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It does seem like a case of diworsification as per Peter Lynch. I don't know if the products are any good, will get the missus to try them. I might order the men's shower gel haha.
I agree though, it's a bit of a leap going from chocolate to cosmetics. If they had 3-4 really high quality products that all contain cacao that might have worked but they have done a whole range of stuff and a lot of it has nothing to do with cacao. Salt & Lemongrass Body Scrub... Why would anyone buy that from HOTC and not from the Body Shop?!
https://uk.finance.yahoo.com/news/hotel-chocolat-buys-beauty-company-072139366.html
Share buybacks are an option as well. There are plenty of companies that do both buybacks and dividends. I'm normally not a fan of buybacks, as most CEO decide to do that when they have too much money which usually coincides with market tops. In other words they overpay for the shares and destroy shareholder value.
In TW's current situation though, I feel the company is trading well below intrinsic value and buybacks would be good for shareholders. Might be bad optics politically though in light of the cladding scandal. I can already see the Guardian title - 'Property tycoons splash out on buybacks, cladding victims misery continues'.
I posted a similar comment on the TW board but wanted to share it here as well because I think it's relevant.
The US house builder shares have been going through the roof despite the price increases in lumber, etc.
Just look at the ITB Home Construction ETF:
https://finance.yahoo.com/quote/ITB/
It's basically 50% higher compared to pre-covid. Considering that the housing market in the UK seem pretty hot I'm not sure why we haven't seen the same price action in UK house builders. Perhaps people expect the market to cool down after the stamp duty holiday?! However, looking at Scotland which didn't extend it the market has stayed really busy.
So perhaps by the autumn people will wake up and realise that this is a real housing bull market and then price the house builder shares correctly. Looking at RDW, it's not even where it was pre-covid and the housing market is in a much better shape with Brexit behind us, people with savings in their pocket and looking to move due to the new WFH culture, and support from the government at least till September.
The stock is really undervalued IMO. I think at the very least we should get to the pre-covid share price before year-end and that's a 23% upside from here!
Spurs, actually that brings up an interesting point. The US house builder shares have been going through the roof despite the price increases in lumber, etc.
Just look at the ITB Home Construction ETF:
https://finance.yahoo.com/quote/ITB/
It's basically 50% higher compared to pre-covid. Considering that the housing market in the UK seem pretty hot I'm not sure why we haven't seen the same price action in UK house builders. Perhaps people expect the market to cool down after the stamp duty holiday?! However, looking at Scotland which didn't extend it the market has stayed really busy.
So perhaps by the autumn people will wake up and realise that this is a real housing bull market and then price the house builder shares correctly. I mean TW is not even where it was pre-covid and the housing market is in a much better shape with Brexit behind us, people with savings in their pocket and looking to move due to the new WFH culture, and support from the government at least till September.
The stock is really undervalued IMO. I think at the very least we should get to the pre-covid share price before year-end and that's a 25% upside from here!
Link to article:
https://www.retailgazette.co.uk/blog/2021/05/asos-mulls-takeover-of-feelunique-and-cult-beauty/
Hi sst1,
Those are great points! I think the statement on government website is either wrong or badly phrased. They say 'pay monthly interest fee of 1.75% of the equity loan'. I think translated from legal speak that means you pay 1.75% annually of the whole equity loan and you just pay that fee monthly.
My interpretation is confirmed by this more detailed explanation on the government website:
https://www.gov.uk/government/publications/help-to-buy-equity-loan-buyers-guide/homebuyers-guide-to-help-to-buy-equity-loan-2021-to-2023-accessible-version#understanding-your-interest-payments
So if you borrowed £40,000 you pay £58 per month in year 6, £61 in year 7, £64 in year 8 and so forth. Again, this should be manageable for most people.
Regarding the increase in the equity loan based on a potential increase in house prices, that's true of course. However, the extra equity you have in your home will allow you to re-mortgage and thus pay off part of the H2B.
In your example the H2B loan increased by $5k to £55k. At the same time the equity of the house increased by £25k to £275k. I'm not an expert on mortgages by any means but I think you can then go to the bank and use these £25k to pay off part of H2B. It has to be stair-cased in steps of 10% of the property value, so in this case you can pay 10% of £275k, that's £27.5k. So if you have £2.5 in cash and add the extra equity on the house you can pay off basically half of your H2B without moving a muscle!
I bought heavily today both ASC and BOO. Both have excellent earnings, lots of their competitors have gone bust, summer is coming and people will be buying clothes to go out. Oh and yes, travel is back
Apparently bookings in Portugal are up 250%. Surely people would like to have some new clothes while they create some new memories (or lack of) in Albufeira!
So my understanding is that the 2% + CPI interest is interest on the interest, if that makes sense. So it starts at 1.75% in year 6 and then if we assume 2% CPI that 4% on 1.75, this gives us 0.07%. That means in year 7 it will be 1.75 + 0.07 = 1.82%.
Here's a Which? article that does similar calculation (but they use RPI which I think was for the previous H2B):
https://www.which.co.uk/money/mortgages-and-property/first-time-buyers/help-to-buy/help-to-buy-equity-loans-apy312b7k0tu#headline_7
Whether it's a PR exercise or they've done it because it's the right thing to do we'll never know. However, as I've said before I feel Angus has integrity. He's not in it just for the money, he wants to make the customers happy, treat the employees well and now be fair to the taxpayers. Yes, now the company has £3m less but long term doing the right thing pays off.
I watched the Berkshire annual meeting 10 days ago and they interviewed the CEO's of the different businesses Berkshire owns. They asked one of them 'What's the most important thing you've learned from Warren?'. The guy answered with one word: 'Integrity'!
I have to disagree on the 'hefty interest charges' after year 5 for HTB. Looking at the numbers the interest rate starts at 1.75% in year 6 and then it increases by CPI + 2%. If we assume CPI equal to the BOE target of 2% we get 1.82%, 1.89%, 1.97% and 2.05% in year 10. 2% interest rate is still very low and by year 10 most people will be able to cover the HTB by mortgaging and/or would have saved enough cash to pay off part of it (10%, 20%, etc.). Or a combination of the two.
The way I see it, if inflation is high, house prices will go up so it will be easy to re-mortgage. If house prices don't go up much, probably inflation will be low as well so HTB will be manageable.
My local one at Brent Cross doesn't seem too busy but there are always people in there. Last time I was there few weeks ago I picked up my delivery from the shop. As a value investor I'm a cheapskate and didn't want to pay for the delivery for my half priced chocs from Valentines day haha.
Anyway, staff were super helpful. The box was too big to fit into one of their bags (don't judge!) so they opened it for me and transferred all the chocs into the bag. I decided to treat myself to a brownie and the staff asked me about my VIP card so that I can get a discount. Unfortunately, I had forgotten it at home but they said oh download the app for next time!
So in summary, 5 star experience, friendly and helpful staff, thanks to them now I have the app on my phone... Oh and the brownie was delicious as are the shares at these prices!
Yes, I've used this opportunity to pick up a few more shares. Unfortunately, I don't have too much dry powder.
I think on this board we discussed that we expect to see 25% growth over the next 5 years. It turns out that our estimation aligns with the that of the BOO management and the latest set of results. It was always unrealistic to expect the 41% increase from last year to continue. True some analysts expected 29% (Yahoo) but others expected 22% (SimplyWallStreet).
On that note, with the latest EPS and 25% growth the company is 96% undervalued based on my valuation. That's right folks, you can double your money here, or if things go wrong you won't lose much.
Which brings me on what's been going wrong and the EGS issues. It'd be great to see that sorted. However, in order for the share price to reach intrinsic value we don't need virtue signalling fund managers with questionable morals to be falling over themselves to buy BOO shares. There are other ways for the stock to go up. The company could buy its own shares or someone will eventually take them over if the undervaluation persists.
Millsy, I totally agree. I looked at all of the house builders and those are the two I ended up buying. Great companies and both undervalued. So far I've done better with RDW than TW but it's still early days for me.
Okay folks, I'm in! It took me a whole week of limit orders to get a 2% position but I'm quite happy that I've managed to enter. I might add a bit more next week.
I've done a bit more due diligence and like the company even more. Obviously the product is amazing but I especially like their emphasis on using more cocoa and less sugar. Also the CEO seems to be exactly the type of CEO I like. A co-founder who loves what he does and sees the company as his baby and wants to see it succeed just because of that. Obviously it helps that he has lots of his own money in HOTC shares so his interests are aligned with shareholders. In addition, Angus always underlines the importance of all stakeholders, not just the shareholders. A company that has the interest of its customers and employees at heart usually makes good products that make it successful.
The balance sheet is solid despite the extra debt they took on during Covid. EPS, FCF and ROIC are good and increasing, except for 2020 due to Covid. The big question mark is whether their expansion in Japan, the US and Denmark will be successful but as I see it the chocolate is so good, people are going to love it!
There's nothing here that's a red flag for me. Everything seems fine except for the low liquidity of course. That's probably the only reason why I won't make this a major position. I don't want a big portion of my portfolio to be locked away.
Also I wish the price was lower but as Buffett says "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".