Member Info for LorenzoLynch

Zanab,

Some great points and I fully understand your point of view.

I think the hybrid loan will be ‘transformed’ (if you like) into a term loan or bond in 2028 (certaintly no crystal ball - just a best guess), as we’ll have repaid £500m or so by then. I suspect it will be the former.

Where many see obstacles, I see a line of catalysts here and I think there’s a 90% or so probability of things unfolding well. Why? The real squeeze on liquidity, I think, is theoretically going to arrive in 2031, when operationally, the company should be in much, much better position and will have plenty of refinancing options anyway.

I must admit, however, without the NASB cash, I’d have a very small position.

It’s around 12% of my portfolio now, I believe, but it’s my only true high risk play, and my only deleveraging play (it’ll remain this way). I did consider hedging my bets with Marstons when it was in the 30’s, but swerved it in the end for a long list of reasons. In short, I think that this is much more of a ‘sure bet’ in the longer-term as pubs are have too much exposure to marco etc.

As I said to my dad, I think this is a golden opportunity, but entry point should be contingent on risk appetite. Even if this is 60p next year, I still see 5x potential from there, without any fireworks

Volatility will remain though, I imagine, as like you said, barely anybody seems to understand the debt situation here.

I think we’ve reached the inflexion point, but as I keep saying - we do need to avoid a black swan.

Zanab,

The hybrid loan is effectively an operating cost with no deadline for repayment, no?

Also, it enables us to keep some cash in the bank, which we receive interest on, which obviously offsets some of those payments

While I haven’t allowed for it in my forecasts, I expect the company to refinance at the earliest opportunity to pay off the hybrid loan, and reduce those interest payments significantly.

Leverage, overall, likely needs to come down before that becomes an option though imo. With over £500m being paid off by Dec 2028, I think this is when the opportunity for that will arise - further enhancing earnings and FCF, which will help us repay the 2030 and 2031 bonds and private placements

Glad to see that most of my predictions (and the predictions of management) were correct. I think we’re in very, very capable hands and I expect the company to be in great shape in the mid to long-term.

I’ve adjusted my debt repayment forecasts moving forward (whilst keeping FCF at a very conservative level). My thoughts are as follows (assuming no major black swan) …

In brief:

• May 2027 Private Placements = easily covered with lots of headroom

• Nov 2028 bond = comfortably covered

• 2029 - RCF is due for renewal. I don’t think it will be utilised, so no drama there

• May 2030 - this will be easily covered imo, and vitally, this is when the German loss-making contracts should expire (a big catalyst)

• Sept 2031 bond - this is where I see the cash pile being squeezed the most, by some margin. Renewal of the RCF at £600m (with half to be retained, as is the case now) or another form of refinancing takes care of this, however imo.

Following this, I understand that the only real debt outstanding will be the hybrid bond and £100m-£200m from the RCF or some other type of financing, at most.

I would expect earnings to be much, much higher at this time however, with a cleaner balance sheet and leverage would be considered very low. If the hybrid hasn’t been paid off and that sum refinanced at a much lower rate by then, I’ll be amazed. If not, I’m confident that it will be at this time.

As I said previously, this is with me keeping things very conservative and not allowing for new contracts or a disposal of any assets. There are levers to pull, if necessary.

Incredibly relaxed about my holding here, and as interest payments fall, FCF and net profit will benefit nicely.

Lots of talk about 40p, 60p etc here in the short-term. My objective remains to be a £3+ exit in 2030-2031.

All just my views, DYOR

A nice reminder today in why Buffett values strong management so much

They’re doing an excellent job imo, and there’s lots to like about the new contract wins and disposal of loss-making lines of business

My confidence increases with every RNS (a bloody good sign if you ask me).

Paddy, I never expected a RI for CARD, but that might have been due to my lack of understanding at the time as I was new to investing.

As I’ve said on here before, anybody who doubts the power of deleveraging should take a look at GMS over recent years as a case study… 3p to a recent high of 25p or so in a few years… and it’s still in the turnaround process

Paddy,

And understandably so, but the company now has a new management team who are:

1) deleveraging (to increase earnings)

2) reducing annual costs

3) reducing the length of loss-making contracts

4) winning new contracts

5) securing margins where possible

6) simplifying operations

7) switching to a capital lite model

8) Using ALSA (a company which would be worth, what? £900m+ on its own?) as a template for UK operations

9) strengthening the balance sheet by selling off assets which aren't essential or generating a high return on assets

From where I'm sitting, the new management team appear to be doing all of the right things, whereas the old management team seemed to be on a kamikaze mission

When I first started investing, it was around the time that Karen Hubbard got booted out of Card Factory after running it into the ground imo. At the time: high debt, 'dead company', covid, lockdowns (stores weren't even bloody open) etc.

The share price of CARD at the time? 30p (a price so low that you can't even see it on a long-term chart now). 3.5 years later, it was over £1.40

'People aren't sending cards anymore' and 'high street is dead' they said on here... share price still rose c.366%

Before the NASB sale, Mobico was binary imv when I crunched the numbers (multi-bagger or bust). Now for me, it's a matter of when, not if, realistically.

Is this Nvidia? No, but imagine if the company was making £180m operating profit / EBIT per annum (as it is now, even with all the bloody issues)...

Now imagine if there was no debt / interest to pay.. so £180m PBT

Assume tax @ 25% = £135m net profit per annum

£135m x, say, a p/e of 10 = £1.35bn

The more they deleverage, the closer the company gets to that kind of valuation

What I find ironic is that when the market cap was £1.85bn in 2021, during the middle of a pandemic, many investors thought that this was a great investment (I thought they were nuts btw, FWIW)... now, some of those same people think I should trust their judgement when they tell me that Mobico needs an equity raise or is going bankrupt. I ignored them then, and I'm ignoring them again, but with much more conviction this time

I do feel for those who lost money investing here though, and while I could be wrong in my analysis, and while there could be another black swan around the corner, the risk vs reward on offer here is something I can't resist.

Imo, it is fear, not valuation, shorts or witchcraft which is keeping the share price so low, and to some extent, understandably so.

The risk here imv, is that the balance sheet wouldn't be able to withstand a major black swan. I don't think it's a sure bet, but I expect a 7x-10x here in 4-5 years... assuming modest growth, stable macro, aggressive deleveraging and good management.

A market cap of £1.37bn in 5 years makes this a 10x... that's £500m less than it was in 2021, I believe.

Deleveraging = transfer of wealth from debt hold

Is this worth c.$90m to PRD or is ChatGPT chatting nonsense?

Garonne,

I think you missed a vital word at the end of your sentence: YET

(Loose) Predictions for Thursday:

1) NON-cash write downs - which doesn't impact solvency and everybody already knows about this (so who is it going to shock into selling up?)

2) ALSA growth and some new contract wins

3) Adj Operating Profit at c.£187m

4) Covenant gearing now reduced to 2.5x

5) UK coach - margin improvement at the loss-making businesses have gone

6) UK bus - franchising to commence next year and we're in the process of selling off some buses (some cash en route; every little helps)

7) German loss-making contract sees some improvement, and now likely to end much earlier (write-down reversal coming soon?)

8) German Rail - profit-making contract to be extended AND revenues to be secured, thus reducing risk in the future

9) Hybrid debt repayments to rise, but not until Feb 2027 (when the next payment is due)

10) FCF significantly up on H1 due to working capital timings (stated in the interims)

11) c.£270m cash from the NASB sale is now reflected in the balance sheet (it wasn't at the interims)

12) Following receipt of the c.£270m cash, LIQUIDITY IS NOW AT £1bn SO NO, FOR THE 50TH TIME, WE DON'T NEED TO DILUTE SHAREHOLDERS (IT WAS £700M LIQUIDITY BEFORE THE SALE, I BELIEVE! - £300m needs to be retained realistically though, and that £1bn is obviously not all cash, so if they dig too deep into it, it'll increase interest costs, I believe)

..... but yeah, who cares? Let's keep panicking instead

Just my opinions, so do your own research

I highly doubt that I'll be buying or selling on Thursday. Just going to sit back, chill out and continue to do what most can't seem to do (that is, think about the next 4-5 years, instead of the next 4-5 months).

Pokerchips,

Great suggestion. I think that's by fat the likeliest solution, on relfection

I'm sure we've been conversing on here since 2020 (different stocks of course). I'm glad you're still in the bargain basement like myself and TomBeef etc

4C,

I simply think it's not on the radars of many, and I don't think the company is really understood. Also, the increase in depreciation has hit the EPS in the short-term.

This was absolutely flat for what felt like an eternity at 15p. I think next year's outlook will look garner some excitement.

It probably needs the dividend reinstatement to break 30p imo. If I was in charge, I'd announce this at the same time as some stellar results (in terms of strong y-o-y comps).

At a time when diversification is high on the agenda, I'll be very surprised if we don't see a nice rally soon.

Either way, any potential tariff rebate obviously isn't priced in (imo). It's hardly essential for us, but FedEx have already made a claim, and so will many others, I imagine.

Let the big boys pave the way, and hopefully a redress scheme is eventually announced once a legal precedent has been set.

The US's reputation has already been dragged through the dirt - I think it would be prudent of them to actually uphold the law and restore their reputation.

Why would they do that? Why is investor and business confidence essential for them? Well, they need a strong bond market, no?

Smiler,

I understand your point, but the concern would be self-cannibalisation. At the very least, they should advertise the bloody CF app in store though!

As for the Funky Pigeon range of cards - that's a great idea. A nice poster in the window explaining this would be a nice touch as well. It wouldn't excite me, but it would excite many-a-lady I imagine.

I think the primary driver for Funky Pigeon has to be social media marketing though - TikTok and IG especially. I think a significant capex spend is required; just look at how many adverts MoonPig have used down the years to drive their growth.

Risk-Focus,

It's more useful for supermarkets, sure, because of the sums of money spent, but if CARD had a loyalty scheme, myself and everybody in my family (from ages of 23 to 74) would use their loyalty scheme, and instead of buying a few cards at a time, we'd buy them in bulk, on say two occasions through the year.

For consumers who often frequent the high street (none of us), it wouldn't have the same appeal, which is fantastic, because those consumers are the most likely to pick up an impulse purchase on their visit to the store.

Why do you think that CF customers don't use loyalty card schemes? It would be the older customers who wouldn't bother with them imo (my nan is in her 70's, and she uses them and uses apps btw), but we don't need more older customers, we need more younger ones.

As for the app, CF already has one, but hardly anybody is aware of it, hence why they shop at Moonpig instead. The loyalty scheme would incentivise the downloading of the app, which would enable us to take a significant level of market share from Moonpig.

All of the above would drive like-for-like growth, which is my primary concern at present.

Additionally, I would offer the most rewards (by far) for more expensive cards and for the more premium gifts, which should increase basket size. Also, around Christmas and key events, Card can offer deals to consumers to get them through the door. At the moment, they do this via email.. in 2026, who has the time to read them? I don't, but if I received a push notification offering a nice deal in November, I'd buy my xmas cards nice and early to capitalise on it... this would also relieve some of the xmas pressure, which reduces staffing costs and reduces the queues in store around xmas (currently deters some customers, I imagine).

How would you drive like-for-like growth and customer retention instead?

4Corners,

I thought the same about Anglo Eastern Plantations, especially as it's on cyclically high earnings atm imo... have a look at the chart.

I remain a holder for only two reasons:

1) I think that this is THE easiest business to turnaround on the UK market.

2) The value on offer is ridiculous imo.

For a serious re-rating, I think all that is required is either a change of management, or (more preferably imv) a change of plan from current management.

How I would turn the company around (FWIW):

1) Start a loyalty card/points scheme (the data on this is mind-boggling). This would:

- encourage/incentivise repeat custom

- give customers a reason to download the app!! (the app which nobody seems to be aware of)

- give customers a reason to make a special trip to the high street

- encourage customers to buy in bulk and purchase gifts

- give Card data and enable them to send gift reminders which are catered towards purchasing habits

2) ADVERTISE - why do I never see or hear Card Factory or Funky Pigeon adverts? Platforms:

- TV

- Radio

- Social media

3) Change the gift offering:

- Get rid of the ridiculously over-priced bog-standard chocolates. If you can't sell them at a supermarket price point, DON'T SELL THEM

- Add some more luxurious goods into the mix - many people love a bargain, but want to send quality gifts

4) Refresh the brand image: explain to customers via ads that CF cards are cheap, but still good quality. How? 'because unlike our competitors, we manufacture our own cards; we simply pass this saving onto you'

5) Capex for the above aside, focus on deleveraging with any surplus cash that remains after the dividend.

Or you know... we could just acquire another small business and not invest in it, because that's been working wonders, hasn't it?

Could be one hell of a year for us…

• Tariff rebate?

• £200m buyback (over 5% of the equity, and will mop up sales volume)

• World Cup IN OUR MAIN REGION USA!

• Adidas doing well

• Nike’s aggressively de-stocking is over I believe?

LOTS to like here. Market’s still looking in the rear view mirror imo. I think a huge shift in sentiment is on the horizon, especially once the SP breaches £1 and the traders start wading up for the World Cup trade

All just my views on how I see things unfolding. DYOR

KingRav,

If they are 'in the know', why is the short float not 50%?

Were the Gamestop and Him & Hers shorts also 'in the know' when they got squeezed?... much bigger companies btw (and likely much more leaky imo).

@dwam

Barely anybody thinks it can return to £1.68+… but therein lies the opportunity imo

Crazier things happen on the market on a daily basis if you ask me

First thing is first though - the company needs to perform. Sentiment and marco is anybody’s guess.

This isn’t that heavily shorted, compared to many other stocks e.g. Greggs had around 3x the number of shorters, and 3x the short float the last time I checked

Moreover, just because institutions are shorting a stock, does not mean that the have inside knowledge or absolute conviction in their short

All of the shorts here are relatively small imv

Some potential reasons:

• Hedging their bonds

• Hedging against the sector

• Hedging against their long positions

• Blind shorting based on criteria (using the law of averages on stocks with poor momentum and indebted balance sheets)

• Macro headwinds

• Long positions on a competitor

• Reducing beta or market exposure

There’s no substitute for doing your own research and managing your exposure. This isn’t a stock for widows and orphans imo, but I personally believe that the NASB sale provides the company with adequate liquidity to get back on its feet/wheels

I’m looking forward to seeing what I suspect will be a much improved balance sheet

Lastly, I will say this: I’m much more confident about the long-term prospects here than the short-term, but I’m certaintly not losing any sleep

@dwam what relevance does any of that have on the company or the fact that I believe it to be significantly undervalued?

Everything has its price and imo, the negatives are priced in several times over

I’m here for a recovery to a reasonable valuation once macro improves and JD’s earnings show some decent growth. A p/e of 10-12 on that sees me make a serious ROI. 14p x 12 = £1.68 ps… I don’t think that’s impossible in a World Cup year with falling interest rates and falling energy prices etc