No.31
Marketing
Communication
Your monthly guide to a range of equity ideas from the WH Ireland research team | November 2014
SENDING OUT A
GROWTH MESSAGE
Card Factory (CARD)
WH IRELAND
WINS AIM
RESEARCH AWARD
FTSE Mid 250 | Share price: 230p | Market Cap: £784m
www.cardfactory.eu.com
John Cummins, Head of Research (second from right)
WH Ireland are delighted to announce that
at the 2014 AIM Awards we won the much
coveted “Best Research Award”. As a top 3
Adviser to AIM companies this award is a
significant accolade and is further recognition
of our tireless efforts to highlight interesting
investment opportunities, both through
weddings, Christmas etc. The £1.4bn card
Card Factory is the UK’s leading greeting card
institutional and private client focused research.
specialist, trading from 749 stores nationwide. market is expected to grow by 2% per annum
Chief Executive Richard Killingbeck said,
but Card Factory should be able to outpace this
Driven by an aggressive expansion plan of 50
“The AIM awards represent the leading
by new store openings, growth in non-card sales
new outlets a year the ambition is to grow to
industry accolades for AIM participants and
and the maturity of existing outlets. Management
1,200 sites in identified locations.
to win the Best Research category
are highly selective when choosing new sites –
It trades at the value end of the market and
against some lively competition is a great
new store capex averages at just £60,000 and
last year sold over 285m cards, with the vast
achievement for our team”.
typically new store payback is comfortably less
majority of cards selling for less than £1,
than two years. Operating margins are in excess
and an average basket of less than £3. It is
Miles Nolan
of 20%, and as a highly cash generative business Editor
profitable every month and is not exposed to
it should pave the way for a sharp reduction
fashion risk, moreover the UK card market is
in debt over the next couple of years and a
both mature and stable. Every year it designs
over 4,000 new cards in-house, so can compete resultant hike in dividends.
Having grown its volume share from 5% to 27% in
effectively alongside the large supermarkets.
the last 10 years and with management holding a
Despite concerns of online players taking
20% stake, their interests are clearly aligned with
market share, current online penetration of
investors. With 16 years of unbroken like-for-like
the card market remains at less than 3% by
sales growth, this recent IPO looks attractive.
volume, but this still involves the sending
WH Ireland is acting as adviser to AIM hopeful
of a physical card. There remains a strong
Domaine Chanzy SA which is a leading
Estimates (Jan) 2014 (A) 2015 (E) 2016 (E) producer of both red and white burgundy
preference amongst UK card buyers, 85%
of whom are female, to send physical,
wines, ranging from Grand Cru to Regional
Revenue (£m) 326.9353.9381.0
hand written cards. Card Factory has
appellations. To further its expansion it
PBT (£m) 67.272.779.8
exposure to online sales through its
is planning to raise £2m by way of an EIS
EPS (p)
** 16.418.2
www.gettingpersonal.co.uk division
qualifying issue.
P/E (x)
** 14.012.6
which sells personalised gifts and cards.
New investors will be entitled to buy Pinot Noir
Div (p)
** 6.67.3
and Chardonnay wine in the UK at a discount
Yield (%) ** 2.93.2
of 20- 45% on estimated UK retail prices.
What we like
** Pre-IPO
If this is of interest please contact your financial
We are a nation of card buyers, with the average
Consensus forecasts. Analyst: Miles Nolan adviser who can advise on its suitability.
Briton buying 30 cards a year for birthdays,
DOMAINE
CHANZY IPO
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Warning to WH Ireland Clients. Important disclosures and certifications regarding companies that are the subject of this report
can be found within the disclosures page at the end of this document.
11 St. James’s Square| Manchester | M2 6WH | T +44 (0)161 832 2174 | London office: T +44 (0)20 7220 1666 | www.wh-ireland.co.uk
SWITCH IDEA
Sell SL.
Buy EMG
Standard Life (SL.)
Man Group (EMG)
Share price: 123p | Market Cap: £2.1bn
www.standardlife.co.uk | www.man.com
Standard Life shares have performed
well this year as trading has been solid.
However, the shares trade at the top end of
their valuation range. With around 30% of
earnings expected to be generated from the
investment division, any further volatility in
the market will have a doubly negative impact
as the group will suffer from falling asset
prices and redemptions. We recommend
investors take profits. For reinvestment,
Man Group, a leading alternative investment
manager, offers a more attractive opportunity.
The main focus is on hedge funds, although
recent acquisitions, notably that of GLG,
helped to diversify some exposure into
traditional long-only funds. The group thrives
on volatility and is likely to outperform in falling
total return of 18.6%. We believe this is likely
to continue as the underlying market remains
increasingly challenging. As performance
improves, Man will benefit from further asset
inflows and better fee income. Despite the
improving outlook we believe the shares are
still cheap and offer further upside.
Estimates (Dec) 2013 (A) 2014 (E) 2015 (E)
markets. Its flagship fund, AHL Diversified,
is a trend following instrument.
It identifies and follows trends in a broad range
of markets, such as equities, foreign exchange
and commodities. As volatility has picked up,
so too has performance. For the nine months
to the end of September, the fund made a
Revenue ($m)1,1601,0031,073
PBT ($m) 56 285321
EPS (cents) 2.9 13.314.5
P/E (x)
111.114.5 13.3
DPS (cents)7.98.29.1
Yield (%) 5.84.24.7
Consensus forecasts. Analyst: John Goodall
PLAY ON CONSUMER CONFIDENCE
S&U (SUS)
FTSE Small Cap – Share price: 1925p | Market Cap: £228.3m | www.suplc.co.uk
Listed since 1961 and founded in 1938,
S&U plc is not necessarily a name investors
will be familiar with, but the company has
developed its brand into two lending areas. It is a
niche UK consumer and motor finance provider
with Loanathome4U providing consumer credit,
rental and retail trade credit and motor finance
through Advantage Finance. Currently revenue
is represented 57% by Loanathome4U and 43%
by Advantage, however, the motor business is
much more profitable and represents 66% of
full year profits before tax.
What we like
The company’s business model is attractive
and complements the overall strategy.
In home loans it operates an agent based
3.3% projected yield well covered by earnings.
Long term, a low interest rate environment
will continue to grow its client base through
cheaper loan terms and lower levels of
defaults. If attractive deals on car forecourts
continue, this will encourage consumers to
replace their second hand cars.
system with 500 agents in the UK with the
emphasis on a personal client relationships.
Its motor business is an innovative member
of the financing and leasing association with
a focus on quality deals. This has meant the
group has delivered consistent profitability
at very good margins. The strong returns have
transferred to dividend policy that has grown
59% over the last 5 years. S&U provides a
Estimates (Jan) 2014 (A) 2015 (E) 2016 (E)
Revenue (£m) 60.172.681.5
PBT (£m) 17.322.426.6
EPS (p)
112.0149.9176.2
P/E (x)
17.312.810.9
DPS (p)
54.064.071.5
Yield (%) 2.83.33.7
Consensus forecasts. Analyst: Luke Tribe
MELLO PRIVATE INVESTOR EVENT
Derby
6-8 November 2014
Communisis, Crawshaw*#, Trakm8, Sprue
Aegis, Accesso Technology and Advanced
Computer Software to name a few. There will
also be a number of high profile speakers such
as fund manager Gervais Williams of Miton,
Giles Hargreave of Hargreave Hale, Katie Potts
at Herald Investment Trust, Judith MacKenzie
at Downing Corporate Finance and well known
Financial Times contributor Lord John Lee.
Investors wishing to attend should visit
www.mello2014.com for more information –
using the code MELLO-DISCOUNT will entitle
visitors to a 50% reduction on ticket prices.
A bugbear of many investors is the difficulty
in accessing senior PLC management, other
than at Annual General Meetings or occasional
seminars. With this in mind, serial investor David
Stredder has launched a private investor focused
event to be held at Derby later this month.
The three day event includes a raft of interesting
smaller companies such as: 1PM*#, Avation*#,
* WH Ireland acts as Nomad and/or broker
to this company. # WH Ireland makes a market
in this company. Analyst: Miles Nolan.
A QUALITY BUSINESS HIGHLIGHTED BY
A SUCCESSFUL CAPITAL MARKETS DAY
WYG (WYG)*#
FTSE AIM – Share price: 110.5p | Market Cap: £69m | www.wyg.com
The quality of the consultancy firm WYG
came through strongly at the recent Capital
Markets Day. An experienced management
team which steered the company through
the painful process of regeneration three
years ago is now presiding over a firmly
founded and robust revenue and profit
growth cycle. Stringent analysis during the
earlier reorganisation phase led the WYG
team to focus on specific categories of work
at the front end of projects. Typically we are
talking about feasibility studies, planning
and permitting and concept design, with
WYG positioned as a programme and project
manager in the UK and beyond. Add in the
overseas businesses which tap into unusually
long-term and robust funding streams and
you have a consulting business significantly
differentiated from the traditional
engineering consultant with whom WYG
is sometimes (wrongly) compared.
What we like
Regular positive newsflow from WYG has
dramatically highlighted the quality of this
business. Recent new strategic guidance
builds on the £9m Profit Before Tax (PBT)
target for FY2016E with a new £15m PBT
target for FY2018E. With a strong £96m
order book and a high (40%-plus) win rate,
sales growth momentum is strong. At the
same time, we see real margin opportunities
from current margin forecasts (a highly
conservative 6%). £15m PBT implies
operating margins still shy of 10%, c.£1.5m
of legacy cost-reductions post-2016
(already identified) and includes a healthy
dose of contingency planning. We are
preparing our 2017 forecasts in the spirit of
the company’s new guidance and continue
to see significant potential upside for the
shares to our 165p target price. On c.11x PE
for 2016, with forecast upside, and deals in
the sector at double these levels involving
less lively companies, we remain Buyers.
* W
H Ireland acts as Nomad and/or broker
to this company
# WH Ireland makes a market in this company
Estimates (Mar) 2012(A)
2013 (A)
2015 (E)
Revenues (£m)139.9 125.7 126.9
Adj. PTP adj. (£m)-5.8
0.7
4.2
Adj. EPS f.d.(p)-6.5
0.9
6.4
P/E (x)
N/A N/A 16.3
EV/EBITDA -22.1 15.5 8.5
DIV (p)
0.0 0.0 0.5
Yield (%) N/A N/A 0.5
Source: WH Ireland. Analyst: Nick Spoliar.
UPDATE: NATIONWIDE ACCIDENT
REPAIR SERVICES (NARS)
Leading vehicle repair specialist Nationwide
Accident Repair Services is performing well,
driven by new contract wins, solid organic
growth and recent acquisitions. In the six
months to 30 June the AIM listed company
boosted sales 14% to £90m, as underlying
pre-tax profits increased 86% to £2.5m.
Cash generation also remains strong.
2014 (E)
Contracts worth a combined £20m with
Allianz Insurance and AXA should support
ongoing trading and NARS is on the lookout
for further consolidation opportunities,
following the £9.5m deal to buy East Anglia
based rival Gladwins.
We highlighted the shares at 73p in June,
so the rise since then is pleasing when
2016(E)
131.5 135.8
5.5
7.6
7.3 9.7
14.210.8
7.25.3
1.01.5
1.01.4
Driving ahead
Share price: 82p | Market cap: £35m
considering current equity markets. Full-year
forecasts point to pre-tax profits of £4.9m,
EPS of 8.4p and a 2.9p dividend. Insurance
services outfit Quindell retains a 25% stake,
but even ignoring possible corporate activity,
the shares remain attractive.
Analyst: Miles Nolan
www.wh-ireland.co.uk
FUND MANAGER SPOTLIGHT
Guy Feld | www.hargreave-hale.co.uk
Astute fund manager Guy Feld co-manages
the £400m Marlborough UK Micro-Cap
Growth and £100m Marlborough NanoCap Growth funds. He has amassed over
20 years of experience thanks to his days
as an analyst at BZW, UBS and Teather
& Greenwood, but he has carved out a
particular niche in the technology space.
Feld tends to see a huge number of
companies every year, priding himself on
nurturing a wide industry network which has
helped him see opportunities at an early
stage. One recent example is social media
audio platform specialist AudioBoom –
a stock he bought earlier this year at just
1.5p, and the price has soared 9-fold since.
Feld says, “I like to find eclectic situations
where the market may have misunderstood
the fundamentals and opportunities of
business”. He is not intimidated by ‘complex
situations’ which he believes investors have
ignored due to the level of work required to
justify an investment decision.
Balance sheet strength, the calibre of
intellectual property, the ability to generate
cash, charting and director dealing all
factor in his filtering process, as does the
strength of management. Feld has backed
serial entrepreneurs such as Chris Akers and
Vin Murria, and has enjoyed good returns
as a result. He says, “I remain very bullish
on smaller companies, there is always
opportunity to generate attractive returns,
but stock picking is key.”
Both funds focus on delivering a total
return of capital and income in excess of
that achieved by the FTSE Small Cap.
Co-managed with Giles Hargreave, the
Micro-Cap Fund (with 257 holdings currently)
has notched up a highly impressive return of
155% over 5 years. Diversification has helped,
indeed the fund never holds more than 2.5%
of its portfolio in any one company.
He argues, “Technology is permeating
down to the fibres of society and is effecting
significant or disruptive change to almost
every part of our lives”. Two stocks which
have benefited from clever technology as
well as a change in management are theme
park software developer Accesso Technology
and geospatial ‘Big Data’ company 1Spatial.
Future trends he highlights range from
increasing mobile payments to cyber security
to the ‘Internet of things’ which enables the
connectivity of devices using the internet,
such as remotely controlling heating or
lighting. Knowing when to sell is often the
hardest trick of all and here Feld has called
several situations right – such as offloading
Big Data player WANdisco and acquisitive
telco services company Coms when their
valuations looked stretched.
Analyst: Miles Nolan
Editorial Team
Miles Nolan - Editor
John Goodall
Luke Tribe
Formerly editor of Growth
Company Investor, Miles
has worked on the buy-side
and spent seven years at
the Investors Chronicle.
Having joined in 2007,
John heads Private Client
Research. He is a CFA
Charterholder.
Luke joined WH Ireland in 2010.
He holds a degree in financial
economics and is studying for
the CFA designation.
[email protected]
[email protected]
[email protected]
Contributors: Nick Spoliar, Institutional Research Analyst
Disclaimer
This document contains investment recommendations of both a general and specific nature. It has been prepared with all reasonable care and is not knowingly misleading in whole or
in part. The information herein is obtained from sources which we consider to be reliable but its accuracy and completeness cannot be guaranteed. The opinions and conclusions given
herein are those of the research analyst or the analyst attests that the views expressed in this report accurately reflect his or her personal views about the subject, security and issuer and
are subject to change without notice. This document is classified as being “non-independent” and is a marketing communication as defined by the FCA’s Conduct of Business Rule 12.3.
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It should be remembered that past performance is not necessarily a guide to future performance. Shares purchased on the Alternative Investment (AIM) and ISDX markets (especially
those known as ‘penny shares’) carry a high degree of risk of losing money. The requirements on companies that are listed on the AIM and ISDX markets are less stringent than those for
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*WH Ireland acts as NOMAD/broker to this company. #WH Ireland makes markets in this company. ~WH Ireland provides Investor Relations services to this company Our ref: FP153
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