Small Cap Value Report (Mon 17 Dec 2018) - ASC, BOO, SOS, SFE, PHTM

Monday, Dec 17 2018 by

Good morning, it's Paul here.

I knew it was going to be a bad day today, at approximately 06:52, when I knocked a tumbler of water all over my iPhone, trying to turn off the alarm. My late grandmother always told me that bad things happen in threes - which always struck me as possibly not the most soothing thing you can say to someone who has just experienced their first bad thing of the day.

Thankfully, I have since accidentally poured cold water into my cafetiere, and spilt a carton of milk all over the kitchen floor. Therefore my quota of 3 bad things is now complete, and today should just get better from here.

Or so I thought, until looking at my share prices. Let's hope that doesn't constitute the start of a second batch of 3.

A profit warning from perennially over-priced Asos seems to have caused some problems this morning. Therefore, despite being a larger cap, I'll check out what Asos is saying, looking for sector read-across. I'll also later look at the update this morning from Boohoo (LON:BOO) .

There seems to be a pattern emerging of (some) clothing retailers saying that November trading was poor - e.g. Sports Direct said that trading was "unbelievably bad" in Nov. Bonmarche Holdings (LON:BON) put out a horrible profit warning recently. As did Superdry (LON:SDRY) .

Therefore it seems likely that others could be following suit with profit warnings. Hence why it's carnage in the whole sector at the moment, re share prices. The market tends to shoot first, and ask questions later. 


Share price: 2539p (down 39% today, at 11:27)
No. shares: 83.87m
Market cap: £2,129.5m

Trading update (profit warning)

This online fashion retailer announces a slowdown in Q1 (Sep-Nov 2018) sales growth.

Last year (ending 08/2018) Asos achieved +24% revenue growth. This growth rate has slowed to +13% (at constant currency, or +14% as reported) in Q1. Note that;

  • November was particularly difficult (as others have reported) - not helped by unseasonably  mild weather (which does genuinely have an impact, as people don't buy higher value outerwear)
  • Conventional retailers would die for revenue growth of +14%, so this is still…

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Photo-Me International plc is engaged in the operation of sale and servicing of a range of instant-service equipment. The Company operates coin-operated automatic photobooths for identification and fun purposes, and a range of vending equipment, including digital photo kiosks, amusement machines, business service equipment and laundry machines. The Company reports its segments on a geographical basis, such as Asia; Continental Europe, and United Kingdom and Ireland. Its products include digital prints, photobooks, posters and collage posters, calendars and photo-cards. It offers children's rides, such as carousels, generic rides, character licensed rides, simulators and interactive rides. It operates approximately 27,000 photobooths, over 6,000 children's rides and approximately 4,700 digital kiosks in areas, such as shopping centers, supermarkets and rail stations. Its subsidiaries include Fowler UK.Com Limited, Prontophot Austria G.m.b.H. and Photomatico (Singapore) Pte Limited. more »

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Asos PLC is a global fashion destination for a range of things. The Company sells and offers a range of fashion-related content on The Company's segments include UK, US, EU and RoW. It sells over 85,000 branded and own-label products through localized mobile and Web experiences, delivering from its fulfilment centers in the United Kingdom, the United States, Europe and across the world. It offers approximately 75,000 separate clothing ranges, spanning women's wear and menswear, footwear and accessories, alongside its jewelry and beauty collections. The Company's collection of specialist own-label lines includes ASOS Curve, ASOS Maternity, ASOS Tall and ASOS Petite. The Company caters a range of customer segments and sizes, across all categories and price points. It also operates returns centers in Australia and Poland. It operates country-specific Websites in Australia, France, Germany, Italy, Spain, Russia and the Unites States. more »

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

47 Comments on this Article show/hide all

barnetpeter 17th Dec '18 28 of 47

Asos is a real shocker. It is the bellwether of online. I walked past a Quiz shop last week...empty. It is as if many folk are thinking we don’t know what will happen next year so let’s have a skinny Xmas and reduce or not increase debt and wait and see. I know mortgage applications are being rejected all over the place. I read an interesting article last night where a professor said that he did not think the mkts had priced in the impact of a no deal. Some of the smartest private investors I know are sitting at 90 per cent cash. I reckon the mkt is reasonably cheap but I think it is going to get a lot cheaper. Both in terms of the stock mkt and property mkt. toughest thing I find is to sit on my hands and do nothing....but I know I must. Cash won’t run away. January and February could be really dire and I just cannot see stocks higher esp if poor results start to be issued.

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paraic84 17th Dec '18 29 of 47

In reply to post #428048

Remember QUIZ (LON:QUIZ) has already reported on sales for the majority of November:

"Since the end of H1 2019 we have continued to grow Group sales. In the eight weeks to 24 November 2018, sales (excluding international franchise sales which are wholesale in nature and therefore, can fluctuate from month to month) are up 10% year on year. This growth has been underpinned by particularly strong sales growth through the brand's own websites of 62%."

QUIZ (LON:QUIZ) particularly focuses on occasion clothing (e.g. parties, weddings) so may be slightly more insulated from the negative impact on warmer clothing that we're seeing.

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bobo 17th Dec '18 30 of 47

I know I'm not the right demographic by I've watched the boohoo various adverts in the last month or so and have no idea what the are advertising. Retail is detail.

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sharw 17th Dec '18 31 of 47

So Marks and Spencer (LON:MKS) is down in sympathy this morning but it should not be a surprise. Normally the two weeks before Christmas see peak prices but not this year. M&S is offering me 20% off everything except food and drink until Thursday. Last week I shopped in Tesco with an £8 off £40 voucher and found that they had a 25% off 6 bottles or more of wine promotion.

This is worth reading as a reminder:

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HHR 17th Dec '18 32 of 47

According to the met office (

"The provisional UK mean temperature [for November] was 7.3 °C, which is 1.1 °C above the 1981-2010 long-term average."

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Zipmanpeter 17th Dec '18 33 of 47

Many thanks to Paul (in his " read across to other retailers" section for the link to the 30mins Sosandar video posted on you tube. First time I had seen Julie Lavington perform . Clearly understands her consumer and she was in command of both her people and the business data. Very positive impression. Well worth watching

Talk was uploaded on 6th Decand included lots of graphs showing eg marketing spend separate from logistics and other admin My favourite was a classic 2x2 grid showing top left young fast fashion brands for 20 year olds (Zara, Top Shop, Asos) and bottom right "Mumsy Middle Ground). Of course, Sosansdar was unopposed in top right!

Julie said Nov 18 was a new record (no surprise for new business) but gave no indication of anything other than rapid growth with products selling out and going on wait list and expansion to new categories like scarves flying.

Since they are so small they can grow X50 before worrying about the market; they just need to find their natural customers. My only query will come when the business has grown so much the co-founders can no longer directly supervise the design side and the business will have to go more corporate. However, this is probably when urnover is >£100Mn vs current run rate of around £4mn pa annualised

I already had a small position but gifted by today's pullback, I am buying more.

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SundayTrader 17th Dec '18 34 of 47

I thought the question to ask about £ASOS is why on earth the price was so high before. A market cap in the region of 7bn, for a retailer with sales in the region of 2.5bn, just seemed divorced from reality. After today's "shocker" we are still seeing a business with revenue growth of 14%, and an underlying forward PER somewhere around 35. Still expensive, but there must be a decent business in there, once the current heavy capex winds down.

On the negative side, why are their operating margins half those at £BOO? Suggests Boohoo (LON:BOO) is the better business - as obviously a lot of other people think.

I don't own any retailers, but starting to wonder whether I should.

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Jenny Williamson 17th Dec '18 35 of 47

In reply to post #428128

ASOS (LON:ASC) sells branded goods therefore paying for the privilege. Boohoo (LON:BOO) sells their own high fashion range - fast, cheap, responsive to demand. I sold  Superdry (LON:SDRY), ASOS (LON:ASC)  and Sosandar (LON:SOS) a while ago.  Long term holder of Boohoo (LON:BOO) and Next (LON:NXT).  I see Next (LON:NXT) and their excellent management adapting to the  retailing market using their established distribution networks.  They serve different markets - one very young, the other middle-aged but both fairly neutral on branding.  I would never invest in branded gear now, fashion is moving way too fast .  I'm not convinced about Sosandar (LON:SOS) as I don’t like their merchandise and can’t identify their target market.  They are not profitable so I'm steering clear for now.

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DJCP 17th Dec '18 36 of 47

Seemed to be retail-carnage-day today !

I sold 40% of my Boohoo (LON:BOO) holding on 16th Nov for just over 200p, and didn't expect to be able to rebuy those for sub 160p so soon. Back up to my main holding level for BOO, and hope the 15th Jan T/U isn't a disappointment.

Also had a small dabble with two other retailers today. After my purchases, one dropped a further 5% and the other finished up 5%, so cancelled each other out.

Having sold part of a core holding to make these purchases, my trades today (4) exceed my average monthly number of trades (3) !

With retailing on my mind, and whilst chatting to an avid Marks and Spencer (LON:MKS) shopper, I decided to have a quick look, and was quite surprised at their 5-year summary. Turnover has remained in the £10b region, but PBT for 2014-18 has been £580m, £600m, £489m, £176m, £67m - quite a dramatic downturn. Without checking, I presume there are other B&M retailers showing the same (or worse).

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wildshot 17th Dec '18 37 of 47

Many thanks for your great analysis Paul. I look forward to your Photo-Me International (LON:PHTM) review as it will be interesting to read other views and if the price is fair or the share has been beaten down too much on trading results and general stock market action.

The retail sector is certainly battered today. As a holder in French Connection (LON:FCCN) in light of their transformation plans and the up for sale sign I was a little surprised to see their price pushed down strongly today too. It leaves me pondering whether to increase my stake since with 4 potential suitors a nice bidding war could emerge. And it has very little to do with ASOS!

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bestace 17th Dec '18 38 of 47
The key question is whether this is a temporary dip, or whether online sales growth has now peaked? I saw an article recently which suggested that online is levelling off in Germany, as everyone who wants to buy online is possibly now doing so. Whereas in the UK, consumer appetite for online purchases shows no signs of abating

I think this is conflating two different things - online penetration of users (being the percentage of all consumers who have recently bought something online) and online retail sales penetration (being online sales as a percentage of total retail sales).

Germany's online user penetration is indeed pretty flat at around 80%, but this translates into online sales of around 15% of total retail sales, which suggests to me that there is ample room for growth even if user penetration stays flat and even if some categories of retail sales remain resistant to the shift to online. (I think the corresponding figures for the UK are around 80% and 18% respectively).

Over the weekend I was watching a video of Benedict Evans (of Andreessen Horowitz) making this very point. He included this chart to make the point that "most people are online but most of the money is not":


For anyone prepared to take the long view and look past any short term weak consumer sentiment, there is still plenty of money to be made in online retail, but whether ASOS (LON:ASC), Boohoo (LON:BOO), Sosandar (LON:SOS) or none of the above will be long term winners, I have no idea.

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dahokolomoki 17th Dec '18 39 of 47

In reply to post #427983

Probably the Rightmove report out today showing property prices decreasing over the last 2 months, and new listings also decreasing (which will probably mean a slowdown in transactions).

Less transactions, less home buys, less furniture needed.

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Aesurgenor 17th Dec '18 40 of 47

In reply to post #428063

It looks like one of the directors of SCS (LON:SCS) saw it as a buying opportunity.

I hold (mainly for the dividend)

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sharmvr 18th Dec '18 41 of 47

In reply to post #428188

Amazon it is then! :D
No (direct) holding in amzn or other shares mentioned. Can't handle the multiples

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Paul Scott 18th Dec '18 42 of 47

In reply to post #428128

Hi SundayTrader,

Thanks for your comments. I have been saying for, literally years, that Boohoo (LON:BOO) is a better business than ASOS (LON:ASC) - because BOO is run by astute rag traders, who know how to make a margin. Asos isn't. Hence why it doesn't make any real profit or cashflow.

Nice to be vindicated. Even though I sold my 500k Asos shares at 9p for a nice profit, and then shorted it (numerous times!) from 350p up to 7000p, losing money almost every time. LOL!  ;-)

Equally, BOO made me a few hundred £K, but could have been millions, if I'd just sat tight, from the massively positive comments here when it was 24p.

Such is life! Nobody can time the lows (buys) and the highs (sells) every time. Anyone who claims they do so, is a fraud!!

Best wishes, Paul.

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Paul Scott 18th Dec '18 43 of 47

In reply to post #428108


That's interesting, your data;

"The provisional UK mean temperature [for November] was 7.3 °C, which is 1.1 °C above the 1981-2010 long-term average."

I spend my time between London, and the South coast. So to me, it never really feels properly cold, until we get a cold snap, and some snow. The rest of the time, I just go around in t-shirts, and my red gilet from Primark, and maybe in Dec & Jan I might put on some fingerless gloves from Primark, and a beanie.

That's about it.

So I've never really understood why people buy winter coats, etc.

I spend about 10 minutes outside, and Mum asks me why my arms are not cold, wearing just a gilet. I reply of course that it keeps my rotund torso warm, and hence continues to supply my arms with hot blood. My arms would only go cold if the supply of warm blood stopped. Which of course would be terminal anyway, so cold arms would be least of my worries in that scenario.

Bottom line then? Winter coats are not necessary if you don't care about fashion, and maintain a BMI of 25-30 over the winter - which is similar to what penguins do, I believe.

OK, I'll stop now.

Best wishes, PaUL.

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jonesj 18th Dec '18 44 of 47

In reply to post #428173

Boohoo (LON:BOO) looks to be worth a punt at this price following their positive trading statement and considering the track record for profitable growth.

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WhaleHQ 18th Dec '18 45 of 47

In reply to post #428223

RE: Gillet, I've never been in a situation where my body is cold but not my arms. Please can someone explain the point of this garment?

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Silver Moon 18th Dec '18 46 of 47

This is the season for hostile takeovers, shares being so low-priced by a nervous market, that if I were a susceptible company I would load up with debt just to keep predators away. Does this answer Paul's question about PHTM?

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smatthews1 18th Dec '18 47 of 47

In reply to post #428433

Interesting view to take into account. Would it also be fair to consider a tax offset. with interest rates still quite historically low, one could argue it would be more economical to pay interest on debt rather than a higher tax bill?

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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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