Member Info for Deepvalue85

Hi Gary,

Could you breakdown your short thesis please?

I am genuinely interested in the other side of the bet.

Sheltie,

'Mr Market' is there to serve you, not to instruct you.

Hi Gary,

Have you run any valuation models that categorically eliminate a < £100m business valuation based on rational assumptions?

I would be careful with such strong conviction.

It is flawed logic to suggest that due to the current market cap being below £30m, the business can in no way be worth more than £100m. That is not me saying I think it is worth more, but you can run a model where that scenario plays out.

To quote Mark Twain "it ain't what you don't know that gets you in trouble. It's what you know for sure that just ain't so."

Hi toffers,

There is a concept in accounting called DEAD (expenses, assets, drawings) CLIC (liabilities, income, capital) It is used for debits and credits in determining what the 2 entries of the transaction fall under.

If the company takes a really straight forward loan out, it will hit both the asset side and liability side of the balance sheet.

So, in a simplified scenario, if they borrow money from hilco, it increases cash asset on balance sheet (debit), but also increases liability side of the balance sheet (credit). The cash is then available to use for the business however it is still a liability as it needs to be paid back over time.

This is really simplified. In the context of Hilvo, some of this is off balance sheet and is explained within the notes section of the annual report.

I hope this helps.

Hi Toffers,

Just a couple of points:

1) liquidity, In the context as referred to within the rns is likely finance liquidity. Meaning it is the ability or inability, depending on interpretation of certain measures, of a company to pay their debts when they are due. Basically, do they have enough liquid assets (normally cash and cash equivalents) to meet current liabilities debt due within one year? This liquidity may be in reference to the restructuring of lease liabilities.

The second part of the rns (ther other £10m), relates to working capital (trade receivables, inventory and trade payables). The company made reference to the possibility of clearing the majority of aged inventory by close of 2024. If they achieve that, I suspect that may be what this additional £10m may be required for. They will likely see an uptick in revenue expenditure for inventory (new stock that carries the new branding design etc) as we move through Q2/3 fy2024 as the aged inventory will be depleted and for the seasonal movements in inventory.

Just my general thoughts.

In a potential bid situation, why would the market value the business now at what it could potentially be bought for/is worth? That would imply just risk and no reward. The market is not stupid. If you look at pure merger arbitrage situations, you will find that even after the offer has been announced, the shares will still sell for a discount to that price. Even in that situation, the market still prices in the risk that the deal doesn't get completed.

Nobody can predict the market.

Good afternoon Simplyalpha,

Do you know whether the market maker would need to disclose, if they were accumulating shares on behalf of their client during the 'offer period'? Do you know where this answer can be found and what literature I would need to review?

Appreciate any input.

Thank you.

That was such a good investment for me. I remember waking up one morning and the company had gone up 150%. I remember buying them thinking this business is so cheap but at the time, I didn't even think about someone acquiring them.

I thought it was a very good business run by decent people.

I would focus more on clothing retailers for comparative analysis. That's just my opinion though.

Good morning Toffers,

The £180m was the value if you applied the p/nav of Ted Baker at time of sale to Superdry. It's an interesting result, however shouldn't be used in isolation.

In reality there are many differences between Ted Baker and Superdry, but it is an interesting hypothetical non the less.

Hypothetically, does it change what the company is worth?

I'm perplexed.

Why do you care who is shorting the company?

Hi Toffers,

I would suspect it had something to do with Julian Dunkerton leaving the company in 2018. That coupled with the decline in net margin, ebitda margin, decline in return on equity, decline in return on invested capital. Those would be my initial thoughts.

Remember enterprise value = market cap+debt-cash... so, the decline in the enterprise value (as quoted on sites like morning star), could be the market cap element of the equation. Hypothetically, if debt and cash remained the same (they most likely didn't but for simplicity sake) in the equation above, then it can only be market value that has declined for the other side of the equation to balance. I.E, enterprise value decline.

Just my thoughts and could be wrong.

Hi Toffers,

It's not a problem. I'm not easily offended.

One of the many reasons why I don't say what I think the company is worth is because I could be flat out wrong.

That made me chuckle.

You are partly right in that estimates are made about the company. Some valuation methods are based on the past, some are based on the future (estimates). That is why it is considered part art, part science.

However It doesn't mean that accountants can't value businesses. But I also don't believe you have to be an accountant to be a good investor. I would say having a basic understanding of accounting doesn't hurt though.

Hi Toffers,

Here is a simple way to value a business using a multiple, the p/e ratio.

If you have a business that is selling for £1 per share, and it earns 10 pence in earnings per share, the p/e multiple is 10 (10x10p = £1 per share).

If the company has a 1000 shares in issue, and the share price is £1 (as above), the market cap is £1000 (£1 per share x number of share in issue).

Now, the question is, is that a reasonable p/e ratio in this hypothetical scenario.... that is what the investor needs to figure out. There a similar company that has a p/e ratio of 20. Now, this might mean that the company with a p/e of 10 is a bargain. BUT, the company with a p/e of 20 might be twice as good a company than the one that has a p/e of 10.

The market cap is just what the market is saying the business is worth. However, this is a special situation as the company is now in a possible takeover situation. The market isn't stupid, it prices in the risk of the deal not going ahead, thus the inverse being the deal goes ahead.

The above scenario is just one valuation multiple approach. The trick is to find businesses say, for example using p/e example, that are selling for p/e ratio that is way below what it should be. How do you determine this? Well, one way to do it could be to look at other similar companies and see what multiple they sell for. Then assess the quality of all the businesses you are looking at to determine whether it is cheap.

The above is a very simplified approach to valuation. In reality, sophisticated investors review a wide range of multiples (relevant to the business industry), they look at debt ratios, they look at cash flows, they at working capital, they look for hidden value that isn't shown on the balance sheet.... the list goes on and on.

I hope this helpful.

Hi Toffers,

I don't think it's helpful for me to say what my valuations are for the business for several reasons.

What I will say, however, is that it is important to understand valuation when investing. I would learn everything there's is to know about valuation, and the techniques to derive them. I started out with simple multiples (p/e, p/b, p/nav etc). Once you are comfortable with these, you could then move on to more sophisticated models as dcf, ev/ebit. What is really important is understanding the financial statements of the company.

Ignore the above if you are a trader and you use technical analysis. That's not my bag.

Hi all,

There seems to be some confusion on here regarding valuation. Julian Dunkerton has notified the company he is seeking a potential cash offer. From my understanding, this means he wants to buy the balance of equity from all shareholders. Thus, it is the purchase equity value that equity holders should be concerned with. As shareholders, we are equity holders. Valuation is a complex practice. Cfa's will use a plethora of valuation models, such as dcf, comparative analysis and multiple based analysis.but essentially, if you are a shareholder, you an equity holder (basically you have a part ownership in a business). If a shareholder wants to buy the whole company, he needs to buy the balance of equity from the other owners/shareholders.

Purchase equity value and purchase enterprise value are two very different things.

Hi Toffers,

Thank you.

It seems highly probably that they are not acting in concert.

One thing I do have at the back of my mind is what happens should there be a mandatory offer... does that prevent other parties from bidding? Logic would suggest not but I am not 100% sure.

Hi Toffers,

I am reasonably sure that persons acting in concert, have to declare so during an offer period. There were some amendments to the takeover code in 2023. The requirements for concert disclosure are far more robust now. Do you have any information to the contrary? There could be certain conditions where these disclosure requirements are not applicable, through which I may be unaware of. Thanks.