SCS – Sitting comfortably ?

Entered SCS at 158 the other day.

Stock fell 30% due to recent RNS. This said:

Since the Half Year end in January 2015, trading for the 10 week period up to Saturday 4 April was in line with expectations and the interim announcement, with like for like order intake up 7.6%. However, like for like order intake in the 4 trading weeks to 2 May, commencing Easter Monday, was 15.9% below last year.

If you work this out it means (roughly) that over the entire 14 week period sales were flat year on year. Caused by a bad 4 weeks trading.

So the company is worth 30% less as a result ? Due to a bad month ?

I can see a 15.9% decrease year on year, if sustained, is serious – but we don’t have evidence of that yet.

If SCS achieve estimates – they will be trading on a PE of 8.5. If they are flat they will be on a PE of 11.

Carpetright trades on a PE of 42! DFS 12.6, Dunelm 21. In no way is SCS expensive.

It is possible for SCS to enter a death spiral due to its negative working capital operating model – it funds itself with supplier largess and customer deposits. Having said that 4 weeks bad sales is nowhere near that point.

I expect the SCS share price to recover quite rapidly back to the 190/200 IPO range. I will probably then sell for a quick few quid.

I am taking a bit of a risk here as if things continue to get worse the share price will fall – so I am risking 100% of my capital for a 20-25% upside. Probabilities are in my favour though…

In addition housing transactions should still be slowly ticking up – providing a bit of a wind behind this whole segment…

10% of my capital invested so a usual sized position.


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