mccolls - a solid income buy ?

[jackdaww]

i came across mccolls several years ago on holiday - the local martins newsagent was always busy .

most are now converted to convenience stores and over 300 more shops have been acquire'd , and apparently well integrated .

i like the business model - having multiple strings to bow - lottery , lockers , post offices , subway , booze , food , cigs , paypoint , news , and the footfall , also the local community social focus .

there is a supply deal with morrisons .

the shares are still yielding over 4% covered 1.5x and metrics are good except for the low margins , market cap is 300m.

latest management update was on track , and the next news will be on 19 feb .

[monabri]

Hi JD,

Simply Wall St (SWS) describes them as having "reasonable growth potential but a mediocre balance sheet" - the latter bit would put me off. With a Mkt Cap of £300m sentiment can turn very quick on these smaller companies - miss a target even by a small margin and the sp gets hammered.

I noticed the debt increase from £39m to £137m about a year ago? ( Debt was reducing over the last 3 years) - Maybe this is the explanation

"25 convenience store refreshes successfully completed in H2, bringing the total to 27, with a further 100 planned in FY18"

Q: Will they need to borrow more money to complete the refresh work - if they've only completed 1/5th then they might need to borrow a shed load more? They wouldn't have borrowed all the money upfront.

According to SWS the divis are not well covered by profit (cover of 0.9) which is at odds with DL - maybe a check on the balance sheet?

Earnings are expected to grow over the next 3 years so maybe this is the attraction?

Also, they were affected by Palmer & Harvey's recent demise according to their update on 4th December 2017 so they have supply chain issues to address.

With a yield of 4% wouldn't you be safer with something else? (even CTY).

You mention low margins...these will cover the debt and the div assuming the supply issues are resolved and the money they need to borrow isn;t affected by future increases in inflation rates (possible).

In summary, the risk/ reward ratio doesn't do it for me.

(sorry about the negativity but that's my take on MCLS).

[DiamondEcho]

Traded volume 21,700 @ say average 264p on Friday = c£57,300 total value of Friday's trading.
IDK what size of chunk you'd be looking at buying, but be aware that in low volume stocks like that if you decide to sell up you might need to very patient, drip-feed part-orders into the market over time (days/weeks/+ ?) or risk tanking the share price in the process.
This was something driven home for me recently. I have a share, and I liked it, so progressively accumulated it in multiple chunks over a few years. Some years later I was beginning to look at rebalancing holdings, part of getting things how I wanted them in the first approaches to early retirement. By then the share traded in materially lower daily volumes, and it took many weeks to 'get it away'.
I've no idea whether the broker you use accepts market orders only, or limit orders too, but be aware that even with limit orders your order will be there to see for all who have Level-2* visibility of the entire order book. If you put in a materially large (vs daily volume) sell order, 'your tooled-up rivals' will see it, and at the least your order might set a near-term price-ceiling just below you, and risk the price running away below.
For this reason I'm wary of having material positions in even large FTSE-250 shares; a shame, as there are some very attractive ones IMHO. As a starting point for a new pick I don't think I'd want to buy more than say 10% of the 30-day average traded volume (say 2200 shares for McColls right now). If average volume later halved, my then 20%/Avg-vol should still have reasonable hope of trading without tanking the price.

*In case you're unfamiliar http://www.londonstockexchange.com/prod ... folect.htm

[Gengulphus]

I've no idea whether the broker you use accepts market orders only, or limit orders too, but be aware that even with limit orders your order will be there to see for all who have Level-2* visibility of the entire order book. If you put in a materially large (vs daily volume) sell order, 'your tooled-up rivals' will see it, and at the least your order might set a near-term price-ceiling just below you, and risk the price running away below.

Actually, that's broker-dependent as well. It's only necessarily true if you have a Direct Market Access (or "DMA") account, which enables you to input orders directly into the Stock Exchange's systems. Such accounts are rare, among other reasons because they are (or at least were when I last looked, which is a few years ago) only available to clients who are classified as more than just ordinary "retail clients". I don't think it's especially difficult to get oneself classified that way, at least if one has reasonably substantial investments and is willing to put a bit of time and effort into qualifying for the classification. But it does involve asking for it, and it does involve giving up some of the protections that apply to ordinary "retail clients", so I suspect relatively few people get DMA accounts... Certainly I could easily qualify for one, but I've never bothered!

Otherwise, it depends how the broker processes limit orders. Some probably do just input them into the Stock Exchange's systems, but I'm pretty certain that others keep them in their own systems, which monitor the share price and try to execute the order if and when it appears to have a good chance of executing. Details vary as to how they determine whether it has a good chance of executing, how they try to execute it is and when they think it does have a good chance, and how they deal with the situation if it nevertheless fails to execute.

One giveaway that a broker does not input limit orders into the Stock Exchange's systems is the presence of terms like the following from Halifax's terms and conditions:

"19.5 When you ask us to place a limit order you agree that we will not make the details of such limit order publicly available."

Another giveaway that they probably don't is if they provide order types that the Stock Exchange's systems don't provide, such as 'stop-loss' orders (or at least they didn't provide them when I last looked). Basically, they have to keep such orders on their own systems and monitor share prices until the conditions for the order look to have been fulfilled, then try to execute them - and once they've made their own systems capable of doing that, it's trivial to make them able to handle the relatively simple conditions for limit orders as well.

Gengulphus

[vrdiver]

We have two Mccolls near us.

One always seems to have a few empty shelves; looks like they have cash flow problems. The other, on the other side of the town always looks a bit grubby. They do have a butcher's counter, but again, the turnover seems limited. With a Tesco Express, Spar and 7-11 all within walking distance, I don't see much opportunity for them to increase volume (rather the opposite, as Tesco and Spar are the newcomers).

Morrisons has been woefully behind the curve on supply chain and format development (think home delivery and convenience stores) and would not fill me with confidence as a partner. Whilst Tescos et al. can enjoy their branding leverage to create trust in the local convenience store, as well as increase volumes for same-packaging items, Morrisons-Mccolls tie-up doesn't bring any of that synergy or brand loyalty.

If I was going to invest more money in this sector I'd want a company with deeper pockets: Tesco or Sainsbury's. Better still, some other sector completely!

VRD


(Holds Tesco and Morrisons, both underwater in my portfolio)

[DiamondEcho]

Actually, that's broker-dependent as well. It's only necessarily true if you have a Direct Market Access (or "DMA") account, which enables you to input orders directly into the Stock Exchange's systems. Such accounts are rare, among other reasons because they are (or at least were when I last looked, which is a few years ago) only available to clients who are classified as more than just ordinary "retail clients". I don't think it's especially difficult to get oneself classified that way, at least if one has reasonably substantial investments and is willing to put a bit of time and effort into qualifying for the classification. But it does involve asking for it, and it does involve giving up some of the protections that apply to ordinary "retail clients", so I suspect relatively few people get DMA accounts... Certainly I could easily qualify for one, but I've never bothered!

Actually, Interactive Brokers have Direct Market Access, and hence that's what I've always had. Don't know what their a/c opening threshold is these days, from memory it used to US$100k, or circa £60k at the time I opened mine. IB can limit what a customer can access (product types/trade volumes etc), according to the customer's self-declared experience. But with direct access that's likely reasonable as a fool could self-immolate very quickly indeed. But I expect most Fools/Lemons who've been in shares for a while would qualify for what they might reasonably wish to trade [this is 'not an ad', just as example of DMA and I'm sure there are other such offerings]. Lifting product/limit restrictions and being approved for margin, is a parallel to establishing to a credit card company why you believe you should be entitled to a higher card limit - usually no big deal for grounded people.

Otherwise, it depends how the broker processes limit orders. Some probably do just input them into the Stock Exchange's systems, but I'm pretty certain that others keep them in their own systems, which monitor the share price and try to execute the order if and when it appears to have a good chance of executing. Details vary as to how they determine whether it has a good chance of executing, how they try to execute it is and when they think it does have a good chance, and how they deal with the situation if it nevertheless fails to execute

And the reason I strongly favour having a DMA account as back in the early 90's I used to do the daily P/L for around 25 traders on the trading floor of a City Bank. One of 'my' desks was the Retail desk, that traded with our private clients via our in-house private client brokers. Retail was a profitable desk, the spreads they offered were far wider than the institutional desks trading the same instruments. So private clients were paying their broker fees, and then being hit with the Retail Desk's fat quote/spread on the other. But the Retail Desk wasn't just an indirect route to the market, the desk would take their own positions too as the orders flowed across their books. This for example is how a customer might sell a large'ish chunk of an illiquid share, as the retail broker takes a view, and might wish to trade and ride the position themselves. Later either trading out to the institutional desks, or back into Private Client, at another fat spread.

[jackdaww]

i am holding over 20 companies under 500million , some on AIM , so presumably most carry this issue of low volumes .

so far most have done well , some very well .

i could sell half my mccolls leaving the residual in for free .

i think i will wait until the next event .

[jackdaww]

re low volumes affecting selling price --

i did a simulated sell of 5000 shares today at 258p - which looks fine to me .

[DiamondEcho]

'Simulated sell' - hmm, how does that work, just out of interest? If it gives a realistic indication vs actual orders in the market I can see it might be useful for assessing the market liquidity of smaller-cap shares.

Per Google/Finance, the volume at 11.15am was 24,053. The largest volume-candle (2 minute) today of 11.3k was at 8.52am, and that spiked the price 1.9% from 260 to 265. The 'square-toothed up/down px profile' (technical term ) reflects the illiquidity. The risk parallel to that of above average price volatility wouldn't work for me. But in a small bite for other Lemons it might suit their goals.

Just my 2c etc.

[jackdaww]

'Simulated sell' - hmm, how does that work, just out of interest? If it gives a realistic indication vs actual orders in the market I can see it might be useful for assessing the market liquidity of smaller-cap shares.

Per Google/Finance, the volume at 11.15am was 24,053. The largest volume-candle (2 minute) today of 11.3k was at 8.52am, and that spiked the price 1.9% from 260 to 265. The 'square-toothed up/down px profile' (technical term ) reflects the illiquidity. The risk parallel to that of above average price volatility wouldn't work for me. But in a small bite for other Lemons it might suit their goals.

Just my 2c etc.

=======================================

i logged into my account , clicked on sell , 5000 shares , we get about 10 seconds to confirm during which time the price is displayed - just let it expire .

i have never experienced any significant actual price drop on any sales ive made , some on much smaller companies.

[Dod101]

Smallish companies can do well but on principle I would not buy into McColls because I think anything in the retail sector is a no no. The other thing about McColls is that they are at the lower end of the market and up against better established and respected players.

Share liquidity is of secondary importance.

dod

[Gengulphus]

'Simulated sell' - hmm, how does that work, just out of interest? If it gives a realistic indication vs actual orders in the market I can see it might be useful for assessing the market liquidity of smaller-cap shares.

As background to jackdaw's answer, it's something that can be done on accounts that use the RSP (= Retail Service Provider IIRC) network. That's pretty standard as the default order execution mechanism for cheap online brokers: you say whether you want to buy or sell and how many shares, it's broadcast to RSPs, who can make quotes valid for 15 seconds. The best of those quotes is put to you by the broker, and if you accept in time, the order goes through (normally, at least - it does occasionally fail, for reasons I don't know but suspect are that the RSPs can withdraw their quotes before the 15 seconds are up, as long as they haven't yet been accepted). If you don't accept in time, the quote expires and no deal takes place.

It can indeed be used to assess market liquidity - RSPs are under no obligation at all to quote (unlike market makers, though potentially confusingly, the same organisation can wear both hats). If they have a long enough position, they will tend not to quote for even small sell orders and will quote for much larger buy orders than normal - and of course the opposite goes if they have a short enough position.

I've heard though (and I believe it) that using the RSP network for trying to assess the market, without any intention of actually trading, is frowned upon. Also, some extreme cases of it could potentially be regarded as market abuse, or at least attempted market abuse. I don't believe that either of those is at all likely to cause problems for someone who does a "simulated trade" occasionally, since it's basically impossible for anyone to tell the difference between a quote expiring because the trader didn't like the price, or because they were interrupted at the wrong moment, or because they never intended to trade, or any of a number of other reasons. But I would avoid doing so frequently and systematically: if someone makes a habit of asking for hundreds of RSP quotes per day and never accepts any of them, it's pretty obvious what they're doing, and a story that they're in fact doing something else will be too thin to be believed!

Gengulphus

[jackdaww]

Smallish companies can do well but on principle I would not buy into McColls because I think anything in the retail sector is a no no. .

Share liquidity is of secondary importance.

dod

=====================

agreed on liquidity - it hasnt been any problem for me so far .

i hope you're wrong on retail though - i hold conviviality , card factory , greggs, games workshop , all have done well.

not so good with moss bros and ramsdens , but no disaster there as of yet .

[Dod101]

Maybe I am too broad brush but all those you have quoted are specialists of one sort or another and in a niche market. Not sure that applies to McColls.

Dod

[DiamondEcho]

Per Google (hit at Barclays Stockbrokers):
'The role of the RSP
You may be surprised to hear that when you trade a share that’s listed on the London Stock Exchange (LSE), your trade doesn’t actually go to the LSE. Instead, your order will be placed with a Retail Service Provider (RSP), also known as a market maker.
A market maker is a company that’s always ready to both buy and sell a stock at all times, aiming to make a profit from the difference between the bid price and the offer price. When you place your order, your broker sends an electronic request for a price quote to a pool of RSPs. It then picks the best quote from those it gets back from the RSPs and passes it to you. This takes a fraction of a second.
That quote will be guaranteed for a certain period of time – usually 15 seconds – while you choose whether to accept the price. If you do nothing or cancel the order, the quote lapses. If you accept, your order goes to the RSP and the deal is executed.'

So the 'testing the depth of the bid/offer', is not vs the market it's vs a market maker, aka broker's retail book/desk. That's how they guarantee a quote for a short time, something the open market would/could never do.
That said it can work both ways, I've done small trades esp on a Friday pm where a market maker has been willing to pay a small premium vs live open market to bag a deal and get their closing/weekend position closer to where they want it. But that was forex, and out in Asia...

[Gengulphus]

So the 'testing the depth of the bid/offer', is not vs the market it's vs a market maker, aka broker's retail book/desk. ...

No, as your own quote says, the order goes out to a pool of RSPs and so tests all of the RSPs in that pool. The fact that only the best of the positive responses (if any, of course) is forwarded back to you doesn't change that - it just saves you from having to hurriedly look through a list and choose the best yourself!

Agreed by the way that the pool of RSPs is not actually the market, but it should be a reasonably good proxy for it. In particular, I'd be very surprised if the RSPs' electronic systems didn't take the depth of the LSE's electronic order book into account when deciding whether an order is too big to risk making a quote on. Their own net position in the share is obviously the best 'safety net', but good availability on the order book could come a close second, especially if (as I suspect from the fact that orders occasionally fail despite the quote having been accepted well within 15 seconds) they can withdraw quotes before acceptance and thus respond if that availability changes significantly.

Gengulphus

[DiamondEcho]

Agreed by the way that the pool of RSPs is not actually the market, but it should be a reasonably good proxy for it. In particular, I'd be very surprised if the RSPs' electronic systems didn't take the depth of the LSE's electronic order book into account when deciding whether an order is too big to risk making a quote on.

A parallel might be suggesting that going to an FX kiosk at the airport 'should be a reasonably proxy' for the institutional FX market? I'm sure the former track what is happening in the latter, but it's their fat spread and fees that is invariably onerous. That said if you deal via a broker that sources quotes indirectly from RSPs I can understand why their quoting mechanism might appear normal/'the market'.

[Gengulphus]

Agreed by the way that the pool of RSPs is not actually the market, but it should be a reasonably good proxy for it. In particular, I'd be very surprised if the RSPs' electronic systems didn't take the depth of the LSE's electronic order book into account when deciding whether an order is too big to risk making a quote on.

A parallel might be suggesting that going to an FX kiosk at the airport 'should be a reasonably proxy' for the institutional FX market? I'm sure the former track what is happening in the latter, but it's their fat spread and fees that is invariably onerous. That said if you deal via a broker that sources quotes indirectly from RSPs I can understand why their quoting mechanism might appear normal/'the market'.

Agreed that I wouldn't know whether that was the case if I additionally never checked up on what deals were being achieved on the Stock Exchange systems. As it is, though, I do - not every time, but often enough to know that the spreads I get are IMHO generally very reasonable (and when there is an exception to that, I usually notice and decide not to accept the quote).

You might have a different opinion on how big a spread has to be to count as "fat", of course! I'm not really interested in debating such differences of opinion, though, so I'll content myself with a few facts: the spreads I get are generally well under those charged by FX kiosks at airports, less than the government's grab in the form of stamp duty, and have only a tiny impact on my investment returns.

Gengulphus

[DiamondEcho]

The 'don't know/not interested' approach might work for you, but doesn't for me. So we'll have to divide on this subject.

[Gengulphus]

The 'don't know/not interested' approach might work for you, but doesn't for me. So we'll have to divide on this subject.

Since I've told you that I do know, and furthermore how I know, and the fact that I've been discussing the subject here indicates that I was interested, that "'don't know/not interested" approach is purely your invention, nothing to do with me.

But I'm no longer interested in discussing it with someone who indulges in such inventions, so yes, that's the last I'll be saying to you about the subject.

Gengulphus