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Small Cap Value Report (Tue 18 May 2021) - FOUR, WJG, SHOE, SDG, ACRL, ESC

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Good morning, it’s Paul amp; Jack here, with the SCVR for Tuesday.

Timing – update at 16:17 – all done for today, see you tomorrow.

Agenda -


4imprint (LON:FOUR) – a quick look at this North American promotional goods company. It reports a steadily improving recovery in trading. Not an obvious bargain, but it’s a good company, probably with some long-term upside on share price.

Watkin Jones (LON:WJG) (I hold) – Half year results to 31 March 2021 look resilient – profits only slightly down on LY H1. Strong balance sheet, pipeline growing, Strong recovery in institutional demand, there’s lots to like here. The valuation looks reasonable. Plus we get a 3.5% dividend yield. A good solid long-term value/GARP share, in my opinion.

Shoe Zone (LON:SHOE) – Half year results – better than I expected, and strong growth in online sales is encouraging. Balance sheet is complicated, but I think overall it looks financially OK for now. At this stage I haven’t got enough information to assess the company’s prospects, so it has to be filed in the don’t know/too complicated tray.

Sanderson Design (LON:SDG) (I hold) – a very strong H2 has delivered a good overall result for the year. I like the convincing turnaround amp; restructuring here, under new management. A bulletproof balance sheet means no dilution has occurred, and won’t be needed. If earnings continue rising, then this share could still be good value in my view.


Accrol Group (LON:ACRL) – mixed update. Better margins, disappointing on sales, and a note of caution regarding rising input costs. Shares have been quite heavily diluted since listing.

Escape Hunt (LON:ESC) – this is an operator of escape rooms so results have been impacted by Covid. There are growth opportunities here, but the shareholder dilution has been massive which reduces the upside.


Paul’s section 4imprint (LON:FOUR)

2390p (up 4% at 08:32) – mkt cap £672m

AGM Trading Statement

4imprint Group plc, (the ” Group “), the direct marketer of promotional products..

I thought we’d have a quick look at this, to see if there’s an economic recovery trade to be had.

Note that almost all revenue comes from North America, with a tiny amount in the UK/Ireland.

Summarising today’s update -

Jan-Apr 2021 saw “very encouraging progress”

Net cash $44m

Order intake (not necessarily the same as revenue) comparisons are 2021 vs 2019, due to 2020 figures being so heavily disrupted by lockdowns (makes sense to me), as follows:

Jan-Feb 2021: down 35% on 2019
March: not stated (strange! why not? Maybe the trend went backwards?!)
April 2021: down 20% on 2019
May 2021 (to date, 3 weeks): down 15% on 2019 – are “order counts” the same as “order intake” for previous periods above? Why the change in terminology?
No overall total provided. Hence this list of figures above looks to me like it’s been cherry-picked to show the best bits! (i.e. the truth, but not the whole truth, maybe?). A simple table, showing every month, with the 2019 comparison, and the total, would have been better. I think investors prefer complete transparency, rather than having to work out where the wool is possibly being pulled over our eyes.

The company is “very pleased”, expecting further progress in 2021

My opinion - this looks good – an improving trend, as the USA/Canada economies come back to life, with what looks like a V-shaped recovery.

There doesn’t seem to have been any new equity raised during the pandemic, as the share count looks static at 28.1m. Therefore we can draw lines on the chart with impunity!

Peak earnings were c.152p, so I think it makes sense to value the business on the basis that it might take maybe a year or so to get back to that level (I’m optimistic on the macro outlook, due to massive QE amp; stimulus spending). Put that on a PER of 20, which seems reasonable, and we get to c.3000p per share price target.

Therefore there’s maybe 25% upside on the current share price of 2390p, assuming all goes well. Also, in future, earnings could exceed the previous peak, as FOUR has a long history of decent performance, it’s a good business.

Overall, I quite like it – reasonably good long-term upside probably.



Watkin Jones (LON:WJG)

(I hold)

240p (down 1%, at 10:48) – mkt cap £629m

It’s getting a bit big for us now, but I’m going to continue covering this company here, because I think it’s a good long term investment, and accordingly hold them myself – hence am going to do the research on it anyway, so might as well share my work with you here.

Half Year Results

Watkin Jones plc (AIM:WJG), the UK’s leading developer and manager of residential for rent, with a focus on the build to rent (‘BtR’) and purpose built student accommodation (‘PBSA’) sectors, announces its results for the six months ended 31 March 2021 (‘H1-2021′ or the ‘period’).

The numbers look resilient to me – as near as makes no difference to flat for H1 this year, vs H1 last year. Clearly the pandemic is now having little, if any, impact on the construction sector.



The commentary from WJG’s CEO sums up the main points well (my bolding, as usual) -

Commenting on the interim results, Richard Simpson, Chief Executive Officer of Watkin Jones, said: “As we begin to emerge from the pandemic, we are seeing increasing investor confidence in our market sectors. We’ve maintained the momentum from the second half of last year and made further good progress in securing new forward sales, adding to our development pipeline and keeping all our construction activities on track.

All parts of the business have continued to perform well, and whilst our profit for the first half of the year was slightly below last year, this was because the first half last year was largely before the onset of the disruption caused by the pandemic.

“The fundamentals supporting the markets for high quality build to rent and student accommodation assets remain strong, driving growing institutional demand, and combined with the continued progress we have made in the first half of the year, gives us confidence in our future trading.”

I won’t repeat the detailed stuff I’ve written before about the company’s business model, other than to say I really like its niche – well-managed large projects, which are forward-sold to institutions that want the rental income, in return for a lucrative developer’s margin for WJG.

For me, the investment case is strong, because it’s a reasonably priced, highly profitable, established company, with good barriers to entry (institutions are not interested in working with smaller builders for these buy to rent projects).

Other points which I thought worth mentioning -

All 15 construction projects on track – WJG seems to be particularly good at managing construction projects

Buy To Rent (BtR) is a big growth area for WJG, adding to the student accommodation division. BtR is now 33% of revenue, with a large pipeline – which is set to increase profitability considerably in future – this is the main reason I hold this share (intended for the long-term, like most of my personal holdings)

First co-living scheme in Exeter – this is an interesting growth area, that I think could become popular amp; lucrative in time. It’s where people live in a studio, but share communal facilities, making for a much more social way of life. This has considerable appeal in my view, because loneliness is a big issue for singletons living in cities.

Government plans to increase taxes on construction companies, to recoup cost of cladding repairs – could be a profit headwind generally for the sector, including WJG – more info needed

Very good balance sheet

Profits are paid out as divis, so we also get a reasonable yield of about 3.5%, which should increase over time as the business grows from its existing pipeline – i.e. there is no need for additional capital, hence it can safely pay out earnings as divis.

Progressive has issued a commissioned research note today, which is helpful. This shows estimates as follows -


I hope they don’t mind me including this table. If they complain, I’ll remove it.

Personally, I think the valuation of 15.4x PER looks perfectly reasonable, and I see this as a base level. The pipeline information given in a presentation at the last results, suggests a big increase in revenue amp; profit as the BtR pipeline converts into building work amp; sales in the coming years.

Results presentation slides – click on “Presentation” here. It’s a similar format to previous presentations, and there’s a lot of detailed information there, so well worth a look – much easier than ploughing through a long RNS.

There should be an audio presentation up there later, from noon today.

My only query is on slide 18, where there seems to be a gap in the pipeline for FY 09/2022. If I get a chance to speak to management, I’ll ask about how this might affect next year’s results? –


The forecasts from Progressive show an increase in revenues amp; profits for FY 09/2022, so my point about an apparent gap in the pipeline might be a red herring. I’ll try to find out amp; report back anyway.

My opinion – this looks an excellent business, operating well, in a lucrative niche.

The valuation (on a PER basis) seems reasonable, and the longer term growth prospects look very good.

We’re paid a healthy dividend yield along the way, and the balance sheet is strong.

Put that lot all together, and I think this is a decent GARP (growth at reasonable price) share, also providing income along the way.

The current share price looks about right to me, so it’s more a share for patient, longer-term investors with a value/GARP leaning.

The business model should be a lot less cyclical, and lower risk, than most other construction companies, because the key point is WJG forward-sells projects to institutions, before even breaking the ground on them. That’s the key point of difference that I like the most. Compare that with the awful, low margin, high risk builders competing for major infrastructure projects, and half of them end up going bust when something major goes wrong. Why go near anything like that, when WJG presents a much more reliable, high margin, low risk way of getting exposure to a growth niche in construction?

WJG shares have had a great run recently, like practically everything else in cyclical sectors. Is the valuation now stretched? No, I don’t think so. The current price looks reasonable to me.

Note also the very high StockRank below, so the Stockopedia computers agree with my positive view of this business, which I always find reassuring.



Shoe Zone (LON:SHOE)

68.5p (down 8%, at 12:08) – mkt cap £34m

Interim Results

Shoe Zone PLC (“Shoe Zone”, the “Company”) is pleased to announce its interim results for the six months to 3 April 2021. (the “Period”)

Usual thing for a retailer – it will have been heavily impacted by lockdowns in Q2 (Jan-Mar), but would have been able to trade partially in Q1.

All I’m really interested in are -

  • Balance sheet – insolvency and/or dilution risk?
  • Online sales – how successful have they been at migrating customers online?
  • What is current trading amp; outlook like, since re-opening?

An an initial glance, I’m quite encouraged by the highlights below – digital growth is strong, and it’s great that they’ve split out the actual numbers, not just % increases.
Also a net cash position is pretty good, after such a difficult year since the first lockdown in March 2020.


Balance sheet - is quite complicated for a micro cap. NAV is still positive, at £11.0m.

IFRS 16 has done a lot of damage – the Right of Use Asset is £36.5m, whilst lease liabilities are £55.7m, giving a net deficit of £(19.2)m. If we cancel all those entries, then NAV would rise to a very respectable £30.2m.

Inventories look far too high, at £28.4m, so I think they’re over-stocked.

Pension deficit is £7.9m, and is a nuisance amp; a cash outflow.

Bank loan is a CLBILS (Govt backed) £15m, which should provide breathing space.

Now that the stores have re-opened, then this looks to me like a balance sheet that could recover over time.

I don’t see any pressing need to raise fresh equity, and owner-managed businesses like this tend to hate dilution, so a placing is unlikely in my opinion.

Current trading – I did a CTRL+F for outlook, but nothing came up. This is all I could see on current trading since re-opening -

No stores were open in the first 2 weeks of the 2nd half. Trading started strongly but has settled down to a more mixed picture of good High Street and retail park sales but weaker shopping centre performance.

I’m mindful of Next recently saying that it expected the pent-up demand to be fairly short-lived.

My opinion – it’s certainly not a basket case. I think the company has a good chance to recover, but to what level? I can’t see retail footfall returning (ever?) to pre-pandemic levels. It’s so much easier to shop online. That could leave SHOE a significantly less profitable business than in the past. It used to make c£10m p.a. profit, could that happen again? I just don’t know.

SHOE has managed to shift a decent amount of sales online, maybe that could compensate for some of the lost physical sales?

Management seem to have been rattled by covid, and seeing a previously cash generative business come close to failure. Hence, as they’ve already said previously, they’re not likely to pay divis for a long time, as debt reduction will be key. I’m not sure what level of debt (if any) would pertain once creditors have been paid up to date.

Overall, I feel there are so many moving parts here, that it’s almost impossible to assess the company’s prospects, and hence how to value it.

How much have rents come down? What happens when business rates kick in again? Labour shortages appear to be occurring now too, so wages are likely to go up. Logistics problems are also mentioned, since the product is imported from China.

It’s too complicated overall, and too uncertain, so I’ll declare myself neutral.

There’s been no share dilution, so theoretically, if trading returns to pre-covid levels, then the share price could return to previous levels.


Sanderson Design (LON:SDG)

(I hold)

162.5p (up 1%, at 15:39) – mkt cap £115m

The initial market reaction to results this morning was negative, with the share price down. However, it’s gradually recovered, and turned positive now, on high volume (642k shares printed so far, at 15:40). It’s taken me a while to plough through the figures, so apologies for the delay. I think the sellers this morning have probably made a mistake, this looks like a business that’s recovering nicely from the battering it took in H1, from lockdown 1.

Here are my notes -

A dramatic improvement in performance in H2:

H1 (Feb-July 2020): Revenues £38.8m, adj u/l PBT £0.4m, Adj u/l EPS 0.54p

H2 (Aug 2020- Jan 2021): Revenues £55.0m, adj u/l PBT £6.7m, Adj EPS 7.46p

Full year 01/2021: Revenues £93.8m, adj u/l PBT £7.1m, Adj EPS 8.0p

Furlough - £3.1m received, of which £0.4m returned (related to redundancies), so a significant element of the full year profit.

Cost savings implemented in August 2020, annualised savings of £3m for future years, partly helped profit in FY 01/2021. So should drive a further increase in profit in FY 01/2022

No divis – makes sense, when taxpayer assistance has been received. Likely to resume in the new financial year FY 01/2022

Licensing revenues fell from £5.5m last year, to £3.7m in FY 01/2021 – still not bad. This is high quality, high margin income. It shows the value of the extensive back catalogue of designs. There is further scope for growth with licensing, and deal with Next (LON:NXT) starting up, plus important Japanese licensees.

Gross profit margin is impressively high, at 60.8% – very good indeed

Current trading – sales in Feb,Mar, Apr 2021 are slightly ahead of mgt expectations

Outlook – cautiously optimistic

Balance sheet - a joy to behold! £67.5m NAV, less intangibles of £28.3m = NTAV £39.2m – this is very healthy indeed. Zero risk of dilution in my opinion. Didn’t need to raise any fresh equity during the covid crisis.

Pension deficit - the only fly in the ointment. Deficit on balance sheet is only £5.6m, but seems to have sucked out £2.1m contributions in the year – so a nasty drain on cashflow. Deficit expected to be gone by Oct 2026. Next triennial deficit as at 5 April 2021, so should be OK, since equities healthy around that date.

Net cash of £15.1m, and total headroom of £30.5m (including unused bank facilities), so this is a very soundly financed business, no worries here at all.

Cashflow generation – excellent.

My opinion – I hadn’t realised just how good the turnaround/recovery at Sanderson has been, until looking at these numbers. That’s possibly partly because I can’t get hold of any broker research. So I feel private investors have been kept in the dark somewhat. I’m due to speak to management later this week, so will mention that point.

Looking forwards, I think the business has been restructured, modernised, and that the lockdowns have probably accelerated that process, leaving a leaner amp; more efficient business. The commentary from management alongside today’s figures is comprehensive, and it’s clear that a lot has been done to improve processes. I particularly like the big reduction in SKUs (stock keeping units), so that inventories can be lower, and new product lines have more impact – i.e. launch fewer new lines, but get them right.

I’ve mentioned this before, and I still think that SDG is a treasure trove of brands, and designs, many of considerable historical or even timeless significance, like William Morris. Therefore, even though the share price has gone up a lot, it doesn’t look expensive to me.

EPS this year could recover to maybe 12p (from 8p in the covid year), which is only a PER of 13.5.

Hence why I think if the turnaround continues, there could be considerable further upside with this share, as a long-term holding personally I’m going to sit tight for the foreseeable future.

The StockRank is high at 87.

My only regret, is that I didn’t buy more when I bought a little scrap of them at 42p! Although funnily the enough, the advantage of having a small position is that you forget about it, and suddenly find you’ve got a decent profit. There’s no temptation to bank profits prematurely, if you’ve forgotten you held the shares. Maybe we should do that more often?!



Jack’s section Accrol (LON:ACRL)

Share price: 58p (-6.45%)

Shares in issue: 311,354,632

Market cap: £180.6m

Accrol Group (LON:ACRL) is a producer of private label toilet roll, kitchen roll, and tissue products for major UK retailers. It was in the private ownership of the Hussain family until 2014, following which private equity investment was introduced in the lead up to its London AIM listing in 2016.

But the group is now in turnaround mode after a fairly brutal sell off following a profit warning early on in listed life.

The company was established in 1993 by the Hussain family in the Lancashire mill town of Accrington and it promptly achieved sales of over £1m in its first full year of trading. Since then it has built new factory and warehouse with state of the art production lines.

It continues to invest in its manufacturing, and by 2014, the group had grown to over £100m of annual revenue.

Shares are still well below the previous highs but there has also been a lot of dilution, from about 93m shares in issue at IPO back in 2016 to some 311m today.

Trading update

Substantial progress has been made on gross margins in the Period, which are ahead of market expectations.

  • Total revenue +1.5% to £136.8m,
  • Like-for-like volumes -3.9% (against a total market decline of 5.5%),
  • Net debt (pre-IFRS 16) of £14.6m compared with £19.1m in October 2020 (despite the £3.9m net cash acquisition of John Dale in April 2021 and inventory growth)

Adjusted earnings are expected to be in line with expectations, despite a lower than anticipated increase in sales in the year. The great toilet roll shortage of 2020 has had an impact, with COVID-19 panic-buying of branded products. Since then, customers have been working their way through their respective stockpiles and demand has therefore been subdued in recent months.

Accrol claims to have grown market share, though, up from 13% in FY20 to 16% in FY21, with particular progress being made in discounters.

The integration of Leicester Tissue Company (LTC), acquired in November 2020 for an initial consideration of £35.0m is now expected to generate annualised cost synergies of £3.0m. This is 3x higher than anticipated at the start of the acquisition.

Revenue synergy growth has been slower, however, ‘reflecting the market conditions in the period since acquisition’.

The more recent acquisition of John Dale brings ‘a highly scalable flushable and bio-degradable wet wipes business’ into the fold.

Accrol hopes to use Dale’s well invested and more specialised site to build a fully flushable wet wipe business ‘capable of taking an appropriate market share of this £0.5bn sector’.

There is further investment in manufacturing capacity. Accrol is adding capacity at its Leyland converting plant from Q3 of FY22 and is making progress on its paper mill development plans.

Input costs are increasing significantly in the near term given the rise in global pulp prices and other commodities. The group has increased its raw material stock levels in response and says it is making good progress in recovering higher costs – but this is still worth monitoring in case it does develop into a more sustained and troublesome trend.


There are some solid institutional investors in Accroll that have increased their stakes and, presumably, have some faith in the turnaround opportunity here. Directors have been selling though.

The acquisitions and investment show that tangible actions are being taken, but the near term outlook is marred by rising input costs.

This a mixed update. Better margins but disappointing on sales and rising costs. The trend that has held back sales should shortly unwind though, and acquisitions and investments could pave the way for more sustainable growth. Accroll is also returning to dividend payments, with a final FY21 dividend of no less than 0.5p per share.

Given the mix of news though, there is a risk that Accroll could disappoint the market in the shorter term. Longer term, there is a decent chance management can continue to optimise operations and take market share, but the dilution for shareholders so far has been severe, which puts me off.

Escape Hunt (LON:ESC)

Share price: 38.89p (-5.14%)

Shares in issue: 88,620,091

Market cap: £34.5m

We talk about the reopening trade running a little too far. I suspect Escape Hunt (LON:ESC) might be a case in point.

It’s one year relative strength is +389% and the market cap is £34m but the group has had a fairly dire start to listed life, with inexperienced management, slow operational progress, and a calamitous decline in share price.

And as the share price tumbled, the group issued more and more shares, which greatly reduced future value for existing shareholders. In fact, just looking at the numbers now, shares in issue have gone up from 9m to 88.6m in just five years, which is very alarming.

Things have been turning around recently, but don’t be fooled by the share price chart below – due to the massive shareholder dilution, Escape Hunt’s market cap is comfortably bigger today than it was at IPO.

The whole endeavour looks to have been woefully mismanaged from a shareholder perspective.

With hindsight, it’s easy to say that the IPO price was just far too expensive given where Escape Hunt was at in its development.

Looking to the future the group might be in better shape now, but I do not have a favourable view of events so far.

Final results


  • Group revenue -46% to £2.7m (impacted by Covid),
  • Revenue from digital and other play at home products grew from nothing to £230k,
  • Group operating loss of £6.4m (2019: loss of £5.9m),
  • £4.0m net of expenses raised through an equity placing and open offer, share subscription, and a convertible loan note in July 2020.

Owner operated sites have grown from 9 to 14 in the period and Escape Hunt continues to be very well reviewed on TripAdvisor. Escape Hunt’s owned and operated estate currently stands at 17 sites. Two more sites are upcoming, in Lakeside and Milton Keynes. So it looks like momentum is picking up with the roll out.

Covid closures of all UK sites resulted in 45% of available days lost and restrictions impacted a further 36% of available trading days.

The group has acquired its Middle East franchise. This could be a low risk route to international expansion. The French and Belgian master franchise was also snapped up post period end.

This was funded with another placing to raise £1.3m after expenses in January 2021.

But, after all the shares issued and cash raised, it does look like the company has some promising growth avenues lined up. It highlights five key areas:

  1. Roll out of owner operated sites – the estate has grown by 89% over the past year and Escape Hunt hopes to be at 20 owner-operated sites by end of 2021.
  2. US Franchise network progress – this could be a material development and the Houston site is now the ‘master site’ and education centre for North America. A pipeline of both new and potential conversion franchisees is now in active development.
  3. International Franchise network progress – EH has acquired its Middle East and France amp; Belgium franchisees.
  4. New products and markets – The group has done well to innovate some at home products over lockdown. Remote-play products generated £230k revenue in 2020. There is also the corporate market and development of its ‘Escape Hunt for Business‘ concept.
  5. Investment in Infrastructure – Completion and implementation of software which allows games masters to manage multiple games at the same time at new sites.


Of course, Covid has not helped and the group has been agile in bringing out remote-play products, but the troubles began long before that.

It’s entirely possible that Escape Hunt has learned from past mistakes and is approaching an inflection point in its roll out. But, with 17 owner-operated sites and a c£35m market cap, Escape Hunt is no longer a deep value bargain.

It might finally be at the point where it can execute a meaningful roll out that will see it through to profitability, but I wouldn’t rule out another placing (particularly given the track record).

The company has cash of £2.7m, has generated a net loss of £6.6m, a net cash from operations outflow of £1.3m, and has spent £2m in investing activities.

The fact that Escape Hunt has managed to destroy so much shareholder value in such a short space of time is concerning. There is a growth opportunity for the company, but the massive dilution so far reduces the upside and puts me off as a potential shareholder.



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