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Small Cap Value Report (Fri 25 June 2021) - UPGS, VARE, ULS, FCCN, SAGA, XPD, ALT, MMH

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Good morning, it’s Paul here with Friday’s SCVR. Plenty to cover today, including some catchup items from yesterday, when Jack kindly covered for me. I’ve given Jack the day off from SCVR duties today, as a thank you for yesterday.

Timing - I’ve got the whole day free, so we’ll see how things progress. Update at 10:42 – making good progress so I should be mostly finished by 1pm. Update at 12:38 – I want to do 2 more sections (Robinson amp; Marshall Motors), so am extending finish time until those are done.

Disclaimer -

A friendly reminder that we don’t recommend any stocks. We aim to cover notable trading updates amp; results of the day and offer our opinions on them as possible candidates for further research if they pique your interest. We tend to stick to companies that have news out on the day, and market caps up to about £700m. We avoid the smallest, blue sky type companies, and a few specialist sectors (e.g. resources, pharma/biotech).

A central assumption is that readers then DYOR (do your own research) and discuss in the comments below. The comments, incidentally, sometimes add just as much value as the articles. We welcome all rational views, whether bull or bear!


Agenda -

Paul’s Section (all today’s report is by Paul):

Up Global Sourcing Holdings (LON:UPGS) – acquisition of Salter brand. Looks a good deal, on a EV/EBITDA ratio of 7.4

Various Eateries (LON:VARE) – interim figures are largely irrelevant due to lockdowns. I check out its balance sheet, and some more general thoughts about the business amp; sector. Too early to judge if it’s good value or not.

French Connection (LON:FCCN) – victim of a cyber-security breach. A criminal gang has “penetrated its back-end” according to

Uls Technology (LON:ULS) – accounts delayed due to problems finishing the audit on time.

Saga (LON:SAGA) – a snippet of information about its imminent first cruises.

Xpediator (LON:XPD) – another positive trading update, with profit guidance raised.

Altitude (LON:ALT) – CFO has resigned (effective Dec 2021, supposedly). Shares down a little today. This share is on my speculative watchlist. I take the view that, if exciting things were in the pipeline, then the CFO would want to stick around. Hence feels bearish to me. The auditor was changed in April, and Broker/NOMAD changed from Finncap to Zeus on 15 June 2021. Fundraising coming? Last reported cash was £2.1m at end March 2021, which actually went up from £1.3m on 22 Jan 2021, although I’d like to see how creditors had moved over that period. No section below, this is just a short note.

Marshall Motor Holdings (LON:MMH) – a strong H1 update, combined with both caution and uncertainty over H2. See if you can work that out?! Looks great value, similar to Vertu Motors (LON:VTU) (I hold)


Paul’s Section Up Global Sourcing Holdings (LON:UPGS)

214p – mk cap £183m

Acquisition of Salter

The well-known homewares brand Salter is being bought by UPGS. UPGS already licences the brand (expiry: 2024) for use in kitchen products, so buying it will not only eliminate royalties, but also add Salter’s other, lucrative product ranges (especially kitchen amp; bathroom scales, where it is market leader).

The purchase price is £32m cash, plus £2m deferred.

Forecasts for Salter show: £16.7m revenues, £4.6m EBITDA, and £4.0m underlying profit before tax.

EDIT: I have queried with Equity Development, who have confirmed these forecasts do take into account elimination of the 5% royalty payments (£1.3m p.a.) currently paid to Salter for using its brand name. This will eliminate £1.3m of expense in future for UPGS. End of edit.

Taking £34m consideration (which should be the same as EV, because it says the price is on a nil cash/debt basis), and dividing by £4.6m EBITDA gives a multiple of 7.4, which looks reasonable. Whatever we think of EBITDA, acquisitions seem to generally be calculated on a targeted EV/EBITDA multiple. John McArthur of Tracsis used to say he targets a multiple of 7 times, and since then private equity bidders have chased up multiples higher. So 7.4 times for this deal is probably quite good value in current circumstances.

Funding – a £15.0m equity fundraising (only 8% dilution), at 215p (only 2.3% discount) is taking place, including a Primary Bid offer. The balance of the acquisition price is coming from internal resources.

My opinion – this looks a good deal, based on the limited information given. It’s bolting on a material amount of extra profitability, at a reasonable purchase price, for only modest dilution. Therefore EPS should rise substantially.

This is how acquisitions should be done – i.e. perform well, so that the stock market puts your shares on a high rating (current forward PER is 20.2). Then use your relatively expensive paper to part-fund cheaper rated acquisitions. Fund the difference using debt, which is repaid from the cashflows generated by the acquisition. Put the two together, and the figures look wonderful, which keeps the ball rolling. Rinse amp; repeat!

I also like the fact that UPGS is sticking to its knitting – i.e. acquiring a similar company, in a sector it understands well. That lowers the risk of something going wrong, because management understand what it is they’re buying.

This share has done incredibly well since the covid lows in March 2020, rising in price more than 6-fold.

Note the high quality scores, which I like – this is a fairly asset-light business model, which doesn’t need much in fixed assets, because production is all out-sourced to the Far East. So all it needs is UK warehousing, and some working capital.



I’ve missed the boat on this one. Despite writing positively about it here, I didn’t feel confident enough to want to buy any shares last year, and given that it’s risen 6x since, am not interested in getting involved now.

Bear in mind that this company went badly wrong, only a few months after listing in 2017. Yes it has recovered very strongly since then, but I’m still a little wary about what caused that, and whether it could happen again?

Stockopedia’s emotionless formulae like it a lot:



EDIT: Equity Development has published an updated note today. It’s pencilled in an increase in adj EPS, now:

This year FY 07/2021: 10.2p

Next year FY: 07/2022: 13.7p (PER at 214p is 15.6 - looks about right to me)

End of edit.

Various Eateries (LON:VARE)

97.5p – mkt cap £83m

Interim Results

Various Eateries PLC, the owner, developer and operator of restaurant, clubhouse and hotel sites in the United Kingdom, announces its results for the 27 weeks ended 4 April 2021.

Since this period covers mainly lockdowns, the loss-making trading results are irrelevant, since sites were mostly closed.

Re-opening trading information is more interesting, although we don’t know how much of that is one-off strength from initial pent-up demand? Also the amount of outside space is a major factor in how bar/restaurants have performed under remaining restrictions.

Oct 2020 – +10.1% LFL sales in Oct 2020, but this excludes London sites, and is the only complete month of trading. So this number looks cherry-picked!

Recent trading (April 2021 onwards) -

Very strong trading since reopening facilitated by large outdoor spaces

The figures again seem to be cherry-picked to showcase the best performing sites, rather than giving the whole group totals -

Better than anticipated sales across Coppa Club estate with like-for-like revenue up 11.3% in the first five weeks (12 April to 16 May) of exclusively outdoor trading versus the same period in 2019

Further significant uptick in sales in the five subsequent weeks (17 May to 20 June) where Coppa Club sites have been able to open indoors with like-for-life revenue up 28.3% versus the same period in 2019

Solid performance at Tavolino Tower Bridge and Strada Southbank, despite continued absence of office workers and tourists

Insurance – I’m not aware of other listed hospitality businesses which have successfully claimed on their insurance. Have readers spotted such insurance payments at any other similar businesses? This is obviously helpful -

Received business interruption insurance interim payment of £2.5m in December 2020

Balance Sheet – NAV is £24.4m. Deducting £12.87m of intangible assets (goodwill on acquisitions) gives NTAV of £11.56m, which looks solid for the size of business (it only has 13 sites). Note that it owns £1.8m in freehold property, included in NTAV above, a good thing. We love freehold property here at the SCVR.

The stand-out numbers are large “Borrowings” of £5.2m in current liabilities, plus £31.47m in non-current liabilities. Note 9 explains these, which are:

Borrowings from related parties £2.47m + £10.0m = £12.47m

Lease liabilities £2.74m + £21.47m = £24.21m

I think it’s misleading to lump these together, and call them borrowings on the face of the balance sheet. Lease liabilities are not borrowings, here in the real world. They are actually future years operating costs (rents). The ridiculous IFRS 16 requires them to be included on the balance sheet, but these figures should be shown separately to borrowings, as they’re completely different in nature. We really shouldn’t have to dig into the notes to find out the commercial reality. Other companies show leases amp; borrowings separately, so why VARE does not, I have no idea. It’s an own goal in presentational terms, as many people might be put off by what seems like excessive debt.

There’s a cash pile of £19.2m, so plenty of firepower for new site acquisitions and fit-outs, at a great time to be expanding, when there are lots of empty sites available on attractive deals.

Before buying this share, I’d want to know the detailed terms of the £12.47m related party borrowings mentioned above. Who provided this funding, and on what terms? Providing this loan funding is secure, and can’t be withdrawn (e.g. due to covenant breaches) then the funding position looks OK.

Management – the main reason this share attracted a premium valuation, is the involvement of Hugh Osmond (NED) and 47% shareholder. He’s assembled an experienced operational management team. Highly regarded Marlborough funds (Canaccord now, used to be Hargreave Hale) owns 24%, so the free float is small. Other Directors own about 6.5% too.

I’ve asked Stockopedia to widen the shareholder table, as it doesn’t display properly for me, unless I reset the page zoom to 100%. A third of the page width is taken up by the explanatory note, leaving not enough width for the actual data! I have to click on the data, and scroll right, to see the “% Held” column, which then partially obscures the “x date” first column. Hopefully they can fix that bug at some point.



My opinion - neutral, because we haven’t got any proper figures of how the business will trade once restrictions have ended.

It looks extremely expensive for a business with only 11 trading, and 2 further new sites. I suppose the market has given it a roll-out premium, and a star management premium on top of that. I don’t like paying up-front for future growth, nor for star management, who often don’t perform as well as expected. They can’t work miracles after all, and there are thousands of competitors. The exposure to central London is also a worry. Although this time next year, I imagine tourism amp; working from offices, are likely to be back maybe closer to historic levels. After any disaster, things return to normal quicker than many people imagine.

At the moment, VARE seems impossible to value. The other thing is that new formats like this, with big budgets for capex, always trade brilliantly to start with, because customers actively seek out nice surroundings amp; trendy formats. Give it a couple of years, and once the internal fit-out is starting to look tired, then customers drift away to newer, fresher competitors. That’s why EBITDA is such a dangerous concept in this sector – it ignores maintenance capex, which can be significant, and the need for 5-yearly major refits.

The “igloos” at Coppa Club sites look great, but already competitors are copying this idea.

It only listed in Sept 2020, so early days still. I’m booked in to join a Zoom with management next week, so will report back if there’s anything interesting.



Uls Technology (LON:ULS)

Rescheduling of Final Results

As a shareholder in Renold (RNO), I’m slightly relieved to find another company in ULS that needs more time to complete its audit.

The Group’s auditors, BDO LLP, have requested some additional time to finalise their work, due to the practicalities of conducting the audit remotely.

As did Renold, ULS reassures shareholders that it still expects results to be in line with the earlier trading update.

There has been no move in the ULS share price on this news, so it doesn’t seem to have spooked shareholders. Whereas Renold has sold off about 30% since announcing delayed results, although there have now been 2 delays, and no date set for Renold results, which does make me wonder if the problem might be larger than currently disclosed? That’s pure speculation though.

Can readers think of any other companies that are delaying results due to audit problems with remote working? We should make a list. Most companies seem to be managing fine, so it does raise questions at the companies which have not managed so well. Even if it’s just down to them not being very well organised?

Another problem with audits, is that the audit staff are booked up months in advance. So if an audit is not completed on time, it’s very difficult to find audit staff available to finish the job. Thinking a long way back to my early career as an audit junior with Price Waterhouse, not finishing an audit job was simply not an option. It had to be finished, or you weren’t allowed to leave! I suppose that threat is not really available when people are working from home, which could have a bearing on things. Although thinking that through, it should also make it easier to finish work on a job that does over-run, since auditors could do so from home, without having to visit any sites.


French Connection (LON:FCCN)

(I hold) has reported that FCCN has (rather appropriately given the FCUK slogan!) had its back-end penetrated -

… a gang understood to be linked to REvil having penetrated its back-end – making off with a selection of private internal data.

I wonder if the company is planning on letting shareholder know with an RNS?

The article says that no customer-related data was stolen.



(I hold)

An interesting snippet of information, which my daily Google search spotted.

TravelWeekly says that Saga’s first cruise ship sailings will operate at only 50% customer capacity, starting this coming Sunday. This is due to continuing Govt restrictions.

Saga is quoted as saying -

“With all of our guests and crew fully-vaccinated and high demand for our cruises, we are working to ensure we can accommodate as many guests as possible.”

The line said it understood concerns around the latest Covid-19 data but added that “such tight capacity constraints is disappointing for our fully vaccinated customers”.

My opinion – I’m not bothered by short-term, temporary issues like this. When owning the shares, I own part of the company’s earnings into perpetuity. So delays, or hitches, with re-opening will be quickly forgotten. We don’t have to react to every piece of newsflow. It’s a pity there are so many traders in the stock market, doing exactly that – and causing excessive volatility in the share price. But I suppose they add liquidity.

It will be very interesting to see what happens with cruise ships, as sailings resume in many parts of the world. The question is, whether vaccinating all the adult guests amp; crew will be enough to prevent a serious outbreak like we saw at the start of the pandemic? Given that the vaccines seem to be highly effective in reducing death amp; serious illness, then to my mind it stands to reason that a ship full of vaccinated people is not likely to result in a serious outbreak.

Indeed, recent press reports of an outbreak of covid on a cruise ship sounded very positive. Only 2 people tested positive (both asymptomatic) and it didn’t spread any further. Which sounds remarkably positive to me. Clearly the vaccines, and preparedness by the cruise ship (having quarantine facilities ready, some social distancing on board, testing everyone before they get on board, enhanced cleaning, requiring proof of vaccination for everyone before they get on board, etc) have worked.

Putting all those measures together, and it seems to me cruising should be able to get back to normal now. Of course SAGA’s demographic of over-50s are the people with most of the money, and who are fully vaccinated, apart from anyone with some specific exemption, plus of course the numpties who refused the jabs – who won’t be able to go on holiday, tough luck!

Time will tell. Investors seem more upbeat about the future – as you can see from the 1-year chart below.



Xpediator (LON:XPD)

74.5p (up 3.5% at 11:36) – mkt cap £105.6m

Trading Statement

Xpediator (AIM: XPD), a leading provider of freight management services across the UK and Central and Eastern Europe…

Trading sounds positive -

… is pleased to confirm that, further to the AGM Statement of 8 June 2021, based on positive trading trends for the first six months of the year, it is able to increase guidance in respect of expected performance for the year to 31 December 2021.

Guidance – we’re given specific profit guidance too, not just warm words, which is great -

As with many logistics businesses, the majority of profits are made in the second half of the year. However, results received to date for June 2021 have continued the strong trading trends since early 2021, and the Board now believes the business is well placed to deliver full year adjusted profit before tax in excess of £8.5 million.

Outlook -

Robert Ross, Chief Executive Officer of Xpediator, said: “We have had a good first half which has positioned us well for a strong outcome for the full year. We are bringing the Group closer together unifying IT, people and brands, the benefits of which are starting to come through.”

My opinion – checking back through my previous notes here, there was a positive update on 29 Jan 2021, which I reported on here, concluding that the update was impressive, and the shares might be worth a closer look. They’ve gone up from 44p to 74.5p in just 5 months, a really impressive +69%, so well done to shareholders in XPD.

Checking the last accounts, NTAV is only £7.7m, so the £105m market cap has little asset backing. Also, with a low profit margin, and large receivables/payables, this is a tough sector to operate in, hence not a business model I would personally want to back.

That said, we’ve seen with both Wincanton (LON:WIN) and Clipper Logistics (LON:CLG) how there’s plenty of profit, and growth, for the best operators. So maybe I should reconsider my sector aversion?!

The share price is now getting close to previous all-time highs. I wonder what caused it to then retreat into a 2-year decline (starting well before the pandemic)? This suggests to me that profits may not necessarily be resilient, or sustainable? Having said that, XPD produced good figures for 2020, and it looks like 2021 is going better still.



Marshall Motor Holdings (LON:MMH)

195p (up 2%, at 13:12) – mkt cap £152m

Pre Close Trading Update

Marshall Motor Holdings Plc, one of the UK’s leading automotive retail groups, today provides the following unscheduled trading update given significant upgrades to both first half and full year expectations for 2021.

PR heading –

Unscheduled Trading Update – Record Results anticipated for 2021

Key points -

  • Market tailwinds continuing
  • Recent “unprecedented” used vehicle price rises
  • Favourable demand to supply conditions for new amp; used vehicles
  • “Exceptionally strong” H1 (Jan-Jun 2021), both profit amp; cash generation
  • Diary date – H1 results due out 10 August
  • Outlook – high level of uncertainty for H2 and possibly longer, due to new vehicle supply issues (semiconductor shortages), and covid
  • Supply issues had “limited impact” in H1, but signs are this could get worse in H2 amp; beyond
  • Dividends – intend to resume asap.

Guidance – rather mixed messaging here, I feel -

As a result, there are a wide range of possible outcomes for the Group’s full year results. Despite having committed to repay £4.0m of Government support, as previously announced, the Board now expects that continuing underlying profit before tax in 2021 is likely to be significantly ahead of current market expectations and well ahead of the Group’s historic record result.

My opinion – I need to read this several more times I think. It’s rather confusing – trumpeting record anticipated results for FY 12/2021, whilst at the same time saying there is a wide range of possible outcomes.

In essence though, strong current trading echoes what Vertu Motors (LON:VTU) (I hold) said a few days ago.

Both MMH and VTU are on single digit PERs, and have strong balance sheets. Paradoxically, supply problems seem to be driving profits up. It doesn’t matter if they cannot sell as many cars, if the margin on each car sold is much higher. Plus there’s pent up demand for servicing, deferred from last year, probably.

This sector very much appeals to my inner value investor. MMH looks really good. The StockRank of 98 is also almost at the maximum possible.

MMH doesn’t seem to mention online sales today. For that reason, I prefer VTU, which seems to have put more emphasis on digital matters.





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