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I’m really conflicted with this share. On the one hand it appears cheap when you look at the SP chart. On the other hand it is still valued at around £700m mcap while making a loss, and has a negligible book value (exc goodwill).
Compare that with marstons for example which has also been battered down due to debt and is now worth just over £200m mcap but on the face of it has better financials than nex both in terms of profitability and net assets.
So my question is what do people value the underlying business in nex at and why?
Many companies have high valuations & have never, ever turned a profit. As an extreme example TESLA is valued in squillions but only started turning profit last year. There's been a pandemic that's why NEX is not valued higher. They are making all the right moves IMO according to published RNSs to rebuild post pandemic. Inflation & a high interest environment may present problems here if they persist for multi years which is unlikely but they are hedged against uncertainty at least in the near term. This business is not a crypto or an AI type business. This is a huge multi national public transport company. There is little competition & huge barriers to entry. People need keenly priced public transport as the cost of vehicle ownership will surely become unaffordable for many. Valuation wide. Who knows depends on contract awards & such like but contracts seem to be falling into place here (think Porto/German Rail etc). Only time will tell! You only make profit when there is risk. At current prices the upside to this SP hugely outweighs the downside. Once the short sellers call it a day here this worm will turn significantly!
Hi Paddy, yes growth companies like Tesla are highly valued because of hope value of what they can achieve in future. But Nex is an established bread and butter business. Not really sure what could turn the tide here other than interest rates going down, but I don’t think they’ll ever go sub 3% again. I think there’s already been a few contract wins recently but never affected the SP.
When the revenue from those contracts appears in the financials, is what is significant. Margins are low in this type of business so volumes of business inflow are crucial!
Take a coach instead
https://twitter.com/johnredwood/status/1664881407544492032
"Not really sure what could turn the tide here other than interest rates going down, but I don’t think they’ll ever go sub 3% again."
That is what you ideally want ..
you want a thriving economy that is growing and as such interest rates are say 3% to match that good economy..
Of course you also want house prices to match that , at more sensible levels...
Of course the last decades has actually been a disaster..not that many people seem to realise it..... interest rates too low, house prices too high, money supply in excess and too much cheap debt as a consequence ...
Poker, house prices won't drop hugely because of constant interest rate hikes. They will just completely stagnate the housing market. This is already happening. Only those desperate to sell or forced to sell due to moving job or buying something way out of their income bracket in the first place will reduce prices. People who've bought their properties say 15-20 years+ ago will just put off selling. All a vicious circle IMO as FTBs cannot buy so housebuilders struggle. This causes unemployment which extends down the supply chain. Personally i'm avoiding stocks in HBs & retail atm as i think they could get hit even further down the line! Agree that the UK economy has been in a bit of a dream world for many years now!
House prices won’t come down, there’s too much demand and unemployment is very low. It will just curb the crazy 10% increases per year. Mortgages have only gone from about 3.5% last year to 4.5% now. It’s nowhere near as bad as the media would have you believe.
Anyway, we digress. What makes people think this is cheap at over 3x the price of marstons? I’m not recommending marstons btw, it appears to be in free fall having fallen another 10% since the director buy last week. Good opportunities eventually but where is the bottom?
I've looked @MARS a few times before but stayed clear thus far. It's now getting to a level where i will be looking at taking a position though. Very high debt burden there so quite a risky one but i think probably decent value as they have sustantial freehold assets in their portfolio.
Paddy, interesting that you’re avoiding HB’s.
They look very attractive to me considering how much they’ve fallen compared to house prices which haven’t really fallen at all. Some have a NAV lower than the market which is crazy when you consider the NAV is made up of houses and cash.
Avoiding for now. I can't see any reason atm to buy in. I'm sure TW will test £1 again & PSN i expect to go sub £10. Will buy at those type of levels not before!
HBs are aimed at FTB market. That market is almost no existent in the current climate IMO!
Paddy, are you invested in nex? Interesting that you say Mars debt burden is high when it’s around a billion less than nex, and is property backed.
Re the housebuilders, I can’t see them getting to those levels unless something bombs the whole market, they already look oversold with all the doom in the media, but time will tell I guess.
I have to re look at house builders...but market seeing writedowns then on over valued book assets and goodwill stuff ...if price now below NAV....looks a red flag trap over something...needs knowledge on it I think
I think house prices will dip down more but not crash....sellers negotiate across their chain...so if one loses 5% price then that is tried along the line....to keep market moving..
All relative for movers
Pub chains priced on earnings, ROCE,margin, Ebitda, Op profit...usual CPI stuff ...not property values...look at Spoons..
Debt has to provide a targdt return against the debt cost....hence they hate VOD ...which isnt getting enough out of having the debt
PC, your comments regarding return on debt. Doesn’t that issue apply here?
Personally I am more interested in book value than profit. I see it as collateral, which also helps for capital raising. Most businesses will have a bad year at some point, so buying based on good income that turns bad will tank the investment, and the business will be more vulnerable to such events without assets backing it up.
Having had my fingers burnt in marstons for its debt, and nobody able to tell me why nex is worth 3x more, I think I’ll pass on this one. Thanks to whoever mentioned housebuilders though, will probably spread across a few of them.
I noticed the former CEO of nex (Dean Finch) when it was doing well is now the PSN CEO.
Because Marston’s has negative equity v debt
This doesn’t
Marstons- 648m equity- no goodwill. £201m Mcap
Nex- £34.5m equity excl goodwill. £687 Mcap
The mind boggles. The chart suggests nex is cheap, the fundamentals suggest it’s overpriced.
😂 mate I said v it’s debt not it’s market cap
Also goodwill is not recorded as equity it’s recorded as an itangible asset, so you will have to do your sums again
Give me some numbers Hindy. I’m not sure what you mean.
The equity figures I’ve given are the bottom line on the balance sheet. I.e assets- debt. Nex goodwill is listed in the notes as being £1356m, the total equity being just over that at 1390m so about 34m book value exc goodwill. I just put the Mcap next to it to show how the market values it compared to the book value.
Goodwill has nothing to do with equity
Goodwill is recorded as an intangible asset
your subtracting the goodwill from the equity when you shouldn’t be that’s where your going wrong
"and nobody able to tell me why nex is worth 3x more, "
I am finding your posts confusing because you keep using different terms and intermixing terms like price and value ....
Terms like "worth" are so vague really...you need to be more specific ..
Comparing across sectors isnt always a good idea when just taken at an isolated moment....IMO .... money moves in and out of sectors and you can think a company is good and cheap only to not realise the market is flowing out of there until a later time period ...it all is not at all easy trying to compare within different sectors
I would look at MARS and NEX separately....just compare within sectors ...that is what analysts will do...compare peers
Hindy, I always write off goodwill. It can easily be massaged either way. It just represents how much a company has overpaid for something. MARS wrote all its goodwill off in the latest accounts. Nex wrote some off too.
PC, yes sorry I mean priced at 3x more when on the face of it, MARS is worth more in terms of book value and profitability.
The reason I compare with MARS is the SP has suffered for the same reason- debt. I thought it was great value at 50p. It’s now 30p but it will probably get cheaper still. So what’s cheap and what’s not? It’s really hard to tell these days.
Personally, I think both nex and Mars will rally at any hint of interest rate cuts, otherwise I can’t see any reason for them to stop falling.
If you are looking to buy MARS company then spend time working out its " worth"
If you are looking for say a 20% return on buying their shares, then what it is supposedly worth is of little use ....the markets dont trade on " worth" and " value" ....it is more focused on what the next Trading performance is , and merly on the performance of the BOD in terms of their responsibility with the using the assets etc ...
VOD is worth more that the share price..but the SP is all about pricing the performance of the BOD and what returns they achieve with the assets