Member Info for Hexam

I keep reading that this was a low interest debt but I don't think it was really. Yes, the interest rate is only 1% but that's because the bonds are convertible so the bondholders received 1% p.a. interest PLUS what looked at the time a very tasty conversion option. If it had been just a straight loan then I'm sure the rate would have been much higher. On MARA's side they received nearly $750m that they probably didn't expect to have to pay back, instead just having to issue 10m new shares after five years. Now the goalposts have moved and whilst they are still benefitting from the low interest rate there is a more than reasonable chance that they will have to stump up the money as opposed to the much less painful issuing of shares.

So I still think this is a sensible move - but then again I suppose that may just be because I've never been in club routinely forecasting $100k+++ BTC...

Will be interesting to see how the sp moves tomorrow.

"Just on COGS, the percentage was 50% cost of sales last year"

This partly where I'm struggling as total cost of sales in H1 last year was £419m so I can't see how you are getting COGS of £480m as a starting point for COGS in H1 this year or even if you are saying COGS equals Cost of Sales or is a subset (50%?) of Cost of Sales - or do you mean that they are the same thing and Cost of Sales (or COGS) is 50% of revenue? This last one makes more sense to me given the numbers but doesn't square with the line "COGS 2022 made up 50% of cost of sales" which clearly suggests that COGS is a subset of total cost of sales rather than just a different way of saying the same thing. Or are you actually calling revenue 'cost of sales' - which would be really confusing!

I think you are saying that Drapers via their 25/10/10 are suggesting a 35% drop in part of this amount due to savings in transit (but how much of it?) but then you say this is supported by a 50% drop in cotton but do you mean on top of transit savings rather than supported by them (as cotton is obviously a material cost not a transit cost)?

Having typed this I think it may be the terminology you are using which is throwing me but in any event it would be good to know what your starting figure is for the £480m. Cost of sales H1 2023 (£419m), Cost of Sales FY23 (£873m), Revenue H1 2023 (£882m) or Revenue FY 2023 (£1982m). I can't get £480m from any of these so maybe it was from a different number in the presentation?

Sorry for being a pain (and boring to everybody else) but just trying to understand where your numbers come from and what you mean by COGS and 'Cost of Sales' in particular - as the savings you are suggesting are big so would be good to understand them and to see the light. Even I might then become bullish...

Thanks Oke though I confess I'm still confused by your numbers including what exactly the £480m represents and how you got to it, and precisely which of the many percentage savings you quote you are applying to it - or to other numbers. To me its still lots of parts and numbers flying around but maybe it will make more sense to me when I listen to the call (I don't subscribe to marketscreener so can't take advantage of that I'm afraid).

I just think our brains work in different ways so we lay things out differently. I'm not saying I disagree with what you are saying but just that I can't understand it enough to decide. I'll try to look at it properly later though when I've got more time.

Or I could just wait until October 3rd when the numbers hopefully prove you right :-)

@chuz - It's difficult as there are lots of moving parts/factors. I agree that would expect the sp to go above $16 at some point over the next three years but there is the risk it doesn't or that it drops much more before it rises. (I think it dipped to under $4 not so long ago)?

The closer it gets to 2026 the closer the bondholders would want the value of shares to be to the full $417m and the higher the sp the more the conversion option comes into play and so the more bondholders again would want more to compensate for giving this potential benefit up.

Overall I would still expect existing shareholders to get a 'better deal' if the sp rose by a reasonable amount quite soon (including by going down the raise route instead that you suggest and paying off the bonds in 2026) but not in proportion to the rise in sp. Just how much better who knows? Certainly not me but unless there is some smoking gun we don't know about forcing MARA's hand then would assume both sides are happy with the deal considering the potential risks and their own respective outlooks.

Not sure I got that across very well but it is complex and I don't fully get it but I know it's not as simple as just saying we are being shafted. Clearly that's what the market thought though - but gut feel says on balance I'm still happy they've done a deal now, and on these terms, rather than wait for a potentially better sp to start from (especially as I'm not sure just how much that helps anyway).

Yes Reardon but Oke has tried to quantify it and suggested the impact may be much more than BOO are suggesting in their forecast EBITDA margin.

I haven’t watched the video but presume it doesn’t give actual amounts of savings?

"The point being we had a one off 35% reduction in transit"

I get that Oke - I'm just not sure how big a saving this really creates as presumably at best it just gets those costs back to where they were before the big hike in such costs and this 35% (if it's true) relates to a much, much smaller figure than the full COGS. Otherwise, as you say, it's a nuts number and surely too good to be true?

PS - not sure what your £480m represents?

*45-49% COGS (not distribution)

Hi Oke, the bit I'm not sure about is how much do goods in transit costs impact margin even if they do fall by 35% (I presume you got % this from the video presentation)?

I ask because I was looking at the distribution costs as a percentage of revenue and this has varied relatively little in the past seven years (ranged from 45-49%) including when those costs shot up dramatically. So at most I would have thought they would have had a 2-3% impact. This would still be pretty healthy of course and with possible cotton and distribution savings too on top. Equally though other costs are likely to have risen (admin expenses for example have been climbing steadily and I imagine wage inflation is hitting all costs). They are also predicting a fall in revenue so any fixed costs will bite harder.

Also given how little the costs have moved as % revenue suggests to me they are actively passing on at least some costs (or savings) to consumers.

I can see what you are trying to do with this bottom-up approach but I think this is very hard to do without knowing all the elements and their relative importance. BOO do know these things which is why I lean more towards their estimates - though do hope you're right!

Alex - It's clear you are not reading my posts properly. It should have been obvious that I was responding to SCB not to you (I was answering his question and referring to you in the third person) and it was him who yesterday (and today) said that he has nearly 300,000 shares now. How many shares you have is none of my business.

As to RR you are totally missing my point (again) so I'll give up trying to explain. I agree with you though on the psychological point you make but tbf I can imagine any sp doing anything. So I can imagine BOO going to 400p if the business significantly outperforms my own expectations and I can imagine it going to zero if they crash and burn (as many businesses do). I just don't think they will go bust or climb to the sort of levels of profitability that I think are necessary to get back to £4 - even with a fair dollop of FOMO driving the price too.

As to nobody imagining the share price going from 420 to 32 well...that's pretty much what Pedro did - and said so. Not that he got much love for it (because it was others that lacked the imagination)!

Which is easier? Close call I’d say but would also point out that back then growth was 40% a year not 10%.

Having said that if you believe that BOO can get to £200-400m a year profit before tax then good for you and the sp will certainly be £2 plus. You have your reasons for believing it can reach that level of profit and that’s fair enough. I think that is a challenge too far to reach that level of profits but that is just a difference of opinion.

Alex though is using an inappropriate example to support his view. If BOO was in the same sort of state RR was then it would be priced at well under 10p i.e. it would have a negative NAV and the sp would reflect real chance of folding.

Then the comparison would be much more appropriate but BOO is not in that position so it’s not.

I don’t have nearly 300,000 shares like you so can understand you being much more bullish than me.

“Hexam … but Rolls Royce is different? Well that’s a statement of the obvious. I could have used numerous examples of condemned companies that bounced back strongly … over many many decades.”

My whole point was that BOO ISN’T condemned so isn’t like RR or every other one of the numerous examples you rightly say you could have quoted. They all would have been inappropriate comparisons to use and so utterly pointless.

“If Boohoo followed a similar trajectory it would be at £2.00? But of course … that’s just impossible, isn’t it?”

Certainly not impossible but I would say very unlikely. RR’s and BOO’s situations are very different.

RRs losses are massive and its debts huge and its very existence was under serious threat so I’m sure there were plenty saying it was going to zero - and they could well have been proven right. But yes, the narrative has now changed and things do look a lot brighter (and more secure). Like any stock that gets close to the edge but appears to turn the corner the returns can be spectacular.

Is anybody seriously suggesting BOO is going bust though? Unlike RR its balance sheet is strong and losses are not eye-watering. Instead its challenges are more prosaic in getting back to growth and improving margins. If it can do that by enough then a six-fold increase might be achieved but I would suggest this path to sp growth is a lot more difficult than for a company that has (seemingly) come back from the brink.

Btw I don’t think RR is quite out of the woods yet and don’t share the view that it is going to ‘rocket’ from here - and I say that as a RR holder who has very much enjoyed the ride up so far. I think too many are getting carried away with FOMO just as with BOO too many (in the market, not this board) are seeing too much gloom and still think the knife might have further to fall. Sentiment should change though with a solid update or two.

*21m extra shares (not 16m) as they would only have had to issue around 5.5m million new shares had the sp hit $76 (not 10m). Apologies.

Still looks a prudent move in my view though.

HC - my reading is somewhat different. What appears to me to be happening is that current bondholders are writing-off $417m debt in return for 26.2m shares (worth about $300m at c.$11). There are no investors taking on debt - it is debt being written off. And it doesn't seem crazy to me that they are writing off $417m of debt for just $300m worth of shares. Clearly there is much less confidence now that the $76 conversion price will be hit by 2026 (the sp of around $11 before this news compares to the $55 share price when the convertible loan was issued) and so this element has little value probably in their eyes. Instead they are just getting 1% interest when current interest rates are much higher than this - so in present value terms the loan being foregone is worth a lot less than $417m. Is $300m fair value? I'm not sure but it presumably won't be far off given that both MARA and the lenders are willing to strike a deal at this level and neither side appear to NEED to make the deal.

What do MARA get out of it? Well, they don't have to pay out $417m in cash in 3 years time and instead have to pay out no cash out at all which can instead be used for growth now. They have though issued 26.2m shares which is a lot higher than the 10m they would only have had to issue if the sp had reached $76. So potentially 16m extra shares issued versus the potential to need to pay out $417m cash in three years time (plus $12m or so interest in the meantime). Personally I can see why they've done this especially with the sp at $11 and needing to rise about seven-fold to avoid needing to pay the loan in cash.

So on balance I quite like this - but just my view. Besides if the sp does reach close to $76 then I won't be too worried about sharing that with 16m more shares!

Think I've got my numbers right but if anyone spots anything wrong - or a flaw in my logic - then please shout (preferably before I possibly buy some more MARA on Monday)!

Hi Oke, I'm about to go out so can't look at in detail now. On first glance though I don't think working cap will go down and also that I thought the target EBITDA for this year was 4 to 4.5% not 4 to 6% but haven't got time to check.

So I'd be surprised if they report neutral cash flow at H1, or a 5.5 to 6% margin (as would assume we would have issued an update ahead of the results highlighting such a big increase in expected margin).

Cheers Diceman, tbf to Savage we've had plenty on this board banging on about debt and not always with the best of intentions so maybe just a little frustration showed. From my experience he is a decent poster and not a 'rabid ramper' - thankfully I think we only have one of those on this board.

Thanks Savage, though just to point out that profits are reported after lease payments but not after repayments of bank debt (which don't impact the profit line at all - it's just a cash flow item). I'm not sure if that's what you meant - apologies if you did - and agree with your sentiment.

Also the figure for lease payments deducted in profits is not the same as the actual amount of lease payments that appears in the cash flow (due to accounting treatment) but the principle is the same.

"For me the biggest issue with Tui now is their net debt. It was great to see in the latest results that net debt improved from €3.31bn to €2.17bn. However when you measure that against a market cap of €2.71bn there is still a massive amount of debt to clear going forwards...."

Out of that €2.17bn net debt €2.92bn was in respect of lease liabilities which is not actually debt at all. It represents the value of future lease payments on planes etc. that are currently leased, not a lump sum debt that they need to clear. These payments are made out of cash flow and as long as cash flow remains positive it means that these lease payments are being fully paid and money is left over to do with as they please (including paying off 'real' debt).

They will keep renewing leases, or taking out new leases, for planes etc. so this element will NEVER go to zero. That's normal and to be expected, just as companies rarely operate on zero 'real' debt either, especially travel companies where the cash flow is so seasonal.

If you take away the lease liabilities they are actually in a net cash position. So although other things do concern me about TUI the debt position is certainly not one of them. It was before but the latest (and painful) RI has taken care of that.

"IF … Boo announce FCF neutral and an increase of EBITDA margin the market will like"

Agreed Oke they will, though I'm less optimistic about H1 than you are as I think it's a bigger 'IF'. Hopefully you're right though, not me. In any event I think the commentary will be more interesting than the numbers for H1 and think that H2 will show more of an improvement as some of the things you talk about have a bigger impact.

Nice to see some sensible posts for a change Kachrafilter on a board that is not exactly swimming in them.

I think you've summed it up very nicely whilst others that continue whingeing about MMs and market manipulation are lost in a sea of make-believe, ignorance and denial.

I think things will turnaround but the responsibility for that lies squarely with the company (not MMs), in particular with the news that they put out and the numbers that they report. If these improve then so will the share price. Hopefully soon.