Small Cap Value Report (Wed 25 Apr 2018) - BOO, W7L, CLG, BEG

Tuesday, Apr 24 2018 by

Good evening/morning, it's Paul here.

There's no rambling introduction today, pondering life, the universe & everything!

Mello Derby

I'm getting into a frenzy, trying to prepare for Mello Derby. I think there might be a handful of tickets left, so if you can join us, here's the link.

The quality of the companies presenting is far higher than any other investor show. The reason being that David Stredder hand-picks companies that are known to be decent. Also, he refuses entry to the spivvy junior resource stocks which usually want to come along to investor shows. So the theme with Mello is very much quality, ahead of commercial considerations. Isn't that refreshing!

Someone said that a lot of the speakers are the same as in 2014. That's true to a certain extent, but we're not going to be saying the same things! Graham and I will be dragged on stage at 9am this Thursday & Friday, to do Small Cap Value Reports live. Whose idea was that?! Grrrrr! Still I'm sure we can have some fun, providing I'm supplied with enough coffee & bananas.

My main presentation will be a review of the last few years in small caps - things I've learned, interesting themes, opportunities & threats, etc. Hopefully that should be interesting too. Although at this stage I only have 2 pages of rough notes, so need to flesh that out into a proper talk very soon.

As I'll be preparing for Derby, and travelling there tomorrow, this report will have to be a bit shorter than usual.

A big thank you to those of you who kindly donated to Brian Basham's prostate charity London Marathon donations page. He emailed me today to say how much he appreciates our support. Also, I'm delighted that readers here chipped in a decent amount, so thank you from me too.

Boohoo.Com (LON:BOO)

Share price: 177.6p (up 15% at 08:26)
No. shares: 1,149.5m
Market cap: £2,041.5m

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

Final results - for the year-ended 28 Feb 2018.

This is a leading online fashion group, currently with 4 fast-growing brands - BooHoo, PrettyLittleThing, Nasty Gal, and BooHooMan.

This share occupies a special place in my heart, as it was a…

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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 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 »

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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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Clipper Logistics plc is engaged in providing value-added logistics solutions and e-fulfilment and returns management services to the retail sector. The Company operates through two segments: Value-added logistics services and Commercial vehicles. The Value-added logistics services segment provide three business activities, which include e-fulfilment and returns management services, non e-fulfilment logistics and central logistics overheads. The Company's commercial vehicles segment includes sales, servicing and repairs. Its e-fulfilment and returns management services include the receipt, warehousing, stock management, picking, packing and dispatch of products on behalf of customers to support their online trading activities, as well as a range of ancillary support services including returns management, branded as Boomerang. It also undertakes retail support services, including processing, storage and distribution of products. It also provides consumer electronic repair services. more »

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

52 Comments on this Article show/hide all

carmensfella 25th Apr '18 33 of 52

See you all for a great time together in Derby....

Just 24 hours to go to Paul and Graham live in Derby.....There is still the chance to join us before the start of #Mello2018 We have just 23 places available for Thursday & 41 left for Friday so if any of you need a ticket for either or both days the Mello team are happy to offer one day tickets for just £30 ( normal price £69) using this link

If you want to come both days you can always buy two !

Those tickets allow you into the pre event entertainment tonight so why not join early and avoid the queue tomorrow. The place will be positively bouncing with investor energy.


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doublelutz 25th Apr '18 34 of 52

In reply to post #357158

Hi Purpleski

Yes, it is pointless anyone having a mailing list of people who are no longer interested and I think some people are pleased to have a reason to cleanse their mailing list. However, I do think the whole issue has caused undue consternation. There is the get out of "legitimate interest" which can be the interest of the person holding the mailing list. Provided you are simply holding names and addresses of persons who may be interested in your product as opposed to holding their personal financial details then it is my opinion at least that there is nothing to worry about.

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Effortless Cool 25th Apr '18 35 of 52

In reply to post #357293


Is Water Intelligence (LON:WATR) "a screaming buy??". I certainly think so, to the extent that I had already bought over 0.5% of the company and added more on the back of today's trading statement.

My full reasoning is set out in this thread, (which I will update after the full-year results are published) ....

.... but, to summarise:

- genuine small cap, with multibag possibilities;
- already profitable, with rapidly growing revenue (40% in 2018 q1);
- annuity-like income from franchisees provides robust downside protection; and
- franchisee base provides strong foundation for investing in high growth areas, either by generating reliable cash flow to plough into other divisions or through the opportunities from buying up the franchisees themselves.

It has also been almost entirely overlooked by the market so far, and will inevitably be picked up by some tipsters in due course.

I'm sorry if this all seems a bit fervid, but Water Intelligence (LON:WATR) is the most exciting small cap opportunity I have come across since Lo-Q (accesso Technology (LON:ACSO) nowadays) and I intend to make the most of it.

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sharmvr 25th Apr '18 36 of 52

In reply to post #357383

Thanks for this - and certainly the thesis from your article seems to be playing out, with your and market forecasts being beat. Added bonus, a real world problem being solved.

I see enough to open a start position with hopefully better entry points and actual financials to make bigger if think worthy.
Struggling to get a quote! I can't get a price through HL, tried for 1000 / 2000 / 4000 - nada.

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Graham Ford 25th Apr '18 37 of 52

In reply to post #357383

Agree with much of that but..........

The technologies, acoustic, thermal, etc are pretty much available to anyone, I don’t think they really have anything that different to other companies from a technical standpoint. What they do have is a franchise model working well that has allowed them to expand. Furthermore margins seem to be declining, the cash flow seems to be eaten up by capex and their UK leak detection business, Target Leak Detection, seems not to exist in any meaningful form (link from their website is broken and google search produces nothing of substance).

I think that this is mainly a bet on the further success of their franchise model in the USA and I find the prospects for that hard to evaluate.

I find this more like evaluating a pizza franchise business than a construction equipment business like Somero. The model has clearly worked so far, is there info on their market share and how many areas they have with no franchisee available?

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herbie47 25th Apr '18 38 of 52

In reply to post #357418

Even smaller amounts not possible, I have come across this before with Water Intelligence (LON:WATR). I think a "fill or kill order" is the best way.

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Gromley 25th Apr '18 39 of 52

I managed to get a small position in Water Intelligence (LON:WATR) , but it does seem clear that there is not much liquidity, so perhaps a small position is the place to be from a risk management perspective
On the downside, I had to pay more than twice the price that when I first rejected this as an investment about six months ago on the basis of not likely the Directorspeak and particularly what seemed like too much focus on the top line and not bottom line. So well done to Effortless Cool who I know has been bullish for quite some time.

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Lgarvey 25th Apr '18 40 of 52

In reply to post #357433

I have no luck. I have been trying all morning even down to £500 worth.

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Effortless Cool 25th Apr '18 41 of 52

In reply to post #357423


I'm don't know about Target Leak Protection - their website definitely needs updating in that regard. The Water Intelligence (LON:WATR) UK business is NRW Utilities, which they bought in 2016. It is small, however, and the vast majority of the business does indeed come from their US franchise model.

Note that the cash flow is being deployed to fund investment, mainly in buying up franchisees. The nice thing about this aspect of the business is that the franchisees take the risk of building each franchise but then Water Intelligence (LON:WATR) can, to some extent, pick and choose regarding where it can most beneficially bring a franchise back in-house.

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Effortless Cool 25th Apr '18 42 of 52

In reply to post #357433

Thanks, Gromley.

Liquidity comes and goes in Water Intelligence (LON:WATR) - I was able to buy almost 8000 shares in one block this lunchtime. The trick is to be patient and grab the liquidity when the opportunity presents itself.

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JakNife 25th Apr '18 43 of 52

I hadn't appreciated that Clipper Logistics are a quoted company. FWIW, the Sosander team explained at the UKIS on Saturday that Clipper are also their logistics solution provider. As an overall model it's an interesting approach to assist small companies in taking on Amazon.

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LeoInvestorUK 25th Apr '18 44 of 52

In reply to post #357383

I sold my Water Intelligence (LON:WATR) over concerns about valuation, equity issuance and some very rampy language in their Q4 trading update. I disagree about it being overlooked by the market since I made over 50% in 2-3 months. The Q1 trading update seems much more level headed and I may yet buy back in.

Blog: LeoInvestorUK
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sharmvr 25th Apr '18 45 of 52

In reply to post #357428

Fill or Kill pending - not expecting a fill, given I am being quite stingy. Looks like there is a market at 100 shares at most, but then spread and trading costs would be approaching 20%!

Effortless - I think I can see your 8 k - 7960 @ 251.09?? - clearly one of the whales moving the market!!!!

Thank you all for your responses/insights/suggestions

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Lgarvey 25th Apr '18 46 of 52

In reply to post #357523

Yes finally managed to grab a few just before close.

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purpleski 25th Apr '18 47 of 52

In reply to post #357353

Hi doublelutz

Interesting. I read fairly widely on GDPR but has not seen the “legitimate interest” clause. I will investigate further.

Thank you

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rfenner 25th Apr '18 48 of 52

I too hold a position in Boohoo.Com (LON:BOO) and pleased to see the performance. They have re-platformed to demandware Paul (now called salesforce commerce cloud) which is enterprise level as you would expect for this size of business.

As someone also going through GDPR compliance in my day job in the e-commerce world I don't see this as a big threat to Boohoo and certainly not the reason for the share price falling since last year. I actually see high street business trying to capture your details when you buy in store as more of an issue than a pureplay ecom business. If they've been compliant all along (no pre-ticked opt-in boxes for instance), then there isn't any risk to the email list size and their current privacy policy looks fairly comprehensive. You've also got the issue that the ICO (who are going to be 'enforcing' this), have openly admitted that they don't have the resource to go looking for companies who are falling foul of this once it becomes law. There will be individuals with more time on their hand than they know what to do with making life difficult for businesses but I don't think this is the immediate smoking gun that many fear. Anyway, this is too long a dull GDPR message!

A confident holder here, but I'm not adding as my portfolio is small and I don't want too much exposure to a single share!

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IGotPoesJacket 25th Apr '18 49 of 52

In reply to post #357338

Hi Purpleski,

In the long term, and if they pull it off, I agree it could be “a nice little earner” (sorry - been watching Only Fools and Horses repeats).

But in the short term, with the share price coming under pressure which is claimed is due to fears of margin slippage and increasing costs, plus with what we have seen happen to High St in the UK, I think a move to bricks and mortar would have been received negatively by Mr. Market.

The UK leads the world in e-tailing. I think this is due several factors; the fact the UK is small, logistics are relatively easy and resultant delivery costs are thus relatively low, essential for offering free returns.
Getting into shopping areas on a weekend is a complete pita, most town/city centres and retail parks become car parks way before you park your car.
The UK has some of the best IT solutions capability. I work for a big software company as a consultant, as far as I can tell most major companies, even some of the big American and European ones, run IT operations out of the UK, we’re the best at it, the fact the UK is the biggest market outside America for licensing and services tells you everything you need to know.

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purpleski 26th Apr '18 50 of 52

In reply to post #357353

Hi Doublelutz

I just wanted to thank you again for this. It so helpful to me personally in my business but also generaly. I cannot tell you how relieved I feel.

Having read the ICO web site:

I am more than ever, like you, conbvinced that this thing has been over done.

Thank you.

Kind regards

PS Good old Stockopedia

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EDWARD FORT 26th Apr '18 51 of 52

There are loads of sensible points in that Begbies red flag report. You just don't like the message, which is that Brexit is causing a lot of damage already and will continue to do so.

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gus 1065 27th Apr '18 52 of 52

Thorough write up on Boohoo.Com (LON:BOO) in Phil Oakley’s weekly newsletter at the attached link:-

Also covers Lok'n Store (LON:LOK) and Ab Dynamics (LON:ABDP) this week. Some of you might have had chance to catch up with him at Mello.


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 Are LON:BOO'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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