Member Info for Billybob15

Rox - I don’t want to labour the point but I don’t understand your obsession with early payment penalties. The current debt package is provided by the same lenders who lent to the business before Covid. They were not really comfortable rolling their loans when the shops were shut due to lockdown and the business was just breaking even. However, they had no choice. All they could do was charge an arrangement fee, increase the coupon (to 250bp over Libor) and ask for a commitment to pay down 70m within 15months on pain of a penalty. These banks wanted to be taken out (repaid ASAP) so why would they introduce an early payment penalty? The early penalties or make whole payments come on subordinated high interest loans where a bank is concerned that it won’t be able to re-lend at the same margin, so don’t apply to senior loans and certainly not to a revolver which is designed to be cleaned down every year - it funds the seasonality swings. I would eat my cloth cap if there are early payment penalties and I suspect that management would have had to disclose it if there were.

It is not something that worries me as what probably happened was trading has been good and they thought they may be able to refi off the back of current trading. However, I think potential bond investors and rating agencies would prefer to see Xmas (in case they had any doubts about further lockdowns). Also as they should collect c40m of cash profit over Xmas that would reduce the sum needed to be refinanced. Finally, the RCF would have been drawn in October as they build stock for Xmas but should not be drawn in January. They are clearly keen to refi off better trading but maybe a bit premature in October that’s all. The trading statement and Tripp’s purchase also add to my comfort. I have added significantly to my position over the past few weeks.

https://reorg.com/card-factory-refinancing/

Hi Roxbury House - I understand. Where I have a different view from you is that they will try to refinance as soon as they can. It was reported a few weeks ago that they tried to issue a bond to refi the current debt package so it is clearly top of mind for them.

Sharesx3 - Since IPO the leverage has ranged between 1.5x-2x ebitda, so using a base of 80m Ebitda pre Covid, that would be 120m-160m. That is excluding the lease “debt” which is an accounting nonsense (for all retailers). The current real debt levels are similar to the range above but because of Covid, ebitda fell to roughly break even (causing a spike in the leverage ratio and lots of associated panic that the business has too much debt). Pre Covid the company had a stated dividend policy of a payout of c40-50% of EPS (expressed as a dividend cover ratio of 2.0-2.5x in the accounts) and would regularly top this up with special dividends. The specials were funded by re-leveraging from c1.5x to c2x Ebitda every couple of years. This was a tax efficient capital structure (though many posters here hate any debt whatsoever). The board will decide whether to adopt the same capital structure once the ebitda reverts to normality and in my opinion will refinance early in 2022 so I believe we will see a resumption of divis in late 2022/early 2023. That would help the share price re-rate. Others here including Roxbury House believe they will keep the current debt package in place (even though they attempted to refinance it with a bond a few weeks ago, but they presumably failed because the ratings agencies would not give them credit for Xmas until it has been delivered) and so will expect a later resumption of divis as this current debt package forbids divis until the debt is repaid.

Draft - interesting view but I take the polar opposite view to you. Tripp will have been getting regular monthly management accounts (which will analyse performance against last year and the previous pre Covid year in some detail) and I suspect very up to date daily sales figures. He has a private equity background and has likely been unable to buy until the trading update cleansed him last week. Lombard Odier on the other hand are not likely to have any trading information but rather may have taken the view that there may be another lockdown or are hedging a long position elsewhere. Given the choice I would back Tripp and I did.

Good for you Rox - better hurry those conveyancing lawyers…I have just added to my position at 55p.

Rox - An early repayment penalty or make whole is common for mezz/PIK loans (to compensate for lost high interest). I have never seen one in a senior loan situation which is what this is.

Rox - keeping some debt is tax efficient and bringing back dividends will be helpful for the share price. For these reasons I think they will wait until after Xmas when they can show an achieved ebitda for 50-60m for the y/e Jan 2022 and a run rate ebitda of c80m. At that point the strict debt package they took out during lockdowns when they were break even will be refinanced imho.

Rox - I assume this RNS was issued because the business performance is improving whilst the share price has been going the other way. It should help the share price improve from here. I am feeling more confident after this announcement and have just added to my holding. FWIW I also have The Works and Saga.

I liked the bonkers bargain review. Thanks. The reason why I am relaxed about a rights issue is that they had to agree to some fairly onerous terms given where they were in the lockdowns earlier this year, as well as being loss making. I suspect they will collect c40m cash over the xmas period and as they are not allowed to pay dividends they can pay down debt with that. I see current debt as 120m made up of financial debt (97?) and rent arrears. I ignore the lease debt as this is just an accounting anomaly. If I were CFO I would wait until January 2022 as the cash will have been collected and they can announce an ebitda figure of 50-60m for the last twelve months. At that point they can more easily refinance this rather harsh debt package with a friendlier version allowing them to re-instate dividends towards the end of 2022.

I don’t buy this structural and irreversible decline in profits. There are three main reasons for the fall in profits over the past four years (pre Covid). Firstly the USD/GBP exchange rate declined from 1.60 to 1.25, CF buys about USD100m each year to cover its non card purchases from the Far East (that’s 17.5m pounds decline by itself). secondly Karen Hubbard added needless layers of management and cost into the business, and thirdly the national minimum wage increased faster than inflation whilst Karen Hubbard refused to increase prices on cards. All three of these can be reversed and the ebitda can be brought back to 90m pounds. What would an almost debt free cash generative Card Factory making 90m ebitda be worth - well not so long ago it was worth over 1 billion pounds!

PFen - the share price reflects concerns about Covid and a potential lockdown as well as the possibility of a rights issue. I am relaxed on both. Not sure many shares have been dumped. Liquidity in this stock is low and I don’t recall many RNSs about major shareholders reducing stakes.

Rox - Google Card Factory Investors which will take you to their website. If you click on Key Financials you will see that stores at the end of FY20 were 1022 and at the end of FY21 (Jan 21) they were 1016.

Hi Rox - I find these figures hard to believe especially for a smaller store. In FY20 (Jan 20) CF had 451m sales from 1022 stores. Average store sales would be 441k or 530k takings adding back VAT. My understanding of seasonality are that c40% of sales take place in Nov and Dec and so a normal months sales equate to 6% of annual sales (100%-40%)/10months. The figures in the post suggest an average of 110k takings or 91k sales. Grossing that up implies annual sales of over 1.5m which is more than three times the average store - possible but unlikely from a small store. Also if the figures are true it would be easy to identify the poster’s aunt and her job would be at risk for breach of confidential information. To me the spurious accuracy is intended to lend credibility - feels like rubbish to me, even though I would love to believe it.

Rox, I agree with Jed. You have taken a view and a position on Card, which I believe is a good one. It will take time, but I can see the share price being 2-3x today’s level in 18 months. Best to sit and wait, as there is such little liquidity in this share that a few trades can cause it to move significantly. Best to ignore daily or even weekly moves.

Hodgy - I would love this to be true but let’s take a look at the figures. The two month sales total would imply an annual sales level of 1.3m gbp (on a simple 6x gross up) incl VAT or 1.08m ex Vat against a pre pandemic average of c500k. That would imply an annual spend of 60gbp for every man, woman & child in your small town if 18,000. I fear it is a bit fanciful…

It is important to remember that this is Darcy’s first set of results. I suspect he was keen to present himself as a prudent and competent manager and so did not want to over promise anything. The shift in focus towards gifts increases the addressable market but is a lower margin product line than single cards. I will watch the replay of the presentation when it is posted to see if anything can be gleaned from that but I continue to see this share price as good value.

I was impressed by the gbp23m of ebitda for the first half. Given the seasonality of the business that bodes well for my expectations of 50-60m ebitda for the full year.
No mention of an equity raise, and no possibility of a dividend until the debt is repaid. My take on the CFOs comment about maintaining an efficient capital structure is that they may try to put in place a longer term debt structure, which allows divis, and may be 1-2x ebitda. So I feel an equity raise is less likely than I did before.

I agree that £100 a day profit is conservative. Fwiw I expect ebitda to Jan 2022 of £60m and £80m for the year after. You have to deduct capex, interest and tax from this - my best guess is that these three will total £20-25m. The board took independent advice in May 21 and decided to use best efforts to raise £70m cash. As a director I wouldn’t really want to take a flyer on Christmas trading but instead would want to wait for a decent share price before launching an open offer (not a right issue). I would like to report strong figures at the end of the month and launch an offer on the back of those.