Small Cap Value Report (Weds 2 Sept 2020) - BOO, CAMB, CRL, ARC

2nd Sep '20 by Paul Scott

48 comments 9726 reads

Good morning, it's Paul here with the SCVR for Weds.

Estimated timings - I'm now listening to the Creightons webinar (from noon), and cooking myself a cheese & mushroom omelette. So I'll get on to Arcontech (LON:ARC) after that. Should be finished by 2:30pm.
Today's report is now finished (14:24)

Today's agenda is;

Boohoo (LON:BOO) - my notes from chat with company last night

Cambria Automobiles (LON:CAMB) - Trading Update

Creightons (LON:CRL) - Preliminary Results

Arcontech (LON:ARC) - Final Results

As a reminder, I haven't got time to look at everything each day, so I tend to just select 4 or 5 of the more interesting companies, taking into account where possible reader requests. It's helpful when people post a comment explaining why a company is a good investment proposition, rather than just can you have a look at this, because I happen to own some shares in it!

Boohoo (LON:BOO)

I had an interesting chat with Boohoo (LON:BOO) last night. My thoughts here had come to their attention (yesterday's SCVR I assume), so we discussed the current situation. The key points were;

BOO adamant that it has done nothing wrong

Directors/family are exasperated & upset by their reputations being besmirched, and false allegations being thrown around (latest one is they've been falsely accused of people trafficking!) in newspapers & social media

Don't see it as their role to police the entire third party supply chain. Govts bring in minimum wage rules, so Govt's job to ensure compliance across all industries, including fashion sector. Suppliers are third parties, not owned or controlled by BOO. What about Jalal Kamani then? He left BOO some time ago, set up his own business, and is completely separate. Not a supplier. His company just re-packaged some BOO gear made in Morocco - see correction in The Times

If any suppliers are proven to be abusing rules, then they will be dropped

BOO has always been completely open about using UK suppliers. If they had anything to hide, then they wouldn't have told anyone!

Why do you use UK suppliers, when labour is so much cheaper abroad? Convenience, and it's fast. But UK production is relatively expensive, as labour cost so much higher

Competitors are buying garments made in Bangladesh…

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JonBirdy

2nd Sep '20

The issue is largely about the minimum wage being paid (or not) to Leicester garment factory workers.

Though introduced by Labour in 1999, George Osbourne took the concept further in 2016 with the introduction of the National Living Wage, seeking to wrong foot Labour at the same time.

Personally, I don’t see this having anything to do with socialism, but about political parties of all colours expecting employers to follow the law.

I hold £boo

MichaelFBS

cafcash49 I thought the same this morning when I saw the fall having been impressed by the results. There is obviously concentration risk in that they have only a few customers but with 1/5th of mkt cap (5 yrs of PBT) in cash I would have thought that risk is covered. Other salient figures:

Revenue increased by 4% to £2,955,314
PBT increased by 12% to £1,040,969
Cash balances up 23% to £5,006,969

That’s a 90% free cash flow conversion.
Net margin of 30%

That said looking at the trades (I don’t have level 2 or anything fancy, just on Sharepad) I think maybe it is a volume thing with nearly 6 times yesterday’s volume and there was one large trade at the open (assuming I have understood it right, which is not a given) which was more than all the shares traded yesterday.

Buying opportunity?

Regards

Michael

IanMac

Hello all, I noticed that Steppe Cement (LON:STCM) today announced that their largest shareholder has raised his interest to 30.8%. I thought this would trigger the "rule 9" mandatory offer but this isn't mentioned in the annoucement. Does anyone know how this works and if he is compelled to make an offer for the outstanding shares?

barnetpeter

Countryside Properties (LON:CSP) up 5.5 per cent today. That is a big move for this stock (I hold). I wonder if it is time to look again at the property REITs? Buyer of Newriver Reit (LON:NRR) myself below 60p (I hold) as I see a big move as and when dividends restart. Possibly as a scrip dividend in the first year. I do not understand the move in HMSO today myself ; "the market capitalisation of Hammerson will be made up of the existing Ordinary Line, Nil Paid Rights Line and Dummy Call Line"......from todays rns. Hmmmm

4351anf

Steppe Cement (LON:STCM) is registered in Malaysia where the corresponding threshold is 33% .

Many thanks! I had incorrectly assumed the takeover panel rules applied to all companies listed on the UK markets.

peterg

The issue with Boo and Leicester is not just about international standards, which clearly are lower elsewhere - though comparison with earnings need to be made with caution, the cost of living in Morocco, Bangladesh etc is about 1/3rd that of the UK. But the issue is that the suppliers of a UK company appear to have been breaking UK employment law. If that is proved true, and that Boo were complicit, then the damage may go beyond reputational. And quite clearly, though bad employment practices globally are a concern, and production being moved to such places is not welcome, it's not an acceptable argument to say we should not worry about it, and about apparent breaches of the law because production might move elsewhere. If we are not prepared to stand up for decent employment practices in our own country then we have next to no chance of bad influencing practices elsewhere.

jwebster

Arcontech (LON:ARC)

4% revenue growth fairly low so today's reaction makes sense.

I think they are ok in the long run. ARC operate in a small niche and sales with financial firms take a long time to bring to fruition. But once in, customers are somewhat locked in as ARC modules are embedded into their systems.

20% of market cap in cash is handy.

I hold a small number.

Paul Scott

Sorry, I ran out of time, and didn't get round to looking at Concurrent Technologies (LON:CNC) .

hawkipa

Really interesting thoughts RDHOWARTH. I'm a holder of both Persimmon (LON:PSN) & Barratt Developments (LON:BDEV) and have come to broadly similar conclusions.

The great cash position at Persimmon (LON:PSN) is a great source of comfort but I tend to think that Barratt Developments (LON:BDEV) with a current P/BV of 1.04x has potential to re-rate to at least 1.4x from here.

Paul

cojode

Paul/Ed, Is it possible to show any edits to the original scripts in a different colour (red?) This would immediately highlight additions to the text to anyone scrolling through. Rather than laboriously scrolling through finished reports looking for the edit a different colour would jump off the page. Keep up the great work Paul.

swanhunter

£BOO. Thanks for the call notes! I'm slightly surprised they are able to get airfreight from Asia quite that cheaply given the current capacity constraints...but otherwise pleased to see that my little analysis from yesterday was also fairly accurate!

Agree that this has given us a great chance to buy a great business at silly prices. Happy to have built a nice position at an average of 244p. The strategy of bolting on complementary brands makes much sense. They have retained the buying, design teams for Oasis and others rather than sacking everyone and moving it to the main Boohoo offices, which helps each brand keep its handwriting. Implies they are building for long term success while also leveraging economies of scale on the web platform, supply chain and other back office functions.

Tommy H

Thanks Camtab, fingers crossed I have an interview Friday morning it is a large step down from my last role but local, and I think more than one position too, with a lot less travel so has what appears like a lot of benefits right now...

Besides thankfully I went for the "sleep at night" school of investment, and though I only read "Rich Dad, Poor Dad" earlier this year we have thankfully actually followed a lot of its recommendations of making sure we are financially secure as we can be right now so it is worrying, but the house is made of bricks on rock so the wolves cannot get in for a long time :)

2ShedSam

"Facebook (poor controls that allow certain countries to rig marketing to influence people's political decisions i.e. Brexit, UK and US elections)"

LOL use of Marketing to influence peoples decisions and choices - whatever will they think of next...

It is beyond my comprehension why the media seem to “have it in” for this one particular company. (In the scheme of things what about Imperial Brands or BP or BAE).

Not sure BAE or BP would ever call themselves darlings of the media. Banks would happily exchange their media coverage for that of BooHoo. Wetherspoons and Sports Direct anyone? Let's not make BooHoo out to be some angelic exception. It's just their turn in the spotlight and much of the criticism is not without merit.

peterthegreat

With respect to Boohoo, I wonder if I could provide my perspective as a long term investor as I sometimes think I am in a tiny minority in using this approach. Paul's comments about Boohoo on this site ages ago triggered my interest and after doing some additional research I bought the shares at 33.6p on 12.10.15 and a few more at 50.9p on 19.06.16. Over the years I have been grateful for all the comments from Paul and others on this company as it has made it much easier to assess events at the company. The funny thing is that I have never seen any reason to sell as I was unable to detect that anything had fundamentally changed to make the company unattractive in the longer term. I'm not suggesting that this approach is necessarily a good one but in some ways a buy and hold strategy certainly simplifies investing.

john652

3rd Sep '20

Hi Peter, as Jim slater said, ‘if the story changes for the worse, sell, otherwise dont’ a core tenant for me too

£arc i evaluated their main product as part of a replatforming for a bank of their market data suppliers, they have a good product but their sales cycle & then implementation, as they say is long and complex but the biggest issue is they are up against Reuters & Bloomberg & other specialists, highly competitive with with a market who dont like changing this piece of the infrastructure. I thought they were good but needed more traction as an investment, that was five years ago, leon boros likes them a lot but they have remained quite pedestrian for a long time.

GrahamF

I would be careful not to attach too much importance to the HaloPure technology announcement by Strix (LON:KETL)

Firstly, it is an RCS not an RNS so I would take that to mean it’s not likely to make a material difference to their results at this time.

Secondly, they bought this in from HaloSource. That company basically failed. It was one of Neil Woodford’s disastrous investments.

Thirdly, speaking as someone with a background in use of bromine technology for disinfection, I am not convinced that the HaloSource technology offers sufficient and cost effective enough differentiation over other bromine delivery technologies and alternative disinfectants. I haven’t found information on the amount of AOX and bromates formed (environmentally undesirable byproducts). Nor have I found information on how they would control the level of residual free or total bromine in these applications. Nor have I found information on how, for these industrial applications, this compares with bromine created by reaction of what are basically commodity chemicals, which will be much cheaper, or chlorine dioxide, which will have a better environmental profile, e.g. no AOX formation, for those interested in the environmental performance.

That information may well exist but I couldn’t quickly spot it on their website.

It’s a long way from household water filters, their background, where HaloSource couldn’t make a go of it, to industrial type applications.

Hopefully, for those involved it will be successful. No position myself.

Hi cojode,

The interface for writing these articles is very simple (great for my purposes!), and it doesn't have any facility for me to change the colour of the fonts.

In practice, it's unusual for me to add anything extra to sections once they're written. Very occasionally I might do, but only if I'm correcting something that was factually wrong, or some other occasional reason.

Also, I do lightly edit each section shortly after writing it, when I read it back & spot typos or things that I've not expressed very well, but I wouldn't alter the meaning of what I said.

On a positive note, it's great to hear that you're such an avid reader that you notice edits! :-)

Best wishes, Paul.

Small Cap Value Report (Weds 2 Sept 2020) - BOO, CAMB, CRL, ARC

Boohoo (LON:BOO)

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Paul Scott

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