Member Info for Hexam

I have read many of your posts - and others can too so they can make their own minds up. I'll leave it there as I'm not interested in taking part in the very bickering I hate so much.

SCB - I presume you're not referring to me as I'm not a newbie. Just haven't posted much recently here as just got bored with the relentless bickering, name calling and unsubstantiated drivel from both sides. Good discussion usually gets drowned out by the idiots here. Thought with results out I'd pop back and see if anything has changed. Seems not.

"There is plenty wrong with spamming, juvenile name calling, make believe and outright lying."

Indeed - but as I said, stones and glass houses.

Some are talking up the stock, some are talking down the stock. So what? It's a discussion board and opposing views are healthy and, if you've got any sense, useful. Hearing just one side does nobody any good and only provides a false sense of security. As for the 'abuse' and opinions being stated as fact that's coming from both sides so seems to me there is a lot of stones being thrown from inside those glass houses.

All this talk of reporting people and encouraging others to report people, over basically nothing, is just childish to put it mildly. It's supposed to be a discussion board on investments for adults and if you've got such a thin skin or are so insecure about your investments maybe investing in general and message boards on them in particular are not for you?

There is much here that can be usefully discussed, especially after the recent report which I felt beat expectations and held lots of promise for the future but also gave some causes for concern too - but instead it just seems endless 'them and us' bickering. If you picked any day from the last year you'll probably see much the same thing going on - nothing seems to change on this board.

"Hex / Oke, surely if they post another year of savings and stock reduction similar to last year, alongside margin improvement, this will result in fcf being better than last year"

You would think so but it is BOO that are saying it will be worse than last year so it is their opinion, not ours, and they should know better than us. Part of the reason will be that the movement in working capital probably won't be as favourable as last year this (I don't think even they do reduce that they'll repeat the scale of stock reductions) but there are presumably other reasons too - unless as Oke suggests there is a healthy element of caution too.

Presentation also says £101m - pretty sure they wouldn't get this wrong so maybe you're looking at something slightly different...

Oke - from RNS:

"Inventory has been reduced significantly, down £101 million/36% year on year, as at the end of February."

so not sure where your numbers are coming from or are you talking about something different?

“ I haven't seen any suggestion of fcf being -ve this year - where is that written?”

It comes from the forecast net debt of 1 x forecast adjusted EBITDA (around £75m) which implies cash outflow of around £80m and negative FCF of up to £50m (as other relatively small negative items like interest and lease payments also affect overall cash flow).

Hi Oke,

You may be right and they are simply underplaying this year’s FCF but the positive figure for last year was driven by the £100m inventory reduction. Although they say there may be more to come it won’t be that sort of scale again.

Still it is odd though that they are predicting a worse FCF given their comments on costs etc. so I may do a bit more digging to see what else might be driving it (unless it is just caution)!

Overall things seem to be heading in the right direction though.

I think I have got the bigger picture thanks (and have given my views on it before) but Oke was talking specifically about FCF hence my response.

Agree CB (still can't get used to the new initials)!

You can't easily value miners so all you can do is compare them relatively against their mcap on the sort of things you suggest. Access to funding for growth and operational efficiency (in costs terms) are the two most important factors for me.

True Oke but haven't they already suggested that they expect FCF to be negative this year?

I agree though that we should see a welcome improvement in margins as costs come down.

Cheers HC and agree with you on net assets which is why I mentioned the DCF method helping to avoid double-counting.

An extreme example is cash which as you say is treated at face value (as a time zero cash-flow in effect). At the other extreme you have intangibles which should generally be set to zero as the future benefits they represent should already be in the cash flows so including it would be double-counting. Most assets and liabilities lie somewhere in between and, again as you say, should be assessed individually. (The other thing with the value of many assets and liabilities in the accounts is that they are at book value. Again the DCF method should eke out the 'true' value.)

However my main point really is that the net asset position is generally second order (future profits often dominate) so this level of detail I feel is usually way too much and just wasted energy . So I ignore them completely unless there is a relatively large amount of cash or debt etc. and even then I just 'bear it in mind'. Of course it's a whole different ball game if you think the company may be in danger of going bust!

I also think trying to put an objective value on BTC miners is doomed to failure anyway - the best I think you can do is compare one against another. So for these I don't bother trying to value them as such, but just compare their strengths and weaknesses - including cash in hand!!

HC - There are obviously lots of ways to value a company but they mostly boil down to the same thing, namely the expected value of future profits (or, probably more accurately, cash flows). At one extreme you can build a full on discounted cash flow model which is not as hard as it sounds, as long as you don't make it overly complex, but the really tricky part is coming up with a reasonable and internally consistent set of assumptions (or you get some wild answers). As PIs we don't really know enough about the company's financials, plans etc. so you end up with lots of iffy guesses.

At the other extreme is a very simplified form of DCF which is all an earnings multiple is but even coming up with a suitable multiple is not clear cut. Obviously the greater you think the growth potential, the lower the risk, the longer the longevity of the business, the lower interest rates are etc. the higher the multiple. You can benchmark with industry standards/values etc. but have to be sure you are comparing apples and apples.

Of course for some companies (especially start-ups) there isn't an earnings to multiply (or at least not a positive one) - as you state. It is still though a view on future profits e.g. finger in the air or as a multiple of (future) revenues etc. Even if you simply think a company is going to 'take-off' you are taking a view on future profitability - just in a very vague way.

As you say the current net assets come into it as well (either by simply adding them on or bringing the elements into the cash flow model which should ensure nothing is double-counted accidentally).

Personally unless it's a really extreme case regarding net assets I simply go for the multiple of (future) earnings approach (if I do one at all) and ignore the starting position (or treat as second order). I must admit for ARB I did build a cash flow model, as the business is so straightforward, but I didn't factor in the crappy business decisions or the dramatic fall in BTC so although it was very accurate in the short term, it turned out rubbish in the end!

Sorry if that's a long-winded way of saying that I basically agree with you but it is a topic close to my heart - partly from my background but also from the frustration that most people simply don't bother (including me most of the time)! In particular trying to pin down a ramper/troll on exactly why they think a company is 'grossly undervalued' or 'grossly overvalued' is usually met with an unintentionally funny reply or none at all.

Bet you're sorry you asked now :)

"Net Equity of £11.4M then divided by Number of Issued Shares which is 477.82M = only 2p per share valuation

In the face of there being no Dividends, could this really be all they are worth?

Please correct me if I'm wrong"

That's not how you value an ongoing company - though to be fair there is a reasonably good chance that ARB can't keep going for that long...

"hmm so all that huge chunk ended with banks who are selling aggressively"

Do you mean the rights Mordashov couldn't subscribe to? If so then then none of that went to the banks as it was simply not part of the capital raise at all so didn't exist in the first place. If you mean the rump shares that they picked up then I presume much has already been dealt with but don't know for sure.

Good for Boohoo but in my view EBITDA can be very misleading so anybody relying on it just needs to be careful they are not missing something - but just my opinion.

"So you agree anyone saying boohoo are using ebitda to hide figures are talking nonsense then?"

That's not what I'm saying at all. It matters little to me either way and is a rather pointless debate. All I'm saying is that EBITDA is not a measure I am personally interested in. I'd rather know all the income and all the costs and take a view from there.

If others are happy just to go on EBITDA then great if that works for them. I can't see how it does, but how other people do their research and what they base their decisions on is up to them.

SCB - I do know that, what I'm saying is I don't care as it is not a measure that interests me at all as it only tells part of the story (and usually the part the company wants to tell). I'd rather know the full story - or at least try to.

"What measure would you use other than EBITDA"

I thought I'd already answered that but for the avoidance of doubt I look at overall profit and overall cash flow generated by the business - so for me that is profit before tax and cash flow before any capital injections/redemptions/dividends.

Most companies do indeed quote EBITDA and/or EBIT and/or EBITDAR but they only tell part of the story and it is better to have the whole story and even more important to try to understand that story - especially the key drivers and how they may move in the future.

So in this case for example the main driver for cash flow is the reduction in inventory (over £100m). That cannot keep recurring obviously hence it is no surprise they are predicting a worse cash flow for FY24 (about £100m worse in fact - though that won't be solely down to inventory movements not repeating).

On profit they are predicting mid-term 6 to 8% EBITDA margin. Great, but how much will be eaten up by interest, lease costs, depreciation etc.)? I reckon at least half which means we're looking at overall profit margin of 3% or so? That's not particularly exciting but on £2bn+ of revenue probably enough to justify a somewhat higher sp than today I feel, especially if they get the double-digit growth they are aiming for.

So, as I say, I think the results are good but I'm not getting over excited about them and personally I think the financials going forward only justify modest increases to sp BUT with this kind of stock sentiment can drive it much higher than perhaps the bare numbers justify. That's what I'm hoping anyway - but if not a modest increase will do.