The Lemon Fool

I hold Pat Val (Cake)in the Ff folio.it will be interesting to see what comes out.

Do you mean "fresh, flaky and full of fruit" or a stale doughnut with the jam missing?

dspp wrote:I hold Pat Val (Cake)in the Ff folio.it will be interesting to see what comes out.

Ff (not Family firms maybe Foolish folio)?

A separate Cake Topic on here might take some beating, as I don't think MrC engages in much conversation, as such, on his helpful Smallcap Sweeps.

Not that I've got anything to add to the mix, that hasn't been said in various external places already.

i avoided pat val just on the grounds of valuation and low skinny yield.

no-one seemed to see this coming, many commentators favoured it .

Just a thread purely for this, I am copying over some of the stuff from the Smallcap thread.

This is far too interesting a situation to not keep an eye on.

(the other posts by various people have now been relocated, below in date order)

- dspp

BBC news item ........

The owner of Patisserie Valerie has said the chain needs "an immediate injection of capital" to continue trading in its current form.

The stark statement to investors comes after the firm uncovered "significant, and potentially fraudulent, accounting irregularities".

It also belatedly discovered HMRC filed a winding-up petition against one of its principal subsidiaries a month ago and is seeking £1.14m in taxes.

The firm has more than 2,500 staff.

The company announced earlier this week that finance director Chris Marsh had been suspended.

Patisserie Holdings
It has five brands: Patisserie Valerie, Druckers - Vienna Patisserie, Philpotts, Baker & Spice and Flour Power City.
Now, there are 206 stores across the chain and more than 2,500 staff as of May 2018.
It was floated on the AIM stock market, for smaller companies, in 2014.....
It its statement on Thursday, the firm said that over the past 24 hours it had "undertaken further investigation into the financial status of the company".

The board found "a material shortfall between the reported financial status and the current financial status of the business".

"Without an immediate injection of capital, the directors are of the view that that is no scope for the business to continue trading in its current form," it continued.

The company said its "professional advisers are assessing all options available to the business to keep it trading and will update the market in due course".

(I hold a small amount in a portfolio I term the FF portfolio. It was bought as I saw this as an interesting smallcap growth stock with the most likely exit being as a result of futurure M&A activity. Debts of the size described should - surely - have been picked up at time of audit.)

regards, dspp

I took a hard look at this stock a couple of times earlier this year but didn't pull the trigger. Feeling more than a touch fortunate now. If this is fraud it's a difficult thing to identify as an investor.

Pendrainllwyn

It's interesting just how much stock the PDMR's dumped at the start of this year.

There's something flakey going on here and I don't just mean the pastry!

This story is terrifying.

Their accounts make them look like a profitable, cash generative, low debt company, with solid growth. Abolutely no warning signs that I can see. What the hell happened?

They were on my watchlist for a while, decided against it mainly due to Brexit fears.... lucky escape.

SlickMongoose wrote:Their accounts make them look like a profitable, cash generative, low debt company, with solid growth. Abolutely no warning signs that I can see.

Hindsight again, but it's a complex corporate structure. If you review the balance sheet of the holding company, you only see value of subsidiaries. These are stated as being the amounts invested less impairments. You would have to go a lot deeper presumably to trading results to see whether these values were realistic.

Perhaps a valid comparison would be to an Investment Trust investing wholly in unquoted companies. You would be trusting the managers and directors to ensure that the subsidiaries were worth what the investing parent company thought they were.

Alaric wrote:

SlickMongoose wrote:Their accounts make them look like a profitable, cash generative, low debt company, with solid growth. Abolutely no warning signs that I can see.

Hindsight again, but it's a complex corporate structure. If you review the balance sheet of the holding company, you only see value of subsidiaries. These are stated as being the amounts invested less impairments. You would have to go a lot deeper presumably to trading results to see whether these values were realistic.

Perhaps a valid comparison would be to an Investment Trust investing wholly in unquoted companies. You would be trusting the managers and directors to ensure that the subsidiaries were worth what the investing parent company thought they were.

But none of that has any bearing on cash flows.

http://investors.patisserieholdings.co. ... -news.aspx

1.

Details of PDMR / person closely associated with them ("PCA")

a)

Name

Chris Marsh

2.

Reason for the notification

a)

Position / status

Finance Director

b)

Initial notification / amendment

Initial notification

3.

Details of the issuer, emission allowance market participant, auction platform, auctioneer or auction monitor

a)

Name

Patisserie Holdings plc

b)

Legal Entity Identifier

LEI: 213800MLBAMM6DALW517

4.

Details of the transaction(s): section to be repeated for (i) each type of instrument; (ii) each type of transaction; (iii) each date; and (iv) each place where transactions have been conducted

a)

Description of the financial instrument

Ordinary shares of £0.01 each



ISIN number GB00BM4NV504

b)

Nature of the transaction

(i) Exercise of share option

(ii) Sale of share option

c)

Price(s) and volume(s)



Price(s)

Volume(s)

(i)

316 pence

666,666

(ii)

418 pence

666,666





d)

Aggregated information

- Aggregated volume

- Aggregated price

- Aggregated total



N/A - single transaction

e)

Date of the transaction

(i) 18 July 2018

(ii) 18 July 2018

1.

Details of PDMR / person closely associated with them ("PCA")

a)

Name

Paul May

2.

Reason for the notification

a)

Position / status

Chief Executive Officer

b)

Initial notification / amendment

Initial notification

3.

Details of the issuer, emission allowance market participant, auction platform, auctioneer or auction monitor

a)

Name

Patisserie Holdings plc

b)

Legal Entity Identifier

LEI: 213800MLBAMM6DALW517

4.

Details of the transaction(s): section to be repeated for (i) each type of instrument; (ii) each type of transaction; (iii) each date; and (iv) each place where transactions have been conducted

a)

Description of the financial instrument

Ordinary shares of £0.01 each



ISIN number GB00BM4NV504

b)

Nature of the transaction

(i) Exercise of share option

(ii) Sale of share option

c)

Price(s) and volume(s)



Price(s)

Volume(s)

(i)

316 pence

1,000,000

(ii)

418 pence

1,000,000





d)

Aggregated information

- Aggregated volume

- Aggregated price

- Aggregated total



N/A - single transaction

e)

Date of the transaction

(i) 18 July 2018

(ii) 18 July 2018

f)

Place of the transaction

London Stock Exchange - AIM

There are others, earlier in the year.

Not good.

Both the auditors, and judges, will likely have questions to answer.

This was a £446 mln mkt cap outfit. Governance & controls should have been in triplicate by that stage.

regards, dspp

SlickMongoose wrote:But none of that has any bearing on cash flows.

Speculation, but the subsidiaries could become worthless and the parent Company seems just an investment vehicle with no trading activity to create cash flow. Wasn't HMRC threatening one of the subsidiaries with winding up because of an unpaid tax bill?

Alaric wrote:

SlickMongoose wrote:Their accounts make them look like a profitable, cash generative, low debt company, with solid growth. Abolutely no warning signs that I can see.

Hindsight again, but it's a complex corporate structure. If you review the balance sheet of the holding company, you only see value of subsidiaries. These are stated as being the amounts invested less impairments. You would have to go a lot deeper presumably to trading results to see whether these values were realistic.

Perhaps a valid comparison would be to an Investment Trust investing wholly in unquoted companies. You would be trusting the managers and directors to ensure that the subsidiaries were worth what the investing parent company thought they were.

I have no interest in this company but it does not sound a very complex structure, a holding company and trading subsidiaries. Presumably there are consolidated accounts which will show the cash flows for the Group; that is why we have consolidated accounts. Anyway they will not show fraud in a subsidiary if that is what the problem is, but it will or should show a demand from HMRC for unpaid tax if that was available at the time the accounts were drawn up.

Dod

They have announced this morning that the Finance Director was arrested by police last evening and has been released on bail.

Not getting any better.

Dod

Dod101 wrote:They have announced this morning that the Finance Director was arrested by police last evening and has been released on bail.

I suppose then we are going to have to wait to find out what the nature of the fraud was. The indications are that something or someone has taken all the group's cash resources, which is why it needed an urgent injection of cash to continue trading.

Perhaps not an easy test to carry out, but what is a Company's value if it were to be wound up with immediate effect? It's not a new idea, back in the 1960s or 1970s, it was a Jim Slater approach to identify Companies with undervalued assets and at least partly liquidate them to release the underlying assets.

I have no idea of the answer to your question. I cannot imagine a series of bakeries as having a great value and there would not be much more fixed assets I imagine so what is the goodwill worth? Maybe the accounts would tell you something; I have not looked.

OTOH it seemed to be a viable business, but if no one is prepared to put up the cash now I do not see that they would want to after it has gone into admin as it will still need the cash injection. It does not seem at this stage to be a matter of too much debt or something like that.

Dod