Small Cap Value Report (Weds 7 Nov 2018) - VCP, PSN, BOTB, FUL, LOOK

Wednesday, Nov 07 2018 by

Good morning, it's Paul here!

Graham has passed me the reins for the rest of this week, and all of next week.

Jack Brumby articles

I had a smashing lunch with Jack recently, totally unaware that he was about to join the Stockopedia editorial team! Jack is part of the brilliant (and highly amusing!) team at Langton Capital, which focuses on the hospitality & leisure sector. 

The Langton daily email newsletter is an essential read, very highly recommended, if you don't already subscribe (it's free).

Here is the link to Jack's 3 thoughtful articles on Stockopedia, in case you hadn't spotted them already.

Victoria (VCP) meeting

I've been offered a meeting with Victoria this Thursday afternoon. As I happened to be in London already, I've accepted. This should be a useful opportunity to talk through, and ask questions, about the recent aborted bond issue. The company is keen to put across their view of things, and clear up any remaining questions or issues.

I like to be a conduit between private investors and companies, so am happy to throw it over to you. Therefore, if you wish to submit a question for me to ask Victoria management, then please leave your question(s) in the comments section below. I will then report back, hopefully with answers, some time after the meeting.

It's important to give companies a right of reply, I think. Although after the couple of clarification RNSs, I think most of the confusion has already been cleared up.

Persimmon (LON:PSN)

CEO fired

I am very pleased to see that Persimmon has sacked its grotesquely overpaid CEO, Jeff Fairburn, giving this reason;

... the Board believes that the distraction around his remuneration from the 2012 LTIP scheme continues to have a negative impact on the reputation of the business and consequently on Jeff's ability to continue in his role. 

If you recall, a badly designed LTIP scheme ended up paying obscene amounts to Directors, with the CEO getting something like £100m. He reduced this to about £75m, but it's still left such an appalling legacy that clearly his position was untenable.

This is executive greed at its worst, and is incredibly socially divisive. If ordinary folk are struggling to pay their rent, imagine how…

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Victoria PLC is a designer, manufacturer and distributor of flooring products. The Company's principal activities are the manufacture, distribution and sale of floorcoverings. Its segments include UK and Australia. It manufactures wool and synthetic broadloom carpets, carpet tiles, underlay and flooring accessories. In addition, it markets and distributes a range of luxury vinyl tile (LVT) and hardwood flooring products produced by third-party manufacturers. Its product offering in the United Kingdom ranges from both crafted, woven Wilton carpets to Tufted carpets in a myriad of fashion colors and styles. Its stock range offerings cover saxonies, tonals, velvets, twists and natural loop pile styles for residential use. The Company supplies its products to the mid to high end residential market and contract sector both in the United Kingdom and overseas. Its subsidiary, Munster Carpets Limited, is engaged in the manufacture and distribution of floorcoverings for the contract market. more »

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Best of the Best Plc runs car competitions. The Company displays luxury cars as competition prizes in rented retail space within airport terminals, at shopping centers and online. The Company is engaged in selling tickets to passing airport passengers, as well as from online customers through its Website. The Company operates from approximately eight United Kingdom and over two international airport sites, as well as approximately from three shopping centers. The Company operates from various airport sites located at Gatwick North, Gatwick South, Birmingham, Manchester Terminal 1, Edinburgh, Dublin's Terminal 2 and Westfield shopping center located in London's Shepherds Bush. The Company's Indian franchise trades under the BOTB brand from Hyderabad airport. The Company carries out its principal operations in the United Kingdom. The Company's subsidiary is Best of the Best ApS. more »

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The Fulham Shore PLC is engaged in the management and operation of The Real Greek, Franco Manca and Bukowski restaurants in the United Kingdom. The Real Greek food centre serves dishes of Greece and the Eastern Mediterranean. Franco Manca serves Neapolitan sourdough pizza, which is baked in a wood burning brick oven. Bukowski is a London-based, charcoal-grill restaurant and bar, serving breakfasts, burgers and grills. The Company operates 45 restaurants, comprising 32 Franco Manca, 12 The Real Greek, and one Bukowski Grill franchise in Soho. The Company’s subsidiaries include Kefi Limited, FM6 Limited and Souvlaki & Bar Limited. more »

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  Is LON:VCP fundamentally strong or weak? Find out More »

65 Comments on this Article show/hide all

gbjbaanb 7th Nov '18 46 of 65

In reply to post #416474

re: Victoria. I note that all your directors are men, this is intolerable in this day and age, as hiring people on their merits is not acceptable. We need more boobies and tottie on display to show that the company cares about its progressive image is perceived by chattering fools on social media who have nothing better to do.

I only care that the directors know what they're doing. Diversity in opinion and skills only matters to me.

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doublelutz 7th Nov '18 47 of 65

Marks and Spencer (LON:MKS) - the thing that puts me off are the huge short positions. I usually find it doesn't pay to argue with those that hold such large positions.

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barnetpeter 7th Nov '18 48 of 65

I think the housing mkt is in big trouble albeit I dont know where. Estate agents most likely, because of a complete lack of business. I bought a property last month as a cash btl....the letting agent I use for the area had advertised it and put a board outside two weeks before I had completed even though I told them it would not be ready until mid December. Clearly, business is very bad! Not much new property is coming on the market and tenants are not moving.

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LeoInvestorUK 7th Nov '18 49 of 65

Victoria (LON:VCP) - If I were interested in investing, I would have three questions:
1) What debt covenants do you have?
2) But really, what are your debt covenants?
3) Why don't you want to disclose your debt covenants?

Blog: LeoInvestorUK
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Zipmanpeter 7th Nov '18 50 of 65

In reply to post #416644

As a white, middle class, middle aged, male ex-senior manager who has worked in industries dominated by the same, I think noting the absence of women in the board is actually a shrewd not simply a trendy observation for a PI. 

(And even 'stuffy' may also be a proxy for a higher risk of entitled/old fashioned thinking/less diversity  etc especially if ALL are stuffy looking  - definitely a bad thing in Boards who we want to provide challenge.

IMHO, not only have minorities typically have had to work harder/be smarter to get to the top, they more often bring a different perspective, understanding and opinion ie provide genuine diversity not simply different gender or race - this is just easier thing for investors to observe..  It is also no doubt not the only evaluation tool used !

On women in particular, I believe this is backed up by studies that show better returns to boards with women on them (and to female private investors !!).  It may also be especially important in areas where women dominate purchase decision making, as I guess carpets are - although this also risks stereotyping (that only women can understand women) and I lack data to back my opinion about carpets decision making.

So Skills > Diversity (for its own sake) yes.........but Skills + real Diversity = best ......and more likely , /all other things being equal, achieved with (more) women in Boards.

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Wimbledonsprinter 7th Nov '18 51 of 65

In reply to post #416604


I do not hold Marks and Spencer (LON:MKS) and do not have a paricular view on it. But on the pension front, I think the market is correct to keep a wary eye on it.

I see that from an accounting view that there is a considerable £971m surplus, as is shown on the balance sheet (although this “asset” does not really belong to the company but to the pension fund.). However, the total size of the liabilities is £8,6 bill. I was told by an acturial expert (admittedly a few years ago) that as a rough rule of thumb the accounting liability should be increased by 30% to get to an acturial valuation - the price where an insurance company would accept the liabilities in a buy-out. (The devil is always in the detail - and you need to understand age/ sex/ income mix of the beneficiaries before getting any closer approximation). So I think that this could prove a liability again in the future and would be a headache for any acquirer to get their head around.

Remember that Philip Green attempted (and failed) in a hostlie takeover of M&S over 10 years ago, when the security of the pension fund was quite a big issue. This was long before the sorry BHS pension debacle. Any takeover of M&S will have to make assurances on the pension fund and will be politically sensitive.

I also see from Short interest tracker that Marks and Spencer (LON:MKS) has the 2nd highest disclosed short interest of any UK stock at 11.9% - which can be taken as a positive or negative but something to be aware of.

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dealtn 7th Nov '18 52 of 65

In reply to post #416699

Who is talking about a takeover, certainly not me?

Yes the surplus (or deficit) is the difference between two, very big numbers.

I worked in an industry where the biggest customers were pension funds. I know about the importance of age/sex/income. Furthermore I know the margins in the liability buyout business (and why I would not go down the route, and only as a last resort as a FD). It's also why I am long in Legal & General (LON:LGEN) as a hedge against my "pension problem" portfolio.

My point (I think like Paul's, albeit different one), is that the media, and the short term market, has too much focus on headlines and "profits", and not enough on "cashflow" in its valuation.

I was (very peripherally) involved in the "takeover" of Marks and Spencer (LON:MKS) by Philip Green all those years ago. Brings back memories of my younger self!

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Camtab 7th Nov '18 53 of 65

Paul, I am sure I am about to cause a stir here but I think I must make the following point with regard to Jeff Fairburn. Isn't it the case as true capitalists that we make profit from a number of sources, one of which is others stupidity as well as a fair share of luck. It seems to me Fairburn has done this and to castigate him for accepting a payment which others offered him seems very unfair. Does he care if he has lost his job, of course only he can answer this but likely the £75m has put him beyond that sort of worry. I just feel the people who should be brought to book here are the very people who offered it to him and lessons should be learned, easy lessons never ever offer a scheme which isn't capped at a reasonable level for example. So lets find out who offered the scheme and fire them!!

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mmarkkj777 7th Nov '18 54 of 65

In reply to post #416594

Hi Simoan,

I realise it’s your prerogative to chose who you take seriously and who you don’t, but Robbie is great. The name is just a brand.

I personally don’t think Richard B is really a Virgin either!! :-)

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HornBlower 7th Nov '18 55 of 65


re car dealerships, is there a concern (yet) that as the market transitions to electric vehicles, which are mechanically much simpler, there will be a material decline in aftermarket services needed, which is the most profitable part of the business. maybe not yet but will be an issue at sooner or later?


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timarr 7th Nov '18 56 of 65

In reply to post #416694

So Skills > Diversity (for its own sake) yes.........but Skills + real Diversity = best ......and more likely , /all other things being equal, achieved with (more) women in Boards.

We really ought to be able to figure this out through pure logic ...

Are women any less clever than men?  Err ... no, not noticeably.

So if you took 50 men and 50 women at random and figured out who the smartest 10% were you would presumably (on average) find 5 men and 5 women.  And then, according to standard boardroom selection policy, you would ignore the 5 women, find 5 other random men who looked like the other 5 men and appoint them instead.

It's just dumb. It's not PC to demand more female participation at all levels of corporations, it's commonsense.


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AnonymousUser252054 7th Nov '18 57 of 65

Corbyn fanatics have presumably hacked Stockopedia today what with attacks on executive pay and demands for greather diversity in the boardroom.

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peterg 7th Nov '18 58 of 65

Are you suggesting that only Corbyn fanatics worry about boardroom diversity or excessive remuneration? If so I'd suggest you have a pretty distorted view of the world (thankfully)

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purpleski 8th Nov '18 59 of 65

In reply to post #416699

Hi Wimbledonsprinter

I am not a holder in Marks and Spencer (LON:MKS) (and never would be, it is in the too hard pile for me and I am incredibly bearish on the high street long term, I would equate it to Trinity Mirror, a business in managed decline) but surely the pension surplus does belong to the company.

Companies contract with the employee to provide a pension of X not a pension of x and if our fund managers do really well or people die more quickly than we thought they would “a pension of x plus any surplus funding”. So if it genuinely exists I do believe a surplus does belong to the company. e.g. If the pension was bought out for x any surplus over x in the pension fund would be returned to the company.

Of course it does depend on whether it is a real surplus but IMO I would suspect it is likely to be. Actuaries are incredibly cautious in the main (see apologies to any actuaries reading) and one could reasonably assume that the surplus is real.


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Fangorn 8th Nov '18 60 of 65

In reply to post #416639

Yes he is.

They're Remainers for starters!

And Chancellor is indeed an utter bore. Nor is he a safe pairs of hands for that matter overly restricting the economy.

And what's with all these new taxes being offered up as "suggestions" to test the water??

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Gromley 8th Nov '18 61 of 65

In reply to post #416979


Yes I would agree that the pension fund surplus does "belong" to the company (effectively therefore the shareholders).

However I think you have to regard it as a very long bond, paying no coupon and  not maturing until the last pensioner is no longer with us. That doesn't make it valueless by any means as you can also expect it to appreciate over time.

Or that the company/shareholders will have to take a massive haircut on the valuation on order to get their hands on any of the value.

600 (LON:SIXH) was an interesting example imho.

They had a pension with an accounting surplus of £51.5m (£33.5m net of tax) an actuarial valuation surplus of £10.8m (£7m net).

The sold the scheme on earlier in the year and expect to receive somewhere between £3-4m .

I think the company was pretty desperate to release the cash and although the deal (together with improved trading) allowed them to reinstate dividends - I think it was very poor value for the shareholders longer term.

Hopefully for Marks and Spencer (LON:MKS) they are not going to need to crystallise the pension surplus any time soon.

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Jack Brumby 8th Nov '18 62 of 65

Thanks Paul, that intro was a nice surprise for me! Very kind of you. I've been reading the SCVR for around five years now so here's to five more ;)

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cig 8th Nov '18 63 of 65

In reply to post #416774

Is it common sense to expect it to happen quickly though? Executives are usually harvested 2 or more decades after being planted, so the composition of boards today reflects career choices made in the 80s and 90s...

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jonesj 8th Nov '18 64 of 65

In reply to post #417289

In some lines of business, women simply were not going into the profession in the 1980s. When I was studying for a degree in engineering, there was about 1 female student from 80. So when you get some some of the large manufacturing businesses, there has been a very small percentage of women in R&D, manufacturing and so on. So it follows that the proportion in senior management roles is low and probably should, on average, be low reflecting the number in the workforce.

In other lines of business, this view would probably be invalid.

As for the influence the gender of the board member has on my decision making ?     Well, absolutely none.  

The same with Investment Trust managers.  At least 2 of my picks had very successful female managers for a while & I believe the remainder were male. It simply does not matter.

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timarr 9th Nov '18 65 of 65

In reply to post #417289

Hi cig

Is it common sense to expect it to happen quickly though? Executives are usually harvested 2 or more decades after being planted, so the composition of boards today reflects career choices made in the 80s and 90s...

This is the classic argument - we're changing things, but it takes time for [insert minority of choice] to rise through the ranks.  And it's true of course, but it's also an excuse for people to do nothing to change the status quo.

I don't particularly like positive discrimination - it can push aside good people as well as promote unworthy ones - but I really can't see that demanding at least one woman on company boards is really going to fundamentally undermine capitalism. Having met a lot of directors I can attest to the fact that they're often a pretty average bunch, many non-executives are about as much use as a chocolate fireguard.  And we're not talking about tens of thousands of people, it's hard to believe we can't find a few thousand smart women who can do a better job than some of the current lot, many of whom treat their roles like sinecures.

Personally, I'd like to see big companies actively trying to secure woman in relatively senior positions non-executive roles in smaller companies, with the necessary support to make a success of it. All parties ought to gain from that.


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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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