Tuesday, January 8, 2013


The year-end trading statements are starting to flow now, with about 16 issued this morning. So I will review 4 or 5 that look the most interesting to me, with a small cap and retailing leaning.

Allocate Software (ALL) has an unusual 31 May year-end, so their H1 trading update this morning relates to the 6m to 30 Nov 2012. They say that H1 is in line with expectations, but split between a slow Q1 and a "much stronger" Q2. The outlook statement is pretty upbeat, so might be worth a closer look? Although with 5.5p EPS forecast for 2012/13, a share price of 78p prices it on a PER of 14.2, which doesn't excite me. As a value investor I'm looking for decent growth and a PER well below 10.

Majestic Wine (MJW) shares have done very well, rising 4-fold in the last 4 years. Their Xmas trading statement is pretty solid - total sales up 5.1%, with like-for-like ("LFL") sales up 1.1% for UK stores.
(Explanation of "Like-for-like" (LFL) sales - this is a method of reporting sales, used particularly by retailers, which shows the underlying performance of the business. So it strips out any newly opened or closed stores, and only reports on the stores which have been open for the full period both this year, and last year. Therefore the total % LFL change in sales gives the most meaningful figure to judge performance on. So in the example above, Majestic Wine achieved +1.1% LFL sales in their shops which were open both last year and this year. However, total sales for the whole business rose 5.1%. This indicates that they have opened new stores equating to 4% additional sales (so 1.1% LFL + 4% new stores = 5.1% total sales growth).

There is no reference to profit vs expectations, but given that Xmas trading was slightly ahead of the year-to-date (they report 0.8% LFL sales growth for the 39  weeks to 31 Dec), then one assumes they are in line with expectations. But this should have been made clearer from the RNS.

Interestingly, Majestic do note that many shoppers left purchases to the last minute, an increasing worry for shops at Xmas time. This behaviour may be explained by the fact that shops rarely run out of things these days, so by being good at logistics, in a way they've shot themselves in the foot?

Dominos Pizza (DOM) trading updates are always a pleasure to read, and yet again they've delivered good growth, and say that profits are in line with expectations. The shares are certainly not cheap, with a fwd PER over 20, but what a great business.

Interesting also that they flag good overseas growth, particularly in Germany. This might have some read-across to long-suffering shareholders in DP Poland (DPP), the separately Listed franchisee for the new Domino's stores in Poland, which recently completed a fund-raising to continue its expansion.

I was pleased to see the overhang from seller New Solera finally cleared in Vianet (VNET) yesterday, with the stock popping up 15% to 117p. Market makers are doing their best to inhibit trading though, with a ludicrous 5p spread. I wish we could move to a SETS order book on every stock, where anybody can effectively become a market maker, and spreads narrow.

I highlighted the great value (low PER, high divi yield) and strong growth prospects thrown in for free with Vianet shares here on my Small Cap Value website back in Nov, where the stock overhang gave many of us the chance to buy as many shares as we wanted, without moving the price. So I tend to view a stock overhang (where a large holder is gradually liquidating their position in the market) as an opportunity, rather than a problem.

Another of my stocks coming alive in the last few days, is STV Group (STVG), although I haven't seen any news, or reason for the rise. If anyone knows why it is rising strongly, please let us know on the comments section of this post.
I value interesting reader feedback, and do my best to respond to most feedback, if time permits.

Debenhams (DEB) had a very good Xmas by the looks of it - LFL sales up a whopping 5% in the busiest 5 weeks to 5 Jan 2013. Very impressive. I hope that has some read-across for French Connection (FCCN), a potential turnaround share which I hold.

Topps Tiles (TPT) Q1 IMS looks OK, with LFL sales up 1.6% (although that is against soft comparatives of down 4.2% the prior year).

Dunelm (DNLM) has also had a good Xmas, with H1 LFL sales to 29 Dec 2012 up 2.2%, against a 1.1% rise the prior year. Although they do note that strong H2 comparatives will be tough to match.

There are a few more, but that's as many as I can cope with before my first cup of tea of the day! Just a quick word of thanks also to the many generous donations made yesterday to my 2 charitable causes (see box on top right hand side of this page). It is hugely appreciated, and spurred me on to do another 5 mile training run last night after the markets closed. They are definitely getting easier the more often I do them.

Regards, Paul.

(of the shares mentioned today, Paul holds VNET, FCCN, and STVG only).


  1. Hi Paul - I've been enjoying your blog and meaning to tell you so for a while! Your explanation of like-for-like sales has afforded me the opportunity as I think I can add something useful for investors to be aware of. I believe many major retailers include store extensions in their lfl numbers which means they can end up comparing a newly-extended store with what was perhaps a much smaller store last year. Not generally a problem but can be a significant distorting effect for retailers with an aggressive store-extension programme. I don't follow MJW, so don't know the situation there but its perhaps a general point for investors to be aware of.

    1. Hi,
      Thanks for that comment.
      Extended stores should certainly NOT be included in the LFL calculations, so if retailers are doing this, then it's sharp practice! (because as you say, it would flatter the figures).

      Even store revamps which don't extend the space are questionable, as a refit will typically add 10-20% to sales initially, if it makes the store significantly more attractive to customers (but the impact wears off).

      So back in the day when I was FD for a ladieswear chain, I used to strip out all refitted & extended shops from the LFL calculations, to arrive at the true underlying performance of the business.

      It would be a good question to ask at an AGM - if they include extended or refitted shops in the LFL calculations.

      Cheers, Paul.

  2. A good example of a company doing lots of store refits and mezanine extensions is Carpetright who now sell beds as Sleepright in the newly created space. Their true like for likes in stores that remain the same and for flooring products only must be truly awful as turnover has been falling overall for the last nine periods of results.
    They are pretty much the last big name standing nationally but their rating is in to triple digits so very questionable and will collapse the share price if any of the large holders give up holding as there is no dividend these days to cling on to.


    1. Agreed Dave.

      Carpetright's mkt cap has made absolutely no sense whatsoever for several years now!

      According to Morningstar, CPR is on 63 times this year's forecast EPS, and 42 times next. Why???!

      Cheers, Paul.