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According to the RNS published yesterday, Frasers has now quietly sold 894,920 shares over recent weeks. That is 1.03 per cent of their holding. Does this mean that their objective is to ultimately divest completely or is it an attempt to suppress the share price with a view to acquiring the company at a lower price ?
TRADING OUTLOOK NEXT YEAR.
The like for like comparisons are going to be more difficult to interpret in FY22, especially in the first half. This year H1 sales were up 39% (+55% weeks 1-11, +27% weeks 12-20 and +30% weeks 21-26.
But I think sales growth of 25-30% can be maintained for these reasons:
1. Brand awareness is rising rapidly (according to Similarweb)
2. App downloads are significantly ahead of last year;
3. The growth in the customer base is accelerating;
4. Credit customers should be over 50% higher than the start of last year and these customers remain loyal;
5. New systems will optimise product range management and improve price strategies;
6. Management have the experience of 2020 behind them. Data analytics of the massive increase in traffic should help them identify new opportunities, especially in expanding their merchandise ranges.
7. The new CEO is an in-house appointment so personnel disruption will be minimal. This is a steady team operating under the guidance of an experienced chairman.
I don’t know how management equates 3m customers with a target of £1bn in sales but I think they will get to 3m active customer in the next 18 months. I anticipate sales for the year end March 2021 to be £577m up from £435m, made up of £419m product sales and £158m of credit income). Therefore if 3m active customers equates to £1bn in sales, then Studio will be in touching distance of £1bn in sales by the end of March 2022.
I think Findel will be disposed of somehow in 2021, allowing management to concentrate on managing the rapid growth of Studio. It is all my opinion of course and I have no connection with the company other than as a private investor, but I wish Ashley would take his tanks off the lawn and allow the management team to concentrate on exploiting the opportunity they have successfully created for Studio.
1. Active customers have increased to 2.3m (i.e. the number of customers who made a purchase in the last 12 months). This is up from 1.83m at the end of March 2020, an increase of 470k active customers, or 26%. This rate of growth has accelerated because it only grew by 15% in the year to March 2020;
2. Of those, 1.5m are active credit accounts, up from 1.02m at the end of March 2020, an increase of 498k or 47%. [Confirmation of the CEO’s assertion that there is a high degree of loyalty from the credit customer base];
3. The Studio app has been downloaded almost 1 million times. This is an increase of 150k in the month of December alone, and 300k since the end of September. About 60% of these App users have activated their “push button” which allows Studio to make tailored offers via the app to these users. 20% of product sales are made through the app. The app was only launched in September 2019. Marketing to these customers is much more nimble, personalised and cheaper than recruiting new customers.
The statement doesn’t state it, but by my calculations product sales for the 12 months to December 2020 were £400m, up 28.2% on March 2020. Sales per active customer are about £174 for the last 12 months compared to £171 at the end of March 2020.
It is hard to quantify the value of income from the credit finance side because it lags the product sales growth but I think a £30m increase to £158m is possible by the year end.
TRAFFIC TO THE WEBSITE
What is most impressive about Studio is the rate of increase in the traffic to the Studio website and how it has performed relative to its peers.
Similarweb estimates that the total visits to the Studio website by month are as follows:
Dec 2020 14m
Nov 2020 19.7m [Studio places a lot of emphasis on black Friday in November]
Oct 2020 12.7m
Sep 2020 9.6m
Aug 2020 9.0m
Jul 2020 8.85m
Jun 2020 9.3m
May 2020 7.2m
Back in September management indicated they would accelerate their strategy to grow customers and sales and there is no question they have been very successful at that. One would expect traffic to grow significantly in Q3 and especially in November, but Studio’s visitor number of 19.7m in the highly competitive November demonstrates they are succeeding in increasing customer awareness of the Studio brand.
And this is a stellar performance compared to its peers at this time. SimilarWeb ranks the website every month. In November SimilarWeb ranked Studio the 2181st most popular website in the world, 102nd in the UK and SECOND in the UK category Ecommerce and Shopping, right behind Boots and leapfrogging TKMaxx.
In October the rankings were 4556th/178th/88th respectively. Brand awareness is increasing rapidly, helped no doubt by Studio being the main sponsor of ITV’s “I’m a Celebrity Get Me Out Of Here”. But the sponsorship of this iconic programme also shows Studio’s customer profile compliments the target market ITV is aiming for with such a popular programme.
This is a team that realised they needed to change or die, so change they did, and are succeeding as a result.
MOMENTUM
To answer your question about how much of the Covid related boost will be retained, look no further than the interview Paul Kendrick gave drapersonline.com on September 30th 2020. He said:
“We had expected that to drop away [i.e. the really strong growth during lockdown], and actually in that immediate post-period it did drop down [from 55% in weeks 1-11 to 27% in weeks 12-20], but what we’ve seen is as AW20 has kicked off, our sales performance has stepped up a bit again. So, over the last five weeks we’re actually 30% up, even with the high street being open.”
He went on to say.
“We are benefitting from two things. Over the last two years we have been driving the transformation to online and that’s the part of the market we are seeing growth in, but we’re also benefiting by being a VALUE RETAILER AS THERE AREN'T MANY VALUE RETAILERS THAT ARE STRONG ONLINE.”[My emphasis]
This statement tells you two things. The first is management continues to plan with caution. The second is sales were still up 30% despite the fact that the high street had opened again.
My guess is the dip in sales referred to by Paul Kendrick was more to do with the volume of stock-outs rather than anything else. They didn’t expect a 55% increase in sales in weeks 1-11, so stock-outs must have increased. When the Autumn/Winter 2020 ranges went up online and customers had new merchandise to choose from, sales growth resumed its 30% trajectory.
I believe the Covid boost can be retained provided the management team continue to execute well in terms of their buying and merchandise function, and I believe they are up to that. The Covid sales bounce was noted in toys, games, electricals, fitness and garden, and the business de-risked by reducing clothing range intakes.
In H1 Home & Leisure sales were up 80% and Clothing and Footwear up 22% despite the decision to “de-risk” in this category. There is plenty of scope to build on this in 2021.
QUARTER 3
Since these statements were issued, the most important trading quarter (Oct-Dec) has come and gone. It normally accounts for 40% of product sales. The December and January announcements by management both confirm Studio’s product sales grew year on year by about 32%, and crucially, it did so with a 440bps improvement in achieved gross margin. Growing gross margin at the same time that sales are growing strongly is retail’s holy grail for transforming financial performance.
Their December 2020 statement says on its Digital Transformation
“Enhanced databases and new technology will further improve this decision making and personalisation as well as NOW optimising product range management and pricing strategies.”
In short management expect to increase sales on higher margins and their actual performance in October and November prove their strategy is working in practise.
Three othe
As a private investor, my first investment criteria is to find a management team that knows what they are doing, and preferably in a market segment I know about myself.
Based on my own experience in UK retail, Studio has two of the most important ingredients necessary to continue to grow sales and profits in 2021 and beyond. The first is MOMENTUM and the second is a management team that knows what it’s doing.
MANAGEMENT KNOWS WHAT IT IS DOING
Let’s start with management. They realised the old Findel business needed to be reorganized. They developed a strategy and wisely concluded they needed to rebrand. The clear and simple new brand name, STUDIO, was launched in July 2019. The outgoing CEO Phil Maudsley has over 30 years’ experience with the group. The new chairman Ian Banks, first appointed in January 2017, has an impressive track record behind him, not least his current successful chairmanship of Pets at Home, another market winner in 2020 during Covid. The strategic review, rebranding and new sales growth trajectory have all happened under his chairmanship, and the benefits are only now beginning to filter through to the bottom line.
Phil’s replacement as CEO in March 2021 will be Paul Kendrick who is currently the MD of the Studio division. Paul joined the group in May 2016 prior to the new chairman’s arrival so the promotion of an in-house executive is a real plus in terms of stability, continuity, corporate knowledge and culture. Promoting the executive with the trading and marketing background is proof that the emphasis will be on growing product sales and increasing market share. I believe this is a really important indicator of how much the board is committed to achieving their medium target of £1bn in sales from 3m active customers.
When you read every market announcement Studio management have made since the new strategy was devised, you will see that there announcements are consistent with the objectives they set out in their strategic plan. In otherwords, management came up with a plan, they have implemented their strategy, the plan is working, and they are going to do more of the same.
The strategy happens to be working better than expected during the pandemic, and as the CEO announced on August 24th 2020
“Our intention would be to reinvest any benefits from exceptional growth into further growing the customer base and accelerating our digital transformation.”
(Compare this to NBrown, which is also going through a transition to online. Sales are still falling and in the summer they talked about refreshing their strategy. Studio is accelerating its plan, Brown is refreshing there’s.)
This is a management team that has been in situ implementing the old plan, saw it needed to change the direction and emphasis of the business, and set about building that vision around a new brand called Studio. This is not a turnaround executed by a management buy-in team full of adrenaline and beholden to short term private eq
The last trade of today at 16.32 was 24 shares at a price of 251.33333 pence per share. Are we in for a big fall on Monday ?
I have been invested in Findel/Studio PLC for the best part of ten years so I guess I shouldn’t be too surprised by yet another extremely frustrating day. The trading statement first thing this morning was very positive and indeed the first half an hour of trading (up 12 pence) was the least that could be expected given the bullish nature of the update. Trading thereafter however yet again proved to be very disappointing. It would appear now that nothing short of an all cash offer significantly above the existing share price is the only way we long suffering holders have any hope of realising our true value. In my opinion the share price is no longer indicative of the rapidly improving fundamentals of the company.
My first post did not appear until I posted a similar second post.
Historically the share price has often suffered a nose bleed at this level. No doubt we shall find out the reason for this latest drop (despite a positive trading statement) in the fullness of time.
Historically the share price has often suffered a nose bleed at this level, I’m sure we will find out the reason for this latest pull back in the fullness of time.
As anticipated by most followers, a superb trading performance. It's just a shame there aren't more people aware
A superb update by every metric.
The response from the market against the back drop of today’s figures tells us all we need to know.
Misunderstood doesn’t even come close.
Good to see the sale process is ongoing and I really hope we can realise true value. I am looking forward to the forthcoming updates.
The board could not do any more to enhance the prospects of a sale.
Being in an offer period hasn't stopped them updating on Q3 then. Looks very strong.
So here we are again having to stay at home by Government Order. One of the few companies to really benefit from this situation is Studio PLC. This can only further improve the already attractive fundamentals of this business. A January update on revenue for the third quarter could be a catalyst.
This is a well run online business which have shot up in market value in recent months and I agree with Mike Ashley, Studio is massively undervalued. It needs to be near to 500-600p not measly 280p. I have been topping up here and hope to see the real market value in next few weeks or so. This is one of my safest investments, it is up for sale and will go to the highest bidder. Hopefully in excess of 600p!!
I think there are issues around publishing "profit forecasts" during offer periods which tend to make outlook statements problematic, although I also think there is an exception to some extent for "ordinary course" statements i.e. if they can point to a history of issuing this type of statement at this time of year.
I would imagine the Board will be being advised to update the market with a statement as to how we traded up to the 25th Dec so as to flush out any interest that might be sitting on the sidelines and not currently wanting to sign an NDA. The interested parties that have will be able to know exactly how things have gone and it would be a shock if it hadn’t followed the recent trends and been anything other than very positive.
It shouldn’t be too long before things start to take shape and I noted Lombard Odier having another little nibble per today’s RNS.
Hi 1GW_, good to see you back in again. I am really hoping that this time around we can finally realise the true value.
I've been taking profit elsewhere in the portfolio so decided to get back in here, hoping for great things from the formal sale process and any January trading update (although they may feel they can't issue one while in an offer period).
The Morningstar website quotes an enterprise value of £520.6m as a market cap for 2020 or 599 pence per share. I can’t believe for a second that the company is worth this lofty value but a value in excess of 400 pence per share is certainly a very realistic possibility. Mr Ashley makes a fair point in his assessment that the company is misunderstood by the market which is borne out by the apparent lack of interest since the company put itself up for sale. Low share trade volume and little or no press coverage about the potential sale of the business is testament to this.
The below taken from the rejection of the SPD offer back in March 2019.
Interesting to note the value they were suggesting and with everything that has changed so positively since, I would be very interested to know what the Board believes to be the current True Value.
Given it was 8th Dec when we were put up for sale, I would expect an update on progress soon.
Wed, 27th Mar 2019 09:00
Findel plc ("Findel" or the "Group")
Circular Rejecting Offer by Sports Direct International Plc ("Sports Direct")
The Board of Findel, announces that it is today publishing its response circular (the "Response Circular") in relation to the mandatory offer for the entire issued and to be issued share capital of Findel not already owned by Sports Direct at a price of 161 pence per share in cash (the "Offer").
The Board reaffirms its previous statements that the Offer significantly undervalues Findel and its future prospects, and strongly urges all shareholders to take no action and reject the Offer for the reasons outlined below:
· Your Group is a market leading UK online value retailer and a leading supplier of resources and equipment to schools worldwide. Both businesses have significant potential. With a strong management team which continues to deliver on its multi-year transformation plan, your Board believes you should receive the benefit of our investment and enjoy our continued growth
· The Offer of 161p per share is opportunistic and undervalues your Group being at a significant discount to fair value, to the Undisturbed Share Price of 250p and to analyst target prices which range from 300p to 350p
· Findel's recent share price performance does not reflect the underlying financial performance of the Group
· Under its current leadership, your Group continues to execute against its digital-first, value-led strategy, ensuring a sustained track record of financial and operational success
· Control by Sports Direct will have a number of potentially adverse consequences for Findel shareholders including an 8.8% dilution in the value of your shareholdings
· Current trading is strong and the Group re-iterates its Q3 trading statement in which it said that "given the strong performance from Studio in Q3, the Group believes that full-year PBT* is now likely to be towards the upper end of current market expectations" (£26 million to £28 million)
The company is certainly undervalued. Calculating the enterprise value might provide some insight into what the true sale price might be.
the lock-downs (more on-line sales) & stronger GBP (higher gross margin %) are going to lead to bumper results for the FY. Surprised that this has not motored to over 3 quid, especially as it's put itself up for sale..
This share is very illiquid Libero. Well over ninety per cent of the 86,867,534 are held by only a handful of shareholders. The market makers hold only limited numbers of shares. It is very difficult for an interested party to build a position without drawing attention. I’m not sure how an interested party would go about declaring interest.