Member Info for LorenzoLynch

Imo, JD was cheap when it was trading at £1.59 per share in September last year…. It’s trading at almost half that today.

Extremely oversold imo… I really don’t see how this company is valued at c.50% of what it was in September.

The market cap is down over £3bn since then, due to what appears to be temporary headwinds….

Yeah, I can see how and why so many investors/traders lose money.

For this fall to be justified, I would expect net income to be down £300m on last year, yet earnings are broadly flat.

This does appear to be in dire need a positive catalyst however, with market sentiment being extremely negative.

Hopefully we start seeing some positivity in the company’s outlook in the interims.

All in honest opinion. Do your own research.

CARD have really knocked it out the park imo, and at a time when most other retailers are experiencing turmoil.

With results in line with expectations, we're on course for an adjusted PBT of around £66m, which should equate to an adjusted net profit of around £49.5m or 14.2p adj EPS.

£49.5m x 12 = £594m.

That would give a valuation of £1.70 per share.

Moreover, adjusted net income is expected to rise around 7% next year. By my reckoning, that equates to a c.£53m adjusted net income forecast for next year (15.2p Adj EPS).

15.2p x 12 = £1.84 per share

Yeah… I can see why the directors were buying shares.

IMO, this could and should double in a year.

All in my honest opinion, do your own research.

Whilst the performance has been relatively poor, this appears to be an economic issue, not a JD Sports issue. I’m glad that margins were maintained, and next year, we’ll see a full year of contributions from the recent acquisitions, which will likely produce a nice upside surprise to organic growth imo.

With interest rates potentially coming down year, the minimum wage increasing over here and with Trump making positive economic changes in USA, I think we’ll see a recovery next year, especially if the likes of Shein are hit with tariffs.

The most important thing for me is that these headwinds appear to be temporary. I’m certainly not panicking.

Net profit should still be in the £700m region by my reckoning, which I believe is a p/e of around 7…. Which is ridiculously cheap in my opinion. I think more of this bad news was priced in that a lot of people will suspect; it was no secret that retail sales were going to be poor this Christmas.

Overall, I think this will be a nice top up opportunity for long and medium term investors.

All in my honest opinion.

NakedT,

Excellent find. Thank you!

I highlighted some risks here a few months back, based on my views.

To me, it seems like Shoe Zone have no (or very little) pricing power. It doesn’t look like they’re able to soak up the additional costs to me, and with NI and wage increases on the horizon, I can only see it getting worse next year.

Personally, I can see SHOE making a loss next year, but I’ll run my projections properly later on today.

I don’t think it’s a coincidence that we’re seeing Shoe’s earnings decline while the likes of Temu are on the rise. A friend of mine shops at Temu, so I asked him about his experience with them recently. He said full refunds are quick and he’s able to return items for free, so how does Shoe Zone maintain a competitive advantage over them?

A recovery could occur of course, but I think it’s a long way out from here. I expect things to get much worse before there’s a turnaround.

Do your own research, and good luck all. I hate to see value investors lose their hard-earned money.

Profit warning after profit warning after profit warning in a short period of time…. That’s a major concern for me.

Retired Banker,

Of course these cost increases have to be considered, but I think it has to be kept in context.

£146.2m was the total spend on wages and staff related costs in FY23 according to the data I’ve just looked at. We can of course expect an increase this year, and the following year, but revenue was c.£510m, and we’re also expecting to this rise for a variety of reasons (Aldi, organic growth and price rises etc).

A c.£20m hit from the budget imo can be completed mitigated by a 4% increase in revenue (if we assume that all other costs remain the same).

When I was in store the other day, I enquired about price rises on cards casually as I noticed a small uplift, and the staff pointed out some examples to me. In each case, the price of the cards had risen roughly 10% year on year. They explained that gifts etc had also seen year on year price rises, albeit less than 10% in the 2 examples which they provided . This has to be taken with a pinch of salt of course.

If we assume a 7% increase across the board and assume that sales (in term of quantity) remain flat (I expect an increase personally), the additional cost can be dealt with comfortably imv. Bear in mind that I’m ignoring growth from the acquisitions and partnerships etc.

A 7% increase on revenues of £510m sees revenue increase by around £35m by my reckoning (vs the c.£20 budget hit).

Now, let’s look at this in relation to the change in market cap. According to my calculator, the market cap has fallen by c.£129m since the budget announcement to date. Let alone what it actually fell to at the recent bottom.

A small fall in the market cap would have been warranted in my view, but is CARD worth £129m less than it was? I doubt it… and judging by the insider buying, I’m not alone in thinking this.

The fact that this is after a recent short rally makes it even more bewildering. I’ve seen it time and time with CARD… the smallest headwind and the ship capsizes…. Then what has followed each and every time since the Covid lows?

I could be wrong, but this is how I view the situation. Do your own research. I’ve thrown these ballpark numbers together very quickly (took me 10 minutes), so I might need to make some adjustments when I get some free time.

Imo, even a modest 5% increase in the cost of cards and gifts next year brings us back to exactly where we want to be (if there’s cost inflation with other input costs, I imagine that this can be thrown on top as well without too much concern).

What impact are you expecting the budget to have? Bankruptcy?

Zed,

I think you misunderstood me.

My mom, for example, loves wasting money like you wouldn’t believe. She’s just purchased some body lotion for £53, for example. She also bought some ostrich skin boots for £600 a while back, but has never worn them and never will. Her handbags are always Luis Vitton etc.

She thinks cost = quality.

Frugality makes her feel poor.

Despite my pleas and despite her always loving the quality of the cards I give her from Card Factory, she continues to shop at Clintons to this day.

She’s an example of those few consumers who won’t shop at Card Factory, simply because they love wasting money in an ego-driven manner. That said, she almost certainly has undiagnosed NPD (a very small demographic, according to psychologists).

LWHL,

WBA has never appealed to me, but I’ll take a look at DG for sure.

I had a few US stocks on my radar a while back (Fiverr was cheap, oddly), but I think the U.S. market is ripe for a serious correction.

Beachbum,

That hadn’t dawned on my previously, but I think you’re right about The City’s perception of CARD, although Richard Crow is a CARD investor to my knowledge, and has been for a few years (on and off).

I also think it’s because the story doesn’t excite them. It’s much easier to get retail investor on board when a company sounds like ‘the next big thing’.

When I first invested here at 30p, I told my friends and family about the opportunity. Two of my friends invested, as did my Nan (I manage her portfolio), my dad and my brother…. Everybody else laughed at me.

LWHL,

I agree. I see CARD as the type of company which appeals to all consumers, with the exception of those who love wasting money or are too lazy to walk into a store.

I don’t think those demographics account for much of the market though.

I work as a project manager for a construction company and my dad owns his owns his own distribution business (he drives a customised 5 litre mustang, a BMW for long distance and a has a new motorbike, so I don’t think he’s struggling financially). We’ve both shopped at card factory for years, so yes, you’re right.

My point is that I don’t see any of Card Factory’s customers going elsewhere, as there’s no viable alternative. The concern for me a few years ago was that the cards weren’t of the best quality, and the selection was limited with certain types of cards, but I think the quality and selection has improved immensely in recent years.

If you know of an any companies with similar economics to this and a similar valuation, please let me know, because I’ll be all over it!

I also own shares in IG Design. I don’t think it’s as strong as of a company as CARD, but there’s lots like imo, and I think the turnaround is going to surprise the market to the upside.

It has a lot of similarities with CARD, including negative sentiment of late.

IGR has several catalysts for share price appreciation on the horizon, potentially as well. One arm of the company has been performing poorly for a while, but new management should be taking the helm of that arm in the near future. If somebody with half as much competence as Darcy takes over the DG Americas division, I can see some serious upside in the near future.

Forward P/E for IGR is about 8, according to analysts. Share price is about £1.32 now… it was £2.35 at the end of June this year. I’m in the green as I bought near the recent bottoms twice in recent months.

I’m assuming you’re referring to Dollar General?

All imo, DYOR.

Apologies for the poor spelling. In a rush.

Some companies will suffer next year imo, but I personally can’t see Card Factory being one of them.

It’s fairly inflation-proof and recession-proof in my view. It’s the main reason I love the company, and imo, one of the main reasons it’s weather so many storms in the past…

We’re talking about a company here which strengthened through the pandemic with closed stores, sky high inflation and more recently, rising interest rates….

But now a little NI increase is going to bring it to its knees? I’m sorry, but that makes absolutely no sense to me at all.

Do you as you wish though and form your own conscious.

I’m going to remain heavily invested for the foreseeable future. I like a sure bet, and it doesn’t get much more ‘sure’ than this in my opinion.

Retired Banker,

While you are a glass half empty guy, I think a better indicator of how well CARD is likely to weather this storm is focusing insights provided by the CEO.

He bought 49,529 shares this week… this doesn’t look like the actions of a pessimistic man to me.

As per the latest trading update, trading is ‘in line’ with expectations.

The NI cost inflation can easily be passed onto the consumer imo. I just bought cards for all of my family, girlfriend’s family, some celotape (which I was upsold at the counter), 2 rolls of wrapping paper AND some brown wrapping paper (for some parcels which is need to send).

It cost me £23. If I paid £25, I wouldn’t have batted an eye. Everything was cheap, convenient and I was in and out, after receiving top customer service.

With minimum wage increasing, poorer consumers (like those who shop at CARD) will have some extra disposable income. If they can’t afford an extra £2 or so, what are they going to do? No longer send cards? Take a loan and go to Clintons?

Oh, and if the unemployment rate increases (I imagine it will), then even more consumers will be looking for a budget card/gift retailer imo…

When it comes to saving a few quid, I don’t think most people’s first port of call is Christmas cards and wrapping paper.

With all due respect, I do wonder if some of you have ever experienced the real world. One or two of you seem very out of touch with the masses/working class.

Jungle,

1 code again? What are you referring to?

Kev,

I’m in full agreement with you.

I hadn’t even considered the dividend yield, but that’s mostly because I expect the dividend to normalise regardless of the Supreme Court ruling.

Like yourself, I think whosoever holds this long-term is in for one hell of a dividend yield in the future.

To paraphrase Warren Buffett:

‘The stock market is a mechanism which transfers wealth from the impatient to the patient’

‘Be greedy when others are fearful’

As for the shorts, I imagine that a lot of those instructions are also long on CBG, but are probably leveraged through options. If I was a professional trader, and not a long-term investor, it’s what I’d be doing, with a short position merely there to limit downside risk.

…Is what attracts me most here.

Imo we’ve likely already seen the bottom at around c.£1.85 per share, where all hope was seemingly lost.

A return to that (and assuming it stays there) equates to a c.23% loss.

If the Supreme Court rule in Close Brother’s favour, we could see the share price return to the 2021 highs of over £16.50 per share.

While that might sound overly ambitious, remember the hundreds of millions of pounds that will have been set aside in the meantime, which would provide an opportunity for a huge special dividend to be paid, or share buybacks or an acquisition, or a combination of all of the above.

That equates to approximately 580% upside.

A 23% loss vs a 580% gain is a risk I am more than willing to take.

Even a return to a modest £10 per share would see Close Brothers investors QUADRUPLE their money.

The asymmetrical risk vs reward on offer in our favour is monumental in my opinion.

All in my view. DYOR.

Knot,

An excellent post, thank you. In that case, I think the likeliest scenario is for this to be thrown out.

I can’t see the government or corporate interests in this country allowing our financial sector (AND ECONOMY!) to collapse, so that a few people (like myself, actually) can benefit from a small amount of compensation.

From ChatGPT:

“This decision built on the Plevin precedent, which held that undisclosed commissions exceeding 50% of the PPI cost could render the arrangement unfair. The exact amounts will depend on the specifics of each case, including the level of undisclosed commissions and the customer’s financial loss”

If the Supreme Court again rules in a similar manner, the total bill will come down more than substantially imo.

In my view, the SP here is pricing in a scenario which is worse than the worst case scenario. Obviously I’m guessing here, but I’m expecting a huge reduction in the amount of compensation due to claimants. The supreme court’s view appears to be that the level of hidden commission paid should have been reasonable. Judging by the estimates of the average claim amount, I think it largely was.

I expect this to rise substantially as the Supreme Court form a judgment; just as it rallied after the initial big drop.

All in my honest opinion, DYOR as always.

I’m very pleased with today’s RNS. I think the worst is behind us, for good, thankfully.

Al4x,

If you take a look at my recent search history, you will see both my view on the worst case scenario and various other scenarios; and how I expect the valuation to shift in each of these outcomes.

From memory, I always shared some literature from ChatGPT.

DYOR of course, it’s just how I read the situation.

Retired Banker,

If you are concerned about the cost inflation caused by the budget announcement, you could surely analyse and evaluation year-on-year in-store price increases, no?

Some companies have pricing power, whilst others do not. It’s usually not particularly difficult to ascertain which goods are price elastic and which others are price inelastic.

I usually only invest in companies with pricing power, so that I don’t have to worry about such things.

Some companies which take a while to pass on cost inflation should be going as cheap as chips come half year results next year. I must say, I’m looking forward to it.

What’s bad for business, isn’t always bad for an investor imo.

LWHL,

My understanding is that the CEO has options (he’s executed many of them previously), so he doesn’t need to purchase any shares on the dips. The CFO might have some options as well. I’ll do some digging later.

Also, the CEO already owns over 500,000 shares. If he had an investment portfolio, I imagine that almost £500,000 worth of shares must make up a pretty significant portion of it… so I’m sorry mate, but I really don’t see where you’re coming from.