Small Cap Value Report (14 Dec 2016 - Part 1) - BOO, LVD, PUB, VCP, TPG

Wednesday, Dec 14 2016 by

Good morning!

I'm back from my holiday, suitably refreshed. A big thanks to Graham for covering for me whilst I was away. It's worked so well, that we've asked Graham to join the editorial team. So he and I will be working together, to provide better coverage - 5 days per week, all year round (except bank holidays obviously) - and covering more companies too. Plus we'll be able to discuss each other's views too, giving additional thought on many stocks.

Please note that Graham and I are both writing today, so there will be 2 articles, marked Part 1 and Part 2. I will be covering BOO, LVD, VCP, and possibly more.

Graham is covering in Part 2 the following companies - IQE, IDOX, and BOOM.

Here is the link to Graham's article today.

Boohoo.Com (LON:BOO)

Share price: 118.25p
No. shares: 1,123.3m
Market cap: £1,328.3m

(I only hold a tiny, residual long position in BOO, having previously sold nearly all my shares)

Trading update & acquisition - it's a positive trading update. Key points;

  • Continuing to trade well
  • Revenue growth of between 38% and 42% in FY 17, against previous guidance of between 30% and 35%
  • EBITDA margin of between 11% and 12% in FY 17, against previous guidance of around 11%

Therefore, we should expect to see further increases in broker forecasts, continuing a pattern of increases - something you often see with very highly rated shares. It's so helpful when companies give specific numerical guidance like this, rather than generalised text waffle.

All companies should give specific guidance like this. Although I accept that it's easier for retailers, as the figures are easy to predict. Whereas businesses which rely on large contract wins will struggle to give reliable guidance.


Acquisition of PrettyLittleThing - it's good to see the uncertainty & conflict of interest here has been resolved. PLT is a competing company, set up & run by the son of BOO's CEO. It's been clear for a while that PLT is an exciting growth company in its own right. However, that obviously creates a conflict of interest - not a problem when BOO was a private company, but a very serious problem once BOO is a listed company. You can't have the CEO's son running a very similar business on the side. Hence…

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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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Lavendon Group plc is a United Kingdom-based company engaged in the rental of powered access equipment. The Company's segments are the UK, the Middle East, Germany, France, Belgium and Corporate. The Company's business includes Nationwide Platforms, Rapid, Gardemann, Lavendon France and dk rental. Nationwide Platforms is a powered access provider with a fleet of over 10,350 machines operating from a network of over 30 depots. Rapid is engaged in the rental of powered access equipment in the Gulf region. Gardemann is engaged in rental of truck mounted powered access equipment in Germany. Lavendon France is a provider of powered access equipment in France. dk rental is engaged in the rental of powered access equipment in Belgium. The Company operates a fleet of approximately 21,000 machines through a network of over 70 active depots. The Company manages a fleet of over 21,000 access platform units. more »

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Punch Taverns Limited, Formerly Punch Taverns plc, is a United Kingdom-based pub company. The Company is engaged in the operation of public houses under the leased and tenanted model, which involves the granting of leases to tenants operating the pub as their own business, paying rent to the Company, and purchasing beer and other drinks from the Company. The Company's segments include Core and Mercury. It has a portfolio of approximately 2,580 pubs in the Core division and over 690 pubs in the Mercury division. The Company also operates public houses under the retail operating model. The Company has approximately 110 pubs trading under retail contracts. The Company's pub categories include Community Pubs, High Street Pubs and Destination Pubs. Its pubs include Arkwrights, Black Horse, Coach and Horses, Bulls Head, Cedar Inn, Cross Keys, Castle Inn, Saracens Head, Stanley Arms, Travellers Inn, Travellers Rest, Bronte and Blacksmiths Arms, among others. more »

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

44 Comments on this Article show/hide all

daveinthelakes 14th Dec '16 25 of 44


I understand the rationale behind keeping PLT management on board but have I got this right- BOO invest money in PLT and then give 1/3 of the increase in value thereby created, including presumably the capital introduced, to son? Sounds like the 21st century equivalent of a sinecure to me!

Paul may wish to ask if any capital introduced by BOO is excluded from the deal?

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sptmjdr 14th Dec '16 26 of 44

In reply to post #162325

If you don't mind the question - why did you sell? I think you said you considered Boohoo.Com (LON:BOO) as your highest conviction hold? I'm guessing it'll be due to the valuation being too high now? I used to hold, but like you, sold out recently.

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PhilipHanson 14th Dec '16 27 of 44

I think the £BOO update today was spectacular. Revenue growth significantly in advance of expectations (ironically as somewhat expected, especially by Peel Hunt whose research on BOO is worth getting hold of if you can) and improved margins too.

I like the PLT solution - it gets the full results consolidated in the group so we can see what's going on, but still allows the undoubtedly talented Kamani sons to be incentivised for continuing with their success. It's a golden goose problem to me - BOO management could have taken the short term greedy option and acquired 100% "on the cheap" for £5m. But my view is that it's a much more finely balanced question as to whether 100% of PLT without the Kamani's in five years time would be worth more than taking 66% now whilst keeping the Kamani sons interested and engaged in growing the business and then acquire the 34% at market value in 5 years time. Better to let the goose continue laying golden eggs rather than taking a knife to it IMO.

As regards forecasts, I still think they are very much living in the shadow of the Jan 2015 profit warning and will continue to under promise and over deliver. PLT revenues will surely grow more than 25% next year, as will BOO's revenue and profits as a whole. It's a firm hold for me, as it has been since around 40p.

A massive thanks to Paul for all his insight, research and, frankly, hard work.

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Paul Scott 14th Dec '16 28 of 44

In reply to post #162412

Hi sptmjdr,

Re Boohoo.Com (LON:BOO) you asked,

If you don't mind the question - why did you sell? I think you said you considered Boohoo.Com (LON:BOO) as your highest conviction hold? I'm guessing it'll be due to the valuation being too high now? I used to hold, but like you, sold out recently.

I sold BOO purely on valuation grounds, far too early, as it now transpires.

BOO is a fabulous company, but everything has a price, and I just thought the valuation was looking too full for me to continue holding. I freely admit to having sold too early, so obviously wish I'd continued to hold.

My background is very much as a value investor, so I find growth company investing very difficult, as it's going against the grain. The reason I've branched out into growth company investing, as well as value investing, is because growth companies is where the biggest gains are to be made - at the moment anyway.

Value investing is out of fashion at the moment, although as proven by Lavendon (LON:LVD) (and today Punch Taverns (LON:PUB) ) they can get exciting when they attract takeover bids.

Also, I think with BOO it's down to percentages. With the valuation now very high, what are the chances of BOO doubling again any time soon? Pretty slim, I'd say. Mind you, I thought that at 60p too, and it has very quickly doubled from there lol!

It's very difficult to predict what the market will do. So deciding when to sell is always the most difficult question of all, and it's not something I'm at all good at, I'm afraid.

Regards, Paul.

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ccfragment 14th Dec '16 29 of 44

@ Paul: Welcome back and thanks for the efforts so far.

Any chance you could share the presentation you did last month on your thought process behind AVS and thus, potential takeover targets?


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doublelutz 14th Dec '16 31 of 44

Paul, I notice that Marshall Wace have a short on Boohoo. Coming down a bit but 0.69% of the share capital. My question is more general than Boohoo. Do you ever take much notice of short positions?

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Fugwit 14th Dec '16 32 of 44

Re Boo
"Customer service is paramount, so they don't want to drive the top line so hard that support functions are overwhelmed."
Customer service and warehousing is already provided by Boo for PLT so that should not cause many integration issues. Seems sensible to provide "conservative" guidance for PLT, as management have learnt to do for Boo itself.

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Paul Scott 14th Dec '16 33 of 44

In reply to post #162370

Hi AlanJenkins2,

I have a quick look at Tungsten (LON:TUNG) results today, but wasn't impressed. It's still all jam tomorrow. Whilst as things stand currently, the company is a long way from being viable. Although with the sale of the bank due to happen in a week's time, that should give it enough headroom on cash to survive for several more years.

There's lots of talk about improving performance, etc, but why pay up-front for a company which has performed so dismally in the past, in the hope that things are going to get better?

Also the amounts of invoices financed for early payment is absolutely tiny.

I'm not at all tempted to buy back into this one. Why waste time on over-hyped loss-making companies, in the hope that they might be able to turn a profit one day?

Regards, Paul.

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kenobi 14th Dec '16 34 of 44

In reply to post #162283

Welcome back, how was Abu Dhabi ?
Recomended as a winder sun destination ? is there much to do there ?
veg out ?
would it be good for kids ?


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Paul Scott 14th Dec '16 35 of 44

In reply to post #162430

Hi doublelutz,

I review the list of most shorted stocks every few months, and if there's anything on there that I own then I'll sit up & take notice, and have a think about things.

I like to think about the bear case of every share I own. It's a very good discipline. Often you find that shorters are just latching on to a toppy valuation. Sometimes though, they find something seriously wrong with a company, so it's worth considering the opposite view quite carefully.

Regards, Paul.

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herbie47 14th Dec '16 36 of 44

In reply to post #162430

Yes some shorts can show up the problems in a company, Globo would be a good example. They are not always right but they are worth looking into.

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Michael Billingham 14th Dec '16 37 of 44

I have held Boohoo for 12 months now and do thank you repeatedly, Paul, for the initial lead..

I see that Panmure Gordon issued a research note this morning. They have raised, somewhat optimistically, their target price to 170p.

Do we have have another ASOS on the books?

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clarea 14th Dec '16 38 of 44

In reply to post #162337

Indeed a large market cap Ram however it was one Paul was keen on when it was involved in volatility 18 months ago that time he was a believer in the company and bought heavily and came out the right side of the trade, Interesting that he;s moved to the bear side since then,

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Tanglands 14th Dec '16 39 of 44

Paul delighted you are back, hope you had a great break, and delighted that you have "allowed" Graham to enter your space, says a lot I believe. I know you welcome sensible polite challenge and debate so having the two of you comment and may be sometimes taking a different view or even the same, will be just fantastic. I have renewed for another three years so don't go away :)

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melody9999 14th Dec '16 40 of 44

"I only hold a tiny, residual long position in BOO, having previously sold nearly all my shares"

Paul - think this is exactly what you did with ASC. Given your passion for BOO, I am a bit surprised .... so far I have resisted the temptation to cash out meaning it is my biggest holding now.. Good luck to all holders.

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AlanJenkins2 14th Dec '16 41 of 44

In reply to post #162451


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WhaleHQ 15th Dec '16 42 of 44

Good to see you back Paul. Excellent insight :D

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Paul Scott 16th Dec '16 43 of 44

In reply to post #162511


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melody9999 17th Dec '16 44 of 44

In reply to post #162742

Paul - looked back at post 40 and it was a rubbish post by me. Sorry. There was genuine surprise that you had reduced your holding as you are so passionate about BOO .....but as you say it looks like I am crowing over this which was not the intention and is unnecessary. Please accept my apologies.

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 Are LON:BOO's fundamentals sound as an investment? Find out More »

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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