Small Cap Value Report (Thu 10 Jan 2019) - SHOE, TPT, WINE, MTC, John Lewis, MKS, DEB,

Thursday, Jan 10 2019 by

Good morning, it's Paul here.

After spending the whole day on Sosandar (LON:SOS) yesterday, I was too tired to write about any other companies. So I've got up early this morning, to catch up with yesterday's other news, to get you started today.

Retail sector

I'm not sorry if a few people think I focus too much on retail here. That's my sector specialism, so that's what I lean towards & have historically made my biggest profits. Surely it makes sense for me to write about things I'm interested in, and understand best? Anyway, that's not going to change.

Also, retail has actually been a good sector for investors very recently. Buying good quality, but bombed out retail shares just before Christmas is often a very effective strategy. The market always seems to panic that Christmas is going to be a disaster, but it always happens in the end, just a bit later each year. I think Black Friday has skewed things negatively too - as canny customers hold fire on purchases in the autumn, waiting for desperate retailers to offer pre-Xmas discounts. It's a daft American cultural import, which should be sent packing in my view!

There have been excellent share price recoveries recently in some shares, on the back of a late surge in retail sales. E.g. I flagged that Superdry (LON:SDRY) looked tempting value at 380p here on 12 Dec 2018. It's now 545p - a 43% gain in less than a month, for anyone bold enough to buy on the market over-reaction to its profit warning. Catching falling knives is so difficult though, and often results in losses.

BMUS - my public portfolio

Just to defend myself on another point! Recent criticism that my portfolio (BMUS) performance in 2018 was dire, whilst true, overlooks the fact that it was spectacularly good in 2016 & 2017. Overall then, BMUS is up 155% since inception on 1 Jan 2015. Not too shabby! That excludes dividend income too. I think you'll find that beats most small cap funds & guru screens, by a country mile.

There's only really one stock currently in BMUS which has gone wrong, which is MySale (LON:MYSL) . I haven't decided what to do…

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Shoe Zone plc is a footwear retailer in the United Kingdom and the Republic of Ireland. The Company offers women's shoes, men's shoes, boy's shoes and girl's shoes. The Company's online offering combined with its store network enables customers to shop through multiple channels. The Company operates from a portfolio of approximately 550 stores. Its customers purchase all of the products available in stores, as well as an additional approximately 400 product styles. The Company sells over 20 million pairs of shoes per annum. The Company has operations in various countries, including Germany, Italy, Spain and France. The Company's distribution center is located in Leicester, England. The Company's subsidiaries include Castle Acres Development Limited, Shoe Zone Retail Limited, Zone Property Limited, Zone Group Limited, Shoe Zone (Ireland) Limited, Shoe Zone Pension Trustees Limited, Stead & Simpson Limited, Zone Footwear Limited, Zone Retail and Walkright Limited. more »

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Topps Tiles Plc is a United Kingdom-based retailer of tiles. The Company is engaged in the retail distribution of ceramic and porcelain tiles, natural stone, and related products. It operates in the Topps Tiles stores and online business segment. It supplies tiles and associated products to both trade and retail customer base, primarily for the refurbishment of the United Kingdom domestic housing. Its product categories include new products, bathroom wall tiles, kitchen wall tiles, mosaic tiles, kitchen floor tiles, bathroom floor tiles, ceramic tiles, porcelain tiles, underfloor heating, wet rooms, outdoor tiles, fireplace tiles and metro tiles. Its brands include Tile Adhesive, Tile Grout, Tile Preparations, Hardiebacker Board, Rubi Tools and Accessories, Warmup, and Homelux Tiles Trims. It offers tiles in various colors, such as beige tiles, black tiles, blue tiles, brown tiles, cream tiles and gold tiles. It has over 350 stores across the United Kingdom. more »

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Naked Wines PLC, formerly Majestic Wine PLC, is a United Kingdom-based wine retailer. The Company is engaged in the retailing of wines, beers and spirits. The Company operates through four segments: Retail, Commercial, Naked Wines and Lay & Wheeler. The Retail segment is a customer based wine retailer, selling wine, beer and spirits from stores across the United Kingdom, and online, and also incorporates the Company's French business. The Commercial segment is a business-to-business wine retailer selling to pubs, restaurants and events. The Lay & Wheeler segment is a specialist in the wine market and also provides cellarage services to customers. The Naked Wines segment is a customer funded international online wine retailer. Its subsidiaries include Majestic Wine Warehouses Limited, Lay & Wheeler Limited, Les Celliers de Calais S.A.S., Majestic Wine Employee Share Ownership Trust Limited, Naked Wines International, Inc. and Vinotheque Holdings Limited. more »

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

43 Comments on this Article show/hide all

MarkStanton 10th Jan 24 of 43

Hi Paul,

Happy New Year and thanks for your/Graham's excellent work on the SCVR!

One comment re SOS - Stockopedia shows broker consensus as sell with Edison and Shore Capital cited as named brokers/analysts. Edison's December commentary seemed very positive and Shore Capital are the Nomad (and also seem positive). As such, are you aware of some other commentary that is negative to Sosandar's prospects or does Stockopedia have a data problem?


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Chipspa 10th Jan 25 of 43

Re ShoeZone - I'm not suggesting this is necessarily a bad thing and can actually be good, but investors should be aware that the Exec Chairman and his brother hold 50.01% of the shares

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barnetpeter 10th Jan 26 of 43

My view on Sosandar.

Jan and Feb will be slow and full of xmas returns for SoS I reckon. Look at G4M for a highly rated net retail stock...all the rage a year ago. Down 75 per cent over the year. Ditto WEY education...down 82 per cent over the year. Loads more...

These start up internet sites in ANY business can really soar ...for a while. Keeping the sales going after the initial big offers and when the competition with deep pockets has a look at you is really tough. Other sites are responding to ensure their clothes are worn by the Loose Women daytime presenters and so on. Holly W. has been signed up exclusively (by M and S) and so on. Big money! Sos got a big boost from celebrity interest but the competition is not sitting still. New sites and revamps all over the place....Matalan impressed me with Denise Van Outen hosting an online show featuring their clothes and others have new ideas and new funky ranges that will compete.

I punt on shares like SoS....but am out for now as I think Winter months could be dire. Always made a profit on these so will def be back. The bears do have a strong case on this though and I wont ignore them.

This is high risk!

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LeoInvestorUK 10th Jan 27 of 43

In reply to post #434658

Wey Education (LON:WEY) - Yes, 40p was crazy and I was lucky enough to sell then. I was then foolish enough to start buying back at 32p. About 6-7 months ago they started to looking positively cheap with a forward PE below 10 and £4m cash so I bought more.

Apart from losing their "hot stock" status, the fundamental trouble is that their forecasts were far too optimistic, relying both on a hoped-for marketing-led pick up in the core business and the signing of overseas contracts. Forecasts were progressively lowered such that the 1y rolling forecast earnings for a supposedly growing company are only about 60% of what they were 6 months ago.

On the forecasts they now look outstanding value (especially if adjusting for cash), but unfortunately those forecasts currently have zero credibility and the only concrete facts we have are that they have £4m cash and have never made a real profit. We don't even know for sure whether their current business model has the potential to be profitable or they'd be better off operating as a not-for-profit. In the meantime their competition is becoming more established.

I am taking the optimistic view that surely they have learnt their lessons with guiding forecasts, the benefits of scale should give them an advantage over competitors / allow profitability and that strong organic growth in the core business should continue for many years.

I hope to find the time to do another proper write-up soon as this is now my largest holding (excluding trackers and with the caveat that I have a more diverse portfolio than most / than I probably should).

Blog: LeoInvestorUK
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mrosbiston 10th Jan 28 of 43

Shoe Zone (LON:SHOE) i do agree this is a very clean report and also a well run business.

The statutory profit increase, a lot of this is attributable to the decrease in operating expenses, from reduced professional charges and FX hedging differences. Financing costs have decreased and there is the impact of the rent decreases, some of these factors appear to be one-time events.

Still, the ability to generate cash is impressive, working capital seems well managed.

A question, do the accounting policies (FIFO, straight line depreciation, leases etc) seem a little aggressive, or is this normal for retailers?

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Gromley 10th Jan 29 of 43

Looks to me like another concealed profits warning from Debenhams (LON:DEB).

Back in September I noted that they had said

"we expect to report pre-exceptional pre-tax profit for FY2018 of around £33m, within the current market range of £31m to £36.5m"

But this was actually lower than the previous range that the company had communicated  in June.

I don't believe that they gave a subsequent update since September on current year expectations.

However, today's statement that

Against a challenging market backdrop, the Group is currently on track to deliver current year profits in line with market expectations[1], supported by further identified cost savings.
Is against the latest market expectations for PBT in the range minus £10m to + £30m.

So even at the most optimistic end of that very wide scale they have missed against previously stated expectations.

In truth that miss should not come as a surprise to anyone, but the fact that I do not feel I can trust what they say would be to big a reg flag for me, for a company that is in a potentially precarious financial position.

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davidjhill 10th Jan 30 of 43

In reply to post #434738

Everyone said that about ASOS and BOOHOO too...........they've not done too shabbily despite ASOS recent slowing sales growth.

The market in this demographic is huge and Sosandar (LON:SOS) currently have a tiny fraction of it, sub 1%. If you have watched the video by the management team they are well aware of other potential offerings or even improvements by bigger retailers but there is plenty of room for competitors. Growing to a revenue of £50m+ p/a in this space shouldn't be too hard if your offering is good, and that is one of the key fundamental strengths of the management in my opinion.

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Julianh 10th Jan 31 of 43

In reply to post #434508

I love the typo (I presume it is a typo) on your write up of Debenhams (LON:DEB) Mr Contrarian.
“We had to cut prices to shit stock” might even be more truthful than “ we had to cut prices to shift stock”. Keep up the good ascerbic work

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Fegger 10th Jan 32 of 43

In reply to post #434618

HI yes very helpful Shoe Zone (LON:SHOE) analysis. I am a holder and happily topped up a month ago. If you research this company it just has the feel of being well run and being smart and entrepreneurial. For example the website is very well constructed and easy to find information on both shoes and for investors. They have a much wider offering than they are given credit for. Online they now stock a range of both Clarks and Skechers and will obviously roll this our further if it does well. And is likely to with free delivery where many rivals now charge. They have recently expanded into the States on Amazon and into Africa on an app. Both smart initial moves to take. I think they will continue to do well in the UK also as we have about 21% of population on minimum wage or self employed equivalent which bolsters the market for cheaper shoes. I havent found the family holding to be a problem as they seem to treat the minority shareholders in a fair way. And often a family holding makes for longer term thinking and a more considered responsible approach. The dividend history is excellent and sustainable so ideal for longer term income requirements.

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psin 10th Jan 33 of 43

In reply to post #434733

Re SHOE. I like it when the top men have skin in the game.

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betjeman 10th Jan 34 of 43

Hi Paul,

you do a brilliant job..........pls ignore the moaners ....they exist in every walk of like so why should stockopedia be any different...........I look forward to reading your reports not only for what they say about stocks ( always interesting) but what they show about you as a person ( always good).........same remarks apply to Graham.


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sharmvr 10th Jan 35 of 43

In reply to post #434763

No position in Sosandar (LON:SOS)
(wife that fits target demographic felt product was average, which was an expensive decision, notwithstanding, getting married itself was pretty expensive!)

Agree with the potential for growth, but growing revenue 10 fold, I would suggest is hard, no matter what line of business you are in, if nothing else just operations, logistics and working capital requirements would be difficult.
That said, if they have institutional appetite and the trajectory carries on as it has, they will probably not have too much issue with funding, and may well be bought out by Marks and Spencer (LON:MKS) or something, who really could do with some help with online and style.

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sharmvr 10th Jan 36 of 43

In reply to post #434818

Edit: Wife who (not wife that) - please don't tell her I made that mistake - that could be seriously expensive!!!

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emmettsmith 10th Jan 37 of 43

Hi Paul

Great article on Sosandar and I think I may have an explanation for the high return rate. I notice that Sosandar's offer of free delivery on orders over £75 and free returns. Therefore if I wanted to buy an item for £45, it would be more cost effective to buy 2 at £45 and qualify for free delivery and then send one back, especially if I wasn't 100% sure about my size. So by offering free delivery above a threshold spend, you are encouraging customers to buy more but if they don't want to pay the delivery charge, they can simply return one.

A review of sample returns would verify if my theory is correct or not - did the returned item take the spend below £75? If they want to reduce return rates it may be more cost effective to drop the standard delivery charge and only charge for premium delivery.


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Snoo 10th Jan 38 of 43

In reply to post #434858

Sure that some people would do it, but I doubt it would occur in numbers large enough to skew the data.

A check on the SOS site says delivery is £3.50.

Considering the type of customer they have (who is paying premium prices) it just seems less likely to me that they would be so cash-strapped that it becomes worthwhile to go through the hassle of returning an item to save £3.50.

I think it would be far more likely that their customers would buy two of one item in different sizes and return the one that doesn't fit - I reckon that sort of stuff would happen less on cheaper sites because the customer would have to initially front 2 x the costs (they get it refunded later).

They couldn't make it public of course but at this stage I wonder if Sosandar could really profile their customers. In this day and age it might be fairly easy to find out a lot about someone given their name/address.

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DJCP 10th Jan 39 of 43


Firstly, I want to agree with all the plaudits above, to both you and Graham - I think you've calmed down in your reaction to the 'envy-trolls' (compared to many years ago) ! lol :o)

An update re Debenhams (LON:DEB)
"Ashley votes to remove Debenhams bosses from board"

With regards to your portfolio review. Would it be advisable to do this on a weekend? You can announce in advance, so SCVR readers know it's coming, and we can provide our comments, or possibly own reviews, without it obscuring a trading-days news.

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Edward John Canham 10th Jan 40 of 43

Shoe Zone (LON:SHOE)

Definitely getting a higher profile - which can only be good.

Write-ups in Times and Telegraph today - both positive.

Just feel it will do really well over the next few years with the roll-out of its Big Box stores which will be put in place at negligible Capex and negligible rent.

Time will tell, but a happy holder. Personally think this is one of the best shares in the retail space.


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matylda 11th Jan 41 of 43

Wow Paul - What an achievement in an hour and a half - Thanks for so much coverage, much appreciated.

Blog: Briefed Up
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coleloram 11th Jan 42 of 43

I am suffering from the body-line bowling from the QUIZ board today. Having already seen my investment halve, I wanted to see your take on their announcement. Please Paul!

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croftboy 12th Jan 43 of 43

Paul and Graham are fantastic. I look forward to your daily reports. Ignore the moaners,you find them in every corner of life.

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 Are LON:SHOE's fundamentals sound as an investment? Find out More »

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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