Small Cap Value Report (Wed 26 Sep 2018) - BOO, MMX, CRAW, HRN, ACRL, FFX

Wednesday, Sep 26 2018 by

Good morning everyone,

It feels a little less manic today in terms of news flow.

The following have caught my attention so far:

Boohoo (LON:BOO)

  • Share price: 208.6p (+9%)
  • No. of shares: 1150 million
  • Market cap: £2,398 million

Interim Results

A long-standing favourite of readers here, I don't think anybody will mind that we cover this big-cap (for the same reasons we covered Next (LON:NXT) yesterday).

Besides today's news, the company last week announced the appointment of a new CEO. He is currently the COO at Primark (owned by Associated British Foods (LON:ABF) ).

This means that the two co-founders of the business (currently the co-Chief Executives) are stepping back a little.

One of them will become Executive Chairman (working on "long-term strategic direction") while the other will become "Group Co-Founder and Executive Director" (working on brand positioning and product development).

This can be interpreted as a strengthening of the management team, as the two co-CEOs are remaining with the business and are being joined by another very senior executive.

It could also be seen as carrying some risks, as there will be no independent director who is more senior than the new Executive Chairman (who is, with his family, the largest shareholder in Boohoo and its subsidiary prettylittlething).

What I like best is a clear separation of powers between a CEO and Chairman, with the CEO being in charge of running the show while the Chairman sits back and provides oversight on behalf of shareholders. When you have an Executive Chairman and a CEO, you run the risk of having a frustrated CEO who doesn't feel like he can truly impose his vision on the company.

Based on the new roles being taken up by the co-Founders, it sounds to me as though John Lyttle will be limited when it comes to putting his own unique stamp on the company, at least at the beginning of his tenure.

The company…

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All my own views. I am not regulated by the FSA. No advice.

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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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Minds + Machines Group Limited and its subsidiaries own and operate a portfolio of generic top-level domain assets (gTLDs). The Company operates in the domain name industry and provides end-to-end domain services. Its segments include Registry ownership (Registry), including applicant of top level domain name from Internet Corporation for Assigned Names and Numbers (ICANN) and wholesaler of domain names of those top level domain names; Registry service provider (RSP) and consulting services (segment B), which includes back end service provider for a registry, and Registrar (Registrar), which includes retailer of domain names. Its portfolio is focused around geographic domains, such as .london, .boston, .miami and .bayern; professional occupations, such as .law, .abogado and .dds; consumer interests, including .fashion, .wedding and .vip; lifestyle, including .fit, .surf and .yoga; outdoor activities, such as .fishing, .garden and .horse, and generic names, such as .work and .casa. more »

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Crawshaw Group Plc is a United Kingdom-based company, which operates a chain of meat-focused retail food stores. The Company has approximately 40 stores, which are located across Yorkshire, Lincolnshire Nottinghamshire, Derbyshire and the North West. The Company's product range is categorized into approximately two distinct areas, such as Traditional raw meat, and Hot and cold cooked food. Under the Traditional raw meat category, it offers various products sold either loose in a serve over counter for the traditional experience or as multi buy packs on supermarket style multi deck counters, which have all been cut and packaged in store. Under the Hot and cold cooked food category, it offers freshly prepared roast chickens, gammon and pork joints, hot roast sandwiches, shop cooked curries and casseroles, chicken and chips, as well as other traditional deli products. Its stores include Arndale Centre in Arndale; The Arcades in Ashton Under Lyne, and Fresh Meat Factory Shop in Astley. more »

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

41 Comments on this Article show/hide all

LeoInvestorUK 26th Sep '18 22 of 41

In reply to post #402079


I just read your great article back from June and realise that my comment today looks rather like an inferior rehash of it. In fact I had not (for some stupid reason) read your article before, and I can be sure of that because I was still able to thumbs-up it. Although as usual my thoughts were influenced somewhat by others, I think it is telling that there are at least two people who have relatively independently come to pretty much the same conclusions.

Anyway, moral of this story: Regularly check the "discuss" tab for shares of interest to see if anybody has written anything about them!

Blog: LeoInvestorUK
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SundayTrader 26th Sep '18 23 of 41

In reply to post #402064

I agree the Trifast (LON:TRI) update is short on numbers - i.e. none. And, as you say, talk of unpublished management expectations tells us nothing. However

- They are five months into the period - if EPS is going to come out significantly different to the published stockbroker forecasts then the Board is under an obligation to tell us, whatever the management expected.

- UK automotive is stated in the AR as 30% of UK revenue, which in turn is about 30% of group total revenue. A moderate shortfall here can surely not be that damaging.

- The words re additional funding are " Our balance sheet is in good shape, with a degree of flexibility to debt finance future acquisitions and investments. To supplement this, discussions are already ongoing with a number of financial institutions, to secure access to additional funds to support our ongoing growth plans." I.e. the context is financing the next big acquisition. That said, the free cashflow figure for 2018 looks a little disappointing.

I think it is a bit harsh to treat this as a piece of back covering for a profit warning. That said, we are still looking at a PE of nearly 16 for a business which is, under all the fine words, a distributor of nuts and bolts. I think this is a well run business, but I am chewing over whether the price is not a bit high, even after the recent falls. Unfortunately, that is true of an awful lot of UK engineering companies.

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mojomogoz 26th Sep '18 24 of 41

In reply to post #402099

IMO it’s more good performance but it’s not quite as good as the multiple needs.

With no negative news then it’ll stay in recent trading range with a downward drift.

Any negative news and re-rate down. The source of negative news would likely come from new CEO making investments or writing off old assets. It’s slightly odd that ghthe h employ a COO as a CEO with a massive reward package. Does this hint at an operational angst? Do recent significant investments and plans need some re-pointing?

All above just guesses!

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andrea34l 26th Sep '18 25 of 41

In reply to post #402064

Hilarious commentary on the usual Trifast (LON:TRI) update full of psychobabble.

I have consistently considered them overvalued and the poor momentum rating I feel reflects a lot of others feeling the same. I think I have come to understand the word 'solid', used so widely by companies in their updates, to mean single-digit, and in this case this is a continuance of the dull, single-digit performance announced in the last results.

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gus 1065 26th Sep '18 26 of 41

Hi Graham.

Thanks for the excellent and balanced write up on Boohoo (LON:BOO) . FYI, the new CEO appointment and change in the roles of the existing joint CEOs was made last week on Sept 17th and, ceteris paribus, seems to have been met by the market reasonably favourably judging by the share price over the past few days (i.e. before today’s results).

Today’s board announcement deals with the resignation of the senior IED and head of the audit committee. Probably quite innocent, but possibly a sign of senior level tension about some of the recent executive changes. Time will tell.


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Graham Neary 26th Sep '18 27 of 41

In reply to post #402149

Thanks very much Gus, amended to reflect that. G

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runthejoules 26th Sep '18 28 of 41

In pump & dump news, Directa Plus (LON:DCTA) is up 90% on the fact that their graphite - sorry, graphene, is going into 1km of road and one of their Directors bought some at 44p. Very tightly held, unfortunately you can't short it on IG...

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mojomogoz 26th Sep '18 29 of 41

In reply to post #402109

Err, no worrries...whether you did or didn't doesn't matter (and I hadn't assumed it at all).

I find it bizarre when people claim ideas and thoughts as their an aside, in an economics mag/forum I write and contribute to (I'm not economist though), a number of contributors have been very active in laying claim to ideas they have written about when someone else then mentions them (often years later) and publicly dissing them for not crediting them. This is an entirely bizarre behaviour (unless a theory or full new analysis) as the original author has blurted something out in public forum and at that point losses ownership and others are free to adopt, discard or ridicule.

In general, I put views up to get argument or counterpoint back in shares I'm interested in. What I wrote about Boohoo (LON:BOO) myself was no doubt influenced by others that I can't recall....

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Velse 26th Sep '18 30 of 41

Also ditched my Boohoo this morning. It's been a fun ride and I'm sure it can continue but I'm not overly happy with the side business getting all of the love.

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tomps3 26th Sep '18 31 of 41

Not today's news, as such. But we've just published Malvern International (LON:MLVN) presentation by CEO Sam Malafeh and CFO Bharat Guha, from the last ShareSoc London (September 18).

Sam Malafeh has successfully turned around an education business in New Zealand, he's now bringing his experience to Malvern International.  Here he outlines the opportunity and his vision.

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runthejoules 26th Sep '18 32 of 41

Boohoo (LON:BOO) up another 3p after I sold #facepalm - should have waited for the fund holders to have a boozy lunch then buy!

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davidjhill 26th Sep '18 33 of 41

hi Graham - oddly I don't quite share your pessimism on Accrol Group (LON:ACRL)

The new management appears to be high quality and intent on making the business profitable through all cycles.

Things that grabbed my attention though in the results today were

1) £37m of additional revenue secured
2) Price increases negotiated
3) Banking covenants/headroom agreed
4) Further £5m of cost savings p/a from Oct

When I look at the numbers that suggests gross profit should increase £5.5m on revenues. Pricing increases should further enhance margins so even if only 3% price rise that boosts revenue by £5m+ which should also drop to the bottom line.

Throw in the £5m of cost savings and I reckon profitability could move towards the £5m mark, which based on an enterprise value level of £60m is about 12*

For me this could be a classic recovery play. I bought at 18p, though admittedly not in size. I do feel for the original shareholders who got absolutely stuffed, but it feels like a new beast to me.

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andrea34l 26th Sep '18 34 of 41

Re Crawshaw (LON:CRAW) I am just wondering how online sales of meat would work?!? I'm guessing from a quick look at the interim statement that it is a method of ordering with direct--delivery by them which, presumably, could only work within a locality of where the farm shops work. Thankfully I don't hold shares in this mess!

Next we'll be hearing about some company doing online sales of ice cream!

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herbie47 26th Sep '18 35 of 41

In reply to post #402269

There are already online meat sellers, one is fairly well known in Scotland that sends their meat all over the UK, we have bought from them when they had a special offer on but I think the market is quite limited and postage is quite expensive. Delivering meat would be quite expensive I think.

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Robert Smith 26th Sep '18 36 of 41

In reply to post #402014

I too had a good run on boohoo but sold out after the sp dropped last year in the wake of a share dump by one of the family. Seems to me there are just too many family fingers in the pie and will be interesting to see how things pan out in the next twelve months with the new management once the honeymoon wears off. Just can't see a £50m. bonus in 5 years for the new CEO being obtainable once he realises who is still running the show, especially as PLT seems to have been an engineered insertion into the company with the effects now becoming apparent.
All IMHO of course.

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abtan 26th Sep '18 37 of 41

In reply to post #402269

I've never used them, but this meat delivery company was on crowdcube a while back.

If memory serves me correctly they were profitable when they were looking for funds (last year?), but I have no opinion on whether they would be successful in the long term, or how delivery works.

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jonesj 26th Sep '18 38 of 41

In reply to post #402224

I reached a similar conclusion after their previous statement & sold out for the second time.

In line with management incentives, PLT seems to be growing well.
The growth on the core business has slowed to the point where the overall PE ratio seemed too high for me.

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RustySpanner 26th Sep '18 39 of 41

Also sold my Boo Hoo shares today after they jumped and from reading Graham’s analysis.
I’ve waited too long before selling in the past. Made a reasonable profit so not complaining:)

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DJCP 26th Sep '18 40 of 41

A couple of points re Boohoo (LON:BOO)

1) The CEO obviously has retail clothing store experience, but not online. I don't see this as too problematic, with the founders being there to guide him to a certain extent. e.g. If he suggested opening high street stores, I'm sure they'd soon tell him why not ! lol
Would his appointment not enhance corporate governance/guidance, as he's been part of a larger corporation?

2) I wonder if the 3 brands cross-sell - Someone looking at a style of dress on one site, can then be pointed to similar on the others. Perhaps this is the idea of the recent change to Boohoo Group - Marketing from the group, as opposed to possibly just one brand.

I did put a cheeky sub-150p buy limit-order in last night, but pleased it didn't get hit as that would have meant my core holding taking a pounding :o)
I am suprised at the rise today, bearing in mind many of the main figures were already known (or been closely estimated).

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Clitheroekid 30th Sep '18 41 of 41

So far as Minds Machines are concerned I'm not sure I agree that specialist TLD's have a bright future. Nowadays, most visits to websites are initiated by clicking on a link or just Googling the name of the company - I hardly ever type in a website address.

It follows that I rarely notice what the domain name is, and I suspect an increasing number of people are experiencing the same thing. It looks to me like a market that will gradually wither away as businesses become increasingly reluctant to pay over the odds for an unusual TLD that nobody ever notices.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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