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Is it just me or have there been a large number of round figure share purchases today?
Very strange by Octopus - maybe they were short £40!
DG - Definitely all relative to the current position but I do feel ready to get off this ride now.
Just looked up my first eve purchase - 800 shares @ £1.25. Hopefully I've learnt a few lessons since then but we'll see.
The lack of debt, coupled with the tax losses certainly adds to the appeal.
Just keeping my fingures crossed that an offer comes in. Personally I'd be happy with 2p at this stage (even though it's selling at a loss) so anything more would be a bonus.
Interesting idea about quantifying the risk/reward. You could look at it on a simplified basis knowing that approximately 80% of FSPs don't result in a buyer and assume that if we don't have a buyer eve will fail.
On the flip side there's a 20% chance that a buyer will be found. What they would be willing to pay is anyone's guess but based on a 30% bid premium to the pre announcement 1.6p, we may expect offers to be in excess of 2.08p, a 113% increase on the curent share price.
The weighted average return would therefore be a loss of 57.3% (by my reckoning).
The calculation would change in a more positive way if you're spread betting as the downside would be the same (assuming you can't lose more than you put in) but the upside would be magnified.
Obviously the upside could be much greater than what I've suggested above and the chance of finding a buyer may be better than the 20% (if eve is a better prospect than the other failing companies) but however you look at it, it's high risk to remain. Makes me wonder why I'm not selling...
I haven't put too much thought into this so please feel free to tell me the error of my ways.
The eve board any potential acquirer would be well aware of the losses and their limitations. I imagine they would be factored into any financial models made by the acquirers when deciding on the financial case.
The past losses can't be transferred to the new parent if taken over, however if costs can be cut by being part of a portfolio the tax losses could be utilised by eve and would shelter future profits up to £69m. Any potential buyer wouldn't pay for the entirity of the benefit of the losses as they would want to benefit from some of the return (and risk) and there's also the issue that it may take many years to utilise these.
Future losses could be used by the wider group.
Thinking of other reasons why they may be bought now rather than out of administration it occured to me that they have fairly substantial tax losses. Whilst there are restrictions on how losses can be used after a change in ownership there are always ways of making use of them. Tax losses were £69.2m at the last year end and with CT rates rising to 25% shortly, these would save £17.3m in tax. That saving wouldn't be available if the trade and assets were purchased.
It's not their business any more than it is ours. If we're not puttling in extra funds why should they? They took on a failing company and were doing a decent job of building a brand and turning it round. They may have made mistakes along the way but nothing is business is certain so equally those mistakes may have made eve profitable if the strategies had played out as planned. You can't blame them for the current cost of living crisis which appears to be our main issue at present.
Comparing it to an OMB is a bit ridiculous. Where the MD is the sole shareholder of course they will cut back on earnings to protect their main asset. It would be folly not too but it also only helps them. Why would a board of directors take a cut for your benefit? They have there own lives away from eve and likely families to take care of.
Probably best to start by admitting that I'm biased as I'd rather see any option than administration and I can definitely see why an interested party may be willing to wait for that to happen.
That said there would be advantages to moving faster.
1) A low offer may be accepted with minimal competition. Considering the net assets (which includes a decent amount of cash), a small bid premium would still be a bargain purchase. Waiting for administration may result in increased competition for the brand. There's also no guarentee that eve would go into administration as an investor or other buyer may step in.
2) A takeover would secure the brand and allow a restructure to take place immediately. A trade buyer could cut central costs considerably and utilise existing supply chains and marketing to further reduce costs. It is likely as a portfolio brand it would be possible to achieve a profit even in the current conditions.
3) Waitting for the company to enter administration may harm the brand whereas a smother transition can be better managed.
4) A voluntary takeover can be funded in shares whilst a purchase of trade and assets must be in cash. This saves cash to invest in growing the business.
Alternativly, rather than a buyer, we may have an investor, but I'd rather a full sale. We may alternatively get an MBO which takes it private but I think that's probably less likely at this stage.
Overall, the brand definitely has value when you consider the invetsment that has gone in to buidling it. We've just got to hope that there are multiple parties who want it.
It will be interesting to see how it progresses. Personally I'm hopefull that there will be a sale and it will be for more than the current share price but then clearly my optimism hasn't helped me in the past!
You've got to bear in mind that cash is impacted by changes in working capital. If the DFS arrangements have started well they may well have invested further in stock and equally we don't know what the payment terns on the arrangement are and these would likely have a negative impact on cash.
In short - positive DFS news may equal less cash at this point.
Pleased to see the Cinema was full on Monday evening for the Batman showing. There also appeared to be more seating outside for sitting down and eating and drinking. Hopefully they've received some boost from the temporary VAT cut.
Should find out in the next month...
Quote to sell 100k shares was 2.06 so not quite as bad as it seems (for now)
Taking eve private has been mentioned a few times lately. I may be wrong but I thought you needed a special resolution (75%) to delist. I think eve has quite a large number of individual investors which would not necessarily back this. Personally I'm more concerned that we get to a point where eve need to raise additional cash in the next 2-3 years and we get diluted further (but hopefully this won't happen...).
Been a bit of strange week for me in terms of results. Eve's results were obviously a bit dissapointing but not really too different to what we expected (I don't think earlier trading updates had implied that it would be profitable). As a result I was more dissapointed (but not surprised) with how the share price moved.
Also had results for Everyman Media yesterday (sorry to bring up a different company). Expectations in November were for a full year EBITDA of ~£7m and final results showed £8.3m. The share price has barely moved!
I just don't understand!
Two parts to the answer (as I see it):
If eve wants to develop its brand as a sleep wellness company it needs to sell the products that give this impression. It therefore needs to develop it's own products (which is expensive and probably would hurt the share price in the short term as cash goes down), license others or sell known brands. In my mind it makes sense to use the latter two options in the short terms and potentially explore option one once/if eve becomes profitable.
Regarding the CBD oils this all comes down to marketing cost. At the moment, eve, like all online brands, effectively relies on consumer awareness to drive sales. It therefore invests significant amounts in 'buying' these sales through traditional marketing. If however they can put eve branded products such as the CBD oil in physical stores, this should drive additional web traffic (at no cost) and effectively increase the number of sales per marketing spend. If all goes to plan, it will result in additional profits from the main business lines. For eve to succeed it needs to sell more of it's higher margin products and ancillary products such as the CBD oils should help this.
Personally I wouldn't read too much into the cash movement. Without further details we can't tell if it's profits or simply unsustainable movements in working capital. Either way it's not a bad thing having more cash in the bank but I just wouldn't read too much into it.
Historically H2 is the stonger half though so hopefully cash will rebound in the remaining few months of the year especially wth the reduced marketing spend in France compared to H1. A strong H2 would give me more confidence in being profitable in 2022 and I imagine the share price would also increase to reflect this (but who knows with eve!).
The issue eve has is the cost of marketing (which it has to incur as a small online business) compared to its sales. It therefore seems to me that the alternative marketing such as the Boots Christmas items and the CBD products are an important part of reaching profitability which makes it all the more concerning that we haven't heard anything yet. Maybe this will be the week...
Simba Sleep Limited can be found on Companies House (company number 09703422) though their most recent account accounts are for 31 December 2019. They posted turnover for the year of £48m of which £38m was in the UK. Interestingly like Eve they withdrew from some overseas markets in the year and have previously posted some very chunky losses (2019: 16m, 2018: £44m (15 months).
Other bits to note (2020 eve comparisons in brackets):
- Gross profit margin of 32.9% (57.3%)
- Interest payable £2.2m (£0.0m)
- Bank loans £6.7m (£0.0m) and preference shares £3.1m (£0.0)
-Trade debtors £4.0m (£0.7m)
- Share Capital & Premium £88.4 (49.7m)
It looks as though they have thrown a conisderable amount of resouces getting to the size they are (more so than Eve) and taken a riskier approach with the debt funding but I would imagine the higher turnover is supporting a larger marketing spend which would help them with the growth they've claimed. I also had a quick look on wikipedia which says they received a $24m investment from a PE firm in early 2020 and expanded into new countries which must have helped!
The lower GPM and higher trade debtors imply that they used to sell more of their products through thrid parties. Potentially the pandemic meant a shift from this to direct sales which would help with the growth in turnover but may not be sustainable for them as shops reopen.
Interesting to compare the two, but it looks as though one of the main differences between the two is the level of investment made which has bought market share. Personally, with the share price where it is, I'd rather Eve prove that it can be profitable which should result in a decent rise, before potentially raising further funds (if needed) to expand at a faster rate.
I'd agree with that in principle, though I think Octopus Investments is Octopus Titan vct (and possibly other Octopus products) and I can't see them wanting to take control. Theoretically the listing a few years back should have been a step towards their exit but it looks like they held on too long.
I don't mean to make you worry, but I believe the rule is specific to the acquirer. If they haven't previously purchased any shares, they don't have to pay the highest open market price from the past 12 months.
The only consolation is that the last fundraising by the company was at 10p so it's likely that the institutional investors wouldn't accept less considering the Eve seems to be in a better position now.
I must admit that I don't really understand the price of this company (despite being invested in it!). With Cash in the region of £5m the enterprise value is also around £5m which equates to ~0.2 of annual expected sales (Made trades at 2.64) which they're on track to achieve. Whilst it is currently loss making, they're spending on marketing to increase brand awareness and drive future sales and this is being seen in the impressive UK growth of 18%. UK marketing is currently at 29% of sales (~£3.5m) which clearly could be reduced if they wanted to make a profit but if you have cash in the bank why not use it?
Cash has decreased by £3.2 m which appears to be £0.7m into stock, £0.3 deferred VAT, £1m investment in French marketing so the remaining £1.2m should relate to EBITDA losses and the seasonal working capital movement they reference. Considering the UK marketing spend, it show's how easily they could post a profit and positive cash flow if they wanted.
On a different note, I like the strategy of having products like the CBD line which aren't intended to make significant money but are effectively self funded marketing.
Looking forward to seeing where this goes in the long run.