Small Cap Value Report (Weds 14 Oct 2020) - BOO, CALL, WGB, SYS1, WATR, ANG

13th Oct '20 by Paul Scott

148 comments 13057 reads

Good evening/morning. I'm posting this first section about BOO (I hold) early, on Tuesday night, while it's fresh on my mind, and so I can get this out of the way and concentrate on small caps in the morning.

Timings - I've got to attend to a meeting from 12:30 for about an hour maybe. Then lunch, then I'll carry on here- so estimated finish time of 5pm. Today's report is now finished.

Agenda (Weds morning) -

Walker Greenbank (LON:WGB) - Interim results

System1 (LON:SYS1) - Trading update

Water Intelligence (LON:WATR) - Trading update Q3

Angling Direct (LON:ANG) - Interim results

Ramsdens Holdings (LON:RFX) - Trading update - sorry. I ran out of time to look at this one, and am not familiar with the company, so it would have taken too long to look at it from scratch. I really don't like pawnbrokers anyway. The share price is up 11% today, so the market clearly likes its update.

BBC Radio 4 - "All Sewn Up"

This was a BBC investigative programme, aired on Radio 4 at 8pm on 13 Oct. A reader kindly flagged this up to me, so I listened to it & took notes, which follow below. It mentioned Boohoo (LON:BOO) (I hold), hence my interest. If BOO doesn't interest you, then please move on to the next section. I'm not entering into any discussion about why I cover BOO. I cover it, and always will. End of!

NB. As I hold shares in Boohoo (LON:BOO) I'm not impartial. I've formed a view on the Leicester supply chain issue, and obviously as I've bought more shares in BOO, then my view is that the recent share price weakness is a buying opportunity, and the supply chain issues do not in any way impact the value of the shares long-term. The company has recently reported record trading, despite the best efforts of the media to tarnish the brand.

My view remains this: BOO has admitted there are failings in its Leicester supply chain, and has already announced extensive ways to rectify the situation.

This is roughly what the Radio 4 programme said (main points I jotted down whilst listening to it, together with my comments). Apologies for any errors or omissions;

Leicester…

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Paul Scott

14th Oct '20

Hi kjb,

lots of investment funds don’t invest in Aim.

That's what I thought too, but recently a city mate of mine challenged me on this, and said it's not like that any more, or not to an extent that matters.

Plus of course, going the other way, IHT portfolio fund managers have had a lot of funds inflows in recent years, and they can only invest in IHT Qualifying AIM shares.

So possibly it evens out?

Looking at the list, I see there are 20 AIM companies with market cap over £1bn.

Regards, Paul.

xerxes

Have just spent the past hour engrossed by Paul's analysis and the vast array of associated comments. I particularly enjoyed those from Tommy H as I stumble through my failures to buy/sell at the right time - but I am getting better, helped by the views expressed here. However today has been kind as sold some £NYCT (even tho' I missed the first big peak) to cover the losses on £RBG (as i don't think the SP is not coming back anytime soon). Discussion on (subconscious) racism reminded me strongly of Asil Nadir and Polly Peck in the 1980s. A similar rags to billion dollar empire story providing employment for thousands and then being hounded for an extravagant lifestyle and (allegedly) not being liked by the City! The empire duly collapsed and he was (eventually) imprisoned for taking £m out to fund his lifestyle.

JonBirdy

I agree. Well said. And thanks Paul for a stimulating and informative report as always.

AndyCDC

I respect peoples view on Boohoo on here and every investor hasma choice of selling shares rather than buying more if they feel the business ethos doesnt sit right.

What is clear is Boohoo will be successful irrespective of where they but their in demand products from and it would be aa natural conclusion that they will use overseas suppliers to ne succesful if necessary

Gromley

Walker Greenbank (LON:WGB) (again)

To mangle a phrase : Some may have found my lack of surprise at the share price fall disturbing,

You would have been right as the price rallied somewhat later in the day to close about 5% up.

It's probably a bit of a fools game to try to read too much into the movements of a relatively thinly traded share like this and looking at the trades of the day I would be pretty sure that there were only PIs playing today.

Slightly more relevant to anyone interested - the results presentation is now available online HERE

I'm going to have a bit of moan to them about the fact that they only provided the slide deck and not the audio/video of the the analysts call - there's really no excuse for that given how remote communications have become so mainstream in the last few months.

I cannot remember now which company it was, but one of the small caps I follow recently did a webcast and not only allowed PIs to watch it live also allowed them to ask questions - although I think this was limited to typed questions rather than audio (that's perhaps not an unreasonable stance as it allows them to screen out any irrational rantings of the kind that occasionally occur at face to face AGMs)

Anyway, just to further the point I made earlier about an almost running commentary on levels of demand - they provided this chart.

5f873b7c71d2a20201014-wgb-monthly_revenu

I can understand why the have not provided labels for the vertical access as this is an unusually detailed disclosure.

The chart title implies that this is total monthly revenue and I think it probably is as I don't think it quite fits the previous narrative (July was still quite short of recovering to pre crisis levels). I will see if I can get some clarity on this point.

It is certainly reassuringly V-Shaped anyway.

gregatr0n

This is likely to be an unpopular comment, especially from a long time lurker, minimal poster, however I get the sense that recent complaints about Paul's Boohoo (LON:BOO) commentary on SCVR is akin to making a noise complaint to the council after they've just moved next door to Ministry of Sound!

Paul has been writing the SCVR for 7-8 years on stocko (give or take) and throughout this time has repeatedly reported on BOO's movements due to his background at Pilot and obvious passion for the share (and making money!). It was Paul's repeated coverage on SCVR back in 2014(ish) that got me interested in researching it further, leading to 2 entry points in 2015 at 23p and 25p. Needless to say I'm very appreciative of the content he covers on a frequent basis.

If you don't want to read about BOO, scroll down and move to the next company, simples!

Disclosure - still a holder after several further buy and sells along the way.

Mercia16

Not sure the Kumanis would appreciate that comparison, what with convicted Nadir fleeing to northern Cyprus, thus avoiding prison until he returned years later for his porridge.

Shrubby

ANG last on the list and you ran out of time, but i think it would be worth investing more time on this one. It looked a good set of interims yet the price dropped.

This is a huge market and ANG are developing fast and as you say just like G4M, they may reward further investigation

Question.....do you look at AQSE STOCKS ?

Phuntt

Couldn’t agree more with this comment Greg. I continually fail to understand why readers of this board would be annoyed with the author of the board posting his opinions. Add to that Boohoo (LON:BOO) (I don’t hold) is an interesting share with massive potential to move. Whether your opinion is positive or negative doesn’t really matter and adds to collective knowledge.
Saying you don’t want to hear anymore about the authors opinion is a bizarre opinion for someone reading the authors opinion.

2ShedSam

Lol! Mike Ashley & Tim Wetherspoon have each just pulled up a chair...

Anyway, thumbs up for writing a lengthy post which manged to avoid mentioning BooHoo.

Thanks for that intuitive6191 re Walker Greenbank (LON:WGB) , a little bit of (in)direct experience is always valuable and I do agree that ~~Walkers Greenbank~~ Sanderson are probably not about to become mass market and grow their business ten fold over the next couple of years, but neither do they need to as you say,

They may well 'bag' from here and I'm reasonably confident they might 'double bag' from my recent purchase price, but I don't see a bigger bag multiple as likely.

Anyway, not your fault at all, but I'm about to break the hoodoo you mentioned ;-0

I have largely tried to avoid joining in on the recent commentary on Boohoo (LON:BOO) . It is a company that falls outside of my risk threshold wrt corporate governance. I don't think they are dodgy, but neither can I be sufficiently comfortable that they are not, so they are just not in my potential investment pool.

I do though think that the whole supplier fraud is perhaps being to vehemently dismissed by some bulls.

There are quite a few comments I could have picked on, no offense to Andrew that this was the one I first happened upon when looking back.

So if i go and buy a car from a garage am i responsible if the garage didnt pay their VAT. How stupid are peoples views.

Probably you are not responsible in this case. However if you get a mate of a mate to service your car cheaply but only if you pay in cash - you might be implicated in any underlying fraud; and if you get some bloke that knocked on your door to dispose of your building waste on the cheap you are absolutely liable if he then fly tips it in the local park.

At one level there is the question of whether took all 'reasonable' (whatever that means) steps to ensure that their supply chain is clean - the bull view is certainly that they did, I have no way of knowing.

On a somewhat more focussed note, I seem to recall that some of the earlier accusations suggested that might be quite a close relationship between Kamani and some of the alleged wrong-doers. I do not know if this is true, but I do not think I saw it rebuffed either.

I am sure that some will choose to pull the race card on this next comment (frankly I think I have earned my spurs over the years on the subject of equality, so I will roll with that) ; but there are some communities (by no means all of them 'ethnic minority') where personal relationships (without provable economic relationships) can be very significant.

I certainly do not mean to cast any mud in Mr Kamani's direction, but from a personal investment point of view I try not to give ANY circumstance the benefit of the doubt. There are so many available investments that I don't mind missing out on some.

FWIW I can immediately think of three (there may be more) stocks that fail my initial 'governance' sniff test . Each of them has soared in value since I rejected them, but each of them I still think could easily crash and burn.

So I will continue to watch from the side-lines with £BOO - good luck to all holders but it just falls outside of my risk tolerance.

ANG last on the list and you ran out of time, but i think it would be worth investing more time on this one.

I spent a lot of time on the report, and made time to cover the main points on ANG.

15th Oct '20

Hi Carey,

Thanks for the pointer. I had a quick look at SFIX - lovely revenue growth, but it doesn't seem to make any profit. I do sometimes wonder if I'm wasting my time looking at UK small caps, when US growth stocks do so well.

Interesting company though, so thx for flagging it.

Best wishes, Paul.

Yes I noticed that, Kainos (LON:KNOS) was up about 30%. Pity I haven't got a team so we can cover everything - that would have been interesting to look at, for someone who was primed by being familiar with the company. I think we looked at it here a couple of years ago. But as always, when you look at so many companies, about 500 I do personally, it's impossible to spot things. I just review the numbers, and my specialism is balance sheets of course.

Hi Caper4,

Good for you! Monaco is a bit like Luxembourg, in my view - you almost die of boredom after 2 days! the selfish, vacuous people who live there are welcome to it!

Having done my due diligence on ZANE (small charity in Zimbabwe) in 2019, I cannot understand why anyone would buy eg jewellery, instead of giving small amounts of money to ZANE every month, to help keep people alive & pain free, with $15 per month drugs, per person.

On a small scale, my own reckless lifestyle has recently caught up with me - covid19 was a nasty illness back in Mar/Apr, but it seemed to linger. As it turns out, covid seems to have triggered type 2 diabetes in me, serves me right for being an idiot. But the point I'm making, is that the extreme tiredness, and shooting pains in toes & fingers, etc, are now receding due to me taking Metformin pills 3-5 times per day. I'm imagining what it must be like for pensioners in Zimbabwe, who cannot get the $15 per month Metformin tablets. Many can't. I went to 4 old folk homes in Harare, where those tablets were given out to old people. It's only now that I realise what a life-saver it is. Your feet go completely numb without the pills. You can't sleep. Imagine if there wasn't any medication to help at all?

I met the people in Zimbabwe that ZANE looks after. If you give $15 per month, that pays for the Metformin for one person, who otherwise would suffer terrible pain.

I know many of you have ur own charities, but please remember ZANE if you can.

Thanks, Paul.

Monaco is awful! Expensive hotels, and I am so angry about losing 5k Euros on some wheel of fortune thing c.2005. Plus my partner forced me to buy a Versace bedspread! If we'd stayed there another week, I'd have gone bust. Little did I know that 3 years later the GFC would screw things up for me!

Still, you can't look back in life. Let's look at these experiences as formative, and character building.

I got a horrible email today, from an old friend. Simon. Turns out that he blames me for his life being a disaster, despite the fact that he blew about £500k by being a complete idiot, punting on resource stocks I think.

But 8 years later, he blames me for accidentally blowing £7k on some shares I liked. That went wrong.

I really do despair.

What happened to personal responsibility? What happened to manning up?

Some shares work, some shares don't. Stop blaming other people for your own wild punting on shares. Don't get anywhere near that kitchen, unless you know what you're doing!

I've tried to help all readers who say they're upset. But when Simon waited 8 years, to tell me he is angry with me, for trying to help him make some money. you can imagine what I think of the little scrote. MAN. UP.

Paul.

Johnnycomelately

Bias can be conscious, subconscious and unconscious. Unconscious bias can be the most damaging because you don't even know you're doing it.

Martin VT

An interesting perspective - so it’s good to use extremely low pay staff in other countries, rather than higher paid staff in the U.K.?

Follow through with that thought experiment and their is no U.K. business.

abtan

Hi Carey

Thanks for highlighting SFIX (StitchFix for those not in the know).

I have a lot of interest in companies not listed in the UK, so it's nice when there's a comment that aligns with my own interest.

This is the point where I'd offer to buy you a drink and say, "hey, maybe we can go some place quieter to talk about our favourite stocks?" but alas, I shall need to keep the commentary public, so apologies for those not interested.

I too really like SFIX and it's pretty close to the top of my buy list. I'm just waiting for some sort of vaccine-induced pullback for online stocks before opening a position.

I must admit I was a major sceptic as well - personalised online stylist? How on earth could that work?

But the numbers don't lie.

Revenues are growing fast, the company is cash flow positive (it might be neutral in the near future, but that's fine by me where there is growth), and it really does have a unique proposition.

More than the original service (set number of items being sent to you each month, you keep what you want and return the rest), it's actually the new "Direct Buy" option that has me interested.

Imagine going to a website or store where they know everything about your fashion interests, and have clothes they know you might like laid out for you? No time wasted browsing the 1,000's of SKUs, or looking for the right size. All you need to do is see what you like the look of, pick it up and buy.

I also saw the last quarter results and there was a rapid increase in first time users, which should lead to material increased in revenue over the next 1-2 quarters.

Amazon are muscling in on the space - a good sign in my opinion - but with not very good reviews (heard anecdotally, i haven't confirmed this), so there must be something there.

In summary, it ticks a lot of the right boxes, and I'm sure this year has sped up the growth story.

As mentioned, no position yet, but I imagine there will be one before the end of the year.

Do you hold?

ps there's a How I Built This episode with Katrina Lake, the founder, if that is of interest

Small Cap Value Report (Weds 14 Oct 2020) - BOO, CALL, WGB, SYS1, WATR, ANG

BBC Radio 4 - "All Sewn Up"

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Paul Scott

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