LON:XPP | Stockopedia StockSlam - April 2019

4th Jun '19 by Damian Cannon

9 comments 1917 reads

Apologies but the date is not a misprint. Life has taken a front-seat since I had the pleasure of hosting our second StockSlam of the year! Nevertheless I know that many investors can't always make an event in central London and so I'm happy to provide this cleaned-up transcript of the event. As ever we had some excellent presenters and an engaged audience which made for an enjoyable evening. I hope that you find something educational or interesting from these brief notes of the event.

Stop press: I'm pleased to say that the next StockSlam will take place on July 9th! If you'd like to present, which I thoroughly recommend, please follow the instructions here: https://www.stockopedia.com/content/stockslam-9th-july-call-for-presenters-479751/

Motorpoint (LON:MOTR)

Okay, here is Motorpoint. Some of you may know this as a car supermarket. Motorpoint floated back in May 2016. As is typical with IPOs it profit warned within the first year. The share price duly halved in the first six months. They blamed this on Brexit. Since that point the business has done well, with margins normalising and sales increasing. The share price did recover back to an all-time high back in June ‘18, but since then the price has drifted down by almost 30%, down to 189p today. This fall is despite an ongoing share buy-back. They’re buying over £10m of their shares and this is continuing. Clearly off-setting this is a fair level of selling pressure in the company. I’m not saying this is necessarily the best time to buy, but at some point the share price fall is going to stall and it’s going to go back up, if the business is doing well.

So what’s the attraction here? Well the ROCE is 80%, exceptionally high, and it has very good cash generation. The reason why the ROCE is high is because it is a very asset-light business and has a very high turnover of cars, which means there’s not a lot of working capital tied up in the stock. Now, what you will also notice is that the operating margin is very, very low at 2%. Ordinarily this would put me right off because that kind of margin means you’ve got a lot of operational gearing with a fixed cost. If your sales fall by a small amount, profits are going to fall by a much larger amount.…

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bryans1311

4th Jun '19

Thanks Damian. Interesting comments regarding Keystone and IR35. Do you know if the speaker managed to get any clarity from management about this? Thanks!

Damian Cannon

5th Jun '19

No I haven't heard back I'm afraid. Hopefully they're a subscriber and will chip in!

drvodkaquickstep

Good work Damian !

john652

Re Keystone Law (LON:KEYS)

I would have thought outside of ir35 as they have mutiple real and separate clients and keystone management do not direct the lawyers in their day to day jobs. As lawyers they would be well placed to argue the point! Same can’t be said for many other contractors so be careful with U.K. focused recruitment companies.

Hi Damian,

Re Character (LON:CCT)

Why do you see the introduction of their own toys as a catalyst? I’d have thought these will be associated with no know existing character or brand and so hard to achieve any size unless some form of amazing toy not seen before or better than what they have (and why would that be) ? Also they only pay away 10% of sale (?) price so these new toys won’t be super high margin compared to existing?

I have held for years and the commentary is always about management pay and risk of loosing licenses but they always steadily do well and really know their onions.

Thanks john

andrea34

I hold Ashtead (LON:AHT) and consider it's one of the only real growth companies in the FTSE100. The share price is very tied to the Dow Jones sentiment, unfortunately, but trading updates have sounded very positive.

Character (LON:CCT) are on an undemanding rating, though the like-for-like sales excluding Proxy at 3.7% is fairly uninspiring, international trading being 'steady' is also not great, though perhaps they deserve the benefit of the doubt after the Toys R Us collapse. But perhaps the company is now only going to grow through bolt-ons and synergies. Is your view still positive after the interims?

Hi John,

Sorry the presenter didn't go into much detail about these new toy ranges. I take your point about them being relatively unknown and a tough sell. You're right about the board keeping the company on a profitable track though and their excessive pay doesn't seem to have harmed operations.

Cheers, Damian

I agree that Ashtead (LON:AHT) is under-rated by the market given its track record. However it is an archetypal cyclic stock so it'll never be on a punchy rating (except when earnings have collapsed).

As for Character (LON:CCT) well I'm neither positive nor negative - although the presenter at the slam was pretty keen on them!

6th Jun '19

Re Character (LON:CCT) Thanks Damien, I thought it was your stock.

Hi Andrea34, if you are interested in Character (LON:CCT) have a look at the ceo/cfo videos over the last couple of years, they are very positive & upbeat. A big tick is the relatively small damage and rebound from toysrus, they dealt with it well.

Stockopedia StockSlam - April 2019

Motorpoint (LON:MOTR)

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Damian Cannon

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