Member Info for Cigam

In all honesty, the business needs to reduce it's inventory in a big way, so I'm not that concerned about a couple of suppliers having a pause. Less stock means more cash in the bank as they run down to more historical levels.

The loss at H1 obviously spooked some of the insurers and they likely decided to not renew their policies for a further term. Once things stablise they will be back - it's hard for them to stay away from the premium income.

Still looks like they've got a sh*tload of stock on their website to me.

There is more competition but ASOS will still turnover at least £3.5bn for FYE23. So if they can improve their margins, reduce their inventory and improve stock turn, the business will be throwing off cash again. This is all within their control and will put them in a much stronger position once the economy rebounds.

That’s what I’m holding for here, as it will result in a sustained increase in the share price. The takeover talk helps and I’ll be happy if we get bought out for £15ish, but to get back to £20+ they need to get back into profit and cash generation.

Agree with Boris on this - I can’t see anything but a mid teens offer being entertained.

It’s not just about the current share price, but what the company is worth to the purchasers and the potential synergies they could gain by owning the business. Even though it’s been struggling lately, ASOS remains a big player in online retail and that is clearly attractive to other parties (i.e. the Turkish offer in Dec).

Also, we need to keep in mind that any offer will always be on Enterprise Value and not Market Cap. So you need to take the Market Cap + Total Debt - Cash on hand. At the current share price, this is around 810p and that’s the level where any valuation will likely start. Obviously from there it becomes a case of how much do you want to pay over and above this to secure the deal, etc.

Anyway, it’s going to be an interesting few weeks if nothing else…!

Feels crazy low but technically we are at 441p based on the old shares in issue. The new shares are being admitted today so we need to be using the 120M figure now when assessing the market cap vs book value, etc.

That being said, adding £80M to share capital at H1 23 (plus 20M shares) gives a new book value per share of 728p. So any sign of profits and cashflow and the current 50% discount will evaporate quickly.

@Skeletor - fair point re: the incremental costs for the new financing. Suspect that much of the raise will be used on this, but I think it’s difficult to overstate how important the new funding is to the overall turnaround strategy. Perhaps the thinking was to raise the equity to allow the company to refinance without impacting short term cash flow? Would certainly make sense if so and I can see why the major investors would be on board with it.

Re: my thoughts on the profitability of the business and free cash generation. I do believe they will generate positive FCF in H2, if nothing else but from running down their inventory position to more historic levels. They reduced their intake for summer so this will naturally lead to a cash inflow for the period.

The key thing going forward is to maintain that lower inventory position and increase their stock turnover. Inventory days were something like 170 at H1 23, when in FYE20 it was around 115 days. This is a major difference in efficiency and if they can improve this it will go a long way to reversing their fortunes.

I could absolutely be wrong and they could make a meal of it, but I’m willing to take the risk and think the upside potential is significant if they get things right.

I have to say, reading this board today has been an experience… people running around like the sky is falling and the business is on the verge of bankruptcy. Calling for management to go, etc.

What we do have here is a £3.5bn turnover business that is going through a necessary reorganisation during a difficult trading period. This is not a quick process and it’s going to take another 6-9 months before the full benefits are realised. However, they have the right plan IMO (reducing inventory levels & improving stock turn, rationalising the warehouse network, cutting overhead costs, focusing on unprofitable customers/returns) and I’m confident of a return to profit and cash generation in H2.

What has changed since last week at 460p? The company now has £80M more cash and 20M more shares, they have funding support until 2026, and the Chairman and CEO have just bought a bunch of stock (albeit a fairly token purchase). Seems like progress to me but each to their own.

All these people moaning about the current share price need to stop watching the daily gyrations of the stock. This is going to be a volatile journey until cashflow turns positive, and if you don’t have the stomach for it then you might need to invest elsewhere.

Likewise - I'm sitting with a 433p average and happy to hold long term on this.

Glad they've got the raise out of the way and obtained a longer term funding solution. Not much else to do except wait for the next trading update (June/July) and then H2 results in October. If they can show a positive EBIT and are cash generative in the second half, then the SP will move north at a rapid pace.

Interesting to see the RNS tonight and I have to say it removes many of the near term risks from the shares. They’ve refinanced all of the short term debt out to 2026 which provides a huge amount of flexibility in terms of the restructuring. Yes it’s more expensive, but rather pay a bit of extra interest than have a liquidity cliff coming up next year. Very positive in my view and it positions the business well for future growth.

I must admit, I didn’t expect a raise and thought they might muddle through via a reduction in inventory, but good to get some certainty now and focus on the rebuild.

Who knows what tomorrow will bring, but I’m very bullish on the long term. Cashflow is key and this has removed much of the uncertainty which has been weighing on the shares.

Agree with James on this one. Second half results are key and I do believe they will be cash generative for the period. From their guidance, they are forecasting a net cash inflow of £125M which will take their cash on hand to approximately £430M.

This is more than enough to repay the step down in the RCF; however I don’t see why the banks wouldn’t extend the facility if the business is back in profit.

Feels like the price will gradually work its way up to 600ish over the summer. There’ll be some sellers along the way, but I’m in for a long hold on this one. Can see £10 easy if they meet their forecasts for the second half.

Per the below, web traffic is up over 15% during March and April (when compared to Feb). Still right up there with the best and significantly higher than Boohoo.

https://www.similarweb.com/website/asos.com/#traffic

Great news from Citi and I think it’s a sensible take on the current situation. I hadn’t given much thought to deferring CAPEX but it makes sense if the business needs to preserve cash.

Also, good to see consumer confidence was up again in May. This is the fourth monthly improvement in a row and shows that consumers are feeling better about spending and their financial positions. Hopefully this flows through to improved revenues numbers in H2.

In my view, this is peak fear right now and I do think the business will achieve their guidance for the second half. If you read the wording carefully, they are being quite cautious and it seems like they’ve made some conservative assumptions with the forecast (continued sales decline, etc). Gross margin is already up c.300bps in March and April (YOY) which shows that the profit optimisation is working.

I still think they will show a P&L loss for the year, but if the business is cashflow positive in H2 the shares will rally strongly.

Some patience required but the risk/reward is compelling at these levels.

Agreed - things can get better and I think they’ve been quite accurate with their guidance recently. At the current share price, the market is pricing in further losses of £390M - which would bring the book value of equity down to match the current market cap.

Unless there’s some kind of economic disaster, I just can’t see that happening given the change initiatives already underway and the confidence in their guidance. Yes, the economy is slowing but the business is focusing on the right areas (profitability and stock efficiency). All of these measures will only make the company better once the economy improves and sales trend upwards again.

Happy with a long term hold at my 433p average, with the next trading update obviously being key. If they miss their guidance then I’ll reassess, but no point in making any rash decisions until then.

Nice reply from IR - thanks for sharing. It’s clear they don’t have immediate plans for a raise. Why dilute when you’re confident of being cash flow positive over the next six months?

Remember they’re already 2.5 months into the second half of the year, so they will have a reasonable idea about how they’re tracking vs forecasts.

Being able to pick this up for a 50% discount to book value is a no brainer for me. Any sign of positive cashflow and this will be back to £10+.

Lock this one away and forget about it for the summer I think.

Likewise - picked up £5k worth at 468p and already thinking about adding a bunch more. Lots of noise floating around but I can't see a raise in the short term - they're forecasting a net cash inflow of £150M in the second half and they had cash on hand of £308M at 28.02.23.

Yes the RCF is drawn to £250M and steps down to £220M in August next year, but that's only £30M that they need to find to meet that target. Plus, you would expect the lenders to extend for a further term if the business is back in profit - so the residual amount can be rolled in need.

Utimately, this is all about whether the business can achieve it's second half guidance and demonstrate the path back to profitability. If they do then the share price will be in for a major re-rate.

Agreed and that's a good idea - I'll send her a note today.

A bit of clarity on the future strategy is all the share really needs. The company has options here and we just need to understand what their proposed investment outlook is (domestic vs international). They will have the balance sheet next year to contemplate various acquisitions, so I wouldn't be suprised if they bolt on an international player to mitigate the WFT.

Exactly and this will definitely bounce back.

At the end of the day, the board and senior management are not going to sit on their hands and just pay 75% in tax. No sane businessperson would ever do that.

They will use every lever possible to reduce their tax bill and I’ve got no doubt that top tier accountants will be hired to assist with this. Also, don’t be surprised if the business looks for a foreign M&A transaction to diversify revenue away from the UK.

The company isn’t dead by any means. They just need to fully understand the levy and find out ways to work with it to mitigate its effects on profits/cashflow - an obvious one being the tax incentives regarding investment in UK assets and net zero initiatives.

Agreed - it won't stay down here for long.

With the initial 25% WFT the SP traded up to 500p, so another 10% should not take it down this far. Massively oversold in my view and I just noticed that the FYE22 figures won't be affected by the higher rate. So the forecasts from the November update still stand (FCF of $2-2.2bn after cash tax but pre-distributions).

Will be interesting to see the full year NPAT figures so the market can finally run some P/E numbers. If they can double their first half profit then I expect EPS of £1.94 - which equates to a P/E of 1.62 at the current share price.

So plenty of upside here for those who are patient.

I'm back in this morning for 4,000 shares at 334p. Have to say I didn't think I would have another crack at HBR sub 350p, but here we are.

I did some quick maths on the impact of the WFT for this financial year which is based on Harbour's November update (https://www.harbourenergy.com/news-and-media/latest-news/2022/trading-update-nov-2022).

Basically, the company was forecasting FCF of $2-2.2bn after $700m of cash tax payments. $400m of this was related to the existing windfall tax - so if you reverse engineer this at 25% and then recalculate the WFT for 35%, then the tax payment will be $560m. This obviously assumes all things are equal.

So it's not a material increase from what was already in place, but clearly the extra two years will add an unwanted cash burden on the business longer term.

Regardless, I'm bullish at my current average and happy with a circa 5.4% dividend yield. Think I'll keep these for the long term as an anchor in the portfolio.

I'm genuinely concerned for Rolls - those results are not pretty and the balance sheet has deteriorated further. You're currently looking at negative equity to the tune of £6.2bn....

The sale of ITP basically gets the company back to where they were 12 months ago and the business just can't seem to turn a profit, even with flying hours starting to get back up there.

Respect to those buying today and I hope you do well - you've got bigger balls than me!!