Member Info for ggplyr

Is a 5% price increase really going to be an issue? Greggs peers are going to have the same pressures to increase prices.

Whats the alternatives for price sensitive customers? They could make food at home, or get something cheaper than greggs? Super market meal deal?

Perhaps customers who favour more expensive on the go food will turn to greggs.

I don't see how this needed a broker downgrade to point out the impact on the NI changes. The maths is pretty simple.

Queues outside shops- let's ask Greggs if they can include queues outside shops as a kpi in the future.

Re home bargains, I took a sample of the the first three that popped into my head. You are of course welcome to calculate for home bargains if you have have any interest.

Good morning joker

Financial modelling & company valuation is full of assumptions. Where we have information to challenge them we should, and it makes for an improved model.

I've had a look at the payment terms - I have used the formula= trade creditors/cost of sales x 365, for their most recent reporting period, and prior period respectively.

B&M 40.2 days, 42.6 days

Morrisons 59.6 days, 60.1 days

Asda 54.6 days, 58.9 days

Supreme do have an invoice discounting facility, it paid £147k in the most recent financial year to not use it. It has facilities of £20m. They don't state the rate, but lets hope its a lot less than 1-5% as you state. 1% for a week early for example, has an effective interest rate of 53%. A 5% rate for a week early - you might even find a cheaper loan shark.

Noted on elf, although this will obviously be an additional duty.

Normally the larger the retailer, the worse the payment terms for the suppliers, unless they are going after ESG points and looking to be a good "citizen". I'll take a look at the annual reports of B&M, Asda & Morrisons as a few examples to see what their payment terms are.

There is perhaps some working capital management that supreme can do.

If orders come in on the last day or two of the month, they maybe able to delay shipment to the retailer until the 1st of the next month, this would duty payment by 28-29 days.

For customers which Supreme have good long relationships with maybe B&M, they could discuss change of payment terms for vaping products, it wouldn't be unreasonable. Left unchecked B&M actually get a cash flow boost (or reduction in working capital requirement) because they pay on credit (30, 60, 90 days later, tbc) but turn over vape stock and get the cash from the end customer in a week or two, depending on how many weeks of stock they hold. I suspect some retailers wont even give any thought to changing payment terms, it will be a no.

The Vape tax comes into effect in 2 years time. Supreme, will have to make payments to HMRC for all liquid shipped (not yet invoiced) to retailers by the 14th of the month following the month it left Supreme’s warehouse. This works out to be 29 creditor days.

Supreme receive payment from customers on average 60 days after they ship their goods (trade & other debtors/ sales) x 365 comes to approx. 60 debtor days.

Therefore they require cash to be tied up in working capital for 31 days. The value of this cash can be calculated by the formula:

Bottles produced in a year x £2.20 (duty) x £1.2. 88Vape so 77m bottles a year so total tax collected in a year = £200m.

At any point they must pay 31 days’ worth before supreme receive the cash, this is £17m. This, in my opinion, is a floor, if any large customer delays payment for a week or two there will be more cash.

Similarly, if supreme import any liquid, they have to pay the duty on the liquid. So elfbar and lost mary are imported (in a pod based system). Supreme have to pay the duty before they receive the cash from the retailer.

This investment in working capital is a necessity to continue the vape business. It is not income generating, it comes with a cost of capital and an opportunity cost.

As ever I welcome your comments and challenges.

Hi Joker,

To clarify, the £17m was only a part of the calculation & still the minimum working capital requirement in my opinion.

the £60m was worst case, and assumed Supreme don't get the "duty suspension account" status, which, now i do think is pretty low. albeit not zero.

The £17m back of the Vape packet (see what i did there), really isn't going to be too far away, it will likely be more.

Investor presentation is on the 26th, ill be sure to ask the question what is the additional working capital requirement of supreme due to difference between when the tax is due and when Supreme receive payment from retailers.

I take your point on the cash generation over the next couple of years. But they do need to start building up that buffer, and means the vaping business creates less profit per £ of investment that before.

Do you agree that investment in working capital and elfbar and lost mary increased profit, whereas the investment required in working capital for the tax decrease profit?

Its like saying right now you if you give me £100 ill give you £35 a year, and if you want to end the relationship you get your £100 back and keep your £35 per year. - This was the elf bar & lost Mary distribution proposition.

Where as for tax situation- its like saying, you have already given me £100 to get £35 a year, but now you need to give me another £25 and you will only get £30 a year.

you need to find that £25 from somewhere which could have been put to better use on further acquisitions.

Happy to start a new post with a new title, but your suggestion is a tad too long. let me think....

Hi joke.

If you believe my calculations are inaccurate please do correct. I'm always keen to learn.

As for my headline figure, happy to revisit if you can find a flaw in my calculations so far.

I feel the calculators are pretty fundamental.

Hi joker,

Thanks for your message, always interesting to see others points of view.

Working capital isn't self financing, working capital = stock + receivables less - payables, and normally its reasonably linearly related to revenue.

Elfbar and lost mary was profit enhancing, so the extra £15 million of working capital provided a return on equity (or working capital). The return on equity was actually very good. profit of circa 7/8m per year for a capital investment of 15m.

They did say they got the elfbar working captital in part by reducing stock in other areas of the business, but you can't keep doing this. all that really meant was they held too much stock elsewhere.

The tax is not doing anything to increase profit, potentially the opposite, so it requires a minimum of £17m (probably more) to achieve the same profit before interest.

The facilities are not free, if they use them, they pay for them at 2.35% above sonia (so around 7% at the moment).

The result of just this 17m is interest expense of £1.2m and it takes £17m more working capital to achieve this.

Again, the £17m is the absolute floor or extra working capital required by my analysis.

Hi Joker, only if it qualifies for duty suspense. which maybe it will, maybe it wont.

Thinking about it some more it probably will, given if the largest player in the market by volume doesn't qualify, then who does?

Lets assume it does qualify.

Trade receivable days are 60, duty payable days would be 29. Total duty liability for just 88vape is circa 200m (they do 77m bottles a year which is 77m x £2.20 + VAT.

That means the working capital requirement is at an absolute minimum £220m x ( 60- 29 days )/365 = £17million

Regarding your comment "Supreme’s financials you can see it has always been and still is highly cash generative"-

yes it has, but the landscape has totally changed for vaping. Supreme sell a product that cost them 40pence to make, they get 65pence of revenue, so 25pence of profit, but they are liable to pay over 2.84 in taxes 30 days before they receive it.

If a large customer then pays a week or two late this could add another £1m onto the working capital requirement easily.

Note that the duty on imports (elfbar and lost mary) dont have a suspense account from what i can tell. so supreme have to pay this if they want to get the products off the ship.

Bad news. We need £60m more cash, possibly through a future equity placing.

The government expects the vaping tax to raise £525m per year, plus VAT, totalling £630m. 88Vape has one-third of the vaping volume, meaning they will collect £200m in extra tax annually.

If all Elfbar and Lost Mary users switch to their pod-based system, which looks identical, Supreme will also collect the extra tax on this. That’s another £80m, bringing the total extra duty Supreme collects to £280m.

This doesn’t sound bad until you read when they have to pay the duty… sit down.

“2.29 Rules covering liability to duty on vaping products will operate similarly to rules covering other excise duties. Vaping products that fall within scope will become chargeable with excise duty at the point of their manufacture in, or importation into, the UK.”*

They have to pay the tax when the Manufature or import

Supreme’s customers take 60 days to pay, and they hold at least 15 days’ worth of stock. This means they have to pay this tax 75 days before getting paid for it. 75/365 x £280m = £58m of extra working capital… that’s nearly its market cap!

If they can manage to get that debt financed, it will cost £4-5m at their rates (2.35% above SONIA). But its possible that it would need equity.

* Vaping_Products_Duty_consultation_response.pdf

Https://healthmedia.blog.gov.uk/2024/11/05/the-tobacco-and-vapes-bill-what-you-need-to-know/

There was the risk that the government would stop people born after a certain age but vapes, but it looks like this is only going to be applied to tobacco.

Regarding "What's funny is that Plus500 claims customer trading will be a net neutral of 0 over time, however it's pretty clear from their numbers over the years that Plus500 has made money on customer trades."

I'm not sure there is enough data to say they will be on the winning side of customer trading, since 2018 they are indeed up 181m on customer income, this does include some wild swings though. in 2020 it was 125m dollar loss, 2019 was a 27.9m dollar loss.

We should be careful to draw a pattern from only a few data points.

Do they balance the spread depending on their exposure? E.g. if there was lots of money in favour of Nvida rising, do they reduce the spread on the sell side and increase it on the buy side of Nvidia?

B-book?

I was going to ask if you knew where 88nic are sold. Google wasn't helpful and the likes of b&m don't put it on the website

Here are my thoughts:

Current Costs

• 88Vape Liquid: A user consumes 3 bottles (10ml each) per week, costing £3.60 (at £1.20 per bottle).

• Smoking: An average smoker consuming 10 cigarettes a day spends about £55 per week. The cheapest brand in Tesco costs around £41.13 per week.

• Rolling Tobacco: Costs about 65% of the price of cigarettes, equating to £36 per week.

• 88Nic Pouches: £2.50 for 20 pouches, with moderate users consuming 3-6 pouches a day, costing between £2.62 and £5.25 per week.

Projected Costs in October 2026

• Vaping: £11.52 per week.

• Smoking: £60 per week.

• Rolling Tobacco: £39 per week.

• 88Nic Pouches: Remains between £2.62 and £5.25 per week.

Analysis

• Vaping Costs: Despite the price increase, vaping remains cheaper than smoking. Other brands might cost £15-£17 per week, still significantly less than smoking.

• Market Dynamics: Users may seek cheaper alternatives, potentially increasing 88Vape’s market share. Some users might switch to pouches being the cheapest, though they may not be as effective as vapes in mimicking the smoking experience.

• Price Sensitivity: The significant price increase from £1.20 to £3.84 per bottle might lead some vapers to consider quitting or switching back to smoking. Even more so for more expensive liquid brand could be in the region of £5.50/ 10ml. This isn’t far off the price of a cheap 10 pack of cigarettes which may have a psychological pull.

• Comparative Taxation: The UK’s vape tax is moderate compared to other countries. For example, Germany taxes e-liquids at €2 per 10ml, rising to €3.20 per 10ml by 2026. However, UK cigarette prices are among the highest in Europe, more than double that in Italy and Germany, making the vape tax relatively lower in proportion. Check out this: https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=17

Yes, they said on the last investor presentation they would manufacture in house if successful. At the moment though, the odds of success & the value of success aren't quantifiable. I'm not saying they wont do it, i just wouldn't bank on it yet.

If the pouch market grows at 20% for the next 7 years it will be the same value as the vape market, then we will probably see budget with tax added to it.

88Nic revenue and gross profit isn't material. If Vaping were outright banned tomorrow there is nothing to say that 88Nic would fill the void no more than Sci-Mx would come and fill the void.

88Nic is also a lower margin, currently supreme don't manufacture it themselves, if it does grow in popularity they will look to manufacture it.