Member Info for adzy2k11

Yes quisty - but back out the debt payments (which will they will no longer have), what would the profit be? Then tack on some turnaround/cost savings plans, you can easily make a case for a return to positive EPS. I’m not saying it will happen for sure, but that’s the narrative the market fosun and PF will be selling to stakeholders.

Non necessarily, they had positive earnings last year, Citi also have 0.5p EPS on 20bn shares by end of 2020.

Fair. Missed opportunity mind. Although I don’t see shorting as an”evil” or profiting on misery, it’s a necessary mechanism to keep the market working efficiently.

Depends on the exact amount and price of dilution. A re-rating is arguably warranted for a debt-free business, so the market cap increase may even offset the dilution effect if you assume some margin normalisation and a return to earnings expectations for the new co. We don’t know.

But the question is why don’t you have short position given your compelling arguments? What’s holding you back?

buck - one other question if I may, your arguments are fair, I think you are convinced that the price will drop considerably and you state wrt to dilution that: “I'd put my money on it being higher, than 95%“. If this is the case and you are so convinced why do you not open a short position and profit from the current mispricing? I’m not having a go, just quite honestly wondering why you didn’t go all in yourself on a short last week, of even now? Am I missing something?

Thanks Buck.
I think that’s the most important question we need to try figure our, Most the sell side reports (including Citi) assume 80% dilution which includes a good part of (but not all debt) and new equity issuance at 5p. Ofcourse they could be wrong but o think the key here is significantly reduce interest burden (not necessarily alleviate) and then look to cut costs in other parts of the business.

Why do they need to convert 100% of their debt? Everyone seems to assume they need to be a debt free company after d/e

Let's take a step back for a moment and ask ourselves what this new company will be worth after D/E. This might help explain why NK has invested, why none of the IIs have sold out, why PF and CFO said in their video that price would fall to "mid-single digits" and why maybe the current price is staying >5p.

Firstly - we have been given no indication on the price at which debt will be swapped into equity. But let's assume say £1.0bn of new shares (£500m for Fosun and £500m for bond holders) are issued at say 5p, that would mean 20bn new shares - an 80% dilution for current shareholders.

But then and let's give credit to the overall management’s pitch around margin recovery and potential earnings expectations for the debt-free resultant business. Given the maths below we can then get to say an EPS of 0.5p EPS for the new co. Say we use a FY20E P/E multiple of 10x (comparable with peer TUI) this then implies a target price of 5p (0.5 x 10)?

Obviously many assumptions needed here, but what am I missing?

Sensitivity Assumptions: New equity is issued at the current price of 5p
Share price (p) 5.00
Current shares (m) 1,534
Market cap (£m) 77
Fosun equity (£m) 500
Bond equity (£m) 500
New equity (£m)1,000
New shares 20,000

FY20
EEBIT 187
EBIT margin 2.1%
Revised interest cost -44
PBT 143
PAT (£m) 107
EPS (p) 0.50

I thought that's 50ma for the long term? the moving average that's been respected all the way down from 120p

but we are below the 20Ema? which is more important?

ok, out of auction, odd - never had that message from my broker before.. hmm

loooong auction...

msg from broker!

yes, the biggest upside is M&A takeout or privatisation.
The stock trades at 1/3 of TBV, remember that!
Some big buyer could see strategic value here and swoop it up on the cheap. The R:R is definitely worth a position at 300p.

sorry to hear that, but i just got in at 300p, this is a double or treble over the next 12 mos for me.

that's why it's called a "turnaround play"!
Just like kier was another "loser", but has doubled in a few weeks...
My reasons are as follows:
1) MTRO doesn't need an equity raise till 2022 in my calcs
2) Metro management can slow investment in stores and has many other levers to execute on their cost reduction plan to get their efficiency ratio (expenses/total revs) down to 55% from mid-80s today
3) speed up the shift to a non-founder CEO
4) roll up their fintech offerings to business customers (these look very attractive to me)
the market will need evidence of these metrics improving, but i see upside to 5-10 gbp over the next year.

for those looking for a turnaround play, i'd encourage folks to now look at MTRO now.

Sensitivity Assumptions: New equity is issued at the current price of 5p
Share price (p) 5.00
Current shares (m) 1,534
Market cap (£m) 77
Fosun equity (£m) 500
Bond equity (£m) 500
New equity (£m)1,000
New shares 20,000

FY20
EEBIT 187
EBIT margin 2.1%
Revised interest cost -44
PBT 143
PAT (£m) 107
EPS (p) 0.50

Implied Share Price (p) Sensitivity to total Equity Raise @ 2.1% EBIT Margin
Total Equity Raise
400 600 800 1000 1200
6 6.7 4.7 3.7 3.0 2.5
P/E 8 9.0 6.3 4.9 4.0 3.4
10 11.2 7.9 6.1 5.0 4.2
12 13.4 9.4 7.4 6.0 5.0

So depending on the valuation multiple you use, you can get these different price target after D/E.
Obviously the biggest IF is price of new equity issuance at 5p. But there is potentially some value for share holders hence probably why the stock price is still not collapsing.

Remember Citi's base case assumption is 5p for the D/E!
and their fair value of 3p assumes the new business trades at 6x P/E (a 50% discount to TUI) with 0.5p EPS
With significant debt reduction whose to say the new business shouldn't trade at a higher multiple??