Small Cap Value Report (1 Feb 2017) - BOO, EPWN

Wednesday, Feb 01 2017 by

Good morning,

Boohoo.Com (LON:BOO)

Let's start with a few comments on the latest Dispatches TV programme. I think it's a good thing that Dispatches is keeping the pressure on the rag trade - because it's notorious for having a supply chain where conditions for workers can often be very poor.

Warehouse management procedures have come under criticism for Sports Direct, JD Sports, and now BooHoo. The trouble seems to be that the workforce is transitory - with agency temps being extensively used, to boost the workforce during peak times.

Overall though, despite the TV peoples' attempt to dramatise things, BooHoo didn't seem to be doing much wrong. Specifically, these struck me as the main negatives;

  • Docking pay by 15 mins for being 1 min late - clearly unfair, and should not happen.
  • Long queues for bag-checking, and workers unpaid whilst waiting - again, clearly wrong, needs to be rectified.

Other than that, the following points were presented as terribly negative, but which strike me as being par for the course;

  • Long shifts (12 hours), involving extensive walking - that's what warehouse work is like. So it's only suitable for people who are fit & active.
  • Workers being pressurised to meet targets - it was filmed at peak trading, and everyone would understandably be under pressure to reach peak productivity.
  • 3-strikes and you're out, with strikes being for quite trivial things. The company has denied this is their policy. However, when there is plenty of supply of willing agency workers, employers will naturally keep the most productive, and want the least productive replaced.

It's a fine line between urging staff to work hard, and crossing a line into bullying & maltreatment. The BooHoo supervisor filmed by Dispatches actually seemed quite polite in the way he spoke to agency staff, I thought. Certainly I've seen, and been personally on the receiving end of far worse treatment when working in warehouses! Bullying supervisors are a widespread problem.

This type of Dispatches programme can cause a lot of brand damage, so I think it's important that BooHoo properly reviews how it's treating agency staff. Overall though, on my visit to BooHoo HQ last year, I was highly impressed with how professional everyone was. So the culture of the company is good, in my experience.

The issue of goods being manufactured in factories where workers are underpaid, is an ongoing problem for the whole industry. The big problem is that…

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Boohoo Group PLC, formerly plc, is an online fashion retail group. The Company is based in the United Kingdom and has a presence in the United Kingdom, the United States, Europe and Australia, selling products to almost every country in the world. The Company owns the boohoo, boohooMAN, PrettyLittleThing, Nasty Gal, MissPap and Karen Millen and Coast brands. These brands design, source, market and sell clothing, shoes, accessories and beauty products targeted at 16-30 year old consumers in the United Kingdom and internationally. more »

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Epwin Group Plc is a manufacturer of extrusions, moldings and fabricated low maintenance building products, operating in the repair, maintenance and improvement, new build and social housing sectors. The Company operates through two segments: Extrusion and Moulding, and Fabrication and Distribution. The Extrusion and Moulding segment is engaged extrusion and marketing of polyvinyl chloride-unplasticized (PVC-U) window profile systems, PVC-UE cellular roofline and cladding, rigid rainwater and drainage products and wood plastic composite decking products. It operates from extrusion and molding facilities in Telford, Tamworth and Scunthorpe, among others. The Fabrication and Distribution segment is involved in fabrication and marketing of windows and doors, distribution of cellular roofline, rainwater and drainage products, and manufacture of glass sealed units. It operates from over five window and door fabrication sites, and approximately two glass sealed unit manufacturing sites. more »

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  Is LON:BOO fundamentally strong or weak? Find out More »

42 Comments on this Article show/hide all

Calalily 1st Feb '17 23 of 42

In reply to post #169777

I totally get that. We are in construction and cheap European labour has crucified not only the skill but the wage. The problem is while it's allowed there's noting that can be done and they are working in line with requirements.

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Laughton 1st Feb '17 24 of 42

In reply to post #169771

But Boohoo.Com (LON:BOO) says that they pay ALL their staff more than the National Minimum Wage and "on average 12.50% above the National Living Wage" which in itself is above the NMW - so the 15 minute pay for 1 minute or more late is unlikely to cause any legal problem.

Only playing Devil's advocate here.

How many minutes late would you think should be allowable?

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Gostevie 1st Feb '17 25 of 42

I pity anybody who took part in the Autins (LON:AUTG) IPO as recently as last August. Already we have a profit warning and the sudden departure of the Chief Executive just nine months later:

Share price down over 30% at the time of writing.

Interesting bit of commentary over at ShareProphets:


Disclosure: No position

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hayashi22 1st Feb '17 26 of 42

In reply to post #169777

Yes you have the nail on the head there. Blair's open immigration policy made him feel good about himself but has had the effect of destroying the living standards of the people he was supposed to represent (protect). In essence he also finished off the residual powers of the Trades Unions via support for globalisation. It is strange how the impact of legislation like many other things in life has the opposite effect to what was originally intended.

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peterthegreat 1st Feb '17 27 of 42

Hello Paul,
Thanks for your comments on Epwin and Entu. For my own part, the reason I invested in Epwin but not Entu is that Epwin serves trade as well as retail customers and seems to have a strong position within the trade. As far as I am aware, Entu has a much heavier reliance on retail customers. My perception is that businesses serving trade customers often seem to do well (this is why I hold Howdens) but I am not sure why this is. Perhaps there is less of a need to spend on advertising, marketing and glossy premises and customers tend to be more loyal? I also like Epwin because its merger with Latium was subject to a Monopolies Commission enquiry which would indicate to me that it must have a good competitive position. Also the company appears to be quite a straightforward business which is easy to understand.

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Laughton 1st Feb '17 28 of 42

For the sake of fairness, here is a link to another's take on the Boohoo.Com (LON:BOO) Dispatches programme (which I should say I did not watch).

Not recommended for holders of a nervous disposition.

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Effortless Cool 1st Feb '17 29 of 42

"It exposed (BOO) and to a far lesser extent ASOS (ASC) for the way they treat management. Boohoo was truly shamed".

Read it carefully. I think perhaps Tom is confused?

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melody9999 1st Feb '17 30 of 42

Delighted to hear that TW is 'exposing' BOO again. The SP has come a long way since his last spat which I think also involved Paul.

It re-inforces my hold position on the stock - you only have to look at ASC to accept the valuation for what it is and continue to hold for long term gains. Until there is a shift in something fundamental such as consumer buying patterns or some change in the US, just ride the wave!

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ganthorpe 1st Feb '17 31 of 42

I worked for many years in the clothing manufacturing industry. Pilfering has always been a big problem , from petty pilfering for family and friends up to stealing for sale on to dealers.We only searched when we had reason to suspect someone smuggling out of the factory in their bags or clothing , but every now and again we got nasty shocks when police or outside agencies caught staff who had upto then "got away" with it - and not only the lowest paid.
I don't agree with searching every day but spot occasional random searches were a big deterrant. and certainly staff should be paid whilst waiting .Branded goods are a big target as they command a good price in the "no Questions Asked" sector of retailing.
Just my experience at the sharp end.

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smatthews1 1st Feb '17 32 of 42

In reply to post #169801

i think it can be managed in a more sensible manner most places have some form of clocking in cards/system, now if you start 10-15 mins early no one will batter and eye lid but its soon noticed if your 1 minute late.

if you clock on early by 10 mins this minutes should start to be accrued, towards their normal working day/week. Not only does this incentivize you to get work on time but it allows flexibility as you can still complete your required hours.


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Beginner 1st Feb '17 33 of 42

In reply to post #169732

Flapping about the availability of cheap migrant labour is a bit nonsensical. If there is a need it will be filled. Across the last century we saw (in rough order of arrival) the Irish, East European Jews, West Indians, Indians, Pakistanis, assorted Eastern Europeans. This is one area where supply and demand really works (at least for employers).

(Do you really expect the numbers of nurses registering in a summer month to be the same as at Christmas? Any shortage here will be filled from Ireland and Asia, as it traditionally has been since the NHS started).

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Laughton 1st Feb '17 34 of 42

In reply to post #169855

Trouble then is that the person or machine doing the job before you "on the production line" hasn't clocked on 10 minutes early so there's nothing for you to do until they start at the correct "start" time.

Presumably "to complete your required hours" you would then be in favour of this person clocking off 10 minutes early on this day or some other day in that week or month in order that they don't work more hours than they should?

As one quite clever current TV advert says "that way madness lies".

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smatthews1 1st Feb '17 35 of 42

In reply to post #169864

yes I agree it gets tricky when you manage people on production lines with strict shift patterns. it will have to be tailored to suit.

However the frustrating part is these decisions are made by people not on the minimum wage. Treat staff fairly and reduce the chance of damaging their brand/reputation.

Virgin has created an excellent reputation for treating the staff well across the board, and as a whole they have created a very powerful brand behind it.

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Emperor 1st Feb '17 36 of 42

In reply to post #169804

Interesting how easily we can jump to conclusions without the full picture. So why has the CEO quit? What is his state of health? Has this been caused by business pressure? Who is/was the driving force behind the business?

May I suggest this may not be all it appears on the surface? I don't know the details but the likes of shareprophets wouldn't let a bit of humanity get in the way of an opportunity to slate someone would they?

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jonesj 1st Feb '17 37 of 42

Some good points made earlier.

Boohoo do not run a car production line, where everyone needs to start on time so the parts are fitted in the correct sequence (try fitting the carpet after the seats & rubber door seals when making a car).
Since they clock in, clock out and monitor people's pick rate electronically, what is the problem with slight flexibility where people can clock in a few minutes either side of the target & the same for clocking out ?

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ganthorpe 2nd Feb '17 38 of 42

Clothing Manufacturing IS a production line job these days , so lateness does have knock on effects if more than a few minutes.

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martinmullane 2nd Feb '17 39 of 42

What are your views on PMG & ETO?

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jonesj 2nd Feb '17 40 of 42

In reply to post #169900

Boohoo were not manufacturing on the site subject to the documentary.

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Paul Scott 3rd Feb '17 41 of 42

I think everything has to be done very efficiently within a warehouse.
BUT the staff have to be treated fairly and humanely at all times.

In my experience, things can easily cross the line.

So BOO have to be 100% sure that they're the right side of the line, all the time. That needs mgt focus. Otherwise brand damage is bad.


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gus 1065 6th Feb '17 42 of 42

Looks as though the Boohoo.Com (LON:BOO) bid to acquire assists from the Nasty Gal estate is going through uncontested. RNS out this morning.


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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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