Small Cap Report (26 Apr) - FCCN, SDM, ZZZ, IMTK, CMH, CAP, BEG

26th Apr '13 by Paul Scott

10 comments 18175 reads

Pre 8 a.m. comments

Starting off with several announcements from companies that I hold shares in.

I'm scratching my head a bit over the abrupt departure of the FD at French Connection (LON:FCCN). He's leaving today, which seems unusual since there is no replacement. My guess is that suggests some kind of falling out, but who knows? A long-serving FD leaving is bound to make investors jittery. I think many of us would have preferred to see the founder resigning, as he's made such a hash of running the company in the last few years (as judged by the poor financial results), and most people I've spoken to agree is well past his own sell-by date.

On a similar theme, I was very surprised to read this morning that the CEO of Stadium (LON:SDM) is also leaving. He presented at the Equity Development Investor Forum only last week, talking about their strategic plan to build it into a bigger group. He did seem an unusually heavyweight Director for such a small group though.

Snoozebox Holdings (LON:ZZZ) results look pretty awful, but it's their first proper year of trading. Even so, a loss at the gross profit level calls into question whether they have a viable business model? Probably too early to say, but I'm glad I sold these a few months ago - the price looked to have got ahead of itself, as is often the case with small growth companies - people get over-excited with the concept, and then get a rude awakening when results are published.

Also, Snoozebox recently announced problems with revenue recognition, indicating a lack of financial control. I see both a new FD and COO have been appointed today, which is a good thing. I might revisit it if the price comes down substantially.

Post 8 a.m. comments

It's the Master Investor conference in Islington tomorrow. I'll be dropping in (probably after lunch), and might be hovering around the Stockopedia stall at some point, chatting to investors. So do come and say hello if you're there, I always enjoy meeting and talking to other investors.

Interesting to see that the plan to De-List at Imaginatik …

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MrContrarian

26th Apr '13

The long-standing FD's resignation is very bad news for FCCN. Marks is largely deaf to his long-standing directors, is he going to listen at all to a new boy?
I tried to short FCCN but IG have no borrow. It's getting more difficult to short since the big fines came in for brokers who have naked shorts, last Oct.

Paul Scott

I think shorting French Connection (LON:FCCN) is a really bad idea. There is a ton of value in the brand name still, as evidenced by the licensing revenues, which are substantial. So there's always the chance that a luxury brands group will do a deal with Marks to buy it at potentially a multiple of the current price - which is what makes it a dangerous short.

Plus of course FCCN have plenty of cash to see through their turnaround plan.

I think new blood coming in is essential to revitalise the company.

Gostevie

Hi Paul,

I have been following IMTK since I first came across them and met their then CEO at a Growth Company Investor Show way back in 2008.

He talked a very good game and if I had had funds available at the time I would probably have invested, even though then, as now, I'm not entirely clear as to what it is they actually do (that last bit is an understatement.) With hindsight I'm glad I didn't have the funds, because since then it just seems to have been one long catalogue of profit warnings, negative trading statements and fundraisings.

This latest placing is at a 67% discount to last night's closing price and with the new shares comprising approximately 73% of the enlarged share capital, long-suffering existing shareholders - who weren't even given the opportunity to participate - are being diluted to boggery.

I too wish luck to shareholders, who at the time of writing are down 40% in this morning's trading.

Steve

Asagi

I'm a shareholder in Begbies Traynor (LON:BEG) and thought today's announcement was a little strange in that it made no mention of the price of the new banking arrangements. Normally, when these are favourable (versus what was in place before) the company makes some comment along the lines of how great this all is as it will save X.

None of that today from Begbies however, who just talk about 'competitive rates'. On reflection, that's probably good enough for me. They have simultaneously announced agreements with 3 distinct lenders and I assume that each was being played off against the other to an extent throughout the process.

Asagi (long BEG)

Hi Steve,

I also saw the chief at Imaginatik present at an investor meeting, at Mello Central, I think it was last year. He was torn to shreds by the audience, and I remember telling him very bluntly that he didn't have a viable business. By his own admission, "nobody has ever made any money in this sector", which I thought was an astonishing admission! Lovely chap though, very personable, and a great talker. But no commercial substance at all to it, in my view.

Regards, Paul.

Pabster

I went into the Regent St store of FCUK recently and that certainly put me off any vague thoughts I had about investing. There were twice as many staff as customers, they pounced on you the second you walked in, and the security guards had nothing better to do than eye me up and down suspiciously as I innocently browsed the store.

As an example of why I, and likely few others, would buy clothes there: A casual woollen jumper was in the region of £120, That's more expensive even than RL Polo, who spend millions on marketing and creating brand goodwill. I opt for Gant, who have a new store down the road and sell good quality jumpers for £80. Fcuk don't even bother to brand their clothes on the outside.

They've got their pricepoint wrong, they don't spend enough on marketing to justify their prices, and there are too many competitors in the lower price bracket. There is no place for these guys.

JamesHolmes

Not sure I agree clothes have to be branded in order to be premium. In fact, quite the opposite! However, I agree FCUK isn't an appealing brand, particularly for menswear. I have occasionally wandered into FCUK stores over the years, only to get a bit bored and walked out after about 5-10 minutes. The stores are often empty of people and the clothing/atmosphere just feels, well.... 90's! Alas I think FCUK will be sticking around the 30p mark for quite some time, so plenty of time to dwell on it and work out whether they might turn it around in a few years..... the OP obviously thinks so and he was in the industry for a long time, that must count for something! However, personally speaking, when I'm not an advocate of the companies current product offering, I don't usually invest. Profits aside, I just feel better knowing I invested in something that I have an affinity to - particularly in the more creative arenas. FCUK might be cheap, but shedding the old and turning the brand into something beautiful and appealing just seems a bit too far away, not to mention the latest events. Sorry Paul ! Not sure about this one, but I hope you prove us wrong!

Chrisfarrell21

I completely agree about the views above on the men's FCUK range, praticularly on price and quality. I think Paul mentioned before that one of the markets where FCUK might hope to do better than men's is the women's, particularly for work clothes. However, I asked my girlfriend her view, who is a 25 going on 26 year old professional in Central London which, equally, was she feels it is just too expensive for what you get. There are plenty of other competitors for quality at a lower price, or higher quality/cachet. I get similar views from the women I work with.

As much as the fundemental's of FCUK attract me, then I waiver about investing in it due to the fact that no one I know, in what must be one of the target demographics, buys clothes from there.

The thing that does keep me watching with interest though, and will continue to do so, it is the turnaround aspect, and the cash.

Have good weekend's all.

cig

30th Apr '13

@pabster, that alone might not save FCUK, but I think there is a market for no explicit branding clothing: not everyone likes to act as a walking billboard for corporates (you'd expect compensation for that!) and some brands develop social stigma so you might not buy things you like just because the branding destroys your street cred.

Snoozebox seems a funny company: they show off the posh container hotel stuff and then make big contracts subcontracting non-posh cabins from established vendors for which it's difficult to see the value add apart from income statement padding to make the dream look better than it is...

Small Cap Report (26 Apr) - FCCN, SDM, ZZZ, IMTK, CMH, CAP, BEG

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Paul Scott

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