Small Cap Value Report (Thu 16 June 2022) - BOTB, HRN, BWNG, ANX

lower lower price equals greater return 

please sell and make me richer

what you do is up to you. If the market is a casino, then you will be lucky or not

I am seeing the gambling from the investor and until this is finished, we will get back to the real investors. When we own the companies profits and losses.

Understand your business and buy it when it is cheap. It could become cheaper, buy more. This is the best time to buy. Hope that you can buy more at a lower price. 

traders will not do well

please sell and give me a  better entry price 

My short answer would be - No. 

Why, because you're asking for an order - not for advice. Also, perhaps personally, this question horrifies me.

Not everyone will agree with me, but I'm ok with that and power to them. This is a quick snippet of my process.

I would read the last five years of annual statements, do research on the creative director, the chairman, the CEO and the chief financial officer. Then I would also listen to all the presentations, especially the shareholder questions at the end. Once you've done that and you understand the balance sheet, the income statements and the cashflow statements for as far back as you can. Once you've done that, you will know what you are going to do and it'll be your decision. 

If you don't understand how to find and value a business, find books (at least five different books is a good start) and read them from people who have at least 20 years experience.  Don't short cut as that short cuts yourself.

That's how conviction works.

Photo-Me International (LON:PHTM) is most definitely on my radar, in this market anything can happen. Not surprised at all if 75p breaks.

With regards to Boohoo (LON:BOO) Michael I feel your pain - not nice watching a SP continually declining.

Luckily I bailed out much earlier, but have traded in and out a bit, but never felt truly bought into the longer-term story/plan - feeling that it needed some evidence of recovery before I felt comfortable.

With todays update I see the light at the end of the tunnel and some better results/promise in the short/medium turn, but the risk is that these trends are stopped dead in their tracks by a downturn in spending patterns if/as recession strikes.

However, today might be a buying opportunity as I am sure the SP is oversold on the back of both the ASOS and broader market down-trend.

To this end I bought a small holding in my SB account, but won't go near them in my SIPP/ISA without a more general market up-move and/or hard evidence of recovery.  I tend to trade my SB account so this isn't likely to be a LT holding.

If I was sitting on the big losses as you seem to have its a hard call, but probably I would take my losses and find something else - it could be  a very long road to recovery, and probably more a personal view, I don't like seeing -50% shares sat in my PF, so I generally get out and look to make money elsewhere - easier said than done and I don't always eat my own cooking!

Good luck and lets hope Boohoo (LON:BOO) makes a move upwards in the short-term.

Just as an aside, my teenage daughters don't buy anything form Boohoo (LON:BOO) they both use Shien all of the time.  Hardly a representative sample, but the competition is definitely out there.

Hi Michael, share your pain though maybe not quite to the same degree.

I think the key here is to clamp down on returns.  A wife of a mate purchased 5 shirts for a party so he could select one and return the rest.  Apparently "all their friends do it all the time".  The industry needs to address this IMO - ESG it is not!

I, by the way, went to the same party - shopping in Reading was interesting - very little selection.  M&S and Zara were about the only places with any range.  Online the selection was vast.

I cant see LON:BOO going under but boy has the steam gone out of it! Like you I've thought about doubling down on it - but each time I haven't - I've been rewarded. 

Apologies for not being able to add much more.  Hopefully Scotty will give his pennyworth later.

"Could they be taken private?"

If there is any life left in Boohoo I would guess that this is the most likely option - but a price which would probably disappoint any remaining shareholders.

I think you just have to be patient with Boohoo, you might be looking at several years for a recovery. In the near term they are going to keep suffering with pandemic related problems and now inflation. ASOS are also having a tough time at the moment.

Longer term the US distribution centre will be running from mid 2023, if pandemic issues have gone and they get back to the sort of growth that they used to have in the US there is a good chance that it will be a multibagger from these levels. On the other hand if you believe that online fashion has run out of growth or that Boohoo is no longer able to compete effectively then perhaps it is time to get out of Boohoo.

I'd like to see some comment on Boohoo here too. Or perhaps in a separate post if people object to it being in the SCVR.

MichaelFBS just to offer some additional thoughts regarding the above if useful at all and specifically related to ASOS (I hold), given the overlap in terms of business models and target demographic some will also apply to Boohoo. 

In terms of the update from ASOS today, by and large I found it positive, not because of the impact from higher return rates or near term impacts to free cash flow generation, but because the key underlying numbers which I think are important to the long term destination of the business are all moving in the right direction. 

Given the tough comparatives the company is facing from the covid driven boom of 2020/2021 for the business to have held on to those market gains from that period and to be accelerating in the key growth market of North America is really promising.  Add to that 20%+ increase in premier subscribers in the period as well as increases in basket size and order frequency and the customer base appears to be becoming increasingly loyal and sticky. 

The likelihood of those trends/flywheel continuing looks high given the companies relentless focus on sharing its scale advantages with its customers by lowering prices and improving the customer offer and experience (the business also benefits from other competitive advantages such as strong network effects given the brands it aggregates and the marketplace it runs).   I see online fashion as a business with low barriers to entry but high barriers to success, given its 20+ year history I think ASOS has shown its ability to succeed and continue to succeed where others have failed (think misguided recently).  I personally think a competitive advantage built on doing lots of little things better than others learnt over many years is a lot more durable and defensible than other moats.  

over the past 10 years ASOS has achieved roughly a 16% return on incremental capital invested in the business, on retained earnings of over £700m+.   The company has a large runway ahead of it (particularly in the US) with the ability deploy large amounts of additional capital at similar rates, so has the ability to compound investors capital at a very attractive rate IMO.   

Regarding boohoo (I don't hold) what worried me most about their update was the decline in North America, my concern would be that given the time it would take them to get the US distribution centre set up, they would likely lose additional ground to players like SHEIN, ROMWE, ASOS etc..  and may find that their reputation for their customer proposition will be too dented by that point to take meaningful share from other major players.  
 

I decided to sell up on the last peak (or as near as I could judge it) in the beginning of April. This included losses as well as gains, and left me pretty much breakeven after my first year investing (since June 2021). I held on to a few stocks that I thought would recover even though they are down at the moment. I forget who posted the thought the other day, but I agree with the sentiment that I would prefer my cash to be eroded by 10% per year than watch a 30% loss on any equities that I might buy.

I decided to buy when the FTSE falls below an RSI of 35 and sellout with a 5% trailing stop (even at a loss). Within the next year I can only see the market getting worse, but I certainly wont be able to spot the bottom (I think there are many wiser and experienced heads than mine on these forums), so can only follow the bumpy ride down !

After alot of reading / research on investing over the past year, I do not know if the 'buy and hold' paradigm is as inviolate as has been espoused. I think it is based on the belief that the main indices will slowly and surely average a gain. I dont know (inflation corrected) whether the FTSE falls into this category any more. Sure there are some companies that will do well because they are excellent, I am not sure that I am any better at spotting them than anyone else...

I think we are in a market down turn with an occasional up.

I think the FTSE 100 has managed to outperform the global market because of its big oil and mining and defence stocks, but that seems to now be unwinding as the sell off and lack of confidence is effecting all stocks.

To many headwinds for now I would say and losses will continue...but know one knows.

(Deleted)

I’ve noticed that a broker downgrade can have an overly dramatic effect on FTSE 350 stock at the moment, almost panic.

But if you look at the S&P and Nasdaq futures for today, they're both down quite a bit.

So looks like there was a surge of BTFD activity yesterday in the USA, but the downward pressure is set to continue today.

The basic reason is that the UK is in a worse position than the US. In the US, there is hope for a soft landing. In the UK, the view is that the outcomes are bad either way. Not many are convinced by the current BoE stance and tiny rate rise. It doesn't solve the inflation problem. On the other hand, the BoE are talking about current negative growth, and should they raise rates aggressively, as in the US, the economy would probably tip in to recession. They're caught between a rock and a hard place.

The major fallers in the FTSE were retail banks. They accounted for a lot of the fall. A recession is very bad news for banks. But equally, if there is no recession, then it now looks as though the BoE will increase rates significantly. If they do, then this will still be dangerous for banks. That's because a lot of their customers will be paying a lot more on their mortgages and debts, which will increase defaults, particularly given the other pressures consumers are under. This damages the quality of the banks' assets. It's another rock and another hard place.

The B of E was very downbeat.  Also interest rates of 1.25% are far too low , they have to be much higher to combat inflation. But of course interest rates of say 5% would hammer the economy and company earnings. 

Which share are you talking about - if you are quick you can update your post to show the ticker

Thank you for the excellent comment and additional insights, Dogon!

My guess would be that initially people saw  FDA as a momentous event and bought in. There were also people who knew that the really important  issue is if you have coverage by Medicare and insurance companies. Setting these up and then getting physicians to start using the product will take years, which means more funding may be needed and/or you need to partner with a huge pharma as they have the salesforce required.  My understanding is that £AGL haven't done this yet.  Bottom line is you can have a great drug/device but you can be years away from  reaping the cashflow which will stave off further dilutions via rights issues.  

Hi Bouden

I think that there are a number of moving parts here to work through.

Halfords (LON:HFD) have a good footprint and presence for what they do, cheap crinkly tin sheds selling various stuff.

I guess the key questions are, like the 2012 Olympics, Lockdown gave a massive bicycle boost, assumption has been for a while that this would not continue, and with the fall in available cash who is going to prioritise buying a new bike?  Maybe for the kids?  Yes service, maintain, replace the stuff that has worn out, but again can of oil, inner tube, just stop using the bike and let it rust in the garage.  For those within the higher income bracket (assumed less impacted maybe?) they would typically go elsewhere for the large purchase, specialist shop, customised stuff, after sales and servicing (do I really want an 18 year old with general training taking my £20,000 bike to bits?).  Yes I have three bikes, but together they were less than a 1/10th of that purchase, and one is >10 years old and one >25 years old.  I use the local shop to service, knew the owners parents who ran it, and obviously his son who is going to probably take over.  All three bikes bought local, two same brand and know the local shop trained to service that brand, so happy to pay for them to do every couple of years.  Girls bikes I buy local, but it has depended on which of the two shops could get what I wanted, so researched online then bought local.  They are great for adjusting the saddle, checking the breaks and all that and because we buy there, don't charge.  I would not get the girls to cycle to the local Halfords as busy road, numpties and all that, we go in the car if we are going at all.

The car parts and servicing.  This will continue, obviously your break light has gone you have to get a new one type thing, they are often local, convenient and quick.  When I have used them in the past, drive up, get the part, it is fitted whilst you do a call or a couple of emails on the phone, drive out.  Servicing again the local garage is used, know him, never does stuff unless needed, but good.

But again with the cost of living squeeze, are thinks like the bigger services going to be squeezed as people try to stretch the gap between them, yes meant to be 12,000 miles but the car is fine lets push to 15,000 miles, hence they will make money, but as much as previous?

Then add in can they pass on the price increases for labour, parts and all the rest to customers, as assume a large part of their base is price sensitive, so will call to ask a quote for a full service for me Ford CMax, and if they are £10 more than the Kwik Fit, you are going to the Kwik Fit.

So yes there is stuff to like, they will survive, they will continue, but is now the time to buy?  With the hold I guess you are figuring what the future might be, can you sell and buy back cheaper in the next month, or do you sell and miss a big bounce (I am good at this part).

I guess the other one is are they in a position to consolidate, so increase footprint and dominance if others drop out the market?

Cheers

Tommy (ps. I do not currently hold Halfords (LON:HFD) )

What exactly is being said there? My, albeit limited, understanding,  is that being cash(flow) positive is very different from the company being free of net debt.  NWF’s debt has always put me off investing in the past.

Also Halfords  getting hammered.  Marks & Spencer and Next  also caught up, both down @ 5% . (Sorry the £ thing doesn't appear to be working).

Would be interesting to hear Paul's general view on the retail sector if he has time. 

Phil

having lost £90,000 of my £200,000 that I invested in stocks since starting in nov 20 I bit the bullet and stopped holding everything which had included boohoo, saga and many other favourites here on this long and strong ethos. For the past six weeks I have been effectively day trading american stocks like Vertex energy, rivian and enphase where there are big swings but I am still ok if I get stuck in them long term. So far I have recovered £70,000 of that £90,000 loss. I know it is totally counter to the investing philosophy of most here but these seem unique times and I just could not take it any more.

Boohoo (LON:BOO)

danjamesbaker

"ASOS (LON:ASC) and Boohoo (LON:BOO) both set to be pummelled again after missing analysts sales consensus"    -   Q1 sales of £446m vs £472m consensus.

Per boohoo today they said 

-- As expected, gross demand growth remained positive against tough comparatives, +9% year-on-year, with net sales impacted by the ongoing normalisation of returns due to product mix change

The Group's outlook for the year ending 28 February 2023 remains unchanged.

To me its mildly positive that the full year outlook has not worsened today , ref the 446 v 472 consensus you quote Dan where did you get these numbers from ? -  if sales had missed expectations today by that much i would not expect them to say that outlook remains unchanged and that demand was as expected (in a sketchy sort of way must admit).

P.S. Boohoo (LON:BOO) getting very close to that £700m threshold for this report ;-)

BOO is actually in line, but the market isn't interested! Q1 (Mar-May '22) is the last period where the prior year benefited from the pandemic (physical stores of competition were closed). It was flagged in the last trading update that Q1 would be soft, due to those tough comps, then the figures would improve from Q2. So all as expected, but the market treats it as a bombshell. It's crazy at the moment.

The Fed seems to be on a mission to plunge us all into a recession. How long before they have to backtrack, like they did last time?

It's just a nightmare at the moment, isn't it?

Regards, Paul.