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 strong 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 and Nasty Gal 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

tiswas 17th Dec '18 8 of 47

I am increasingly seeing Minervini's comment play out with a whole range of stocks.

When a secular leader makes a major top, there's a 50% chance it will drop 80% and an 80% chance it will drop 50%.

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paraic84 17th Dec '18 9 of 47

In reply to post #427943

Paul if you do have time I think taking a look at ASOS (LON:ASC) would be helpful as it seems to be affecting a number of retail shares this morning - especially online ones. I have no expertise on ASOS (LON:ASC) so can't add any value.

Among the shares being sold off in response is QUIZ (LON:QUIZ) - again! It is now trading at c.30p as I write. This is a share whose management have recently said they expect 15% revenue growth this financial year, more than a quarter of the market cap is now net cash(!), dividend now around 5%, and it is trading at a forward P/E of 5.6 last financial year's adjusted earnings per share! This seems to more than adequately reflect the risks associated with its Debenhams concessions. Am I missing something?!

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LeoInvestorUK 17th Dec '18 10 of 47

Well perhaps Boohoo (LON:BOO) were right to issue an RNS given that they were down 20% in early trades on the back of ASOS (LON:ASC) update (and updates from others last week). A pity they couldn't get it out before 8am, but it was clearly well in train before then. Price is still down 10% today at 166p and down from 244p on 1st October, so perhaps a buying opportunity...?

I owned continuously from mid 2015 to mid 2017 and more recently traded in and out several times so I am tempted to attempt to repeat my success. However I get the feeling that the game has changed completely in the last couple of months and now is not the time to pay a forward PE of 35x for any retailer.

[I also had a pairs trade with ASOS (long BOO, short ASOS) on two occasions which was quite profitable after some initial pain, but needless to say I closed the latest one far, far too early!]

Blog: LeoInvestorUK
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tb1234 17th Dec '18 11 of 47

Hi Paul, can you review APC Technology (LON:APC) - "transformational year"

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MBFP 17th Dec '18 12 of 47

Hi Paul,

You may remember me, we met you at Mello?
I was wondering what you think of Scisys?
Awarded an 11.2 million Euro contract today for their Space division and funded by the EU. Proof that their decision to redomicile to Ireland while simultaneously retaining their AIM status has allowed Scisys to continue to benefit from EU funded contracts. They have a long term clients, visibility of booked revenue and low debt.
(I hold).


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Vig 17th Dec '18 13 of 47

SCS down 10% this morning with no RNS. The figures show a stable and consistently growing business so why the big drop? Ex-div was in November. Could it really have dropped so much driven by the retail market as a whole? Seems excessive.

What am I missing?

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Trident 17th Dec '18 14 of 47

Re K3 Business Technology (LON:KBT)

I like the sound of the fact that they have reduced debt quite a bit. They fall foul in their Trading update of Paul's gripe when companies say they are 'slightly' ahead of expectations, but don't bother to illustrate what the expectations are. Those expectations were probably already managed downwards, but still I guess they are at least holding steady?

K3 Business Technology (LON:KBT) emphasise their wins in the retail sector, and it sounds like the European end of retail may be holding up, but what about the pressures on their UK retail sector exposure?

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FREng 17th Dec '18 15 of 47

Manolete Partners (LON:MANO) listed on Friday as a competitor to Burford Capital (LON:BUR) - there's no Stockopedia page for it yet unfortunately. I would welcome any views.

EDIT: Here's an interview with the Manolete Partners (LON:MANO) CEO Steven Cooklin. 

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Howard Adams 17th Dec '18 16 of 47

In reply to post #427993

Hi FREng

Useful link to Manolete Partners (LON:MANO) interview. Many thanks. I have them on my watch closely list.


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Whitbourne 17th Dec '18 17 of 47

In reply to post #427983

I had the same thought as Vig about SCS (LON:SCS) which is currently down around 10% and I think it's credible for the drop this morning simply to reflect the general High Street woes. My rationalisation is that when companies are saying that consumer behaviour is 'unprecedented' then it's understandable for investors, after a weekend's reflection, to take profits on any shares they hold in the sector that have had a decent run. When you see what happened at Bonmarche Holdings (LON:BON) you might think that there is not much upside at SCS after a good run, but plenty of downside if they issue a profit warning. At £2 the shares are back where they were at the start of the year, which is a creditable performance in this market. I hold and have no plans to sell.

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dangersimpson 17th Dec '18 18 of 47

In reply to post #428008

Although the moves across the retail sector have been quite haphazard. Obviously ASOS (LON:ASC) is the big faller, but with CEO Nick Beighton referring to high priced items & men's sneakers as specifically weak areas I'm surprised JD Sports Fashion (LON:JD.) hasn't fallen further. ASOS (LON:ASC) warning also starts to damage the argument that it's worth paying for quality in the sector. e.g. preferring JD. to Secured Property Developments (OFEX:SPD).

SCS (LON:SCS) down 10% but AO World (LON:AO.) flat. I can't see consumers holding back on spending on sofas so they can load up on white goods. Again ASOS (LON:ASC) warning starts to damage the argument that online only retailers are immune. Although Boohoo (LON:BOO) much more confident.

QUIZ (LON:QUIZ) looks stand out bargain to me, now trading close to tangible book value. Reported 62% increase in own website sales at the end of November. Obviously exposure to Debenhams (LON:DEB) but it's reasonably easy to hedge that exposure if one wanted.

A real mixed bag out there and very hard to call in the short term though.

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Vig 17th Dec '18 19 of 47

In reply to post #428008

I think perhaps I needed to hear some consensus behind the market move argument for it to sit better with me. It was quite a shock to see it drop so much but I have no intention to sell (though my stop isn't far off!).

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xcity 17th Dec '18 20 of 47

Market is frit
Nearly all clothes retailers talking about unprecedented conditions. Not just High Street. No visibility on future trading, let alone profits. Be very interesting to read the next Next statement. Relative to what's around then Boohoo (LON:BOO) is looking good. But with no visibility in front, would you buy?

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HornBlower 17th Dec '18 21 of 47

Interesting on ASOS revenue miss from RoW -3% (UK +19%, EU +18%, US +13%). Lots of discounting sees GM -150bps guided to 48%. You might think manageable. Op margin guided down to 2% from 4%! Low margin businesses so risky. Also note increased H2 weighting warning. Not for widows and orphans!

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hayashi22 17th Dec '18 22 of 47

Would be great to have some thoughts on the retail per many of the above posts. QUIZ (LON:QUIZ) looks very cheap -famous last words

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Snoo 17th Dec '18 23 of 47

QUIZ (LON:QUIZ) looks very cheap on these prices.

I seem to remember Paul speculating that their recent woes of bad trading were at least partially down to a poor performing autumn range of clothes. Given that retailers are saying that November has been unseasonably warm (and it looks as if December might go that way too), this might not be so good news for Quiz, and the next trading update could be bad as well.

I feel that the likes of the small firms like Bonmarche and Quiz might end up being obsolete in a few years without a massive change in fortunes. Is the target market for Quiz that much different than ASOS or Next? I feel they are powerless to repel them - a hot selling item by Quiz would just see it replicated by Next, which also then might be replicated by Primark.

Will be interesting the next Sosandar update - apparently November went really well for them, so they could be immune some of these issues.

My gut feeling is that for the 16-30 segment of the market, value is going to become more important. Cannot imagine disposable incomes increasing here, so looking further afield makes sense. At least ASOS have the money to do it, the others will have to ride it out.

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Lordyjordy 17th Dec '18 24 of 47

Wow ASOS down 40 % and SOS down 13%. Would love to know your thoughts Paul......

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mojomogoz 17th Dec '18 25 of 47

In reply to post #428008

I'm a holder of SCS (LON:SCS) now for a few years. Not exactly blown the doors off but picked up a 10% yield on purchase and that has grown along with share price so it hasn't embarrassed itself either.

I warned a friend last week to sell it if nervous. There is a chance they disappoint come next report...I don't think they will but its possible. But a drastic revenue fall is unlikely (exclude HoF outlets). Nevertheless it could fall 30% in the current environment from recent peak for not much reason (taking to a 5 PE with 2/3 of mkt cap in cash, most of that unencumbered, and a dividend yield >10% again).

Its either a really crap business that's going to the wall...or its very ignored/disliked in an irrational way. I thinks its the latter as its smallish, in an unfashionable niche (council house, furnished rental, student digs, etc sofas). Its operating performance has been consistently good. Mgt are very experienced and know who they are and what they do.

Laura Ashley Holdings (LON:ALY) warned that its furnishing business is having tough time so that might be a read across. But its got DFS Furniture (LON:DFS) disease which is being caught in the middle between cheap and luxury...aspirant is the most vulnerable to slow down as this is where the most sensitive squeezed customer is.

If SCS gets any cheaper I think it should be made mandatory for everyone to hold some shares!

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ricky65 17th Dec '18 26 of 47

In reply to post #427953

Minervini calls it the 50/80 rule. On average a market leader will give back 70% of the move.

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andrewdb 17th Dec '18 27 of 47

M&S will no doubt post some awful figures but we all exepected that long ago.
(Fashion) Brands seem to have a lifecycle and on the internet it seems to be faster.
Asked some young (under 25) people about asos.
One said her mum shops there.

This is why the boo purchase of prettylittlething etc is a good move.
But it does speak to a lack of 'loyalty'

I have the feeling that internet years are like dog years.

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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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