Small Cap Value Report (29 Sep 2015) - BOO, PMR

29th Sep '15 by Paul Scott

7 comments 15634 reads

Good morning.

I'm still in Warsaw, so am slightly detached from all the market goings-on. It seems as if the resources sector is in complete chaos - with an analyst questioning whether Glencore (LON:GLEN) is even viable at all now. I looked at Lonmin (LON:LMI) a little while ago, and came to a similar conclusion - the debt appears enough to engulf the company, if banks get cold feet. Cash is king in tough times.

Boohoo.Com (LON:BOO)

Share price: 34.38p
No. shares: 1,123.1m
Market cap: £386.1m

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

Interim results to 31 Aug 2015 - headline figures look excellent - remember that this growth is all organic, making it all the more impressive;

560a63cf7f73bScreenshot_2015-09-29_at_12

Note that the profit comparisons are flattered by inclusion of the IPO costs last year. A table itemises this, and shows that the +12% EBITDA performance is probably the best year-on-year performance comparison:

560a64ee86debScreenshot_2015-09-29_at_12

Growth strategy - as explained at the last analyst meeting, BooHoo management recognised that demand is elastic - i.e. very sensitive to price reductions, so they made a deliberate decision (which is absolutely correct in my view) to aggressively grow sales by offering keener pricing, and frequent customer deals on next day delivery.

I think this is a far better strategy than trying to maximise short term profit margins - after all, BOO doesn't actually need to make any profit particularly in the short term, as it's already swimming in cash, and doesn't yet pay divis. So why not go for growth, and become the dominant player in its niche, of fast fashion for pocket money, mainly for the 16-24 female market.

International growth - the core UK market is growing strongly still, which I'm encouraged at. The growth rate actually accelerated in the UK from 27% to 32% - really good news.

Rest of Europe was the softest region, slowing from +45% in Q1 to +26% in Q2 (at constant currency), which also faced a currency headwind, reducing +26% to a reported +13% in sterling. These are still very impressive numbers compared with most businesses though - how many other UK companies are reporting organic growth of this magnitude? Very few.

Rest of World is the stand-out…

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dasv

29th Sep '15

Paul, Any thoughts on EPO? Full year results today. Headline bullet points unremittingly positive, yet loss widening.

simoan

Paul,

Like you, I'm surprised BOO have not started buying in shares yet. Although I don't believe they did at the time of last year's profit warning, I thought they now had a mandate from shareholders to do buybacks? This was only agreed at the AGM in June:

"Resolution 9 sought authorisation to buy back up to 10% of issued share capital. This was conditional on independent shareholders approving a whitewash resolution (Resolution 11), on a poll, pursuant to Rule 9 of the City Code on Takeovers and Mergers. The Company confirms that Resolution 11 was passed on a poll with the results being as follows: 345,406,521 votes (87.65%) for, 48,678,697 votes (12.35%) against and 479,548,916 votes withheld."

As expected the results were very good and the international revenue growth was the big stand out for me. It will be interesting to see what further effect the updated websites and availability of the apps have on the next half.

Given the highly cash generative nature of the business, the cash on the balance sheet seems to be genuine excesscash, and buybacks must surely be imminent?Anyone shorting these shares must be a lunatic because the company has a mandate for, and can easily afford to buy back 10%of the shares outstanding.

All the best, Si

rmillaree

Ref Globo
More Globo fun and games numbers today, seems like the business is making some improvements transparency wise - cash moved into more secure institutions, more details of well known customer names / debtors days KPI's details /marginal improvement in finance costs compared to level of borrowings. On the downside there is still the opaque nature of everything and the poor cashflow compared to declared profits (there are plausible reasons for this). Ho hum another 6 months will now probably go by with more conjecture as to whether this is a proper pukka business - i guess the use of the warchest (if they get the bond issue away) to buy/merge a respected top name in the field is probably the only thing i can imagine that would have a major + factor with regard to sentiment. Ho Hum - interesting company.

aiminvesting

Thanks Paul for your on-the-go report. Re Panmure Gordon & Co (LON:PMR), I think we can thank the CEO for the 25% fall in the share price today. I don't know about other investors, but I find it particularly worrying to read such self-congratulatory comments on such poor results!! In the introductory paragraph, Philip Wales says he is "pleased with the number of transactions" that led to a loss before tax, and concludes that he "remains confident in our ability to deliver an excellent level of service for our clients." Sorry Philip, but shareholders would like to hear about your ability to deliver some profit!! As you say Paul, one wonders in whose interest this business is run. That being said, the balance sheet is pretty solid and at the current price it becomes a value play. If only they could deliver a profit two half-years in a row.

iwright7

The Panmure comments are in contrast to James Halstead flooring who celebrated their 100 year anniversary. I love the home spun wisdom in today’s outlook statement…

....Looking back over the years it is clear that we are continually faced by great opportunities brilliantly disguised as difficult problems. Having traded through world wars, severe recession, the three-day week and financial crises our endurance is evident. The latest conundrum that we have faced in recent months is the relative strength of sterling, particularly against the euro, and this will continue into the forthcoming year.

Much has been written about the strength of sterling and the obvious negative effect on exporters but there are large offsetting factors, not least the effect of cheaper input prices of raw materials and we remain positive. Combining this with the strength of our distribution in the coming year I remain confident that it will be 100 not out.

brucepackard

Many of my friends work at Panmure's - but doesn't mean I like the shares. I suspect the business doesn't cover it's costs on secondary market trading commissions, so is highly reliant on IPO market. Rather than blame the employees, I would point out that large banks in 2008 were bailed out by the Govt - but smaller stockbrokers which are not systemically important are allowed to fail.
It is not a level playing field - actually it is worse than that - as an employee of a small stockbroking firm you pay your tax, and see the Govt use your tax to fund your competitors, who then poach staff from you, paying vastly more than is economically reasonable. Anyway - happy for the Qatari's to continue to own a large stake in it (alongside VW and Glencore)

Laughton

What? No updated comments from TW on today's Boohoo's results??

Small Cap Value Report (29 Sep 2015) - BOO, PMR

Boohoo.Com (LON:BOO)

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Paul Scott

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