Small Cap Value Report (Tue 28 Feb 2017 - Part 1) - RBG, BOO,

Tuesday, Feb 28 2017 by

Good morning!

Brand new Stockopedia charts

The technical guys at Stockopedia HQ have been busy working on completely new charting software, for a long time now. Well, today is launch day! I had a preview last night, and it's a massive improvement on the existing charts on this site.

Ed is doing the launch in a webinar at 1pm today. The webinar sign up link is here. There are already a large number of people signed up, so there's clearly lots of interest in the new charts.

Whatever you think of charting, it does measure investor sentiment. So combining some analysis of the chart, with strong fundamental analysis, makes a lot of sense to me. I've certainly been more willing to run my winners, and tolerate more stretched valuations (in certain circumstances) recently, after reading the excellent Mark Minervini book on super-performance stocks - don't be put off by the spivvy-sounding title to the book, as it's an excellent read, highly recommended. He relies on some simple charting techniques to time his buy & sell points.

There are a lot of interesting trading updates & results out today in our small caps universe. Therefore both Graham & I will be writing reports today. I know it's a pain when we deliver 2 separate reports, but the logistics of it currently necessitate that, otherwise chaos will ensue if we try to merge lots of sections into one report.

Graham's report is taking shape here.

This is our plan of action today:

I intend reporting on

Revolution Bars (LON:RBG) - in line interim results & outlook

Boohoo.Com (LON:BOO) - due to popular demand, I'm continuing to report on this, even though it's now a mid-cap. Yet another positive trading update, and completion of Nasty Gal acquisition.

Graham intends reporting on;

Waterman (LON:WTM) - interim results

Redde (LON:REDD) - interim results

Avanti Communications (LON:AVN) - interim results

Swallowfield (LON:SWL) - interim results

Then, if there's time, we'll try to more briefly mention:

Johnson Service (LON:JSG) - interim results

Avingtrans (LON:AVG) - interim results + acquisition


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Revolution Bars Group plc is a United Kingdom-based operator of bars. The Company has a trading portfolio of approximately 60 bars located predominantly in town or city high streets, which operate under the Revolution and Revolucion de Cuba brands. The Company's bars focus on a drinks and food-led offering, and typically trade from late morning, during the day and into late evening. Revolucion de Cuba bars are characterized by their 1940s Cuban-inspired style, with dark woods, traditional bar counters, antique tiles, vintage furniture, Havana-style ceiling fans, and original Cuban artwork and photographs. Its bars are located in various places, such as Cambridge, Ipswich and Norwich in South East; Bath, Plymouth and Southampton in South West; Birmingham, Derby, Leicester, Loughborough and Milton Keynes in Midlands; Cardiff and Swansea in Wales; Blackpool, Chester and Huddersfield in North West; Sheffield, Sunderland and York in North East, and Edinburgh and Glasgow in Scotland. more »

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Boohoo Group PLC, formerly plc, is an online fashion retail group. The Company is based in the United Kingdom and has a 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, Nasty Gal, MissPap and Karen Millen and Coast 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 »

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

57 Comments on this Article show/hide all

tic_tac_toe 28th Feb '17 38 of 57

I love the idea of getting together at a RBG venue for some *market research* with like-minded holders..

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ISAallowance 28th Feb '17 39 of 57

I notice that Keith Ashworth-Lord writes in the latest fact-sheet that he has added Revolution Bars (LON:RBG) to the UK buffettology fund: He's not infailible, but it's certainly one of the top performing UK equity funds over the last 5 years, and he doesn't often add new holdings.

(I hold both UK buffettology and £RBG)

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skyjacker 28th Feb '17 40 of 57

In reply to post #173417

Rent free leases would only flatten cash flow in P&L accounting rules require them to be released during the life of the lease.

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janebolacha 1st Mar '17 41 of 57

This article has just been published on "Seeking Alpha":

The author declares a short position.

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seadoc 1st Mar '17 42 of 57

In reply to post #173558


Thank you. That makes some of Paul's negatives reviews seem rather tame!


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JMLDutch 1st Mar '17 43 of 57

In reply to post #173558

Interesting article. Thanks for posting.

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staverly 1st Mar '17 44 of 57

Excellent discussion regarding RBG. Only had a skim. Not for me. Though never a holder, SFI debacle back at turn of century reminds me this is not an easy business model. Thought it odd that the departing CFO gave the outlook.

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ls2g08 1st Mar '17 45 of 57

In reply to post #173558

Very interesting article, time to get out of BooHoo? Would be really interested in Paul's take on this.

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PhilipHanson 1st Mar '17 46 of 57

In reply to post #173558

I've read the Seeking Alpha article. It's just (another) re-hash of highly misleading or outright incorrect assertions about the company and its management, all of which have been seen before. Much of this stuff was being put about when the shares were 30p.

I could go off on a point-by-point rebuttal but I can't be bothered. Look at Paul's reports here and the ADVFN board etc. and you will see this has all come up before.

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bestace 1st Mar '17 47 of 57

In reply to post #173642

I'm not as close a Boohoo.Com (LON:BOO) watcher as others, but even my superficial knowledge of the company identified some omissions and distortions that makes me think this is mostly hot air.

For starters, the article has been written anonymously - the author is hiding behind the name and photo of someone who died in 1989 according to Wikipedia.

Secondly the point about declining gross margins has been discussed by Paul on a number of occasions - in short, the company is trading lower gross margins off against lower marketing spend, so it's misleading to focus solely on gross margins.

Thirdly, on the insinuations (and they are exactly that; no specific accusations are being made in the article) about directors having interests in other companies and the specific point about Carol Kane "as being involved with a property investment company called 'Pinstripe Property Investment Co., Limited.'" - Companies House records show she ceased to be a director of that company in 2013.

Fourthly, the article mischaracterises the PLT acquistion by ignoring the fact that BOO only purchased 66% of PLT, leaving plenty of upside for the founders.

Fifthly, it also mischaracterises the Nasty Gal acquisition by ignoring the fact BOO have only bought NG's IP assets, not the whole business.

I'm sure there's more that could be said. As the share price pushes further into 'all time high' territory this morning, I wouldn't see this article as a reason to dump the share.

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mikemorris 1st Mar '17 48 of 57

OPG Power Ventures have put out a trading update. Is this the bargain of the century? Paul has made positive comments in the past about this company. A real mystery why the share price lags where it is. Your thoughts most welcome.

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ls2g08 1st Mar '17 49 of 57

In reply to post #173660

Hi Bestace thanks for the reply. I have read all of PS's previous analysis. My concerns were more surrounding DSO growth, customer service issues which have been highlighted in the past and poor review scores, which are in line with the anecdotal evidence of female colleagues & friends who have used the service.

These claims also worried me somewhat "Rather than negotiating skills, the simple answer may be that BOO may not be adhering to minimum wage laws" & "Finally, BOO's superior margins may also come from the company supplying itself. BOO has stated that it has 200+ suppliers. But after engaging outside consultants and spending months researching the suppliers, we were only able to find one supplier to BOO, and this specific supplier has only a small amount of business with the company".

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herbie47 1st Mar '17 50 of 57

In reply to post #173663

OPG Power Ventures (LON:OPG). had a quick look. Debt looks quite high although it has been restructured so that should help. A similar Indian power company (Greenko) got into trouble with it's debt although it was far higher than OPG's. I suspect many investors are put off by foreign companies listed on AIM. I quick look on the bulletin boards, some say there seems to be a big seller. I see 1 director has over 50% of the shares. Currency could be an issue.

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bestace 1st Mar '17 51 of 57

In reply to post #173675

If you've read Paul's previous commentary on Boohoo.Com (LON:BOO) then you'll be aware of his comments on the negative working capital model of the company - if they're receiving cash in from customers in 17 days and paying suppliers on 30-60 day terms, this really isn't an issue.

In addition, I spent a bit of time trying to replicate their debtor day figures and I think they are including prepayments and accrued income in their debtors total, as well as amounts due from related parties (i.e. PLT). This overstates their calculated debtor days considerably as they should really be doing the calculation to include only sales on credit terms. Presumably the trade debtors relate to credit card clearing, as the customer pays at the point of purchase, so they are not really sales made on credit terms in the traditional sense.

Paul has also commented on the C4 Dispatches allegations so I won't add anything further on that.

On customer service issues, I would take this with a pinch of salt. The article references three review sites where the number of reviews is in the low hundreds. In the context of several million sales a year, it doesn't look to me like a real issue. I'd suggest you try doing a comparison with Asos on those review sites to get some context.

It's also funny that they didn't reference Trustpilot ratings, despite Trustpilot having more reviews than the sites they did reference, by several orders of magnitude. I wonder why...

On the claim about whether the company is "supplying itself" I don't have any special insight here, and neither I suspect do the authors of the article as this looks to me like more mud throwing insinuation rather than asserting specific allegations.

Related parties and transactions with RPs have to be disclosed in the accounts of course. To claim that BOO are deliberately not disclosing transactions that are not on an arms length basis would be to claim that they are wilfully in breach of companies law. They are being careful not to do that of course as to do so would be libellous.

The more I look at this the more it looks like a load of BS to me, but as ever, DYOR...

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Graham Ford 1st Mar '17 52 of 57

For a company whose strategy is stated to be at least partly to grow like for like sales Revolution Bars (LON:RBG) don't seem to be doing very well at it. There's lots of nice talk about investing in the estate and digital engagement but it seems that the LFL revenue is barely growing from these activities. It is also very disappointing that there is no clarity on the future impact of business rate changes in particular on costs. As Herbie mentioned, many businesses are expressing deep concern about these. With LFL sales barely growing and LFL costs increasing from business rate increases (and possibly other cost increases) future profitability of the existing estate may not be enough to keep funding the expansion.

That said, as the high street is a very challenging place to be at the moment it may be that new good sites can be acquired on very favourable terms.

It doesn't look like a nailed on future success story just at the moment, so while the shares are cheap they may not be highly under valued.

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Zipmanpeter 1st Mar '17 53 of 57

In reply to post #173507

Thanks to dahokolomoki (response 36) for making me re-think. I worried Revolution Bars (LON:RBG) was going to struggle because of the likely recession - it is an expensive night out.

However as he points out, we only need to ask if there will be more POCKETS of rich 25-34 wanting the revolution/rev de cuba experience. Further the results presentation showed that sites are selected targetting : "Target market methodology: Affluent suburbs, cities with post-recession investment and towns with major new developments"

Since they only need to find another 20 places on top of current 67 over next 2-3 years, they can ride out any recession (if the format stays fashionable and UK inc does not go bust!). Given that it is fundamentally cheap (Paul's original point), the risk reward looks good. I will be a buyer !!

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dahokolomoki 1st Mar '17 54 of 57

In reply to post #173738

Actually, I think RBG will do badly in a recession, so will be exiting at the first hint of one.

But my view is that the current UK economic growth still has some legs and therefore employment is going to get better, especially in the young professional area.

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paraic84 1st Mar '17 55 of 57

In reply to post #173453

The Clapham ones are quite far apart so very unlikely to compete with each other. One is near Clapham Junction station the other one is between Clapham North and Clapham Common station. Both are very well placed. I am surprised they don't have the revolucion du cuba format in London though.

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herbie47 2nd Mar '17 56 of 57

In reply to post #173783

Thanks for that. It just seemed odd that with only 5 in London that 2 are in Clapham. So from what you are saying they could have 20+ venues in London?

Yes also surprised no Cuba outlets in London thought that would be the prime location for one.

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Wildrides 12th Mar '17 57 of 57

Charting is bonkers rubbish invented by pretend scientists . Its like crack pot religions .......if you get enough people following it , then it becomes a self fulfilling prophecy due to their entries and exits being entirely predictable according to charting "rules" You are all being had .

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 Are LON:RBG'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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