Small Cap Value Report (Thu 1 April 2021) - BOTB, CARD, MEAL, D4T4, WEY

1st Apr '21 by Paul Scott

130 comments 13941 reads

Good morning, it's Paul here with the SCVR for Thursday.

Timing - TBC

Agenda -

Best Of The Best (LON:BOTB) (I hold) - Secondary placing. Directors sell down about a third of their (unusually large) shareholdings at £24, a surprising discount.

Card Factory (LON:CARD) - banks grant another 1 month waiver of covenant breaches. Why has share price been so strong, when an equity fundraising is so badly necessary? Very high risk in my view.

Parsley Box (LON:MEAL) - I've reviewed the AIM Admission Document.

D4t4 Solutions (LON:D4T4) (I hold) - 6 contract wins & "comfortably ahead" trading update for FY 03/2021. Looks good.

Wey Education (LON:WEY) - Recommended takeover bid at 47.5p, a nice 46% premium.

Best Of The Best (LON:BOTB)

(I hold)

Share price: 2400p (placing price)
No. shares: 9.38m
Market cap: £225.1m

Proposed Secondary Placing - RNS issued at 18:00 yesterday

For anyone not aware, a secondary placing is where existing shares in the company are sold by a large shareholder(s) (often founders/management, or a cornerstone investor like a private equity firm). So the company itself doesn’t receive any money, and the number of shares in issue remain the same. This method is used when the market liquidity is too small to soak up the number of shares that the seller wants to sell. So it avoids market disruption, by placing large blocks of shares with institutions, in one go.

In this case, there were market rumours recently that, once the FSP (formal sales process) fell through without a deal, management might sell some of their very large shareholdings to institutions in a placing. So this secondary placing didn’t come as a surprise.

Details -

2.5m placing shares, at £24 per share, £60m worth. 26.7% of the total company.
41,666 shares at £24 = £1.0m also available via Primary Bid - very small, so just a fig leaf offer really. I think they should have done a lot more through Primary Bid, which would have improved liquidity by increasing the private investor shareholder base.
Finncap organised the deal.

Result of Secondary Placing - RNS issued at 07:00 today

Placing was oversubscribed - they usually are, because people often apply for more than they actually want, expecting to be scaled back. Also the price discount…

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James Kerr1

3rd Apr '21

Whether it is good journalism or bad is largely irrelevant - the fact is that more than one major media outlet has had yet another chance to take a pop at Boohoo £Boo and its business practices. Selling the same coat for different prices might be ok in theory, but when the media sees a practice that feels sharp and reinforces an existing perception, its going to have legs. Once again they come across as spivvy market traders not an ambitious multinational. Increasingly frustrated hold.

Gromley

1. Does the BBC News website normally have articles about trivial retail price differences on its front page? - NO.

Sadly I think the answer is actually YES. I think it was only a few days ago that they were running a piece on the fact that Supermarket's "own brand" and "value brand" products are often identical (made in the same factory, with the same ingredients, the same process, just in a different wrapper).

That's an equally irrelevant story - I am aware of people who know this but actively buy the high priced item so as not to appear "cheap".

The supermarkets responses to this were very vague and disingenuous, but I don't recall that they directly lied on the subject.

simoan

4th Apr '21

I was making, I thought, a fairly straightforward point about how our preconceived biases affect the way we judge articles.

No. You were using Brexit to make the point that I had preconceived biases! You were addressing me by making an irrelevant general point. That is quite different. Like you, I've read all the books on that subject so am very aware of my own inherent biases before I put anything down in writing. Several years ago, I happened to be watching the BBC News channel when they were filming live from outside Cliff Richards house waiting for the police to arrive. And we know how that ended. So let's not all think the BBC are squeaky clean on matters like this.

I still don't see why this article, three days later, is still the main story on the BBC companies page? But maybe that's just me because I don't take anything the media do at face value. It's a trivial story based on what could be a fake premise i.e. a BBC employee bought the same coat as a friend from a different Boohoo label. Most women I know would be so embarrassed they'd certainly not want the fact they'd bought the same clothes as a friend on the BBC website! They really wouldn't care about a £10 price difference :)

Where we can agree is that this type of red top article has no place on the BBC. Sadly, we can expect much more of this and much less investigative journalism into real issues like price fixing. The former is cheap and easy, the latter hard and expensive and with the corporation facing 20% budget cuts on top of a decade of reductions in real terms proper journalism at the Beeb is likely to be hard to come by in future.

It's also cheaper and easier to continue with an ongoing agenda than it is to go and find interesting new stories. Lazy journalism is writ large across the BBC, the fact that this article originally published on Thursday has been reheated by a minor edit to make it look 1 day old tells you all you need to know. The amount of funding available is no excuse.

All the best, Si

portugull

The Daily Mail carried this story yesterday.£Boo.I hold.

What annoyed me is the journalist said the difference in the price of the 2 coats was a difference of 150% when the correct figure was 50%.

The two prices were £27 and £18 a difference of £9.

Was this deliberately misleading or are most journalists very bad at simple arithmetic?

Westway001

The BBC report said the coat was £34 more at Coast:

“Online retailer Boohoo is investigating why the same items of clothing were sold for higher prices across a number of its fashion labels.

The BBC discovered that Dorothy Perkins and Coast, which are both owned by Boohoo, sold exactly the same coat but it cost £34 more at Coast.

There are price disparities across a range of Boohoo brands, which also include Oasis and Warehouse.”

https://www.bbc.co.uk/news/bus...

Boon

What worries me about D4t4 Solutions (LON:D4T4) is that the market is valuing it as having SaaS-like ARR-like revenues. And while they are making strides to do so, it looks like potentially ARR as of FY Mar21 will be circa £11m.

Compared to FY21 Revenue of £21.8m, and FY22 revenue broker forecast of £24m.

Which means even by end of FY22, I would expect ARR-type revenue to only be 60%, 65% of total revenue.

Which means still a lot of dependency on one-off license, installation revenues. Which does not support a circa 40x Forward PE for FY22, given the risk of potential revenue miss due to contract lumpiness. I do think there is potentially a risk of a profit warning due to delayed contracts, etc... and so this has gone onto my watchlist to pick up some shares when that happens.

5th Apr '21

More on Boohoo (LON:BOO)

Just as a follow up, the BBC is now running a second story based on a reader of the first story getting in touch.

This story features a 'Karen Millen' skirt bought from them turning out to actually be an Oasis skirt with one Oasis label blanked out with marker pen and another crudely cut out and covered with a Karen Millen label.

But when the skirt arrived she remembered thinking, "For Karen Millen, that's quite poor quality,"

"What was really disappointing was that I felt lied to," she said.

Whether this kind of thing goes on more regularly in the rag trade and elsewhere I don't think is either here nor there. If this story escalates , then they have potentially debased all of the brands they bought in the last few years.

In any case I am now settled in my view that I am happy to have nothing to do with this company as an investor.

"They didn't even try very hard to hide what they had done and thought consumers would be stupid enough not to realise.

Quite!

Even if you are not troubled by their business practises you might be disappointed at their lack of competence!

PLS1nve5t

Ms Sikora said she bought her skirt in June 2020.

Makes you wonder why it took so long to become headline news....

tagware

Go up market and use COOKS as they have well balanced meals for one or two people. Not M&S but half the price.

AIUI Ms Sikora's intervention was just a "me too" moment responding to the original BBC article which was more recent.

ken mitchell

I agree with everything in your post Simoan. Selling the same thing at different prices is wrong. But other retailers have done it and probably still do, but it’s always BOO that the journalists single out. Also there are endless ploys Companies get up to increase sales and/or revenues. E.g Insurers ripping off loyal customers who don’t check renewal rates and sale prices that are higher than pre sale prices, or doubling the price in order to advertise it as a half price offer etc etc etc.

Effortless Cool

Ken,

Can you identify and evidence a specific quoted retailer other than Boohoo (LON:BOO) that has sold the identical garment under different brand names at different prices? I suspect not but, if you can, did they also do so in so crass a way as cutting the brand name off the label or blacking it out?

To my mind, these latest stories are consistent with the many previous in what they say about the culture at Boohoo; quite simply, it seems to be a business with a bad culture and that is a very hard thing to change, especially if that culture is driven from the top down.

There are several specific reasons why I would not invest in Boohoo, but its culture of at the core of all of them.

Effortless Cool

Off the top of my head it has happened several times but I didn’t make a note of it at the time. Paul Scott who knows the retail sector so well might confirm. There’s little difference in selling the same item under different brand names at different prices and the same item under one name at different prices imo. Here’s a Marks and Spencer and Ocado example:-

https://www.theguardian.com/business/2020/oct/18/m-and-s-and-ocado-cause-anger-with-different-pricing-on-same-items-price-online-in-store

Amazon charges all sorts of prices for the same items and change their prices regularly. Prices for the same holiday or same flight vary enormously too.

I agree to some extent with your comments about the culture at BOO but they are improving it. . But yet again why is it BOO that keeps getting singled out? Working conditions in factories abroad are often scandalous across the whole retail sector including the luxury brands, but it’s BOO suppliers in Leicester that have hit the headlines. And working conditions in Leicester even at their worst are nowhere near as foul as similar factories in places like Bangladesh. Remember that terrible factory fire there killing huge numbers partly because escape routes were blocked?

BOO will be squeakier cleaner than most other retailers as they are being forced to address these issues. Wouldn’t it be good if the scandalous conditions in factories abroad got highlighted by the journalists so keen to target BOO, along with campaigns to shame retailers and the relevant Governments to do something about it? It would mean higher prices across the board, but this is why we can buy clothes for next to nothing both online and in shops like Primark. Clothes prices now are way lower than 30 years ago. That’s largely because of the switch from UK suppliers to sweat shop labour abroad.

Finally the coat example was months ago. I’ve no idea whether it is still happening nor on what scale.

Thanks, Ken, but M&S and Ocado are two different businesses so, whilst the practice described is no doubt unacceptable, is certainly not a valid comparison with Boohoo (LON:BOO). Similarly, your Amazon and holiday examples are not really relevant either. Changing prices regularly is not the same as charging different prices for the same thing at the same time; similarly different companies charging different prices for the same product is not comparable either (it is normal, in fact).

As to why Boohoo? I suggest you start by considering the extraordinarily crass approach they have taken to exploiting differential pricing across their recently extended brand portfolio. In my opinion, there is something rotten about this business; perhaps the BBC and other media share that perception?

As to why Boohoo? I suggest you start by considering the extraordinarily crass approach they have taken to exploiting differential pricing across their recently extended brand portfolio. In my opinion, there is something rotten about this business; perhaps the BBC and other media share that perception?

I agree there's always been a certain whiff about the company going right back to the profit warning within a few months of the IPO. When I invested it was very much with a peg on my nose. I didn't mind doing that back then but avoid companies with such dodgy corporate governance now.

Personally, I was astonished that they sold the same tat across the different brands, forget the pricing differential. That just destroys the brand identity, but then maybe they don't care given they only paid chump change for Coast, Oasis et al. Unlike others, I don't like this multi-brand approach of buying up tired old names, some of which went bust for a good reason. Whereas the original Boohoo brands at least had a freshness with the low cost test and repeat model pumping out constant new styles and ranges, it seems now they are slowly becoming the Sports Direct of fashion retail.

peterg

6th Apr '21

Thanks, Ken, but M&S and Ocado are two different businesses so, whilst the practice described is no doubt unacceptable, is certainly not a valid comparison with Boohoo (LON:BOO).

Except that was also the case with Boohoo until 2 months ago, and they have said:

"Stock of the item in question was purchased and live on site by Coast prior to The Boohoo Group's acquisition of the Dorothy Perkins brand."

peachy47

CARD's Demise

I bought CARD early on convinced on their cradle to grave strategy of designing, making and selling cards. Unfortunately management became transfixed on opening more and more shops when foot fall was dropping in the market place. I wrote to directors saying as much and asking why they dont spend more on their online presence. Then Covid struck, I sold my shares at a huge loss but feel vindicated that they will either crash and burn or deleveraged by so much new capital as to be worthless. I am sad, they had a really good concept.

Phillip Arghebant

8th Apr '21

JohnEustace

I am just reading the 2020 Oakley annual report, in which I own shares, and it states that Inspired was sold outright in April last year having initially acquired a holding in the business in 2013. So this means that, like you, when I receive the cash offer for Wey Education shares, Oakley will not be involved.

Kind regards

Phillip

TangoDoc

12th Apr '21

I share your concerns about Card Factory (LON:CARD) extending itself too far in these difficult times but, unlike you, will not attend the funeral at the very moment the company is being discharged from hospital.

Today is the first day of the release of lockdown and I am comforted that the expected rise of Covid cases predicted as schools returned did not happen. It may be that today's opening of barbers and other high street facilities will spike up more cases but by now, half the population has been immunised, at least partially and countless others have caught and ridden through covid and have natural antibodies.

Summer is on its way and here is a general air of expectation of cautious normality. I will be interested to see how the public responds to being released but, in general, I anticipate a return to spending on small ticket items. If we do see our high streets buzzing again, I'll be glad I held.

Michael Ferguson

1st Jun '21

Sorry what happens to my Wey shares. Not been following this one. Will I bep aid out & when. Excuse my ignorance.

Small Cap Value Report (Thu 1 April 2021) - BOTB, CARD, MEAL, D4T4, WEY

Best Of The Best (LON:BOTB)

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Paul Scott

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