Cube Midcap Report (3 July 2019) – ITE, ECM, JD, SBRY

Cube Midcap Report (3 July 2019) – ITE, ECM, JD, SBRY

Good morning! We just have a few trading updates to cover today.

ITE Group (ITE)

  • Share price: 70.9p (-1.5%)
  • Market cap: £526 million

Trading update

This stock never seems to attract much attention among private investors. It’s a major exhibition organiser, focused on emerging markets. Here is its office network:

It has a particular presence in Russia (hence, the picture of Moscow at the top of this article!)

It enjoyed a long period of profitability which came crashing to a halt around 2016 following the turmoil in Turkey and the collapse in the oil price, affecting its Russian business. And it has never been the same since. It would be nice to be able to time its return to glory!

This Q3 update is in line with expectations.

Year-to-date revenue is up 7% on a like-for-like basis to £176 million.

Net debt has ticked up to £116 million due to various growth initiatives and acquisitions.

Outlook – by the end of Q3, 98% of full-year revenue was booked (i.e. already delivered or due to be delivered in Q4). The Board is “confident” that full-year expectations will be achieved. Forward bookings for FY 2020 are 10% ahead on a like-for-like basis.

My view – I always had a positive impression of this business. The risks associated with emerging markets and commodities have proven how dangerous they are, but as a recovery play I think this is worth looking into. Official forecasts suggest that EPS of 4.9p can be achieved this year, rising to 5.4p next year. That’s quite nice against a 70p share price (though don’t forget that it’s using a meaningful amount of leverage).

Browsing the events list, the company appears to have a much more balanced set of sector exposures now, as it claims, with only 11 Energy events (versus 16 in Food & Packaging and 15 in Manufacturing).

From a macro point of view, this share could be an interesting way to participate in the growth of emerging market economies.

Electrocomponents (ECM)

  • Share price: 629p (-1%)
  • Market cap: £2,790 million

Trading Statement

This is a “proper” distributor, with more than 500,000 products in the catalogue and truly international operations. It has a fantastic track record of profitability and above-average ROCE, too.

This Q1 update shows like-f0r-like revenue growth running at 5% in the EMEA region, or 4% including Americas and the Pacific. Growth was predominantly driven by market share growth, implying that the overall market is growing very slowly.

As expected, the numbers were impacted by c. 1% due to a slowdown in sales of the Raspberry Pi (the popular homemade computer), in advance of the Pi 4 release.

Gross margin will be “broadly stable” for the full year, i.e. a little lower, as ECM broadens its inventory.

While the external environment has become more uncertain, we remain well positioned to deliver good progress in the year.

My view – this is not the sort of update that makes a shareholder ecstatic. It’s a reasonable update, showing the potential for more progress in the year ahead despite one or two hiccups and challenges.

This could make for a decent buy-and-hold, so it’s worth investigating. Here are the names it trades under.

JD Sports Fashion

  • Share price: 619.3p (+3%)
  • Market cap: £6,030 million

AGM statement

A nice update from the Chairman, Peter Cowgill:

“…in the year to date we have continued to achieve encouraging like for like sales growth in our core Sports Fashion fascias both in the UK and internationally.”

From February to June, the company has added 109,000 additional square footage in 29 new stores, including 18 in Europe. Expansion continues in Malaysia, Australia and the United States.

PBT is forecast at least equal to current consensus market expectations. According to the sources available to me, those expectations were for PBT of £405 million in the year to end-January 2020. PBT is forecast to rise to £454 million the following year.

What is this company’s secret sauce? Please let me know, if you have any ideas! Performance in the last few years has been spectacular, while others on the High Street have withered.

To help us understand JD’s success, here’s an extended excerpt from the Chairman’s letter to shareholders in April (from

The bolding is mine:

“The improved result was ultimately achieved through an uncompromising focus, intensive management and continuous analytical interpretation of a number of key principles:

  • Nurturing the close consumer connection
  • Satisfying a demanding aspirational consumer with sector-leading physical retail environments and leading-edge digital technologies which are both scalable across multiple territories and adaptable to dynamic consumer expectations
  • Respecting the differentiated and often exclusive nature of the product assortment by avoiding unnecessary short-term reactive discounting
  • Maintaining maximum flexibility in the leased property portfolio
  • Delivering in-store initiatives to improve efficiency of store operations.”


J Sainsbury (SBRY)

  • Share price: 195.75p (-2%)
  • Market cap: £4,330 million

Q1 trading statement

It’s a “tough market” (no kidding!) and Sainsbury’s like-for-like sales are down 1.6%, excluding fuel.

Within that, general merchandise and clothing were especially weak, while groceries was only down by 0.5%. Clothing is an area of particular weakness – given market conditions, perhaps this is no great surprise?

Despite the negative tone, CEO Mike Coupe confirms that the company has grown market share in merchandise and clothing. Just goes to show how tough the conditions really are. Relentless price cuts and efficiency improvements are the only way to stay competitive.

And grocery market share performance is said to have “improved”, but the actual market share is still declining.

This is one of the worst (most unclear and least helpful) outlook statements you will find:

Retail markets remain highly competitive and promotional and the consumer outlook continues to be uncertain.

Net debt sits at £1,600 million (March 2019) and the plan is to reduce this by £600 million over three years. Sounds wise.

My view – I can see little that is attractive about this sector, and am not tempted to research it in greater detail. From my point of view, it can be useful as an indicator of general conditions, that’s all.



Not too much to cover today, but I hope this was useful.

See you again tomorrow. Or if you’re a Gold Member on this website, I hope I’ll see you in the Chat Room at 1pm!

All the best




Wordpress (3)
  • comment-avatar

    With regard to JD “secret sauce” :- the one that occurs to me is fraud . If it is to good to be true it usually is … one way or another . If they are awash with net cash then it probably is true tho ! Just to cover all the bases . All aledgedly of course 😉

  • comment-avatar

    Err , actually ……… I am dis lek sick ! 😉

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