Small Cap Value Report (Fri 26 June 2020) - TND, W7L, CWD, CNKS, BWNG

26th Jun '20 by Graham Neary

59 comments 9847 reads

Good morning! Especially to the Liverpool fans out there.

The RNS is a little quiet for small-caps today, which is good, because I want to catch up on your suggestions in yesterday's comments section.

In today's news, I note that the FD of Sosandar (LON:SOS) has decided to step down and is swiftly replaced.

More to follow!

Graham

This report covers:

Tandem (LON:TND)
Warpaint London (W7L)
Countrywide (LON:CWD)
Cenkos Securities (LON:CNKS)
N Brown (LON:BWNG)

Finished at 13:40.

Tandem (LON:TND) post-script

(Please note I have a long position in TND)

Result of AGM

I realise that this stock won't appeal to most of you, but I just want to quickly mention the outcome of yesterday's AGM. What happened yesterday was very unusual.

The Non-Executive Chairman, Mervyn Keene, saw only 57% of votes go in his favour, with 43% against.

And the new Director, MA Taylor, was elected with just 59% of votes in favour.

You won't need me to tell you that this is an extraordinary level of dissent to see from the shareholders of a publicly listed company.

And it looks like these two Directors were only saved by last-ditch efforts to persuade the company's biggest shareholder to back them.

What exactly did they promise him? Impossible to know for sure. But the "Investor Day" and the production of results presentations might be important factors.

Warpaint London (W7L)

Share price: 66.3p (+1%)
No. of shares: 76.7 million
Market cap: £51 million

AGM Statement

A brief statement from this cosmetics group. The main point is that H1 sales have been "higher than anticipated, albeit significantly below the first half of 2019".

Does anyone else get the impression that companies might have been too pessimistic since lockdown? Many of them seem surprised by how much trade they've done over the past month.

Forecasting has been more or less impossible, though, and I don't blame them for being conservative with their forecasts.

As far as the economy goes, forecasts are about as useless as they've ever been.

The only strong conviction I have, when it comes to the economy, is that there will be a…

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The Phoenix

26th Jun '20

Brilliant 4.5 bil in debt and lost 1.5 bil last year in a sector on its knee's what could go wrong he should be beating himself up.

Deegee Eff

Good morning Graham, will you be having a look at one of your favourites which has had preliminary results today Thalassa Holdings (LON:THAL) ? Mkt cap of £9m and cash of $16m.

Cheers, Graham

Laughton

Morning all - hope someone can help me out here regarding Boohoo (LON:BOO) and the new incentive plan announced today.

https://www.londonstockexchang...

Firstly they say that:

The Plan will be share price focussed (my bold) to align interests of management with existing and potential shareholders and will be a 3-year scheme measured on 17 June 2023. The single share price growth measure is well aligned to the Group's strategy of delivering substantial and sustained returns to shareholders.

So, as an existing shareholder, that sounds OK to me. But then they say:

The Plan will pay out in full and to its maximum level of £150 million (across all participants) if the market capitalisation rises by 66 per cent (my bold). to £7.55 billion over the 3 year-performance scheme period, which equates to a compound average growth rate ("CAGR") of at least 18 per cent.

So, excuse me for potentially being stupid, but that's not necessarily the same thing, is it? If they decide to issue more shares at a discount (they have history here), whether for asset purchases or other reasons then that would boost the market capitalisation but not necessarily the share price. So, potentially, management could get £150M for making the company worth 66% more but my shares might not be worth 66% more??

Or am I just being over cynical?

Why say the Plan is share price focussed and then say so much about market cap? It's the share price that I'm interested in.

rmillaree

Boohoo (LON:BOO)

I would be surprised (but not shocked) if that is the case - i think most companies would make an adjustment for additional shares issued.

JohnEustace

The new man isn't joining until Sept 7th.

The RNS says "The Board expects that Stephen will be appointed to the Board once he has settled into his new role, subject to the satisfactory completion of the necessary regulatory requirements."

The assumption that Collingbourne will then leave is mine as two FD's would seem excessive.

barnetpeter

Intu....yes the Government tells businesses they cannot be evicted and the usual rules are suspended. So what do they do? "UK retailers stumped up just 14% of the rent bill due this week, as the high street crisis triggered by the lockdown reverberated through the property industry". So the result? Commercial landlords are in trouble all over the place. Intu is a "reit" after all....a supposed safe property investment vehicle where a lot of pension money has been invested. Other reits (do I dare mention NRR?) are falling like a stone as the implications are so unknown.

Meanwhile, the administrators have said all of the 17 Intu shopping centres will close and stay closed unless the bond holders stump up an initial £12 million upfront. Will they pay when the rents are not being paid? Tens of thousands of jobs are at risk. It seems the Government is going to end up with exactly what it say it did not want.

raggedtp

Good to see your concern, jonno. I too am a confused U And I (LON:UAI) holder. I recognise the 'calling in' on the 8 Albert Embankment permission to be a setback, but some of their schemes are progressing, I believe they have cut costs sufficiently, and Richard Upton must be sick as dog to be 50% down on the £400k+ he spent on steadily buying shares from Nov to Jan. (as am I, albeit, thankfully, on a lesser amount). I will hold for the prelims but will look at them carefully and may exchange views then. I do think mixed use will survive, small retail spaces, London pads and serviced small offices (which is why I have not sold Rdi Reit (LON:RDI) yet, which I feel should emerge at 110p next year, fingers crossed!).

If you read on a few more lines they say

"Provisions will be made to the Plan to make the adjustments for increases in market capitalisation arising from corporate events such as issuing shares for acquisitions so that the benefits derived from the Plan only arise from organic growth."

I think we can pretty much guarantee that this will alter behaviour. If the incentives change then behaviour changes. There will be some interesting test cases and opportunities for the likes of Manolete Partners (LON:MANO) resulting from this.

Jeffvshepherd

This is ringing alarm bells with me! This is setting a target share price and could mean desperate management massaging figures to push the price up. Surely it would be better to set targets for profitability, earnings and cash flow etc?

Rojo

posted by ansc on advfn this morning
I hope genuine shareholders were not panicked into selling yesterday following the release of that obnoxious report. I spoke at length to the company yesterday and, as I suspected, it looks as though the mysterious publishing company is associated with the guy who posted a while ago as MBcontrarian; not surprisingly, throwing accusations around then about ELCO too. The company have a thick dossier on this individual apparently as he's been actively attempting to dig up dirt about the company for some considerable time, stooping pretty low in his numerous attempts.

I didn't sell a single share from my not inconsiderable pot yesterday and intend to ride out the Covid pandemic with them come what may.

timarr

I think we can pretty much guarantee that this will alter behaviour.

Clearly. However, I don't think the new Act allows withholding of payments just because the company feels like it. Genuinely cash strapped companies are protected but those that aren't paying because they don't want to aren't. Plenty of room for legal action there.

Anyway it'll be an interesting three way standoff between the administrators, the bondholders and the tenants. If the bondholders refuse to play ball and the administrators are forced to shut the doors what happens?

Very happy to watch this from afar.

jwebster

Interesting - no mention of total shareholder returns. So no dividends will be paid, all spare cash will goto acquisitions to bump up market cap. Still, if acquisitions are sensible it will add value. I don't have anything against mgt sharing the rewards, just need to understand it can create pump incentives.

Equity Development

#W7L Warpaint

Thx , as always, Graham. If any investor wants to hear the proposition 'from the horses mouth' then in 20 mins (2pm UK time, Friday) the Management of Warpaint are doing a webinar with Q&A - just register here :
https://tinyurl.com/ybgt673o

If you miss it, Equity Development will circulate a recording later

jonesj

Boohoo (LON:BOO)

That's a very strange way to word an LTIP RNS. Firstly the targets are clearly based on market cap targets, but then they say there will be provisions made for increases in market cap from issuing shares, so that the benefits derived are only from organic growth.
So if they really intend to only pay out based on organic share price growth, would it not be clear & simple to set a target based on share price instead ? I really have doubts about this.

Secondly, I think the targets are not exactly stretching. Stockopedia shows a historic CAGR of 54% in sales & looking at the trailing PE of 77.8, it seems the market anticipates further strong growth.

Thirdly, the co-founders and the son of one of the co-founders clearly require a very large incentive plan to motivate them, but the CEO, who I though was supposed to be the most important person in any business isn't named as a significant beneficiary. His existing options are worth just over £1m (@ current prices), whilst this package for the founding families is ~£150m.

SundayTrader

re Sosandar (LON:SOS), it must surely take some time to recruit a new FD. If the board knew some time ago of Collingbourne's intention to resign should this not have been announced then?

They already put a similar plan in place for the CEO when they recruited him from Primark.

He gets a maximum of £50m if the market value hits £6bn by March 2024.

stegga1000000

Howard Marks take on the rally:

I liked the comment, the only casino that was open was the stock mkt.

https://www.oaktreecapital.com...

Star8

Some possibly interesting points re Re N Brown for you or other readers:

Net Assets per share are 111p v market price of 37p . Lord Alliance and his brother control 44% of the company. Both are very shrewd and have decades of experience in the textile industry but neither are in the first flush of youth and are non-execs.

Management reactions to covid 19 are impressive.

While it looks superficially very attractive what bothers me is that their mail order market is to the lower market echelons and bad debts are likely to be massively higher than usual given furloughing and the likely downsizing of many employers. They seem to sell on a credit basis as opposed to a fashion basis (of course fashion has a role but it is not like Boohoo and I suspect their target market is older than Boohoo .)

I got in on considering the first points and then got out after considering the later points - fortunately at a profit. Was this right ??

Thornabian

They are good points and I considered that too but I fell on the view that credit lines for clothes are extremely unlikely to be defaulted on - not like a mortgage or a car - and I expect it more to impact margins due to the low rate environment and regs but I can live with that at the current price and the price I bought in.

I can see why others might take it the other way though.

Small Cap Value Report (Fri 26 June 2020) - TND, W7L, CWD, CNKS, BWNG

Tandem (LON:TND) post-script

Warpaint London (W7L)

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Graham Neary

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