Small Cap Value Report (Wed 25 Sept 2019) - SOS, BOO, TMMG, UNG, HRN, NET, CAR, SDI, CARD | Paul Scott

25th Sep '19 by Paul Scott

49 comments 11882 reads

Good morning, it's Paul here today.

Estimated completion time - probably about mid-afternoon. Update at 15:36 - as usual, it's taking longer then expected, so I'll keep going until early evening.

Update at 18:09 - today's report is now finished.

Sosandar (LON:SOS)

(I follow this company closely, as it's by far my largest holding in my SIPP. Obviously just skip this section if it doesn't interest you)

Digital ads - I wasn't able to get any photos of Sosandar's digital ads in selected tube stations in London (see Monday's SCVR). So I contacted the company's PR, to ask for some photos, and more info, see below.

Sosandar's digital ads are shown at selected tube stations in London, during commuter hours, morning & evening, on weekdays. I visited a couple of tube stations at around 3:30 pm, hence why their ads would not have been showing at that time.

Here are a couple of photos sent to me by the PR co at my request;

TV advertisement - There's also a Sosandar TV ad, which is being trialled. Here's the link to that short video.

The background of Sosandar's founders was in fashion magazines. You can see that in the quality of the company's photography & video imagery. It looks like a proper brand.

On to Wednesday morning's trading updates & results statements....

Readers like us to comment here on BooHoo, even though it's now a mid-cap:

Boohoo (LON:BOO)

Share price: 266p (pre-market open)
No. shares: 1160.7m
Market cap: £3,087.5m

Interim results

Terrific figures today, from this multi-brand online fashion retailer.

Graham covered its ahead of expectations update here on 5 Sept 2019. As you would expect, with such a recent update, today's figures & outlook are consistent with it.

Here's today's outlook guidance;

Group revenue growth for the year to 29 February 2020 is expected to be 33% to 38%, with adjusted EBITDA margin for the year to remain at around 10%,…

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Mark Tughan

25th Sep '19

Hi Paul,

£OPM (are other finding the tickers are hit and miss?) announced FY results which on first skim look pretty good. Graham thought is was "fairly" priced back in Jan at 46p. It's 32.76p as I write and to me appears to offer good value, and today adds a nicely raised dividend. Theres's 1% write off's and raised provision for future bad debts to 1.9%. Too low?

TamzinPiworld

Tremor International (LON:TRMR) H1 19 results webcast, following results yesterday.

Here, Ofer Druker, CEO, runs through H1 results, operational update and outlook.

Tremor International (TRMR) H1 19 results webcast by Ofer Druker, who runs through H1 results, operational update and outlook.

https://www.piworld.co.uk/2019/09/25/tremor-international-trmr-h1-19-results-webcast/

brucepackard

Yep - I'm interested in £TMMG too. Been a multi bagger, but nervous about the exposure to cut back in marketing spend when there's a downturn. Stockranks are giving many cyclical stocks a high rating at the moment, so useful to know thoughts on when to sell high stock rank firms.

jwebster

Mission Marketing (LON:TMMG)

I'm a fan. On the surface a good report today, price rose this morning but is falling back now. MM has had a good run and the chart looks like taking profits now, which I've done.

I'd be happy to buy again after the sellers have cleared out.

Luthrin

Re Mission Marketing (LON:TMMG)

If you want a lesson in how some companies tread a very fine line between being economical with the truth and deliberately misleading the market, compare Note 8 ('Earnings per share') in this year's Interim Report with the same note in 2018's Interim Report and then consider what's missing in the light of the RNS released by the company on 4 June regarding the company's Growth Share Scheme for senior management.

Chris Archer

Immotion PLC (IMMO) released their interim results today.

Very exciting opportunity here. It’s a highly speculative investment as the stock ranks indicate, but the rewards if they get it right are significant. The company is loss making but on course to break even in Q1 2020. They provide “Out of Home” Virtual reality experiences. The market cap is £19.27 million.

After experimenting with various different business models, the company have settled on a partnership model. This model is extremely attractive to both parties. Immotion provide the hardware; the content; training and support at their cost. The partner provides the staff; space and footfall at their cost, with the revenue being shared 50/50.

This is a very attractive model for the partner because they are able to add a relevant VR visitor attraction to their site for no upfront capital cost, with an immediate exposure to new revenues. For Immotion the model is attractive because it enables them to have their VR experiences placed in areas of high footfall. Since the marketing and operation of the experience is carried out by the partner, there are very little costs for Immotion once the experience is in place. This affords exceptional operation gearing and profitability potential. Trading has been very promising. Year to date, the average gross revenue per headset per week was £320. This figure averaged £402 per week during the 6 week school holiday period. The partnership estate averaged £381 per week.

The model has attracted some very prestigious partners including the 02, Blackpool Tower, Madame Tussauds and Lego land. The company currently have a total installed base of 256 headsets with a further 33 to install in the next few weeks. They remain confident of reaching 400 installed headsets necessary to meet their short-term monthly objective of monthly EBITDA break-even in Q1 2020. The company have the goal of reaching 1000 headsets by the end of 2020. At an average revenue per headset of £320 that’s a weekly turnover of £320,000. The company have indicated that once they have 400 headsets in the field the revenue from each extra headset goes straight to the bottom line. If they achieve the milestone of 1000 headsets by Q4 2020 whilst maintaining their average revenue per headset, the numbers and profitability look very attractive indeed.

The company did a placing in August where they raised £2.4 million. They currently have £2.3 million in cash. The CEO has indicated they will not need to return to the market to raise more money. All further expansion will be funded from their cash flows.

I have a long position in this company. I think it offers an excellent opportunity to multi bag. I love the business model which is truly a win win for both Immotion and the partner. More importantly the business model makes it a very easy sale for the company. As an owner of a visitor attraction, why wouldn’t you want a VR experience installed at your site at virtually no cost? To achieve their goal of 1000 headsets the company’s strategy is to continue to focus their efforts on signing new partners, especially in the “Edutainment” sector, in both Europe and the USA. They have divided the market into 4 sectors: Aquariums, Zoos, Science Centres (“Edutainment”) and Entertainment. To date their focus has been on Entertainment and the Aquarium destinations within the Edutainment sector. Given the initial performance of the Aquarium offering this will be their focus for the remainder of 2019. I have taken a look at various reviews of their experiences on websites such as trip. They are very good. Here is a review of their offering in the O2 https://www.tripadvisor.co.uk/Attraction_Review-g186338-d17804644-Reviews-ImmotionVR-London_England.html

Another potential source of revenue could be in the sale of their ever-growing library of content to third parties. Immotion go to great lengths to provide high quality VR experiences. For their Aquarium experience they hired the “shark whisperer” who without the use of an oxygen tank filmed 2 experiences. One where he swam with sharks and another where he swam with humpback whales!

This is intended as just a quick introduction into the company. For further research, as a starting point, its well worth watching this recent video https://www.youtube.com/watch?v=9ymk2eDp7Rg

You should also visit their excellent website here: https://immotion.co.uk/

MrContrarian

Boohoo (LON:BOO) can't join the FTSE100 if it remains on AIM, which I think is quite likely. Would the founders want to give up the massive IHT benefit of being on AIM?

mercury61

Safestay SSTY half year report RNS today. Last commented SCVR by Paul Tues 5 Feb 2019. Thoughts?

BIACS

Interested in your views on the Card Factory (LON:CARD) results from yesterday if you have time please. Market has reacted well.

Many thanks,

BIACS

bsharman

With regards to £SOS - you are investing in the ability of the management and their capability to grow revenues at pace, manage costs and keep churning out stylish clothing that will be in-demand. I had a small flutter recently when the price dipped below the placing price of 15p. However, I note that people in their target demographic who i have asked about buying clothes online have dismissed it and have given reasons such as 'difficult to return clothes', 'want to see and touch the fabric first' etc. I haven't spoken to many people but perhaps they will find it tougher going than the likes of BOOHOO whose target market have grown up buying clothes online?

(PS> how do you get the ticker to come up with the company name - it used to be put a £ in front?!)

1pm (LON:OPM)

Results today. Some marginal increase in revenue. Price edging up this morning. I hold a small number.

The thing that strikes me is their point about their brokering of a large proportion of deals originated.

"Of this origination, given the flexibility afforded by the hybrid lending and broking model and prevailing market conditions, 35% was funded on balance sheet and 65% was broked-on, compared with 44% and 56% respectively in the prior year. The Group's policy is to not carry residual balance sheet risk in respect of light commercial vehicles and cars and so 100% of all finance deals originated for such assets are broked-on. Excluding vehicle finance origination, 53% of new business was funded on balance sheet and 47% broked-on, compared with 60% and 40% respectively in the prior year illustrating the 'hybrid' operating model in action."

As a result of the high proportion of brokering the lending book actual fell slightly, from 141.7m compared with 143.9m in the prior year.

On one side, I see this as smart, they are only booking the deals that meet their criteria onto their own balance sheet and earn some commission from the declines. On the other side, it tells me they can't originate enough quality deals to grow their own book. Or, they think there is an SME recession coming in the UK and are waiting for that to pass over before growing again.

At a PER ratio of 4.6x much of the above is already priced in. So regardless I still hold, albeit a small position.

Ha ha ha. Great spot. I knew about the company's Growth Share Scheme, and didn't like it because they're issuing 5.7m Ordinary Shares to management based on the share price being above 75p. It did make me wonder how much I could trust management.

And now they have left out the number of shares in the EPS calculation this year ???

:-)

andyfwwrench

Saved me the trouble of pointing this out. Ultimately it constricts the market cap it can reach as there is limited capital that will go in to AIM. The lax regulations for large companies eventually becomes a red flag.

Perhaps AIM should have a maximum market cap above which companies are forced to convert to a main listing?

Tortoise investor

This is a very random, off-topic question, but does anyone know what the Companies House equivalents are in Canada and Australia? i.e. where can I check accounts in those countries? Wanting to look at non-public listed companies accounts for some research purposes.

Zipmanpeter

Re £SOS - key here is the combination of their scale and core target market. As an ex-Mkting Dir, I think their strategy is a very smart one and has a good chance to succeed over time .

As a fully online company, logistics and distribution (and returns handling!) are outsourced to a specialist. They only need to get a turnover of only say £30mn pa to be very profitable by my calculations (albeit still small in the grand scheme of things). Margins are good and central costs outside Marketing are modest

They are focused on a specific niche of 'post fast fashion, above ave income 45-55 women'. Market size of this 45-55 group is bigger at £1.9Bn as women aged 16-24 (that BooHoo chase) as they have more spare cash. These women are completely happy to buy online and are doing it already, for range and convenience, given often long-hours, professional working lives. Think of top end of Next and its customer base. Indeed, I expect them to be selling on the Next platform in the coming 12months.

Given sufficient Marketing weight of spend and the right product range they should be able to get that £30mn pa turnover easily with the target audience who spent a lot per head and tend to be loyal and less price sensitive (if the product is any good).

Key risk IMHO is if a deep pocketed competitor with logistics & marketing muscle targets the same space either with their own or a bought in brand. £BOO 's moves towards a multi-brand, multi-lifestage business are a threat here (eg purchase of Karen Milen & Coast brands). Hence the sooner they establish the brand the better - so it was good news they took the extra equity sales for cash offer recently to help them drive scale.

I hold and am optimistic on a 24-36month basis.

Andrew Mitchell

For Aus this should be the starting point:

https://asic.gov.au/online-services/search-asics-registers/

Cheers
Andrew

Paul Scott

Hi MrContrarian,

Thanks, that's a really good point. I'll mention this in the main article, with an edit.

Best wishes, Paul.

Fegger

Perhaps they will look to split Pretty Little Thing off as part family owned and keep on AIM and let the majority of Boohoo eventually move to the main market

RichardK

Paul
Re Sosandar (LON:SOS) tube advertising. It is impotrant to remember that the vast majority of the population and the target market do not commute on the London underground.

Richard

Small Cap Value Report (Wed 25 Sept 2019) - SOS, BOO, TMMG, UNG, HRN, NET, CAR, SDI, CARD

Sosandar (LON:SOS)

Boohoo (LON:BOO)

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Paul Scott

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