Small Cap Value Report (27 Sep 2016) - BOO, PTSG, AN., UNG

Tuesday, Sep 27 2016 by

Good morning!

I'm starting to get nervous about the banking system again. That's partly because I've been reading Mervyn King's outstanding book, "The End of Alchemy" - highly recommended. It's also because there are persistent press reports concerning Deutsche Bank, and it's vast derivatives exposure.

So it seems as if we could be sleep-walking into another financial crisis. This has been worsened considerably by Angela Merkel ruling out a Government bailout for Deutsche Bank - probably the worst possible thing she could have said. Counter-parties will probably now be asking whether it's worth the risk to continue doing business with Deutsche.

All major banks are too big to fail - that's the big lesson from 2008. In extreme situations, they have to be rescued by the state, however unpalatable that may seem - as the alternative is unthinkable - a complete collapse of the financial system.

I think another crisis is actually necessary, as only then will Governments properly rein in the activities of banks. There needs to be much tighter regulation, to stop them creating vast risk, and eventual losses through derivatives. This could all get rather dangerous for the markets, so I'm considering my options at the moment - it might be time to take some cash off the table perhaps? And/or put a few large cap shorts in place as insurance against a market sell-off?

Boohoo.Com (LON:BOO)

Share price: 99.25p (up 1.5% today)
No. shares: 1,123.3m
Market cap: £1,114.9m

(at the time of writing, I hold a long position in this share)

Interim results, 6m to 31 Aug 2016 - excellent reporting timeliness - publishing interim figures just 27 days after the period end is good stuff - clearly the FD and his team have good internal controls in place.

Why am I still reporting on this share, now it's over £1bn market cap? Well, partly to crow about one of my biggest successes in the last couple of years! Also because I know that a lot of readers followed me into this share after the market threw us a bargain in Jan 2015 at a quarter of the current price.

The interim figures today are excellent, and well ahead of forecasts. Brokers are upgrading full year forecasts as a result. Peel Hunt puts out the best research I've seen on BooHoo, so those are worth asking your broker to source for you. PH has raised this…

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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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Premier Technical Services Group plc (PTSG) is a United Kingdom-based company engaged in the maintenance, inspection, testing, repair and installation of permanent facade access equipment, fall arrest systems and lightning protection systems together with fixed wire and portable appliance testing and high level cleaning. The Company operates through three segments: Access and Safety, Electrical Services and High Level Cleaning. The Company's Access and Safety segment offers Safety Testing, Safety Installation, Cradle Maintenance and Cradle Installation. The Company's Electrical Services segment offers Lightning Protection, Fixed Wire Testing, Portable appliance testing (PAT) Testing, Fire Alarm and Extinguishers, and Steeplejack Services. The Company's High Level Cleaning segment offers Window Cleaning, Gutter Cleaning, Building Cleaning and Pressure Cleaning. The Company's Training Solutions division offers Training, Consultancy and Insurance Inspections. more »

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

32 Comments on this Article show/hide all

Carey Blunt 27th Sep '16 13 of 32

The thing with top slicing is that you have to have at least as good or better share that you want to invest the profit in instead right? Or you think it's going to drop and you can get back in again lower?
I can't think of another place to put the money where I can make a better return and I don't think it's going to drop significantly either so I figure I'm going to leave all the money on the table.
Am I missing something?

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Richard Rodgers 27th Sep '16 14 of 32

I top sliced this morning at 100.3p at 8:05am - 40% gone but covers the cost of all of my original holding...60% left in for nothing and now a medium-term hold. Also share concerns of imminent €zone crisis....

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apad 27th Sep '16 15 of 32

PTSG - you have commented before.
Results look good and the market seems unimpressed?

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Orangetree 27th Sep '16 16 of 32

Deutsche Bank has 42 trillion Euros in notional derivatives, a 1% loss on these contracts will cost the German economy 420 billion Euros, but a 5%loss would equal the size of the German Economy. Plus, we haven't calculated the contagion of other European Banks (counterparty risk).

But guess who would benefit the most, (your number 1 famous speculator) George Soros who betted 100 million Euros on the collapse of Deutsche.

Blog: Walbrock Research
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PJ0077 27th Sep '16 17 of 32

Germany GDP Eur3 trillion

Deutsche Bank derivatives exposure Eur42 trillion

Maybe Deutsche Bank is too big to be 'saved', even if the new EU Bank bail-in rules permitted it..

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Laughton 27th Sep '16 18 of 32

All very well taking money off the table - but where do you then hold it?

Government guarantees fine up to a certain amount (recently reduced) - but above that? How many different banks do you want to have to deal with?

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PJ0077 27th Sep '16 19 of 32

In reply to post #151850

Deutsche Bank put options?

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JamesrWilson1989 27th Sep '16 20 of 32

In reply to post #151832

It really depends upon the size of your position. If you invested early on in the rally then I can imagine BOO takes up a lot more of your portfolio than you might be comfortable with.

Different strokes for different folks - dont be blinded by what other people do but do what is right for you.

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andrea34l 27th Sep '16 21 of 32

NFC results are out today and look really good to me, and the price is up 4%.
One thing I am really confused about, there is an 'income statement' and a 'consolidated statement of comprehensive income', please can someone tell me what the difference is? (The results look a lot better in the first one than the second).

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richjp 27th Sep '16 22 of 32

In reply to post #151832


I already have about twenty per cent of my total portfolio in cash. The point is with inflation so low I do not mind living with a zero return on cash for the next twelve months or even longer if inflation remains low. It is only when inflation gets higher, that it can start to seriously erode your wealth.

I have been officially retired for five years, however even after adjusting for inflation, my net worth is over fifteen per cent higher than it was when I retired, even after using drawdown over that period. The reason is because I have done very well in the markets overall over that time, as have many others. My target when I retired was to maintain the value of my portfolio after drawing down, so I have done much more than that.

For me I am interested in total return and if I can continue to do well out of the money that remains invested, I am happy to earn nothing on the cash for a while. Cash is not always fashionable but there are times when I think it should be.

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WhaleHQ 27th Sep '16 23 of 32

The bloggers/ grammers are missing a trick by the sound of this update today. They’ll catch on in due course and start charging a lot more as they’re delivering equivalent traditional media returns for a fraction of the price.
I might start blogging myself but I'm not sure 16-24 year old women would care to see me (a hariy man) prancing around in the free-spirit range.
Great results and great analysis as ever Paul was tempted to top slice myself but after considering the options I'm staying all in.

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rmillaree 27th Sep '16 24 of 32

In reply to post #151832

"Am I missing something?"

The main benefit of topslicing is spreading the risk - much less likely that two separate companies will go tots up compared to one. So you might be giving up a bit on your expected return - although i would say to have any excessive over confidence in any share is likely to make one look stupid at some point. there is probably good statistical evidence that minimising a major large portfolio % loss will ensure long returns overall - but hey i could be wrong there.

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Paul Scott 27th Sep '16 25 of 32

In reply to post #151838

Hi apad,

I'm back from lunch now, and am looking at Premier Technical Services (LON:PTSG) next.
So new section will appear in about half an hour.

Regards, PAul.

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ls2g08 27th Sep '16 26 of 32

Interestingly I am noticing a large uptick in other online retailers advertising in tube stations, these advertising spaces used to be dominated by BooHoo adverts. I wonder if this will have any impact?, is one I have seen frequently.

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TMFMayn 27th Sep '16 27 of 32


"Overall then, I'm probably neutral at the moment on this one. I'll keep my little scrap of stock, to keep me interested, but have no desire to buy any more right now."

So we have ropey working capital, excessive share options and material 'adjusting' items... which are not a great combination, and doubly-so when the business is also quite acquisitive,  operates with net debt and has Bob Morton ( as a founder investor. It would not surprise me if trouble eventually emerged here.

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hayashi22 27th Sep '16 28 of 32

I do think that e-commerce will be impacting other areas. A good eg might be G4M. Think grungy shops in bad areas and then buying stuff online. It's a no brainer.

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jjis 27th Sep '16 29 of 32

In reply to post #151853

Then you'd have to worry about the counterparty risk! On bailing out i guess the German government has to say they won't bail it having playeed hard ball with the Italians over their banks recently. Or as one commentator on the BBC's Business live put it this morning - they have painted themselves into this particular Cul-De-Sac or Sackgasse in German apparently.

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ken lowes 27th Sep '16 30 of 32

The safest place for cash is NS&I up to £3m guaranteed by the government in full the interest rate is not bad at the moment 1% on Income and 0.8% on growth. Whilst I am at it I owe an apology re Boo about six months ago I thought the price way too high and said so. Congratulations to those who rode out the storm, short though it was.

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hawkipa 28th Sep '16 31 of 32

In reply to post #151844

Hi, For that to be so, you are assuming that all the exposure is either long or short which is way too simplistic. They will be in different products i.e. irs, cds, indices etc. So for example, the CDS & credit index exposure will be across curves and issuers, so a 1% change in the either market might well be market neutral, but the reality is we simply don't know as they don't have to publish that. Therefore a 1% move in the market one way or another may or may not be beneficial or even have little effect. Whilst the reporting of DB's woes is good it only scratches the surface of their derivatives exposure, which, yes, is substantial but not complete at the whim of some trader. They have world class risk systems and all risks will be feeding a VAR which is managed from the very highest level. The overall VAR of each business area will not be public information.

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PJ0077 28th Sep '16 32 of 32

In reply to post #151916

The Deutsche Bank share price has fallen by 90% in the last ten years. 

Interesting to read "they have world class risk systems and all risks will be feeding a VAR which is managed from the very highest level." ?!!

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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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