Small Cap Value Report (Thur 5 Sep 2019) - BOO, Tough Markets, MPAC, ALT, BKS | Graham Neary

5th Sep '19 by Graham Neary

48 comments 10742 reads

Good morning!

Thank you for the suggestions.

Today I have covered:

Boohoo (LON:BOO)
MPAC (LON:MPAC)
Altitude (LON:ALT)
Beeks Financial Cloud (LON:BKS)

I did not get to cover these three, but Avation (LON:AVAP) received some intelligent commentary in the thread below, if you're interested.

Avation (LON:AVAP)
HSS Hire (LON:HSS)
Vertu Motors (LON:VTU)

Boohoo (LON:BOO)

Share price: 272.4p (+12%)
No. of shares: 1.2 billion
Market cap: £3,160 million

Trading update

A brief but very positive H1 update from Boohoo. Performance is ahead of expectations.

Consequently, the board now anticipates that results for the current financial year will be ahead of previous guidance, with Group sales growth now expected to be between 33% and 38% (against previous guidance of 25% to 30%).

Assuming 35% sales growth, total revenues would climb to £1,155 million in the current financial year.

The company's broker thinks that only a tiny fraction of the revenue growth will come from Bohoo's recent acquisitions (MissPap, Karen Miller and Coast). So it's nearly all organic growth from Boohoo, Prettylittlething and Nasty Gal.

As far as profitability is concerned, EBITDA margin is set to stay around 10%, so the EBITDA result this year should be in the region of £115 - £120 million. The adjusted pre-tax profit forecast is now £96.7 million (previously £90.4 million)..

My view: I'm impressed, of course. Boohoo has a great track record of profitable growth and of beating expectations.

As mentioned before, one of the things which holds me back from investing is the fact that Boohoo only owns 66% of PLT. Last year, out of £47.5 million in group net income, £10 million was attributable to the minority shareholders (i.e. to the family behind Boohoo (LON:BOO) ).

Maybe this doesn't matter, if the total pie will ultimately prove big enough to justify today's market cap of around £3 billion?

Elsewhere, I note that the valuation of Marks and Spencer (LON:MKS) has dropped to sub-£4 billion. Seems to…

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john652

5th Sep '19

Altitude (LON:ALT)

I hold but not a large holding as this is more one of those asymmetric trades rather than a long term hold. I have had a number of email conversations with the CEO about consistent communication using KPIs. Nicola would respond by saying KPIs would give too much away to competitors, really ?? She comes across, and is, inexperienced. I also didn’t understand why they moved away from the one kpi they did have on users of the platform connecting customer to suppliers, I didn’t agree with her explanation that it was less important on focusing on the AIM users so isn’t relevant, but isn’t the platform a key differentiator and higher margin? Her view was yes but it’s still not as important, ok fair enough but why drop the KPI??? Inconsistent...

Jury is out still.

JohnEustace

Great write-up Carcosa. The results back up their simple pitch to investors that their business doubles every three years and the share price has tended to follow likewise.

The other market factor that occurs to me to ask about is the disruption caused by the Boeing 737 Max grounding. Avation are Airbus only so not directly affected, but airlines with Max aircraft in their fleets or on order have been scrambling to lease replacements. That should further underpin the Avation asset values. But the ability to pick up further new A3xx aircraft without pre-orders may not be there.

Edit - Correcting myself - They have 1 Boeing 777 and 1 Boeing 737-800 on the books

unwise2

Am I the only one that thinks yesterdays price action in Altitude (LON:ALT) was odd? Todays trading update wasn't scheduled or pre-announced. I noticed yesterday Altitude (LON:ALT) went to a 5 month low on more than double 50 day average volume.

Seems quite the coincidence.

No position

Dennis Ayling

Thanks, Carcosa very comprehensive analysis, as always.

On JohnEustace's point about the B737 Max, I agree it can only be good for Airbus & maybe indirectly AVAP. I think Boeing have a lot to do to re-build trust & possibly the FAA as well. It appears there was a high degree of self-certification in getting the MAX certified - incredible !

Dennis.

lightningtiger

BOO trading forcast today"ahead of expectations" up around 12% today. Revenues for 2019 £857M 2020 £1131M est. Net profit 2019 £37.8M 2020 £60.5M est. Sales growth at 45.6%. Now cutting new high;s.

Drifting off topic a bit but many years back I worked for a major Boeing supplier and had enormous respect for Boeing's engineering. I've been really shocked to see what has happened since the McDonnell Douglas merger. If the 737 Max never flies again? Well there's a black swan risk for the markets.

InvestorJohn

Anyone have a view on Future (LON:FUTR) it is one of my biggest holdings and goes against the stockopedia recommendation which calls it a Momentum trap with a stock rank of 41?

Today's trading update shows trading to be Materially ahead of expectations

Trading for the final quarter of the current year in the Group's core operations is stronger than the Board's previous expectations. We have seen a positive performance from Amazon Prime Day related activity and strong ongoing trading in the US, as well as some additional benefits from foreign currency translations. Full year EBITDA is now expected to be materially ahead of current Board expectations.

Due to its acquisitions the Balance sheet may not be the best in the world but leverage is said to be at x1
The Group continues to show positive momentum in revenue growth in all our core areas and our cash conversion continues to be excellent, with year-end leverage expected to be under 1x.

Zipmanpeter

Article has Aug not Sept in title ??

Albertos

Altitude (LON:ALT)

I was expecting a TU today - RNS 15th August in CEO comments ".....we will provide a further trading update on 5th September."

Given the lack of information on AIM revenue and startling forecasts isn't it quite probable people were reducing/selling prior to the update which did hold IMO the possibilty of quite some downside risk.

Phil

Just watching

abtan

No position in Boohoo (LON:BOO) but I am actually quite surprised by the share price reaction today.

Year-on-Year revenue growth for the last financial year was 48%
Year-on-Year revenue growth to Q1 2019 was 39%
Guidance for the full year is reported today as c35-36%

Presumably this 35-36% growth includes the additional of 3 new brands acquired over the last 6 months
I'm not sure how much MissPap did in sales last year, but stripping away the £174m sales that Karen Millen and Coast generated in their last accounts, that leaves, roughly, organic growth of just 15%.

With Boohoo, PLT and NastyGal growing at 27%, 42% and 153% respectively to Q1 that seems like a big slowdown for the Full Year.

Or perhaps my maths is wrong?

Thoughts appreciated

A

BooHoo only acquired the online business of Karen Miller and Coast. Are you using the whole turnover in your comparison?

I am indeed! Thank you for spotting the error.

Online sales for KM and Coast was £28m.

So organic growth (excluding MissPap) is down to at most 32%

On its own that still looks great, but compared to the previous results that is some slowdown, especially vs Q1 of this year alone.

Altitude (LON:ALT) down 37% that seems too much given the update is delayed revenue due to execution, if you believe that, and the market doesn’t unless you also view that these swings are algo driven, which I do partly. 200 + odd further members signed upto AIM is also very positive. Tempted to buy here.

davidjhill

I also own Avation (LON:AVAP) and like Carcosa and John like the simplicity of the model. Price tends to lag investment, so I can see momentum over next 12 months.

One item not mentioned so far is the massive undersupply of new planes in the market. This is not going to change anytime soon and in fact is getting worse. Avation (LON:AVAP) holds a bunch of options over new planes that are therefore very valuable but held at zero on the balance sheet.

I agree with Carcosa that the share should trade at a premium to NAV (most competitors do) and should also factor in the value of these new plane options, circa 30p of NAV worth. I think a fairer value currently would be 350-360p.

I think I may have just convinced myself to top up - quick someone douse me with cold water!!!!

Graham Neary

Thanks for spotting that Peter - I will fire my assistant.

G

MPAC (LON:MPAC)

Hi FREng, I'm on it. G

MPAC (LON:MPAC) hmmm strip out cash and you've got a business that looks like it will do 26p of EPS for a price of 150p = 6* earnings. Pension deficit and contributions reduced and should now be in surplus over next 4 to 5 years from what I can see. That should remove one big suppressant of the share price.

Also worth noting that they have some land (currently refused planning permission) that once they do get planning through should be worth north of 100p NAV so that could be an interesting bonus upside.

Noted the short term caution around investment decisions in the macro environment, but that doesn't read to me as though it is likely to impact on current or next year forecasts.

Looks like management have done a good job over last couple of years. I hold and continue to like.

imranawan

Hi Graham,

Really enjoyed the Tough markets section and for sharing your thoughts. Its much appreciated.

Imran.

Laughton

abtan - re Boohoo (LON:BOO), isn't that £28M for a full year though and they've only just completed purchase of MP/Coast/KM so shouldn't you be showing, say, £14M, as their contribution to the 19/20 revenue?

I think today's guidance is for an increase of 33% to 38%. My calculator probably isn't as good as your spreadsheet but if we accept their top guidance figure of 38% and allow £14M for the new aquisitions then I make organic growth a shade over 36%. Given that there will be fairly sizeable costs incorporating the new aquisitions into their operations then I'm more than happy with that.

But then, after today's rise so far, this is now nearly 10% of my pension so I may be expected to say that - many thanks once again to Paul for flagging this up in the very early days......but "buy and hold" is becoming a bit scary.

Boohoo (LON:BOO)

I'm not having a good day with this, which is clearly weakening my point, so apologies again, and yes, you are correct.

For some reason I thought the acquisition happened ages ago, but it literally was just a month ago.

So yes, assuming:
1) £14m for half a year's worth of new acquisition revenue
2) top of guidance is hit, and
3) MissPap isn't a large contributor to revenue
gives the 36% organic growth you mentioned.

I still think this is good growth by itself, but there is definitely an underlying rapid downward trend.

For the avoidance of doubt I sold out back in May.

Ta

Small Cap Value Report (Thur 5 Sep 2019) - BOO, Tough markets, MPAC, ALT, BKS

Boohoo (LON:BOO)

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Graham Neary

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