Small Cap Value Report (Tue 6 Aug 2019) - VCP, W7L, ANX

Tuesday, Aug 06 2019 by

Good morning, it's Paul here.

Yesterday saw a sharp downturn in US markets. The S&P 500 is down 7.5% in the last week. The catalyst seems to have been an escalation of the US-China trade war, and China devaluing its currency. How this affects UK small caps? Who knows!

My view is that the avalanche of takeover bids, is the more interesting story, and a good reason to remain invested in UK shares.

Please see the header for the companies I intend writing about today. Plus of course I always read the subscriber comments below, and if anyone makes a good case for why a particular company's results/trading update looks interesting, then I follow up on those when time permits.

Estimated completion time today is about [edited, as VCP took me longer than expected]:  7pm-ish, and I'll sign off once there will be no more updates. Hopefully the above manages expectations, especially for newer subscribers who haven't quite got the hang of the erratic way that I work.

Jack Wills

The Telegraph reports that struggling fashion chain Jack Wills has gone into a pre-pack administration, and been bought out by guess who - yes, Mike Ashley of course! It's a small deal, at £12.75m.

Someone from Warwick Business School is quoted as making the very good point, that Sports Direct doesn't seem to have the skill set to manage all these different brands. On the other hand, Ashley has proven the doubters wrong in the past, so it will be interesting to see how Sports Direct's bizarre headlong expansion pans out.

Warpaint London (LON:W7L)

Share price: 56.5p (down c.27% today, at 11:59)
No. shares: 76.7m
Market cap: £43.3m

Trading update (profit warning)

Warpaint London plc (AIM: W7L), the specialist supplier of colour cosmetics and owner of the W7 and Technic brands, provides a trading update for the current financial year.  [Paul: year ending 31 Dec 2019]

A 27% drop in share price makes this look like a profit warning.

To bring me up to speed, am just re-reading my notes here on 21 May 2019, after the last trading update at the AGM. In summary, it reported "challenging" trading in the UK, better overseas sales, and concluded with "cautious optimism". Positives were mainly:  a reasonable PER, good dividend yield,…

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Warpaint London PLC is a United Kingdom-based company engaged in color cosmetics business. The Company sells color cosmetics in the United Kingdom and overseas, principally under the W7 brand. The Company operates through two divisions: close-out and own-brand. The own-brand division consists primarily of the Company's flagship brand, W7. The W7 brand contains over 500 items, which are sold into high street retailers and independent beauty shops across the United Kingdom, Europe, Australia and the United States. The W7 brand focuses on the 16-30 age range. more »

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Victoria PLC is a designer, manufacturer and distributor of flooring products. The Company's principal activities are the manufacture, distribution and sale of floorcoverings. Its segments include UK and Australia. It manufactures wool and synthetic broadloom carpets, carpet tiles, underlay and flooring accessories. In addition, it markets and distributes a range of luxury vinyl tile (LVT) and hardwood flooring products produced by third-party manufacturers. Its product offering in the United Kingdom ranges from both crafted, woven Wilton carpets to Tufted carpets in a myriad of fashion colors and styles. Its stock range offerings cover saxonies, tonals, velvets, twists and natural loop pile styles for residential use. The Company supplies its products to the mid to high end residential market and contract sector both in the United Kingdom and overseas. Its subsidiary, Munster Carpets Limited, is engaged in the manufacture and distribution of floorcoverings for the contract market. more »

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Anexo Group plc is a United Kingdom-based company that provides credit hire and legal services. The Company is focused on providing replacement vehicles and associated legal services to the customers who have been involved in a non-fault accident. The Company provides an end to end service to the customer, including the provision of a credit hire vehicle, upfront settlement of repair and recovery charges through to the management and the processing of any personal injury claim. more »

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  Is LON:W7L fundamentally strong or weak? Find out More »

45 Comments on this Article show/hide all

james young 6th Aug 26 of 45

In reply to post #500921

thanks paul the update would be very useful

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purpleski 6th Aug 27 of 45

Hi Paul

I rarely make suggestions here but would you consider commenting on the £BOO acquistion off the online assets of Karen Millen?

Does it have an impact on £SOS, in that briefly looking at the Karen Millen web site it  looks as though KM markets to the same space as £SOS.

Of course there is room for more than one "retailer" in the space but could it be negative for Sosandar.

I hold £BOO and sold my minute holding is £SOS last week to buy £RRE.



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Laughton 6th Aug 28 of 45

In reply to post #500946

Ben - Boohoo (LON:BOO) have just bought the online assets and associated IP from the administrators. No shops.

Looks like a really good deal to me

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nicobos 6th Aug 29 of 45

PI favourite Burford Capital (LON:BUR) has just lost 20% in 2 hours on speculation of a short selling attack tomorrow. Either a massive opportunity to top up or cut losses... may stick some in the pension !

Any views?

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Randval 6th Aug 30 of 45

In reply to post #500911

I used to own Warpaint until I had a look at their product range in a B & M store.
The product presentation was awful with face cream oozing out into the packaging etc. etc.
I sold in June for a modest profit.

Randval. .

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Trident 6th Aug 31 of 45

In reply to post #500976

Shareprophets are speculating that a 'dossier' perhaps related to Burford Capital (LON:BUR) is going to be released tomorrow.

Of course these 'dossiers' count as research, but may be linked to short attacks, so could be self-justifying, and arguably designed to move markets.

It maybe that Burford Capital (LON:BUR) profits may have fallen into the 'too good to be true' camp of performance, and that along with their Guernsey, and Woodford connection, there is scope to cause more trouble.

All guesswork at this stage.

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Roy Edwards 6th Aug 32 of 45

In reply to post #500946

Just the online. As per Laughton

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Julianh 6th Aug 33 of 45

I saw Anexo (LON:ANX) at a Sharesoc seminar.
According to Anexo (LON:ANX) the difference between them and e.g. Accident Exchange is that Anexo (LON:ANX) have their own team of lawyers who progress the claims against the insurance companies, hence their 99% success in getting paid vs. Accident Exchange who didn't have the legal firepower to get money out of the insurers. Of course we will have to monitor this closely. If the recovery rate falls then cashflow will suffer badly.
On the morality of this business (again based on £ANX's Sharesoc presentation) without Anexo (LON:ANX), the impecunious (nice word for poor) innocent party in the accident would not have access to a hire car without help from ANX and so would be left without transport and probably with some difficulty in getting his or her insurance claim fairly met by the insurance company.
Disclosure - I am long Anexo (LON:ANX)

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Westway001 6th Aug 34 of 45

In reply to post #500976

what I don’t understand is why broadcast your intention to short sell a stock “tomorrow” only to see that stock fall by 20% before you short it? Wouldn’t you take a short position before you make the price go through the floor rather than after?

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Julianh 6th Aug 35 of 45

In reply to post #501086

Hello Westway
agreed. The sensible course is to
1. sell short
2. publish your 'damning' article
3. watch the share price crash
4. buy back at a much lower price
Today's FCA short positions daily update only shows one short out on Burford Capital (LON:BUR) - a 0.5% short placed by Gladstone Capital Management on 04 June 2019. Assuming that the short report due out tomorrow morning is about Burford Capital (LON:BUR) . this leaves me wondering whether:
a) the short positions were all taken out today (after the FCA's daily update)
b) short positions have not yet been notified to the FCA (I am not sure of the timescales for reporting shorts to the FCA)
It seems a but strange that Shadowfall (who announced on twitter several days ago that they have a short position on £BUR) are not listed on the FCA update unless their short has been taken through Gladstone Capital Management.
Strangerer and strangerer
Hopefully we will find out more tomorrow morning. Hopefully it will not be too damaging to our wealth.
Disclosure - I am long Burford Capital (LON:BUR)

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Gromley 6th Aug 36 of 45

In reply to post #501091

It is rumoured to be Muddy Waters who will issue the dossier. As I noted on the Burford thread Carson Block (MW) has form for whatever the opposite of 'pumping and dumping' is called.

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bestace 6th Aug 37 of 45
What killed off Accident Exchange, after several years of apparent success & big profits, was that they couldn't turn the debtors into cash.

That may be true but it glosses over the more interesting aspect of the Accident Exchange story, which is that they were defrauded out of tens of millions of pounds by a group of supposedly independent valuers and witness experts who were presumably acting in cahoots with the insurers.

Accident Exchange initiated litigation which rumbled on for years and which resulted in 7 people being jailed for what the judge called "perjury on an industrial scale".

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andrea34l 6th Aug 38 of 45

In reply to post #501091

On Friday there were some huge transfers of shares from directors to other entities/family trusts - it is described as "the usual annual transactions associated with certain estate planning"... I can't work it all out, and maybe it's all normal behaviour, but there are MILLIONS of shares being moved about and I worry if there's something about it that is a bit shifty...

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Paul Scott 6th Aug 39 of 45

In reply to post #501121

Thanks bestace,

I'd forgotten about the legal action re Accident Exchange, rings a bell now you mention it.

Anexo (LON:ANX) looks too small to be able to stand up to the insurers, if they decide to snuff it out, the same way they snuffed out Accident Exchange.

One way or another, I cannot see its super-normal profits standing the test of time.

Regards, Paul.

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SundayTrader 6th Aug 40 of 45

Hi Paul

Thanks for the research and very informative comments on Anexo (LON:ANX).

On the morality of the business model, having once, in my "skint" days, suffered major financial grief when someone on the wrong side of the road rammed me, and the resulting claim on my comprehensive insurance left me way short of the money needed to get me back on the road, I would have thought there were plenty of people genuinely appreciative of the service. If Anexo (LON:ANX) and its ilk are charging ludicrous car hire rates in order to get paid for taking genuine claims through the court system, then the whole process is broken. Whether or not all of that £100 million or so of claims in progress are really genuine claims that the courts will uphold is another matter, and almost certainly good reason for steering clear of the shares.

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shipoffrogs 6th Aug 41 of 45

Anexo (LON:ANX) - Isn't the story all laid out on its stock summary page on here - by just comparing EPS to operating cash flow, not pretty.

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mlane 6th Aug 42 of 45

In reply to post #500981

Agree, list of retailers is bottom end, no Super Drug, no Boots. I think you can buy from their site but agree no online strategy. Would be a natural partner with Boohoo/Asos.

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oaktree 7th Aug 43 of 45

Hi Paul , appreciate you looking into the short attack on Burford Capital (LON:BUR) - whats your view?


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Trident 7th Aug 44 of 45

I have read a brief summary of the Burford Capital (LON:BUR) take-down, and its allegation seems based on manipulated ratios for ROCE etc, and use of IFRS and mark-to-model accounting intricacies to ramp up its successes of cases, rather than its non-successes. I confess I didn't really understand the intricacies of the accounting methods referenced. But my mind jumped to accrual accounting style manipulation, where you make an assumption of profit and loss, and book the assumption to the P&l before the cash ever comes in. Then the cash doesn't in, or comes in at less than the assumption of profit, but there is no write-back.

They say basically the model is insolvent.

They also say the repeated resignations of CFO's is a signal, and that currently employing the wife of the CEO as CFO is an even bigger signal of poor governance over finance policies.

Non-execs are employed longer than the Governance code allows, which suggests some may be too comfortable.

I was amused by a small twitter rebuttal by Burford Capital (LON:BUR) that their cash shortage was a mark of their success to be celebrated. I will have to use that one sometime! I think some politicians may adopt this as defence of their own policies.

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Julianh 7th Aug 45 of 45

In reply to post #501121

Hi bestace

That is really interesting. I hadn't heard that before. And I do wonder whether Anexo will be attacked in a similar way and, if so, whether their legal expertise will help them to get a better resolution than Accident Exchange

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 Are LON:W7L'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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