Small Cap Value Report (5 Oct 2016) - TPT, BDI, DPP

5th Oct '16 by Paul Scott

34 comments 21352 reads

Good morning!

It's very quiet for news today. So to start you off, here is the link for yesterday's report - I added 4 more company sections to it last night, namely;

SCS (LON:SCS) - excellent results. However, it's low margin & highly cyclical.

Ab Dynamics (LON:ABDP) - in line trading update.

Revolution Bars (LON:RBG) - my first look at this bars operator. Looks potentially interesting.

ST Ives (LON:SIV) - horrible balance sheet puts me off.

Boohoo.Com (LON:BOO)

I imagine many readers here are as flabbergasted as I am, at the extraordinary and seemingly relentless share price rise here.

It's a fantastic growth company, as I've been saying consistently since Jan 2015, but I really didn't imagine it would 5-bag so quickly. On conventional benchmarks, the valuation looks very aggressive now.

Personally I've top-sliced several times now, but am kicking myself for not having more courage of my convictions. It makes me almost weep to think how much profit I could have made, if I'd just held my original position, and not touched it. Ho hum. Run the winners, as the old adage goes.

IG TV

This afternoon I'm visiting IG's offices, to record another video interview about small caps. They've had me on a couple of times before - here's the link to the last one. I love rambling on about small caps to anyone who will listen, so we're making these interviews a quarterly thing.

Topps Tiles (LON:TPT)

Share price: 103.5p (down 7.2% today)
No. shares: 192.0m
Market cap: £198.7m

(I no longer hold any position in this share)

Trading update - the market doesn't seem to like today's update, which covers the 52 weeks to 1 Oct 2016.

It's a refreshingly clear update, with detailed sales growth figures, per quarter. The problem seems to be that sales growth slowed in Q4 (Jul - Sept 2016), as you can see from the table below;

I've highlighted how the most recent quarter saw LFL sales growth slowing from +6.2% in Q3, to +1.4% in Q4 - which is quite a marked deceleration.

Reasons given are that c.1.5% of the fall…

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tabhair

5th Oct '16

Well done to Boohoo.Com (LON:BOO) holders, some spectacular gains in the last few days. I know I am going to get some thumbs down for this, but I think you would really want to re-assess the situation at this point. This thing is now more expensive than Amazon!

Market cap: £1.35bn
Enterprise value: £1bn
Revenue £200M
EBITDA £20M
Free cash flow: £5M

EV/EBIDA; 50
Price/FCF: 270
Price/earnings: 70

No matter what metric you go by, the valuation is in the stratosphere. Roughly extrapolating based on current revenue and profit margins, this company needs to be doing about £800-1000M in revenue with an 7-8% net margin to give a decent return to shareholders. Considering it's at £200M revenue now, they need to grow that by 3-4x. Based on a current clip of 40% revenue growth, it'll take them 5 years or so to get to that level. That's assuming Boohoo can continue to grow revenue at 40% for the next 5 years (seems unlikely), it's assuming some new competitor doesn't come in and make them obsolete (no idea), it's assuming that competitors don't come in and squeeze margins (seems likely).

I hope I am proven wrong, but as we saw with Crawshaw (LON:CRAW) just recently that any slip will see this one clobbered. Good luck regardless.

Velo

Not in Boo but yes the technicals look staggeringly overbought. Nevermind the PE ratio the RSI is a nearly chart busting 89RSI !!!
But here's the thing:

It's been way overbought above RSi70 several times this year and previously.

And guess what?

Yes it does retrace but not in a gut wrenching way. If you weren't checking daily you might not notice it coming off previous overbought highs before continuing.

So if you're hanging on, there's nothing to support a hellish retrace only a gentle is-that-all? kind of retrace.

jonthetourist

I have just sold one third of my holding for what I paid originally, so it's a free ride now as far as I am concerned.

Thank you Paul for the original analysis, which gave us a chance to get in early. Thanks also to my daughter for regular updates on the consumer view. She refers it as disposable fashion, but the chance to be wearing something new without spending a lot.

"Run your winners". Yes, but don't run them into the ground.

Good luck to all.

Jon

lucien2k

I love Boohoo.Com (LON:BOO) and I'm up about 60% this year because of that and some of the NAPs but it felt a little overcooked to me today so I closed out my position (at 119).

I do plan to get back in, but I feel there's should be a pause for breach in the next few days. The results were great, but we knew they would be pretty good, up over 20% since Friday is a big jump.

MichaelFBS

Boohoo.Com (LON:BOO) I am not sure I am qualified to give the bull case on this one but revenue is up 10 fold in five years, net profit up 135 times in the same period, ROCE, ROA, ROC all look pretty good and finally the Stockopedia ranks of 90, 3 and 98 in terms of quality and momentum are still very good.

In the Interims released last week the company announced: "rest of Europe up 41% (41% CER), USA up 93% (81% CER)". In the accounts published for year end Feb 2016 revenue was given as:

U.K. £130,096m
R of Europe £22,630m
R of the World £42,668m

If they can replicate sales per capita and similar growth in R of E and R of W then ambitious sales expectations can be justified and of course all importantly realised.

It does seem that in general people look for reasons to top slice rather than reasons why to hold through thick and thin while of course watching the stock carefully. Owners do the latter and that is how try to think of investments like these.

I hold Boohoo.Com (LON:BOO) and it is 21.2% of my ex cash portfolio and 16.5% inc cash. It is 6.2% of portfolio inc cash on a cost basis. I will be intersected to see what reaction this post gets if any. I hope not too many thumbs down!!

Yes I feel unsure because this is somewhere that I have never been before. But at the moment I am tempted to hold in there as I would imagine any retrace meant in the short term will be short lived.

PhilHofGrowYourDough

For those of you wanting to keep a tight stop loss on Boohoo.Com (LON:BOO) you could consider using the Tenkan Sen on an Ichimoku Chart. The Tenkan Sen (the red line) is a fast moving average and has done a pretty good job of spotting good places to take profits since August.

Best of luck
Phil

lightningtiger

Boo finished trading today with 22M shares traded compared with an average volume of only 6.8M which may account for a spike up again today, It has never hit the stop loss yet. Must admit because it is overvalued, it is a bit scary & if a big sell off takes place it could be a big drop.I'm sure quite a few people have been top slicing or happy with a good profit and coming out. It's certainly had a great run so far.

Damien84

@Paul Scott and other readers who have top-sliced/taken profits in Boo

Taking some money off the table and booking a profit is absolutly the right thing to do. You never can know when a market will be wiped out or a reversal will make you give back some of those gains. Or as the saying goes : Bulls and Bears make money. Greedy pigs get slaughtered..

Taking a profit is the most difficult thing to do imo. Its the only way to be a winner in a game where so few can.

PJ0077

6th Oct '16

"Taking a profit is the most difficult thing to do imo."

Taking a profit is easy. Taking a large profit easier still. But booking a loss is what most investors find difficult to do!

WhaleHQ

Note to the world: don't look at the boohoo chart if you suffer from vertigo.

DVB99

In the case of Boohoo is a difficult one to call -it will very much depend on personal risk profiles and what % of your portfolio it is.
I bought at 29p, and recently sold 40% of my holding at 102p. so i have come away with about 35% profit and retained 60% for free, which i'm happier to let run now

@Pj0077

Taking a loss (Small) is a very easy thing to do if a trade is properly planned like should be. I have no problem cutting a loosing posistion. Its when price reaches a profit target that greed gets the better of me, and im sure most people have experenced holding a big winner only to end up selling at a loss.

If taking a large profit was indeed easier still then we would be successful traders and investors in a market where more people loose then win.

Carey Blunt

I agree with Velo's point about the fact that it hasn't (yet) retraced in a gut wrenching way and so if you top slide with the intent of buying back in again when it drops then its really difficult (I would say impossible) to (a) pick the right point to sell and (b) pick a point to buy back in again.
Inevitably you just end up missing out on growth.

I would venture to suggest that for Boohoo.Com (LON:BOO) , any attempt to do that will likely leave you worse off than just holding through any retrace. At least thats been true so far.

I think you either hold on and ride though any retrace or you take your money off the table and find another share to put the profit into other than Boohoo.Com (LON:BOO) .

themagic85

16th Nov '16

Has anyone been interested in Topps Tiles (LON:TPT) recently following the continuing decline in share price? I note Paul mentioned he would be interested if it fell much below £1 and it continues to drift downwards towards 80p. I couldn't find much in their reports around how much of their costs are in foreign currency so not sure how much they will be impacted by FX next year.

I presume the market is pricing in some decline in revenue as even if the growth continues at the 4Q rate it still looks okay value to me.

Laughton

25th Nov '16

Development at Boohoo.Com (LON:BOO) ?? - https://s3-eu-west-1.amazonaws.com/document-api-images-prod/docs/LASJ9bhlzXpmGfrwB--uxuTV5QwXgBEvSm7VZBSaIPU/application-pdf?AWSAccessKeyId=ASIAJCCGKUUIY5K6E5VA&Expires=1480069379&Signature=ii0doffXd%2B%2B1n4I3MEJcOeUwseY%3D&x-amz-security-token=FQoDYXdzEND%2F%2F%2F%2F%2F%2F%2F%2F%2F%2FwEaDKKbfUfrAShjYsvW9SKcAzYztCDVtE2C8FL8AvC7suU6Mj8G7SaNjBOaMcyoOApLsOiRjPDISsijOzC36a7GqKMd5zdMW8%2BxcyD%2Fk%2BSMYkCvDiUMAFSYXALQBgSRCpvCI510ASslyw8oCPdfLcWvPCF9pPIeRaCI3oEJN%2Fy0S3s5xbDp%2BqfnNnA6QzEehFRFXXfkZCMhC4ZSsvTjkKPu%2BqtNzkPDniwiDLwbC97AwB45Dvrb7AIAJoLBti3nPDEwYLwFkC77hM7I57gk58b7G22mSt2rd%2B%2BPeWmmteRYiL8lJgF2fY1e1Ws%2BJ0p3YiG3w9gKGY3Ws%2BpFfG9WGp2GfhyRbl%2BOm7BzqynwlBs4LbEokj8u2Fx8Llgs3LJkIK9iqDCS7Lk2X6BQ78odgD4iSIJ6ag5JfsD2X98fvD1AkstFmA4DPVwX%2BCplVbcoe7nmOjIvusZf24vvHOzerKanDn5hupNy5OpfroyIMUEiKKWdLmbZUGtSG5%2BGHVn7cUGcJyn47tQ0R4EdlckFakoWrwfySSOdVyyBrRbl9OvepRdiHYAcb9i9MP9Iqooo%2Fb3fwQU%3D

Topps Tiles (LON:TPT) import the vast majority of the products that they retail.

Last year their 'costs of goods sold' was £82m - inflating this by this years 15% fall in GBP would inflate the bill by £12m.

By comparison, last year's Operating Profit was just £19m.

So profits will fall be decimated unless Topps Tiles (LON:TPT) can successfully pass through the cost increase.

This is clearly a problem for all UK retailers in 2017, with pricing power the key differentiator.

Ramridge

Hi Paul - did I miss your commentary on Tracsis (LON:TRCS) ? And your meeting with the CEO?
The reason for asking is that this co. has been flagged as a potential beneficiary of the Chancellor's Autumn Statement (infrastructure spend, etc).
Putting aside a tendency to put out opaque accounts, IMO the company is actually very sound and run by a very competent CEO. I bought a small holding as a foothold.

Sorry - that link re Boohoo.Com (LON:BOO) didn't work. Go here and click on "view PDF"
https://beta.companieshouse.gov.uk/company/10487954/filing-history

Paul Scott

26th Nov '16

Hi Ramridge,

Sorry, I haven't got round to reviewing Tracsis (LON:TRCS) accounts. I had to ask John McArthur if he wouldn't mind me deferring our annual interview until I've got a moment to breath & catch up.

It should happen in the next fortnight. Bear with me!

Regards, Paul,

14th Dec '16

Kudos to all those on this thread (Purpleski, Velo and PetertheGreat for example) who said they would hold Boohoo.Com (LON:BOO) when the value looked toppy rather than sell or topslice and gave reasons. Including Paul, who I think sold but said that he wished he had the nerve to Hold and not top slice or sell out and wished everyone good luck with holding.

Anyone advocating selling and getting back in lower would have had to have had spectacular market timing. At the time this article was written you could in theory have got out at 120 and back in at 108 or maybe a few weeks later you could have got out at 127 and back in at 114.
Thats a 10% gain minus trading costs etc, however you would have had to have had a crystal ball to have managed that. Likely you could have made 5% with less luck but I would guess that most people didn't get back in before todays news and so will probably have missed the boat.

For everyone else, who gave great predictions of doom and lectured on greed. Maybe its worth thinking about what you missed here, i'm not saying you should do anything differently as everyone has their own style but everything in investing is a lesson to be learned in my view.

Small Cap Value Report (5 Oct 2016) - TPT, BDI, DPP

Boohoo.Com (LON:BOO)

IG TV

Topps Tiles (LON:TPT)

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Paul Scott

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