_Investor_8888

"Sellers Remorse" for selling my Boohoo (LON:BOO) @290p now 314p.

Small Cap Value Report (Weds 16 Dec 2020) - CPI, DRV, SDRY, CNC, EPWN, FRP

Capita (LON:CPI)

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Paul Scott

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