Small Cap Value Report (Thu 11 Jan 2018) - TSCO, MKS, John Lewis, BOO, GMD, CARD, AO., GMD, LRM

Thursday, Jan 11 2018 by
89

Good morning, it's Paul here.

I got up early today, to finish off yesterday's article (was too tired last night to do any more work). So I've added new sections on ShoeZone results, and Focusrite's trading update. So to get you started today, here is the link for yesterday's expanded report.

It's an absolute avalanche of trading updates today, here are some quick bullet points on mid to large cap retailers, which might be of interest, for read-across to smaller companies, and the economy generally (we need to keep our eye on the macro picture);


Tesco (LON:TSCO)

  • Seems to be trading well.
  • Positive Q3 LFL sales of +2.3% on a LFL basis.
  • Positive Xmas trading, +3.4% LFL in food
  • Problems at Palmer & Harvey, and "ongoing drag" from general merchandise - "took the shine off an otherwise outstanding performance"
  • We are confident in the outlook for the full year and are firmly on track to deliver our medium-term ambitions."


Marks and Spencer (LON:MKS)

Q3 update, for 13 weeks to 30 Dec 2017

  • Full year guidance remains unchanged
  • Total UK LFL sales down -1.4%
  • Food better (-0.4% LFL) than clothing & home (-2.8% LFL)
  • eCommerce growth only +3.0%
  •  "M&S had a mixed quarter with better Christmas trading in both businesses going some way to offset a weak clothing market in October and ongoing underperformance in our Food like-for-like sales...


John Lewis

Update for 6 weeks ending 30 Dec 2017

  • Waitrose LFL sales up 2.2% (adjusted for New Year's Eve mismatch)
  • John Lewis LFL sales up 3.1%
  • Black Friday went well, so looks like a permanent fixture in the retail calendar now.
  • "The pressure on margin seen in the first half of the year has intensified because of our choice to maintain competitive prices, despite higher costs mainly due to the weaker exchange rate. This will negatively affect full-year financial results as indicated previously."
  • "Looking ahead to 2018/19 we expect trading to be volatile due to the economic environment and anticipate that competitive intensity will continue, driven by the structural changes taking place in the retail industry. "

So, sounds like many retailers will continue to struggle in 2018. Good news for consumers though.


Boohoo.Com (LON:BOO)

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

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Tesco PLC (Tesco) is a retail company. The Company is engaged in the business of Retailing and associated activities (Retail) and Retail banking and insurance services. The Company's segments include UK & ROI, which includes the United Kingdom and Republic of Ireland; International, which includes Czech Republic, Hungary, Poland, Slovakia, Malaysia and Thailand, and Tesco Bank, which includes retail banking and insurance services through Tesco Bank in the United Kingdom. The Company's businesses include Tesco UK, Tesco in India, Tesco Malaysia, Tesco Lotus, Tesco Czech Republic, Tesco Hungary, Tesco Ireland, Tesco Poland, Tesco Slovakia, Tesco in China, Tesco Bank and dunnhumby. The Company's brands include Finest, Everyday Value, Chokablok and Technika. Finest and Everyday Value are the two food brands in the United Kingdom. The Company offers a range of personal banking products, principally mortgages, credit cards, personal loans and savings. more »

LSE Price
259.4p
Change
1.3%
Mkt Cap (£m)
25,053
P/E (fwd)
17.0
Yield (fwd)
2.3

Marks and Spencer Group plc (M&S) is a retailer in the United Kingdom, with over 1,380 stores around the world. The Company is the holding company of the Marks & Spencer Group of companies. The Company operates through two segments: UK and International. The UK segment consists of the United Kingdom retail business and the United Kingdom franchise operations. The International segment consists of Marks & Spencer owned businesses in the Republic of Ireland, Europe and Asia, together with international franchise operations. The Company is engaged in delivering own brand food, clothing and home products in its stores and online both in the United Kingdom and internationally. The Company sells womenswear, lingerie, menswear, kidswear, beauty and home products, serving customers through approximately 300 full-line stores and Website, M&S.com. It has approximately 910 United Kingdom stores, including over 220 owned and approximately 350 franchise Simply Food stores. more »

LSE Price
293.6p
Change
-1.3%
Mkt Cap (£m)
4,832
P/E (fwd)
11.1
Yield (fwd)
6.3

boohoo.com 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 »

LSE Price
209.6p
Change
0.8%
Mkt Cap (£m)
2,390
P/E (fwd)
50.1
Yield (fwd)
n/a



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


64 Comments on this Article show/hide all

back2value 11th Jan 25 of 64
1

As I have asked before, how good do BOO.L's results have to be in order to have a positive impact on the share price? I honestly can't believe that a doubling of revenues with margins maintained hasn't caused a positive reaction. Might as well sell I suppose.

B2V

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kenobi 11th Jan 26 of 64
5

Hi Paul, when did you get back into boohoo ? I have a small holding left, from my original holdings having topsliced on the way up.

Seems like a great update, but there's a lot of good news in the price, this is one that may have to grow into it's valuation somewhat, the market may be loosing interest in crazy valuations for growth shares ? (maybe that money has moved to crypto currencies ?)

have a good day,

G
PS
are you planning any more youtube videos ? I did enjoy watching them, Have you investigated the economics of a youtube channel ? I think it could be very popular, if you want help editing and producing, I can help you get started ?

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vik2001 11th Jan 27 of 64
1

No mercy shown for Card Factory (LON:CARD) huge drop. stocko showing this passing 5 screens, shows what a reaction can be caused by a market upset.

however Marshall Motor Holdings (LON:MMH) looks interesting to me, a turnaround stock with a earnings surprise.

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rmillaree 11th Jan 28 of 64
3

In reply to post #296438

ref boohoo
Doesn’t PrettyLittleThing display a vulnerability that others could come in and be the go to fashion site?

Looking at retail it all appears to be about execution - and boohoo seem to be able execute - is there anything unique about the offering of Next?

Looking at a company like superdry i always thought they had the naffest brand ever and would be a passing fad. Presumably the reason they are a success is that they provide people what they want. Then you get similar brand name French connection that goes nowhere.

To me the numbers speak volumes and presumably what counts is whether the customer is happy with what they buy and wants to return and buy more - pretty simples the numbers speak volumes in that regard with PLT.

Ok surely i should be selling my Sports direct shares to buy some Supedry shares based on this logical argument.

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WhaleHQ 11th Jan 29 of 64
2

In reply to post #296433

Kind sir, I've got a fresh kidney here that I'm willing to liquidate to invest in that right now.

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FREng 11th Jan 30 of 64

Take over offer for Lombard Risk Management (LON:LRM) today. Well done to any holders!

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WhaleHQ 11th Jan 31 of 64
4

In reply to post #296473

Perhaps but PLT’s growth has been catalysed due to its access to the ever-expanding Boohoo.Com (LON:BOO) group infrastructure I’d imagine that competitors might burn through a lot of cash trying to grow at such an incredible rate over such a short period.

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Mike Rawson 11th Jan 32 of 64
10

In reply to post #296283

I was at the Wey Education (LON:WEY) presentation last night (along with a few other familiar faces).

I'm afraid I wasn't too impressed. Not enough discussion of how they will ramp up sales of their existing two products. Too much talk of new business lines and how AI and chatbots will reduce their costs in the future. They seem reluctant to increase their fees,too.

It was all a bit "run before you can walk" to me. I had seen them as the leading aggregator in a growing sector, but it all felt a bit niche.

I don't hold (have had SBs on them in the past). It's a plausible story though, so no reason the price might not go up.

Blog: 7 Circles
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runthejoules 11th Jan 33 of 64
2

In reply to post #296413

I wasn't suggesting that they bought any mens' labels Pippa, but Sosandar (LON:SOS) is for more mature ladies. Even Nastygals and Prettylittlethings grow up and have to dress for middle-management jobs eventually! At least your partner wears shirts...

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hbeaver 11th Jan 34 of 64

Does anyone have any ideas what is happening to AB Dynamics? Up about 100% since October & down 25% since Jan 2 nd.

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willhampson 11th Jan 35 of 64
3

In reply to post #296513

Hi, hbeaver - I suspect you have answered your own question there. With a 100% rise, it would be very surprising if there wasn't a subsequent retrace on some profit taking. Doesn't necessarily mean anything negative long term, though I am not at all familiar enough with Ab Dynamics (LON:ABDP) to provide a comment. No position.

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simoan 11th Jan 36 of 64
5

My opinion - selling other peoples' generic products, on wafer thin margins, against stiff competition, just isn't a good business model.

Hi Paul, 

Genuine question... this looks like a description of G4M to me. I realise you can take into account the much higher revenue growth for G4M and that it can expand into other territories, maybe taking market share from other on-line purveyors of branded musical goods, but why would you pay a PER of 50 for it today? I must admit the rating of G4M has always looked nuts to me. I plain just don't get it.

All the best, Si

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Effortless Cool 11th Jan 37 of 64
2

In reply to post #296513

With Ab Dynamics (LON:ABDP), I think its selling from profit taking, leading to selling due to stop losses getting hit, leading to selling by momentum traders. I'm not aware of any underlying issues and expect it to find support imminently.

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matylda 11th Jan 38 of 64

In reply to post #296498

Seems others are sharing your sentiment re: Wey Education (LON:WEY) at the moment, it's down 10% at present - Do you know did they record anything or have any kind of ppt?

Blog: Briefed Up
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Mike Rawson 11th Jan 39 of 64
1

In reply to post #296543

Wey Education (LON:WEY) - Pretty sure there were no cameras and they haven't sent me any slides to date.

We got the presentation they used for the recent placing (to fund the acquisition) first, then marketing, then AI & chatbots, and then operations.

The only handouts were the annual report and a sponsored marketing communication from their Nomad (WH Ireland).

On the plus side, the venue (Hilton, Paddington) was fine (if hot) and the subsequent drinks and canapes plentiful.

Blog: 7 Circles
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matylda 11th Jan 40 of 64
3

In reply to post #296553

Thanks for that re: Wey Education (LON:WEY) - The drinks and canapes may not be so abundant next time :)

Blog: Briefed Up
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herbie47 11th Jan 41 of 64
2

In reply to post #296513

I could not understand why Ab Dynamics (LON:ABDP) went up so much, the November update was quite good but the EPS was only up 22%, not enough to warrant the rise in my opinion. I think it is profit taking. I understand the Naked Trader bought some around 727p with a 950p target so that maybe fueled some the rise.

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Trident 11th Jan 42 of 64
2

Paul. Re: Card Factory (LON:CARD). I am not sure you can call a business ex growth when it sales are growing, and it is still expanding its store rollout. They also mention that they/look forward to cost headwinds reducing, which is the real reason for the profit warning.

Maybe I am grizzling because of the share price drop ( I am holder), but I thought that was little unfair. Also, I may be wrong, but I think these cost factors were signalled in an earlier trading statement or similar, and there was some bounce back after that. Of course, the market has had a deeper gulp of info in this occasion.

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jdnthomas 11th Jan 43 of 64
12

re Boohoo (LON:BOO) : I wonder whether the disappointment is that most of the growth comes from Pretty Little Things where boohoo shareholders only have a 66% interest (PLT management have 34%) and growth in the core boohoo business is a more lacklustre 25%. For the year to date the boohoo brand growth rate is 34% (31% at constant exchange rates) so the last 4 months show a bit of a slow down. They slip in the excuse that it is against strong comparatives but unless there was a one-off reason for the strong comparatives (and I don't think there was) I would say to that "so what?"

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VegPatch 11th Jan 44 of 64
5

In reply to post #296553

Re Wey Education (LON:WEY) was there too last night
I left feeling v underwhelmed
The marketing didn't seem to have a real strategy apart from let's try advertising at Waterloo station. It was also very slooooooow
The AI approach was more interesting and made sense re chatbots and should reduce costs per student
Re pricing - if it's a great product for overseas students who want a UK a qualification why not charge more? My friends in the Gulf were paying c£60k / yr for 3 kids for a day prep school.
It makes the £750 / term look woefully low if the results are good.

Having said that the reviews on mumsnet are good

I will watch from the sidelines

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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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