Member Info for JonnyGee

Yes, thats really the question. I reread the transcript of the H1 earnings call where they were stating they had 75% orders booked for the year and that Q2 orders were 12% ahead of prior year. To have stuffed it up so badly in such a short time really does beg an awful lot of questions.

A good question. Really depends on whether the funds think there will be an SP recovery/ if its oversold. If you look at this mornings revised FY 24 numbers' range versus consensus, H2 revenues will come in £15.5mio/ 7.8% lower than indicated in March (at H1 release). Thats not great, though not catastrophic, depending on whether they are still getting organic growth, which is unclear to me - if the only YoY growth is GfK, than thats pretty brutal and I think funds will rightly stay away. (Would be great if anyone has seen somewhere what the GFK revenues were at acquisition as I / we could then figure out the organic/ inorganic). Their H2 costs are also coming in £5mio higher than was previously implied, crushing h2 op margin to 7.9%, compared with the consensus 17.6%. The only bright point is that they seem to have ramped up costs in order to support the (previously) expected revenue growth, which means they should have leeway for margin recovery going into H1 25.

At >21x '24 p.e. pre this morning's crash they were already on US style multiples, a reason I suspect they didnt bother with the transfer. Furthermore, given that they seem to have missed their year end operating income target by a whopping 40% with only 5 weeks to go implies they really dont have a grip on their numbers, or certainly werent being transparent with the market the last few months when this must have been building up. Either way, the market will not be kind for quite some time and they are going to have to achieve some serious outperformance to recover credibility.

Their operating profit is 40% off consensus '24 - so the 40% drop this morning not wildly surprising , even though revenues were only 5% off. Bigger issue is probably whether they ever regain their premium rating as they have long traded way above comps (eg IPSOS) for no obvious reason

Was scratching my head about the fall too - yes there are shorts but they're tiny at 0.9%. I think the cause was Ipos' earnings call yesterday where they highlighted the US (YOU's biggest and most profitable market) as being difficult this year which the market read across negatively to YOU. Interestingly, Ipsos, which is much bigger, trades at far lower multiples to YOU so Ill now dig into any reasoning for that, since YOU's high multiples have always made me nervous and kept me away until now.

There is a small short position out there by GLG, just increased a few days ago but at 0.9% its pretty insignificant. FYI, the UK elections will make little difference to the company's economics - the US is apparently significantly more important - thats what the CEO said back in March, and in general political polls are now only a small part of the business at 5% - probably less after the GfK acquisition.. And no, I cant figure out the recent drop either - I took advantage and bought in yesterday and today but am scratching my head on thats happening given a complete lack of news/ triggers to be causing this.

Yep. This was meant to be a much lauded "new strategy" to give a much needed new direction - especially relevant given their finite life pension transfer business which will peter out in a few years and make it a declining run-off business. Ive seen absolutely nothing about that - and nor did the market so price action not surprising

Dont worry @doctor - I have a howler of a typo in mine - should have put the celebratory non card sales grew from 44.4% to 48.4% - interestingly equal to the card sales level for the first time (also 48.4% with boxes making up the balance)

Hi Wiscos. Maybe we should form the cynical City investors club on here ;) Yes, I tend towards (quality) value, though spent a fair time with growth businesses and do have a soft spot for them as long as they arent wildly overvalued.

Yes, you've got that about right. I also think they're going to have to have a few accident free quarters and have Akatara flowing solidly before they recover market credibility and the SP reflects a more reliable business. Trading at 1.2x '24 EBITDA clearly puts them in discount territory, but given the flow of bad news around their legacy assets its not underserved and they really have to prove themselves this year. Still, if they get there I think we should see some decent share appreciation towards year end. Any hiccoughs will be brutally punished though.

@Doctorkno. Thanks for taking the time to compose a thoughtful commentary - you actually prompted me to revisit the company and dig deeper. A short contextual comment which might help frame my comments is that I was a private equity manager investing in TMT (Tech, telecom and media) businesses, and am therefore painfully familiar with the decline of traditional print businesses, many of whom have now disappeared, some have successfully repositioned themselves online (RLX, WLK), and yet other are still struggling to turn the corner (RCH springs to mind). It is also no secret that high street retail has suffered 20-30% volume declines, depending on the category, though again, there are also some well managed operations that have managed to successfully transition into omnichannel (e.g. NXT)

Given this backdrop and my general aversion to offline retail as a result, I did think Card was/ is worth a look for the following reasons. (a) Although online card orders have made very significant inroads into the market, that has now reversed, declining from a peak of 24% (by volume) in 2020, to 15% in 2023. (b) While lfl store sales took an understandable battering in Covid and the following years , they have significantly turned around in the last 2 years to the point where their sales per store (admittedly in nominal terms) are now 6% ahead of 2019. (c) Most importantly, and the point I only picked up this time round which has actually got me more comfortable, is the product mix change, which has made up for the card volume loss (basically the missing "digital substitute" to make up for core product decline), moving from 44.4% of sales in 2018 to 44.8% of sales in 2021, the last year they disclosed the split and a trend I suspect has continued. The fact that they then started talking up a bigger target market to include £10bio of gifts/ toys etc, tells me they themselves clearly realise the shift, and the need to push it further, and gives me reasonable confidence that they arent going to disappear into the sunset even if cards become a much smaller component of sales. The other thing that gives some faith in their continued existence, despite the decimated highstreets we see around us, is that it seems to me (and this is admittedly just my own opinion) that their products are reasonably spontaneous in nature and price point, hence the benefit of a physical sales location in close proximity to the population. None of this removes the overall declining demand dynamic of card sales (by the way the 990mio 2018 number was calculated from their comment in the FY2020 statements [page 6] that the 975mio UK card sales volume represented a 1.5% decline over prior year; I also note that the 779mio 2023 card market referred to in their FY Jan 24 statements, refers to UK card sales in total (online and offline), though bizarrely, they indicate this is a fall from 851mio in 2022, whereas last years statements indicate a market volume of 827. Go figure.

Strong indeed. Was just about to put in a top up order at 30p but the RNS beat me to it, lol

@Doctorkno - On a fundamental basis, the bear case is pretty straight forward - UK card volumes are in terminal decline - from 990mio in 2018 to 779mio in 2023. Its in the company reports, so they dont try to hide it. They do what they can by increasing prices, (though thats a delicate balance as it will also cause demand destruction at a certain point,) and selling add on celebration items which appear to be more stable, as well as expanding into foreign markets. The underlying truth of the matter, however, is that its a slowly dying product (though 2023 market volumes dropped 8%, which was rather disconcerting), which will still generate cash for maybe another decade but dont look further than that - hence the low multiples. Thats why I only have a small speculative position I acquired below 90p, just in case someone decides to buy them out, but given the overall market dynamics, I am somewhat sceptical of that happening so will probably exit at the next pop.

I'd agree. It is worth reminding people of the litany of operational issues the company has had, (and the continuing lack of a COO which does bother me and likely others) and if you paid attention to Paul at the last call, he was quite cautious about the timing of Akatara coming online. The presentation indicated the last two weeks of June, but he also made the point to an analyst that there are always possibilities of it slipping a few weeks - a very sensible position I feel and I can't criticise him for that. To see an SP rerating I suspect we'll need to see a couple of SNAFU free quarters and Akatara ramping up before the market is willing to give them credit.

Yes - thinks for sharing that AMPG. Tomorrow should be a very interesting day for the SP (and scrambling shorters)

No this is pretty different - and actually positive. Contingent consideration is when they have done an acquisition and part of the price is dependent on the target company achieving certain performance figures - usually quite challenging ones, so if KWS is now paying that it means that the acquisition is doing well.

Shorts are when hedgies are taking a position expecting the share price to fall i.e. they think it is overvalued and will correct downwards. It certainly was wildly overvalued in the past but f you scrub the numbers properly you can see its currently trading on pretty conservative multiples. That said, there is this Goldman report from last year hanging over them where GS identified KWS as a potential loser form AI. I'm personally sceptical about that assessment which is why Ive entered KWS recently , but there are plenty of people out there a lot more bullish on AI than me, so DYOR

For anyone curious about the recent drop, I see that an additional 0.6% short position from GLG capital was opened on April 9, giving KWS a cumulative 3.7% short position, so possible this put some downward pressure on the stock

Well put @VistaMan. Am very much on the same page with a deeply under water entry price and heavily cut dividend income but concur that the actions they took were probably the best they could under the circumstances - and very clearly US market oriented (low dividends, high share buybacks due to the different US tax position) which I think is necessary in order to get the US investor attention and hence valuations everyone on this side of the pond would like to see

Yes, its an interesting one. Did a deep dive looking at them and their comps and frankly theyre putting in a pretty impressive operating performance, especially versus the competition. The whole sector has been taking a beating though and they have historically been wildly overvalued, so a serious correction had to happen - but now make decent value sense with some decent organic growth coming through. Am gradually accumulating at these levels, though its impossible to call the bottom.

Yes Andy, I also felt they were somewhat boxed into that position and thought a dividend cut would make sense, though was surprised at how much they cut it. The one other thing that has always bothered me here is the unfunded ARO liability as I simply dont buy their "It will all be OK in 50 years" argument, so if they actually start building up an ARO fund instead of special dividends (which US shareholders wouldnt welcome anyway due to the detrimental dividend tax treatment in the US) that woudnt be a bad use of funds and would also start to properly address the not unfounded concerns about their ARO liabilities