Small Cap Value Report (10 Jan 2017) - BOO, SOM, CALL, TPT, WINE, GAW, TUNE, TCM, KBT, CARR, HAT | Paul Scott

10th Jan '17 by Paul Scott

60 comments 34597 reads

Good morning!

Graham is travelling today, so it's just me reporting.

There's tons to cover. Here is a quick summary of the companies I report on below;

BooHoo - another excellent trading update.
Somero Enterprises - good trading update & increased divis - all positive.
CloudCall - good trading update - has it turned the corner? Possibly.
Topps Tiles - Q1 trading update - possibly good value now?
Majestic Wine - Xmas trading update. Looks expensive to me.
Games Workshop - excellent interims. Worth a closer look.
Focurite - encouraging update, nice quality company.
Telit Comms - trading update - short squeeze imminent possibly?
K3 Bus Tech - profit warning, down 21%.
Carr's - in line update. Dull, ex-growth company. Not especially cheap either.
H&T - slightly ahead of expectations. This share looks good value & is going up I think.

Market getting toppy?

It's all feeling a bit frenzied at the moment, isn't it? I'm starting to get worried about a correction in the markets. That said, I can justify the valuations of everything in my portfolio quite easily, and I keep away from speculative stuff on daft valuations. So everything should be OK in the long run, even if there is a market correction.

These days, my portfolio is generally newsflow-driven. So I tend to buy after positive trading updates & results. That tends to make my portfolio quite resilient when market corrections occur. This could be because people are loath to sell shares in companies which are performing well, even in a market downturn. You can see this from the chart of Beam Me Up Scotty, my fantasy portfolio, which wasn't affected at all by the sharp market correction in Jan 2016, and didn't suffer too much on the Brexit vote either.

Talking of market corrections, I spotted a fascinating chart, posted by Urban Carmel on Twitter, see below. This chart shows very clearly how intra-year sell-offs are usually very good buying opportunities. The S&P usually finishes the year strongly up from its intra-year low.

So, unless there are serious macro-economic problems (like the credit crunch in 2007-8), then buying market corrections seems to be a very good strategy. Whereas of course our natural, emotional response to a market sell-off, is to panic sell. Usually that urge needs to be suppressed, as it can be very costly. I can't be the only person who has, quite frequently, capitulated and sold a poorly performing share absolutely bang on the 5 year low. Only…

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Laughton

10th Jan '17

Boohoo.Com (LON:BOO) - Just a quick mention, as the market cap of over £1.6bn is now way above my usual phasing-out upper range of £300-400m.

Hopefully you will continue commenting on this one Paul as I know many of us really appreciate considered analysis from an ex "insider".

runthejoules

Would love your thoughts on GOCO Paul - up 9% today on ok results. I'm a novice investor, might people be buying in because insurance is defensive?

stanislawski

Seconded re continued coverage of boohoo!

I only heard about Boohoo.Com (LON:BOO) through this column and it has been excellent. Just yesterday I looked at the history of ASOS to see if this was getting dangerously high in price and concluded nt yet.

Please do keep covering this stock.
Thank you.

grumpy5

Brumby is an ex- colleague of mine. His field of expertise is brewers/pubcos/ & leisure - on which he is v good. I would not rely on him too much for retail!

andyhorton

Hi Paul, I dropped out of Boohoo.Com (LON:BOO) around the 120p level feeling that it was peaking. Wrong wrong wrong! Still gave me a tidy profit though. I've read your comments regularly over the past year and always been impressed with your insight and to date, having done my own research too - I have made good gains on Cloudcall (LON:CALL), Somero Enterprises Inc (LON:SOM) and your old favourite Revolution Bars (LON:RBG). Thank you for highlighting these opportunities and long may you prosper!

Paul Scott

Hi runthejoules,

I don't report on comparison website shares.

They fall into my "unnecessary intermediaries" category - i.e. not sure if profits are sustainable. The whole sector would just disappear overnight if insurance companies, etc, decided to revert to direct marketing to customers.

Others may disagree, but I have to cut down on the number of companies I report on somehow (as the entire market is too much for me to handle), so insurance/financials are one of the sectors I tend not to cover. Also resources, pharmas/biotechs, property, and one or two other sectors are not covered here.

Sorry about that.

Although I have no objection to facts-based comments from readers, flagging up positive results from companies that I don't cover here. Although no blue sky crap please lol!

Regards, Paul.

Steve Hill

Hi Paul

I completely agreed with your recent advice that the reason growing companies look expensive is because brokers underestimate EPS growth.
At the moment BOO is on a PEG of 2.92 because EPS is expected to grow by 24.5% next year, despite EPS growing by 71.6% this year & growth is accelerating.
This is clearly a very, very conservative estimate, with my own very basic EPS estimate's for next year Boo is trading at a PEG below 1, which puts it into Value territory.
However I may be missing something, any thoughts ?

vik2001

what worries me is more and more people are shopping online, will the day comes when the normal high street shops will slowly start closing down due to online competition. But the biggest concern being will these high street shops be replaced by £2.99 chicken shops :)

Hi grumpy5,

Yes, you're right, Mark Brumby mainly covers leisure/pubcos, etc. Maybe I got muddled up about him liking BOO? He's utterly brilliant though, and sometimes hilariously funny in his morning notes.

Readers can sign up free for his daily note, which I highly recommend, it's one of my core research note reads every morning. Sign up link is here.

Regards, Paul.

Rusty2

They already are closing down, most of the retailers that have gone had poor internet sales and websites. Many councils are pushing up the rates only the nation chains and charity will be left in some high streets. I don't even know what a chicken shop is. Even Argos are pulling out of high street locations and going more into DIY shops or out of town shopping centres.

Will Marsh

Dear Paul

Just a quick thank you for covering Somero & boohoo. Somero was one the first shares I bought after subscribing to stockopedia (never heard of it until you mentioned it)and I'm delighted. Boohoo I also bought at float and sold att 118p. Being an amateur enthusiast I have tried over the last 18 months to buy stock which has fairly robust fundamentals and a bit of a dividend, which Somero does. In particular I listened to the Podcasts you did with the directors who seemed sensible to me. On Balance I still feel its reasonably priced given downturn risk and will hold for now. I supose you can only do so much to reduce investment risk but being a bit diciplined certainly helps.

Anyway I am very grateful for you opinions and narratives over the year, the only share I bought you dissaproved of was HAT, but I must confess to still feeling guilty to buying them after reading your opinion

a chicken shop is those nasty fast food chains that crop up anywhere and everywhere when a shop normally becomes free.

the news is out there that boohoo is expanding, looking to take on the states, surely a good time to buy. im taking a small holding.

tabhair

Can anyone explain to me why a share like Gattaca (LON:GATC) is getting killed?

its a value trap:
http://www.stockopedia.com/content/beaten-down-stocks-versus-reasonable-quality-stocks-163816/

MichaelFBS

Thx for this link Paul. This sort of thing is invaluable.

harry34

GOCO is an example of where good profits could be made by buying after a demerger. (Sadly as is too often the case I thought about it, but did not do it!)

I had a modest holding in esure (LON:ESUR), which demerged, to form a new Esure and a standalone Gocompare.Com (LON:GOCO). Broadly speaking the split was about 75% 'new' Esure, and 25% new GoCompare.

The Gocompare.Com (LON:GOCO) share price fell very quickly as I suspect lots of investors ended up with a small holding of shares in a company they hadn;t really wanted to own as a standalone business - and so just sold up. It went as low as 56p, so about 30% off today's price. And yet the demerger prospectus did suggest that the prospects were good for Gocompare.Com (LON:GOCO). Today's update confirms that, and yet the shares are not yet back to their notional demerger price of 75p. I have held onto my holding, but wish I had bought more on the earlier price fall.

Ajay_Gajree

Sainsbury bought the Argos and Habitat brands so expect them to be rolled out into the bigger Sainsbury Stores, so where there is an Argos nearby expect that to close!

andrea34

Is the following comment of any concern for SOM?

"In Southeast Asia, India, Scandinavia, Korea, and Russia, while trading levels were in line with or down somewhat from the prior year, interest levels in our products remain encouraging in each of these territories..."

The revenue spread seems a bit up and down in many geographies... but perhaps it is because this company is still growing from a fairly small base and thus for countries where sales are small and customers are perhaps few then from one year to the next it will be quite lumpy?

The concern here of course is not just about the investment case (or lack of one) for high street brands but how will local councils replace the lost revenue from business rates on High Street stores. My knowledge is limited here (non existent!) but I am assuming that it is significant?

I am also assuming that Boohoo.Com (LON:BOO) (for example) will be paying nothing like the same rates on its new warehouse in Burnley (plus other offices no doubt) to generate £232m of sales is nothing like the rates paid by say French Connection (LON:FCCN) or Laura Ashley Holdings (LON:ALY). All the tax Boohoo.Com (LON:BOO) is paying is going to central government and I doubt that shower has grasped the significance of this?

In France where I operate (and pay a lot of taxes) the issue was addressed a few years ago and Taxe Pro was replaced by CFI, which is simply another tax on profits but calculated in a slightly different way but it all comes down to the same thing more tax!

Yes but this was before the takeover. Don't have a Sainsbury near me.

Small Cap Value Report (10 Jan 2017) - BOO, SOM, CALL, TPT, WINE, GAW, TUNE, TCM, KBT, CARR, HAT

Market getting toppy?

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Paul Scott

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