Small Cap Value Report (12 Jun 2015) - BON

Good morning! Very quiet for news today, so a shortish report.

Another retailer has reported annual results:

Bonmarche Holdings (LON:BON)

Share price: 284p
No. shares: 50.0m
Market Cap: £142.1m

Final results y/e 28 Mar 2015 - this is a clothing retailer, mainly targeting middle aged & older female customers, at the value end of the market. So a less crowded part of the market than most clothing retailers which aim at younger (but often less affluent!) customers.

BON floated in late 2013, and has been a relatively successful newcomer to the market, trading at all times above its launch price of 200p. Checking back through my notes here, the shares had a bit of a wobble on 10 Apr 2015 (see my report) when it reported poor Q4 store sales (down 4.7% LFL), partly offset by good online sales. However the company reassured that it would still hit its full year numbers - so clearly management had played it safe, and kept a bit of out-performance in their back pockets, which smoothed over a softer performance in Q4.

Today we see those full year numbers, and my initial reaction is that they seem reasonable.

Revenue - up 8.7% at £178.6m, which benefitted from same store (LFL) growth of 4.0%, boosted to 6.0% once online sales are included. The balance of the increase must be down to new store openings, net of closures. This is a respectable performance in my view.

Profit before tax - it's best to focus on the pre-exceptional figure, which is £12.4m (up 10.4% on prior year). Again, a respectable performance.

The headline numbers show much bigger increases, but that is because last year's figures included a £3.3m exceptional item (which was mostly (£3.0m) cost of the IPO).

EPS - underlying basic adjusted EPS is 20.7p vs 18.6p last year.

If you want to be more prudent, then the diluted (for share options) EPS figure is 19.8p.

Dividends - a final divi of 4.5p has been proposed, taking the full year divis to 6.8p. That is a yield of 2.4% - not madly exciting, but it's almost three times covered, so should be regarded as fairly safe, and likely to continue growing.

Outlook - just general comments, but no nasties in there, so this is at least soothing:

Balance Sheet - all seems fine to me. The company has net tangible assets of £24.3m, which seems perfectly adequate for the size of business.

Working capital is strong, with a current ratio of 1.4, which is more than adequate for a retailer (which can typically manage on leaner working capital than most other sectors, since they sell for cash).

Finally, it has net cash of £10.2m, and an unutilised bank facility, so ample headroom there.

Valuation - based on this year's estimate of 21.3 EPS (which looks achievable, maybe even a bit low), then the PER is 13.3. That seems reasonable to me, especially considering the company has a decent balance sheet with net cash.

My opinion - overall I quite like it. This seems to be a company with good management, who are executing well. The valuation looks about right, and I expect to see this share gently trend upwards over the next few years, as earnings rise.

So I don't think it's going to set the world on fire, but looks a nice steady company to have in say a long term pension portfolio.

Personally I look for bargains, so it's the type of share I might buy on a mild profit warning, when the stock market throws a sale! There's relatively little fashion risk with older customers too, so even if it does warn on profit, it should recover.

I've looked at a few other things, but there are no results/trading updates from any other companies that even remotely qualify as Value, so I'll leave it there for today.

No video today.

Regards, Paul.

(Paul does not hold a long or short position in the company mentioned today. A fund management company with which Paul is associated may hold a position in BON - I don't know whether they do or don't, hence why I say "may"!)