Member Info for Hexam

Fair enough Patience, I tried. If you are determined to go into this blind that’s your business.

But please do not be so arrogant as to think that you are fighting for me or in my name. However useless I may be if there is a battle to be fought and worth fighting I am happy to fight it myself.

I don’t know what you do for a living but if someone rocked up and tried to do what you do with little or no experience and were making a hash of a it would you just sit idly by and watch?

I’ve pointed out some things you got wrong and better avenues you might try but it seems wasted so you’ll be pleased to know I’ll stop.

@Patience - I suspect I'm one of the 'you know who' but if you said you wanted to travel across the Antarctic in jeans and a t-shirt with just a couple of protein bars in your pocket would you rather have people cheering you on because you're showing tremendous pluck or would you rather have someone saying that it's actually not a terribly good idea and that you may want to do things a little differently - or not all?

I don't expect you to believe me when I say I know how to value companies and have done it many times in the real world in my job and if I listed my qualifications and experience I would not only be disbelieved but would probably sound like a proper kn0b - and rightly so, if I don't already :-)

But what I would urge you to do is to speak to someone who you know and trust that does understand business financials well, be it professionally or a friend if you have one with lots of experience in that field. At the moment most of the arguments you (and others) have put into the letters are very easy to dismiss as they either don't make sense, are plain wrong or are irrelevant.

It's easy to get carried away when you're getting praised and slapped on the back from all sides but taking a step back and getting proper advice is simply a sensible thing to do given what you are so bravely taking on.

I know others, and maybe even you, will just dismiss me as a liar and a 'short' or whatever but I am a LTH and my motivation is simply like anybody who sees somebody else inexperienced get themselves in a tangle when trying to do the sort of things that they've spent a lifetime doing themselves. Like an electrician or plumber who sees someone struggling with wiring or pipes. So please, get some extra layers on and take some proper supplies before you step into the cold, harsh environment of the court - if that's what you are still determined to do.

ATB - and I genuinely mean that :)

Where are your numbers coming from? CINE are not raking in the cash at the moment - legal fees or no legal fees.

Because CINE is not making money at the moment (not sure where your FCF figure comes from) and though it probably will be profitable soon it won’t be by enough to make serious inroads into its debt mountain let alone pay it all off within 10 years.

If they were capable of doing that (or even close to doing it) we wouldn’t be in this mess.

All credit for getting somewhere with this but must admit I disagree with just about everything put forward in docket 1731.

For starters the Enterprise Value of Regal was $5.8bn not $3.6bn (that was simply the cash paid). Having said that it is inappropriate as a benchmark for the value now as the world has changed since then and the outlook for future profits much lower (plus there is the question whether CINE overpaid for Regal in the first place). Also interest rates are much higher so the present value of any future profits is much less.

Contrary to what is suggested, PJT DID do a forward looking analysis based on box office recovery (with future revenue over $4bn p.a.) and with future profits expected of around $200m p.a. so a value of $3bn (a 15x multiple) is surely not unreasonable? Revenue may be $4bn but valuations are based on profits not revenue and only 5% of that revenue converts to profit.

I don't think it wise to question PJT's competence in performing the valuation, especially as the methodology is pretty standard and straightforward (just projecting cash flows and discounting them). It is the assumptions used that will really drive the value and these are largely provided by CINE. So unless the 'independent valuer' is going to come up with their own view of future revenues and cost and disregard what CINE think then the answer will be much the same.

If you're really going to go to court and argue against the current valuation then I think you need much better arguments than the ones you have put forward so far and I don't think they exist - other than if you believe CINE have been too cautious with their projections (in Exhibit C of docket 1604) and can articulate why.

Even if you could justify a higher valuation though, I don't see what difference it makes? A valuation on paper of over $6bn is meaningless if nobody is actually willing to pay that.

“especially after management miraculously improved the business’ financial position during a cost-of-living crisis.”

There was no miracle - they improved their net cash/debt position by simply reducing their inventory by £100m. They are not really in any better financial position than a year ago (look at all the other indicators rather than just picking one) but then again wouldn’t expect them to be.

So I agree the results were generally better than expected - but there was no miracle.

Not sure why you think it is market manipulation at all. Any actual evidence?

One thing for sure is that it is not an issue with AIM. Cine is LSE main market.

Hi Oke,

I must admit I'm still a bit confused by your reply on EBITA. It sounds from the rest of your note that you are after all excluding depreciation which would be correct for what you are trying to do i.e. to look at at 'normal' cash flow and then deduct capex and finance costs.

So using EBITDA i.e. earnings before taking off interest, tax, depreciation and amortisation is appropriate as well as being consistent with the measure used by BOO.

Whilst I personally don't like EBITDA it can be useful if used correctly which you are, even if you seem to be calling it something else - mind you, it doesn't matter if you call it ARTHUR, DORIS or C-3PO so long as the numbers you use are appropriate!

As to whether what you actually saying is right, I don't disagree particularly with any of the numbers you have used - I just come back to the fact that BOO aren't saying the same thing themselves and are expecting negative FCF. Perhaps as you have suggested though, they are just being cautious.

Oke - I think it is arguable that Boo is still a 'growing business' now - though if they can get to the double-digit growth they are aiming for that may be different. We all have our preference for measures. I just don't like EBITDA (btw why do you keep missing out the 'D')? It's not so much that it isn't useful but because it is so often misused as being equivalent to profits (which it isn't as it misses out a lot of things) or cash flow (which it isn't as it misses out a lot other things - notably capex).

As to 10x being conservative your own numbers suggest it isn't. If the retail average is less than this how can it be 'conservative'? Sounds 'typical' rather than conservative. In any case, those are presumably historic numbers and not necessarily appropriate for the future (or to BOO).

I agree though that BOO's own figures may be conservative, unless there is something we don't know about.

Stretch - They actually appear to disclose these separately. £9.6m was just the interest paid, £0.7m was the 'arrangement and facility fees'.

"Net dept [sic] is the accurate way to work out a companies real position. Boohoo has none currently."

I don't necessarily disagree, I was just pointing out that debt and net debt aren't the same thing. Just like EBITDA is not the 'real' position regards profits - net earnings is if anything (which Boohoo has none currently).

Like all indicators though be it debt, net debt, earnings, EBITDA or whatever the headline number is not that useful without context, an understanding of what drives them and what it actually might mean for the future - particularly to us as shareholders. So I'm not too excited that there is no net debt now just as I'm not too concerned there isn't any profit currently - I think before long they'll have both.

"a conservative 10X on that and no debt, you can see why the broker has upgraded to 70p"

Oke - I don't think 10x is a conservative ratio when applied to EBITDA - maybe to earnings but not EBITDA in my view. It also has £325m debt at the moment - though no net debt which is good (albeit they expect some by the end of the year).

Hi Wolf, I think the RCF is unsecured - or least that's what the latest report suggests:

"The RCF is unsecured against the company's assets and includes financial covenants relating to interest cover and adjusted leverage".

Presumably that means it's on a higher interest rate than a secured facility would have but can't find any more details.

Thanks Oke - gotcha, that makes sense.

Yes, I’m assuming growth and if they can achieve 10%+ growth going forward like they hope this would help justify a higher P/E ratio but I still think 20 would be stretching it with interest rates as they now are.

I’m talking about what is a ‘fair’ valuation not historic P/E ratios which may have been driven higher for a whole host of reasons (even higher growth expectations then perhaps, sentiment maybe and lower interest rates certainly).

I’m not saying the stock is currently undervalued (I’m invested so obviously I think there’s scope there) I’m just saying it is not ‘ridiculously’ undervalued as was suggested as the financials as forecast by BOO are not screaming that to me for the reasons I’ve already given.

“Precovid Boo historic business margin was between 5 and 6 percent. I'm struggling to understand why it would halve.

Being conservative on £2.5bn revenue and 5% margin, with a pe ratio of 20, the sp would be approaching £2”

Take that up with BOO - it’s from their forecasts. If you (and SCB) think they will outperform their own projections then fine and you might be right of course.

Using a P/E ratio of 20 is really stretching it though I think.

Oke - I agree 6% EBITDA margin is achievable but not sure what you mean by your capex comment as that doesn’t touch this margin?

But the 3%/£60m is NOT my number it comes from BOO and so will include presumably all the cost savings you talk about? All I’ve done is taken off the I, T, D and A and I think I’ve been quite generous in only taking off a few percent.

If you can tell me how to get from 6% to 8% EBITDA to much more than £60m profit after tax then I’m all years.

I’m not saying it’s about profits today but future profits - hence the sp of Tesla and other start-ups where expectations are high.

It is also as I said about sentiment that can drive an sp much higher than the financials would suggest. Again this often works in favour of start-ups and I believe it can work in favour of BOO again. But the financials themselves based on THEIR targets look quite weak to me - but as I say if you can get to more than £60m PAT in some way then happy to be convinced.

A business though is not valued so much on it's assets as its future profitability.

Boohoo's own target for these over the mid term is 6% to 8% EBITDA. So net earnings once you knock off the bits not included in EBITDA I think at most will be 3% of revenue which on revenue of £2bn is £60m.

Current mcap of around £550m doesn't appear very inconsistent with this and that assumes they reach their own targets. Yes, you could argue that something should be added on for existing net assets but most of this (once you've taken the debt off the cash) is PPE so hard to say what it is really worth to others.

So unless I'm missing something I can't see that £550m is ridiculous - the business just isn't expected to generate enough profit to justify a much higher number in my view.

That said BOO is well capable of generating FOMO as a 'glamourous' stock and clearly this seems to have been the case at the IPO (though I suspect the prospective financials also looked better then)? So I think there is scope for the sp to be driven quite a bit higher but in my view it won't be the financials that do this unless they beat their own expectations (or can convince that their double-digit growth aim is both achievable and sustainable).

SCB - Apologies I misread the second part of your post so please ignore my comments on that but would still be interested in why you think the company is so undervalued at the moment?

I don't think the company is that far off realistic values - what makes you think it is? And I don't believe anybody on here can change the sp whatever they write so all the 'trolling' (both ramping and de-ramping) is just a boring waste of time in my book. But if you think what we write does affect the sp by all means crack on with the ramps.