Small Cap Value Report (Tue 9 Nov 2021) - ANG, SOS, ALFA, CRPR

9th Nov '21 by Paul Scott

54 comments 9117 reads

Good morning! It's Paul & Jack here with the SCVR for Tuesday.

Agenda -

Paul's Section:

Angling Direct (LON:ANG) - cyber-security attack from yesterday's RNS. Looks quite serious, we're now into day 4 of ANG's transactional website being down. It was hacked, and customers have been redirected towards PornHub. Plenty of banter has ensued, but will it do lasting damage?

Sosandar (LON:SOS) - I recap on this very fast-growing womenswear fashion brand, after an excellent presentation last night at Mello. It's not cheap, but the growth is now stellar, and I reckon they're set up to beat forecasts this peak trading period, driven partly by strong third party sales. Looks an exciting growth company to me - measured by facts & figures, not just wishful thinking!

James Cropper (LON:CRPR) - interim results look OK, with a good recovery in revenues, and a modest increase in profits. Note the pension deficit. I can't see anything to get excited about in these numbers.

Jack's Section:

Alfa Financial Software Holdings (LON:ALFA) - strong momentum continues. This software provider is of increasing interest to the community and broker EPS forecasts have been upped multiple times recently. Shares look pricey but, with the wind in its sails, the group deserves some kind of premium.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Paul’s Section

Angling Direct (LON:ANG)

66.5p - mkt cap £51.4m

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Berksbee

9th Nov '21

LON:ALFA Just to add to Jacks commentary and comments on value - a super solid balance sheet, very rich major shareholders and has paid 2 special dividends in the last 12 months of 15p and 10p, only one of which is showing on stocko.

johnsmith68

Being a Fin-tech business they should be able to cope.

Fegger

Have felt exactly the same since they launched. Had conversation with them several years ago re how may women wont wear polyester/nylon as it is uncomfortable. I wish them well but would not shop there myself.

Camtab

James Cropper I beg to differ Paul. I really like the hydrogen part of their business and see that as a real growth area. Looking at most Hydrogen companies they are on ridiculous valuations and I wonder if this isn't a back door in. Main issue I have with them and why I don't hold is the market is way tooooo tight.

gmtrader

James Cropper (LON:CRPR) I think this is actually quite a good company to be invested in. (I do not hold). Looking at the chart it has broken out of the downward trend recently and I would expect it to hit new highs within the next year giving a 25% increase ontop of the dividend due to those holding on 08/09/21.

The interesting part of Croppers is the new TFP which I see only improving in time. The TFP is a man made fibre made using a similar process to paper making. It is extremely light weight and strong, used for military bullet proof vests and also for airplanes.

I live local to this company and often see people who work there. I'll ask how the company is doing next time I see someone.

ForAFewDollarsMore

Agree that this is an excellent discussion with lots of nuggets in there. Paul S we know of course, but Paul Hill is also a great commentator with interesting ideas

For me, being relatively now to Stockopedia, I hadn't picked up Paul's speciality of retail/online so I will pay extra attention in this area from now on!

Monty9

My wife is not impressed either but I think their range looks good. Their KPI's also look good and management seems to be very excited, and confident, at their progress. I also bought too early but have added at not much more than my original tranche. It could run out of steam but if current momentum continues for another year it could provide a superb return for decreasing risk.

Monty Carlo

Sigh.

It's not a matter of "right" or "wrong", the whole sector is much more nuanced than that.

It is more a case of trying to work out how large the addressable market is for faux leather dresses (by quality my wife was referring to fabric, not manufacture) at a premium price point, and whether that market will stay with Sosandar (LON:SOS) as fashion moves on next season.

Even the less fashion-led Next took a tumble one year when they admitted their buyers had got it wrong one season.

This is a brutally competitive market - you need to generate both brand loyalty and anticipate fashion. My wife will buy 3 or 4 things from a certain retailer one year and be happy with them, then buy absolutely nothing the following year - their catalogue getting binned after a 3 minute browse and she will switch her custom elsewhere to one of about 25 other brands....

Just my observation. Neither right nor wrong.

JohnEustace

I'm put off Sosandar (LON:SOS) by their lack of consistent data. They are happy enough to share metrics when they are good but get vague when they deteriorate. Which leaves investors trying to interpret tone and body language which isn't good enough.

Paul Scott

Hi John,

I don't completely agree with you there, but understand the point you're making. Sosandar was floated by Adam Reynolds, who's a lovely chap, but does tend to be a bit rampy! So there have been communications issues in the past with SOS. That said, I think it's getting better.

I checked back at the last trading update, and what it said on returns, which was this -

Now that returns rates have normalised in line with buying behaviour, the diversified category mix has also proved to have a positive effect on returns rates which are at a lower level than pre-pandemic.

So in the Mello presentation last night, you could see them giving replies to questions which reflected what was said in the RNS, which is actually very professional - that's what the rules are for listed companies - no new material information to be given in presentations.

If the company has decided to stop publishing the returns rate, thats fine, as it is quite commercially sensitive. But I'd rather they just told us that, rather than fudging the question!

I've bolded the key bit above - returns are lower than pre-pandemic, which is encouraging I think.

I will feed back this point to mgt, as I'm intending on dropping them a line to say thank you for doing Mello. They've been very receptive to my sometimes quite blunt/critical feedback in the past, to their credit.

Regards, Paul.

Hi Paul,

Is the returns rate at Sosandar (LON:SOS) really commercially sensitive - or just something that management are sensitive about letting shareholders know about to save themselves from criticism?

Obviously Sosandar are a much smaller business but the comparator in retail reporting is Next. A full read of their reports feel like sitting through a day long board meeting but that degree of openness only helps build shareholder confidence and respect from their competition.

davidjhill

hi John - the "returns" number could well be deemed sensitive so the presentation last night wasn't the place to announce it. I think the CFO was professional in that regard. I would personally prefer they did show it in the trading statements but I do think it is worth noting that Sosandar (LON:SOS) is nowhere near as big or mature in terms of the business model and range as Next (LON:NXT) so, asking them to deliver Next (LON:NXT) type consistency of metrics at this stage of the business is a bit much I feel.

The broad answer around returns is that it very much depends on product mix. Dresses have quite a high return rate whereas denim and loungewear have pretty low returns. Sosandar (LON:SOS) is in the process of very much widening its product range out of the former and is now up to around 2000 lines I think.

The result of this is that if you tried to compare its return rate pre lockdown to the period during lockdown you would get what looks like a big drop but that is because of the introduction of loungewear and the lack of dress purchases. Post lockdown you would see that rate go up again as more dresses get bought. I think management are a bit cautious about the absolute %ages because they didn't want people getting carried away one way or another. I say this because they have been consistent since lockdown began in steering investors away from thinking the returns rate was dropping for any other reason than the product mix and likewise now as it rises again. It is below pre pandemic levels but I would expect that as the lower return product range is also now in place.

since the range is now significantly broadened I would expect this returns number to become much more consistent going forward so agree it is something they should start to re-introduce.

Interesting discussion, but the returns rate is basically background noise. What's far more important is that sales growth is >100% pa, gross margins are strong, etc. That's what drives the business and the share price not whether the returns rate is 48% or 45%

Tanglands

volex( I hold)

Results are out tomorrow and the share price closed down 6% today. Rough guess as to what the results will say tomorrow?. I may be being cynical! But how do these kind of leaks (apparently) happen?

Let’s see what tomorrow brings,

Rant over with.

dhannaway58156

Volex (LON:VLX) It's up an obscene amount in the last year backed by hefty director buying. 6% sounds like noise to me.

GrahamF

I have been a consistent ‘naysayer’ when it comes to Sosandar (LON:SOS)

Paul has probably got fed up with my negativity. So, my congratulations now to Paul and everyone else that got onboard here at the right time. My original concern was that the whole premise was very high risk - two fashion commentators are suddenly going to set up a online retailer to sell to a part of the market that they believe is underserved. A bit like a restaurant critic suddenly opening a chain of restaurants. It may work as planned but it is very high risk.

It will be very interesting to see how profitable the sales through Next and JL are once more numbers are available. As mentioned above, fashion is fickle and so it will be interesting to see if they can continue to call it right. Probably there’s a fair chance they can now they have learnt from their mistakes.

Black swan event possibility - logistics trouble. They are wholly dependent on Clipper, as I understand it, for handling all their order fulfilment and returns. They are a tiddler in Clipper’s business so will have little clout in the event of disruption.

Other more likely possibility. Copycats. There’s basically no moat here. So, if their success continues they are bound to see increased competition. Their ‘underserved’ market subsector may become very well served quickly destroying their margins.

No position myself. But I can see that short term it looks far less risky than before and could be a good investment.

Quilleron

Results due Thursday 11th (I hold).
Quite possibly related to the Tesla fall on Musk's possible pledge to sell 10% and I note that Ti Fluid Systems (LON:TIFS) is also down almost 6% - but quite how this relates to EV sales is difficult to see.
Might also/alternatively be related to the China property crash's effect on global growth.

It is worth listening to Paul on Sosandar (LON:SOS) in the excellent video interview posted elsewhere here today. He mentions Sosandar (LON:SOS) having developed a certain "fit" that brings customers back, and also that the clothes are designed to be less revealing where ladies over 30 prefer them to be less revealing... I'm not entirely convinced that other retailers ignore this, but interesting stuff.

Or, why don't we just wait to see what the numbers look like? As normal. That's what investors do.

Rusty2

10th Nov '21

Volex (LON:VLX), Results not out until Thursday 11th November.

Small Cap Value Report (Tue 9 Nov 2021) - ANG, SOS, ALFA, CRPR

Paul’s Section

Angling Direct (LON:ANG)

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Paul Scott

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