Small Cap Value Report (9 Jan 2017) - BOO, SAL, PTSG, PUB, ZTF, REDS, ANCR

9th Jan '17 by Paul Scott

38 comments 22530 reads

Good morning!

Today I'll be covering the shares noted in the header. Graham intends adding a section on ANCR later this afternoon, once I've finished.

Boohoo.Com (LON:BOO)

Update on Nasty Gal acquisition - as mentioned before, BooHoo is the "stalking horse" bidder for the IP and customer lists of bankrupt American fashion etailer Nasty Gal. There is now a wait until 2 Feb 2017 to see if any other bidders get involved.

It's too soon to count their chickens, but if BooHoo's $20m bid is successful, it could turbocharge its growth in the USA. I think this is one reason why BOO's rating has gone through the roof - international expansion is going very well already, and with Nasty Gal potentially on top, then who knows where this ambitious company might end up?

The Board believes the proposed transaction has the potential to accelerate the Group's international growth, particularly in the US, building on boohoo's existing customer reach and product range across the globe.

I so wish that I'd stuck with this one, and not sold out way too soon. I've still got a tiny residual holding, via my local share club in Hove. Well done to those of you who sat tight - it just shows, a toppy valuation can sometimes just be the sign of a great company that's going places.

Spaceandpeople (LON:SAL)

Share price: 17.25p (down 21.6% today)
No. shares: 19.5m
Market cap: £3.4m

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

Trading update (profit warning) - good grief, yet another profit warning from this very disappointing specialist marketing tiddler. From what I can gather, most people have either given up in despair, or are still holding but would rather not discuss it.

I wouldn't normally report on something with a market cap this small. My usual size cut-off point is about £10m market cap, as things get too illiquid below that. However, SAL is a stock I've covered here a lot before, so it makes sense to continue covering it, for now.

Christmas trading was weaker than expected in the UK retail part of the business, although other divisions traded alright.

Retail Merchandising Unit ("RMU") sales were significantly lower than had been anticipated with demand over the normally lucrative Christmas period being particularly weak.

The financial impact is given (partially);

Overall, revenue for the year…

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bobo

9th Jan '17

I'd bank the punch profit, a declining industry and bank the SAL loss as well (keeps the capital gains down). Market is as high as an elephants eye and Trump is about to P@@@ on our chips so get cash now.

ANCR, looking forward to this nice little business write up.

I am glad I am holding G4M from the 145p days, not sure up to where this will lead us to? Any thoughts?

fwyburd

Hi Paul,
Happy new year to you.
I invested in Marlowe (LON:MRL) last year (2016). Its a buy and build backed by Lord Ashcroft and led by Alex Dacre ( ex £IMP; £RST). Market cap is about £120m today. If it piques your interest, I'd love to know what you think.
Cheers
Francis

kenobi

One thing to add, it's not just shopping centres, remember that they have signed a big deal with network rail to use space in their major stations.

However, I feel these aren't really good long term prospects, How much spam is thrown at you these days at shopping centres / stations ? I was recently at waterloo and noticed how much more built up it seems these days. So many things that you might once have spoken to someone on a stall about, are now comodotised, Mobile phones, energy supliers, sky tv/virgin, there are online search engines for all these things, generally you're busy, and don't want to be sold to at these times, especially at the stations. So I can't help but put this in the category of "waiting for an out opportunity", although I know I should have sold ages ago, indeed whyever did I buy into this "fad" company. I'd consider it the same as the abulence chases like red and all those, they probably sell to such organisations. Anyway, my point is that it's one of those flimsy businesses where you can imagine that it just works less effectively over time. Could be me, but just my view,

I hold a few, keep thinking things will get better but they don't .

K

sharw

Paul - had a look at PTSG for the first time - I like the company but not the balance sheet. At 30/6/16 funds were £11.0m of which £10.6m intangibles. At any sign of trouble the latter can dissolve like snow leaving not a lot to support the £7.7m net debt. Like Samsgrandad I suspect a placing of shares will be needed sooner or later.

Ken Lowes

Paul
You are very good at the job you do and to quote you " I made millions until I got cocky and then lost it all" you know that you are not alone on that one, some of the greates names in the business can tell a similar story, some never got over it and made the leap to heaven. Boohoo is suicidal investment you got out when your good sense told you to "once bitten" the fact that it went stratospheric is history and rare. You only have to look back to the tech stocks of the year 2000 and most of them are long gone. Making money makes you a winner, making money wisely makes you rich.
Ken

whitmad

BOO, like ASC, or ARM as was are successful high growth companies with real and growing earnings. Yes, risk of a significant fall is higher for these growth companies (as with ASC in 2014), but the dot-com boom was about wishful thinking and fantasy ideas that never did and never would make a profit. BOO may drop, but is unlikely to be wiped out.

Howard Marx

The TMT 'bubble' of the late 1990's is often ridiculed as a period when investors in aggregate exhibited mass hysteria.

Yet there were some great IPO's at the time. Amazon was IPO'd at $18 in 1997 (now $800). Later IPO's included Google & Facebook. These three companies are today amongst the largest in the world by market cap.

Maybe Boohoo will enjoy a similar stellar performance in years to come?

Cisk

I've held EKF Diagnostics Holdings (LON:EKF) for several years and bailed out when the bad news started to come through and started buying back last year. Met Julian Baines the CEO a few times at updates held at panmures. He comes across well and clearly expresses where the business is heading, and is well aware of past mistakes and is clearly anxious not to repeat those. So I'm not surprised the update was positive this morning, indeed he alluded that the forecasts would be exceeded. I hope we'll see more good news throughout the course of the year. Animalcare (LON:ANCR) had another great update, the growth in European sales was excellent, albeit from a low base, and although they are not cheap I've no intention of selling.

Todays report reminds me of a few things I've learned from investing: 1) it's never bad to take a profit. If a stock doubles then you can always sell half and still have skin in the game. But don't lament having sold out, and you can always buy back again. 2) every stock will have its day, it's just timing. Some of my best investments have been companies I've previously held, sold after they went down, then bought them back and they go on to do very well, either because their strategy has changed, board changed etc. some people put a stock out of their mind once they've sold it, but often it's worth revisiting it - after all, you've already done the research and know a bit about the company.

Anyway, I'm no expert investor, otherwise I'd be a millionaire from it! Just wanted to share some thoughts.

Carey Blunt

Forgive me for saying so but the Stockreport for Marlowe (LON:MRL) doesn't look very inspiring. What exactly are you saying that buys and builds? It looks like a Belize based shell company with no revenue which makes a 7.7M loss a year according to the Stockopedia figures....

"Marlowe Holdings Limited, formerly Shellshock Limited, is a Belize-based investment company. The Company's primary objective is to invest in controlling stakes in one or more unquoted businesses in the business services sector that possess annuity-type recurring revenues, predominantly long term contracts, low capital intensity, some operational complexity, sustainable margins and high barriers to entry."

Am I missing something? What does it actually do that you think is worth investing in?

Benson212

I agree Kenobi. In my opinion, the company needs to change its strategy and move into the digital marketing space, especially for retail advertisements.

The article shows the classic investor behaviour of selling your winners too early (BooHoo.com) and keeping hold of your losers (SpaceandPeople) in the hope that the share price will bounce back. At the end of the day, the fundamentals of the business are changing and it's now becoming a "Jam Tomorrow" stock. If one of my investments did this, I would sell, wait until the stock becomes "Jam Today", then buy at a reasonable price (if possible).

As you can tell, I'm not a contrarian investor and I believe momentum/growth is an important factor in investing. However, a true contrarian investor will rubbish what I'm saying and hold the position (or even buy more!). If I held a position in SpaceandPeople, I would go back and review the reason why I bought the security in the first place. If the reason still holds then I would hold or buy more, if the reason has changed for the worse then I would sell. The opportunity cost of holding onto a stock which languishes at historical lows doesn't fit my style of investing and doesn't deserve a place in my portfolio.

NB: this does not constitute as investment advice.

jonesj

I bought Boohoo at 25.3p. Sold 75% of my holding at between £1 and £1.20.
The remaining 25% is currently a 5.7 bagger.

I also get a nosebleed at these PE ratios, but it has got me to look more closely at GARP shares, which this one was when back at 25p. This one happens to have worked and I can even take a few losses, if the winners do very well.

Not that I'm going to be getting too reckless after such a long bull market.

The Phoenix

Hi Paul great stuff as always.

Any chance you and Graham could put together an article highlighting 5-10 stats on Stockopedia that you scan as part of your screens for red flags to help us less experienced members.

As an example one I picked up from you was to check the average shares in issue stat to spot those companies issuing paper like confetti and crushing earnings per share.

I think it would prove very popular and help people get a grip on some of the stats to look for giving a man a fish and teaching him to fish anecdote.

Thanks in anticipation.

Andy

Jenny Williamson

I bought BOO at 26p but was a very small holding. Ive hung on to the total holding it as its still only constitutes less than 5% of my portfolio, above which I would start to top slice. But for me this share has such a massive potential ahead of it particularly if it can break into an American market with an established brand name that can be backed with their logistics expertise. If management can successfully migrate their strategy, I believe it can run and run - heres hoping anyway!

malc999uk

10th Jan '17

I know this is off-topic, but GMAA caught my eye with a trading update on the 9th Jan as well, stating that they expect earnings for FYE 31.12.2016 to be in line with market expectations, and they also announced a couple of contract wins as well. With a mid-price of £1.67 and consensus EPS of 26.78 thats a PE of 6.3 dropping to 5.8 for FY 2017 consensus EPS of 28.91. The balance sheet looks fine to me also. Now I know aviation companies like this dont usually attract high valuations but I would have thought a forward PE of 10 would be a realistic target - what does everyone else think?

gus 1065

Looks as though one company at least is listening to your request to be specific in their releases about what they think "market expectations" are when they publish their updates. Check out today's update from Majestic Wine (LON:WINE) and in particular the footnotes.

http://www.investegate.co.uk/majestic-wine-plc--wine-/rns/christmas-trading-statement/201701100700097323T/

Nice and clear. Something to be encouraged.

Gus.

shauniekent

My ten pence worth. I held Boohoo and sold out at 80p ish. Whoops.
My thinking then was that it was more than fairly valued. I now think it's overvalued and momentum is carrying it. I am not a momentum trader as i'm sure many of those on Stockopedia are not. Yet many of you will now begin to justify sky high PE ratios with stories of future growth etc. I'm not sayign this is wrong - but the story follows the price, if the price was lingering around 80p, i'm willing to bet on the whole we'd be less bullish.

I would love to buy back Boohoo but not at this valuation. I am personally hoping/half expecting market turbulence at some point in the next year and hoepfully an oppurtunity to buy Boohoo again at a cheaper price (and lower risk) price.

ithomson1

Hi shauniekent,

Do you make this comment before or after the update that Boohoo made this morning? The sales growth they reported was encouraging.

I do agree with your comment that the share is quite highly priced, I don't think I'd want to enter at these levels if I wasn't already a holder.

Hi Carey
Alas your source is over a year old and much has changed since including three more placings and
the acquisition of four companies in the Fire and Water service sector.
£MRL's story so far is best read here http://www.marloweplc.com/. Half year results were published just before Christmas 2016.

I was purely using Stockopedia which doesn't reflect any of the things you mention, maybe we need to check with Ed that the data flowing through for them is right.

Small Cap Value Report (9 Jan 2017) - BOO, SAL, PTSG, PUB, ZTF, REDS, ANCR

Boohoo.Com (LON:BOO)

Spaceandpeople (LON:SAL)

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Paul Scott

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