Small Cap Value Report (21 Apr 2015) - SHOE, IGR, UTW

Tuesday, Apr 21 2015 by

Good morning! Advance warning of my next charity project - I haven't done anything for a while, so have been looking around for ideas which don't involve physical exercise, and have stumbled across a fundraising thing for next week - raising money for extreme poverty, by living on £1 per day for all food & drink.

I'll set up a charity donations page over the weekend, and then will do the challenge next week, Mon-Fri, and will blog separately about how it goes. There won't be any cheating - like most things in life, it's only worth doing if you do it properly! I was vegetarian for 5 years when a student, so eating cheap, basic food is a lot easier (and healthier) than most people seem to think, so it will be an interesting challenge. And let's face it, I'm carrying more than enough in reserves to see me through a lean week!

Back to the markets, and I've been clobbered with another profit warning unfortunately.

Shoe Zone (LON:SHOE)

Share price: 185p (down 28%)
No. shares: 50.0m
Market Cap: £92.5m

(at the time of writing I hold shares in this company)

Profit warning - this is an unsatisfactory announcement, because it doesn't explain the severity of the profit miss, so investors are really in the dark until revised broker notes are issued. The following points are made;


  • Warm weather conditions - had a "material impact" on autumn/winter trading, reducing sales.
  • Product mix - although sales volumes were up, average selling price was down.
  • Revenue & profit for H1 (6m ending 4 Apr 2015) will be "behind the prior year"
  • Full year results - "expected to be below market expectations"
  • Dividend will be "adjusted accordingly" (i.e. reduced from current expectations)


  • Gross margin - "remained robust"
  • Stock position - "well managed, with no requirement for additional discounting"
  • Net cash position "will remain strong"
  • Core strategy of opening larger stores - "continue(s) to make good progress"
  • Online sales growing strongly

Directorspeak - this sounds reasonably upbeat, but the company doesn't have enough track record yet as a listed entity to determine whether any reliance can be placed on such reassurances.


My opinion - I'm annoyed about this. It's not acceptable to warn on profits only 11 months after first listing on AIM. The whole point is that companies have to under-promise and over-deliver, building up a track record of doing…

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Shoe Zone plc is a footwear retailer in the United Kingdom and the Republic of Ireland. The Company offers women's shoes, men's shoes, boy's shoes and girl's shoes. The Company's online offering combined with its store network enables customers to shop through multiple channels. The Company operates from a portfolio of approximately 550 stores. Its customers purchase all of the products available in stores, as well as an additional approximately 400 product styles. The Company sells over 20 million pairs of shoes per annum. The Company has operations in various countries, including Germany, Italy, Spain and France. The Company's distribution center is located in Leicester, England. The Company's subsidiaries include Castle Acres Development Limited, Shoe Zone Retail Limited, Zone Property Limited, Zone Group Limited, Shoe Zone (Ireland) Limited, Shoe Zone Pension Trustees Limited, Stead & Simpson Limited, Zone Footwear Limited, Zone Retail and Walkright Limited. more »

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IG Design Group plc, formerly International Greetings plc, is engaged in the design, manufacture and distribution of gift packaging and greetings; stationery and creative play products, and design-led giftware. The Company's geographic segments include UK and Asia; Europe; USA, and Australia. The Company sells its products in over 150,000 stores across approximately 80 countries. It also offers a portfolio of licensed and customer bespoke products suitable for sale through multi channel distribution. The Company's products include crackers, pens and pencils, stickers, single cards and gift wrap. The Company offers its products under the brands A Star, B Stationery, Papercraft and Pepperpot. Its subsidiaries include Artwrap Pty Ltd, International Greetings UK Ltd, International Greetings USA, Inc, International Greetings Asia Ltd, The Huizhou Gift International Greetings Company Limited, Hoomark BV, Anchor International BV and Hoomark S.p.z.o.o. more »

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Utilitywise plc is a United Kingdom-based business energy and water consultancy. The principal activity of the Company is of an intermediary for energy supplies to the commercial market. Its operating segments include Enterprise and Corporate. The Enterprise segment is engaged in energy procurement by negotiating rates with energy suppliers for small and medium-sized business customers throughout the United Kingdom, the Republic of Ireland and certain European markets. The Corporate segment is engaged in energy procurement of larger industrial and commercial customers, often providing an account care service and offering a range of utility management products and services designed to help customers manage their energy consumption. It provides energy management services, including procurement, energy reduction and audit, carbon offsetting, smart metering, water brokerage, design, manufacture and supply of timers, controllers and building management systems, and the Internet of Things. more »

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

20 Comments on this Article show/hide all

Sully8786 21st Apr '15 1 of 20

Morning Paul,

Nice to meet you and chat for 5 on Saturday. I've dipped my toe in Shoe Zone (LON:SHOE) this morning @ 191.

I've taken 25% off both the F/Y EPS and Div to arrive at a PE of 12.7 and dividend yield of 4.7%. I think 25% is rather extreme but it gives me I little room for a positive surprise or if the company warns again a little room for error....we'll see, I'm sure.



Company: Dave Sullivan - Talking Stocks
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stevePo 21st Apr '15 2 of 20

Living off £1 a day sounds like a tough challenge, but as a Shoe Zone holder, maybe I'd better start trying it myself!

Let us know how to sponsor you and best of luck.

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Gostevie 21st Apr '15 3 of 20

I buy nearly all my shoes from Shoe Zone and suspect that most of their customers, like me, aren't that bothered about 'product range' as such. For me, it's a case of "Are they the colour I want (black)? Do they fit? Are they cheap?" and that's about it.

As an investment, Shoe Zone (LON:SHOE) has been on my watchlist pretty much since it floated but I never actually hit the buy button so a bit of a lucky escape there. Not tempted to buy on the dip for the reasons that Paul lists in his typically astute analysis. (How does he do that so quickly? He must have a mind like a sponge for this sort of thing!)

I may yet buy into this company at some stage in the future but I'd need some more clarity from them first on just how far "below market expectations" the results are going to be.


PS Good luck, Paul, with the charity challenge.

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snickers 21st Apr '15 4 of 20

If they're so cheap, maybe you can combine business and charity..


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grout123 21st Apr '15 5 of 20

Hi Paul. When you speak about a small investment ref International Greetings…

"I would consider a small investment here"

What criteria do you use.? Does small equate to say 1% of you portfolio for example. I don't mean to pry of course but curious about your view and others in fact on what is classed as small….

For me the biggest position I hold constitutes 5% of my portfolio and the portfolio is spread over 50 odd companies. I may miss some fuller/gutsy growth opportunities sometimes but sleep well at night as a consolation.

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Paul Scott 21st Apr '15 6 of 20

In reply to post #97194

Hi grout123,

Sure, am happy to clarify. Everyone does things their own way, but for me my portfolio typically tends to look like this;

Top 10 holdings = c.50% of my total portfolio (largest might be 15-20%) - on the basis that I like to concentrate money into my best stock ideas. Doesn't always work out though!

Middling positions = c.40% of my portfolio, split over say 20 shares.

Small positions = 10% of my portfolio, split over say 20-30 more companies.

You may ask what is the point of the small positions? I suppose those are entry level things, where I quite like the company, but am not fully comfortable with it yet, or where there are issues with maybe a little too much gearing on the company's balance sheet. So I don't want to risk much on it.

Over a period of time, I either chuck out the small positions, if the newsflow is not pleasing, or I increase them to become medium sized positions.

Equally, with all the positions, large, medium, or small, I will continuously review against newsflow, and adjust position size depending on how comfortable I am overall with things.

I try to think about what the worst case scenario is with each stock - what could go wrong, how much would the shares drop if they issue a profit warning, and how much would it hurt me financially? As a rule of thumb, I calculate the loss for a 30-50% drop in share price on a profit warning, and if that figure scares me witless, then I reduce the position size!

Some are long term, some are medium or short term, it's a complete mixture.

My basic approach is that I buy things that in my opinion, seem undervalued, and then hold them for any time period until they become fairly valued, when I sell. That's the theory, but of course it doesn't always work out like that!

Regards, Paul.

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ericb 21st Apr '15 7 of 20

"pull their socks up" 


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grout123 21st Apr '15 8 of 20

In reply to post #97196

Thanks - thats very useful. Cheers

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dasv 21st Apr '15 9 of 20


I nearly bought SHOE last summer.

If I was a holder after today's RNS I would have instantly sold. Primarily because I could allocate my capital to a better stock. Secondly, bad news comes in threes. Finally because the RNS demonstrates management cannot be trusted and the co's actually failing to deliver.

Compare with TRI's trading update yesterday. At a minimum hitting high end of expectations.

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timp230 21st Apr '15 10 of 20

Regarding UTW's revenue recognition policy, my main concern is that they may be signing up a lot of customers to multi-year energy contracts (taking advantage of current lower energy prices). This is presumably generating a lot of up front commissions which, assuming I understand the policy correctly, would be booked as sales immediately. This leads me to wonder if current sales are being inflated and leaving a possible hole in future years.

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Funnymoney 21st Apr '15 11 of 20


I notice that Shoezone moved between January and February to a "Earnings manipulation High" rating. At the time, the Stockrank was 95. It would be good if Ed could do an analysis of those stocks with a high rating and also high manipulation risk (or start tracking if the data isn't there).


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shipoffrogs 21st Apr '15 12 of 20

Frozen chicken livers, 57p a pack at Waitrose is my tip, Paul

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jonesj 21st Apr '15 13 of 20

I've long seen the Shoe Zone product range as woeful, despite looking for good value when buying shoes (£3~40 range usually, exceeded just the once).
Surely this business is in the low end commodity shoe market, so is competing with Primark, Matalan, Aldi, Lidl, Asda and whoever else knocks out cheap product?

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Igotts 21st Apr '15 14 of 20

What's the difference between UTW and TEP? I thought they are roughly in the same market, or is it that TEP is more advanced in terms of maturity?

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WatsonNimrod 22nd Apr '15 15 of 20

Interesting reading about Shoezone.

I considered an investment and just by chance I was in Aberdeen on business and the walkway from the station to the town comes out directly at a SZ store.

I'm a pretty upbeat guy, but to me it's a dismal retail experience. It's a real throwback to late 70s/80s retailing when I remember as a kid my parents used to take me to these sort of places when cash was tight for school shoes.

Looking back i can still feel the slightly disappointing feeling that these type of stores gave off but then it might just be the smell that brought all those memories flooding back, but as a consumer if I had to buy shoes in these type of places I would go to a supermarket where at least there is other tangible signs of optimism. The staff looked like they were going through the motions and the stock looked black and er black.

All that sounds harsh and melodramatic, I'm sure they get lots of repeat business, but to me it's a store that you shop in when you are down, no hint of any aspiration in their product line, and isn't that what selling is all about? Their shoes probably aren't any worse than the rubbish in 10 or so middle of the road high St brands, but at least they mix up the colours and give them fancy names

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Paul Scott 22nd Apr '15 16 of 20

In reply to post #97235

Hi WatsonNimrod,

You may be right, but personally I always test out a retailer's website before buying shares in it, and was pleasantly surprised with ShoeZone. My pair of c.£20, very smart, black leatherette (not sure if was real or plastic, so I'll give it an ambiguous name) arrived very quickly, and are perfectly satisfactory for business use.

I cycle everywhere in London, either on a Boris Bike or on my own antique Brompton, so shoes quickly get scuffed & destroyed, trying to avoid everything, and stay upright at junctions. Hence I would rather leave a streak of cheap Chinese plastic on the ground by the traffic lights, courtesy of ShoeZone, than an expensive lump of leather from Church's!

Regards, Paul.

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WatsonNimrod 23rd Apr '15 17 of 20

In reply to post #97330

Hi Paul,

I'm sure the product does the job, but I didn't find the range inspiring. I'm also not convinced about the percentage levels of its target customers who would use its website on a regular basis without wishing to sound patronising. The shops I've seen on my travels tend to be in older shopping centres (not the glitzy out of town experiences) or on the 'wrong' end of high streets so I'm guessing their leases are low which gives me some hope that on recent falls it may have some value.

If I was a bit negative its a lot to do with the fact I tend to avoid retail stocks as my Saturday job whilst at uni was with John Lewis which tends to give a skewed view of retail as the standards they have are still relevant to me 30 years on in a totally different career.

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Paul Scott 26th Apr '15 18 of 20

In reply to post #97372

As an update to this thread, a waitress at the Bull Hotel in Peterborough today approached my breakfast table with a large black, circular tray, laden with coffee and teapots, for three people, and her hands just suddenly gave way, and she literally threw the entire tray all over me & a friend, Mark, who were quietly enjoying our cooked breakfasts, whilst getting slightly annoyed at the length of time it was taking for our coffees to arrive.

The waitress didn't apologise to us, but instead began bizarrely spraying disinfectant onto the large and rapidly expanding tsunami of about 4 pints of coffee on the floor, before myself and Mark abandoned ship (very apt by that point) and relocated to another table.

Why do I mention this? Because my plastic leatherette Shoe Zone slip-on loafers emerged totally unscathed from this death by hot coffee trial! Totally unscathed, and actually smelling nicer - who would not find the smell of fresh coffee a bit nicer on their footwear, than cheesy feet?

So overall, I think my £20 Shoe Zone leatherette loafers did remarkably well, under what can only be described as severely challenging conditions in that Peterborough hotel brasserie. Bravo Shoe Zone, and plastic footwear generally.


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Ramridge 26th Apr '15 19 of 20

Hi Paul -
Re Shoe Zone (LON:SHOE) This is what you wrote in a post on 19/3/15:

"    At a recent master class, run by ShareSoc, David Stredder said the 3 most important things about small caps investing were "management, management, and management".    "

Wise words. Not to be forgotten when reviewing whether or not to invest in SHOE now.

Regards, Ram

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WatsonNimrod 29th Apr '15 20 of 20

Shoe Zone being featured on an ITV1 doc tonight.


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 Are LON:SHOE'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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