Member Info for LorenzoLynch

It looks like we didn’t have any director buys on the dip previously, due to them having sensitive information on the acquisition. A nice buy from the CFO today (increasingly his holding by c.50% I believe).

Trading in line with expectations, a very interesting acquisition (partnerships in the U.S en route?) and we’re heading into a very busy trading period with few challenges vs previous years (the pandemic, Royal Mail strikes, high inflation etc).

Something which I think is being overlooked… isn’t Darcy from USA? Surely he has some connections over there and a solid understanding of the U.S. retail market.

I expect a swift recovery in SP here. From where I’m sitting, the company looks like it’s in an even better position than it was at £1.40 (if we assume that the NI and MW costs are passed on to the consumer).

Just my thoughts. Do your own research.

LWHL,

I disagree that management are responsible for the recent collapse in SP and I also disagree about the update being poor.

They are trading ‘in line with expectations’ whilst almost every company I’ve looked at recently has issued a profit warning… just look at Shoe Zone, for example, who have issued several in this financial year.

From memory (correct me if I’m wrong), CF spent a fortune stocking up for the Xmas period prior to the HY report, making earnings and the balance sheet look much weaker. With the geopolitical instability we’re witnessing at the moment, that was a smart move, as severe disruptions to sea freight would have absolutely destroyed CARD. I do need to clarify this however, as I only recall glancing over this.

Zedisalive,

The lease interest is a separate cost mate. It totals around £7m per annum. Last year, total finance/interest costs (combining the two) was c. £13.5m.

And I agree with you about £1.40 not being a speculative valuation. Barely any growth was priced in imo.

I agree about the value on offer. Either me, you, the analysts and the billionaire are idiots, or there’s a bargain to be had here.

As per the HY report, earnings are in line with expectations this year according to management. I think the market will be pleasantly surprised at year end.

The data I’ve collated below is from CARD’s RNS reports and from stockpedia (the latter for the analyst’s expectations).

Analysts are expecting CARD to make c.£50m net income this year (just over 14.3p per share). A forward p/e of c.6.3 ?

Next year, analysts expect CARD to make c.£55.5m net income (around 16p per share).

In a simplified valuation, £50m x 10 = £500m (approximately £1.43 per share). Which I think is ever conservative, considering the growth expectations moving forward and the quality of the management team. I think a p/e of 12 is more accurate; £50m x 12 = £600m (c. £1.70 per share).

If we push things forward into the next financial year, £55.5m x 12 = £660m (c. £1.90 per share).

Now, this is what I find really interesting. Borrowings were around £45m at the end of last year, and interest payments were £6.5m (any idea why they were so bloody high!?)

If they continue to pay down debt for the next 2 years, I think it’s quite realistic that those borrowings could be reduced to nil, which I believe could result in a £6.5m benefit to net profit.

£55.5m + £6.5m = £62m net profit (these numbers won’t be exact, of course).

£62m x 12 = £744m (c. £2.13 per share).

Additionally, net debt excluding lease liabilities would surely become net cash excluding lease liabilities?

In what world is this stock only worth c.90p? The U.K market doesn’t seem to know its backside from its elbow of late imo.

This brings back memories to when some of us were buying in at 30p when the company had a much worse balance sheet, the high street stores were closed, the NHS was on the verge of collapse (allegedly), with a new management (who many thought were inadequate) and we were in a bloody pandemic with no light at the end of the tunnel. Many thought that the high street would never recover, but here we are… with the SP roughly 200% higher than it was back then when we were clowns for investing in CARD. At £1.40 (very recently), the SP had rose c.360% from those lows!

In my opinion, this is far too oversold. I can understand why people sold at £1.40, following the budget announcement, as the risk vs reward was fairly balanced imv, but i feel confident that the increase in costs will be passed onto the consumer successfully (as they were when inflation was recently at sky high levels!).

This company appeared to shrug off high inflation and higher interest rates with relative ease, paying down debt in the process… yet the market panics again over some headwinds. Unbelievable if you ask me, but I’m grateful for the opportunity to make some more money from CARD.

It’s certainly not my first Card Factory rodeo (or roller coaster, to be more exact!)

All the above are just my views on the stock, and not financia

PV72,

Thank you for the link.

25p is pretty disappointing when compared to the lofty figures I had in mind.

What would really disappoint me however, is if Ram Head is no longer on the cards, as I believed that to be the superior asset. Also, if correct, this information should have been provided to the market in a crystal clear manner. This pattern of unclear communication is appalling.

As time elapsed, I was getting increasingly confident about PRD, but my faith has somewhat collapsed in recent months.

I haven’t sold any shares, and I actually topped up very recently on this dip, but PRD seem to be performing below expectation on all 3 projects imo.

What are your thoughts on a valuation for Trinidad? I can’t say I’ve ever felt overly inspired about the numbers I’ve seen being thrown about in the short-term.

PV72,

Below is the response from ChatGPT in relation to my question regarding a valuation estimate on Corrib South:

The potential value of the Corrib South gas prospect is significant, contingent on successful development and market conditions. Here’s an analysis of its potential worth:

Resource Estimate

• Prospective Resources: The Corrib South prospect is estimated to hold 424.8 billion cubic feet (BCF) of recoverable gas, with a high-case estimate of nearly 1 trillion cubic feet (TCF)  .

Valuation Based on Gas Pricing

• Market Prices: European gas prices currently range from $10-$15 per thousand cubic feet (Mcf) due to energy security challenges.

• Using an average price of $12.5/Mcf, the gross value of the 424.8 BCF reserve is approximately:

• $5.3 billion (424.8 Bcf × $12.5/Mcf).

• If the high estimate of 1 TCF is realized, the value could exceed $12.5 billion.

Development Considerations

• Proximity to Infrastructure: Corrib South is close to the existing Corrib gas field, reducing the costs of development and transportation.

• Costs for connecting to infrastructure and developing the field could reduce the net value. However, leveraging existing infrastructure minimizes initial investment compared to greenfield projects.

Sale Valuation

• For a sale or farm-out, potential buyers might discount the valuation by 40%-60% to account for exploration risks, regulatory hurdles, and development costs.

• This could result in a sale valuation of $2.1-$3.2 billion for the low case and $5-$7.5 billion for the high case.

Conclusion

If Predator secures regulatory approvals and confirms resource estimates, Corrib South could represent a multi-billion dollar asset, especially given its strategic location and Europe’s pressing need for domestic energy supplies.

Can you please explain how you’ve arrived at a ball park valuation of 25p? I’m interested as to how you and ChatGPT are so far apart.

PV72,

Your 25p ball park valuation seems a lot lower than what the ball park estimates I put together a while ago (albeit, I must admit that it was certainly guesswork, as I’m no expert in this industry by any stretch of the imagination).

I just asked ChatGPT for an estimate, and received the following response (no idea how accurate this is btw):

If the Ram Head gas prospect in Ireland is successfully re-entered and proved viable, its potential market value could be substantial. Here’s an estimate based on available data:

1. Reserves and Production Potential:

• Ram Head has estimated recoverable resources exceeding 1 trillion cubic feet (TCF) of gas .

• Its production capacity could reach 400 million cubic feet per day, supporting 11 years of operation .

2. Gas Valuation:

• As of 2024, European natural gas prices have varied but often hover between $10-$15 per million British thermal units (MMBtu). This translates to approximately $10-$15 per thousand cubic feet (Mcf).

• Assuming a midpoint value of $12.5 per Mcf, the gross value of the resource could exceed $12.5 billion (1,000 Bcf × $12.5/Mcf).

3. Development Costs:

• Re-entering an existing well at Ram Head is considered cost-efficient compared to new drilling. Specific costs depend on regulatory approvals, environmental considerations, and infrastructure  .

4. Discounted Valuation for Sale:

• Potential buyers typically discount the valuation based on development risks, costs, and timelines.

• If discounted by 50%, the net value for a sale might fall between $5-$7 billion. Predator’s 50% share would equate to $2.5-$3.5 billion.

5. Market Sentiment:

• The scarcity of large-scale gas projects in Ireland and Europe’s energy security concerns may attract premium valuations.

Thus, if Predator Oil & Gas can demonstrate Ram Head’s feasibility through successful re-entry, the project could fetch several billion dollars, subject to market conditions and negotiation.

After all the of delays and headaches in Morocco, my attention has shifted towards Ireland of late (I’ve always seen it as the most likely project to materialise).

As always, do your own research.

Good luck all.

Stockpickfree,

I’m in agreement with you; nobody truly knows.

Personally, I think the margin of safety is so large are this stage, due to the absolute collapse of the share price, that I’m no longer concerned about downside risk. I’d simply top up in that event. However, as stated before, I certainly bought in too early, and I’ll learn from that lesson in future.

Your strategy seems sound to me though and an entry at say £3-£4 per share with a quantifiable liability is a bloody good entry point imo, and one with minimal risk.

The spread into other hidden commission payments has had my pants down, I must admit, but I remain confident that there’s a fortune to be made here for investors of varying risk appetites and investing strategies.

Any ideas (you or any other posters) on how severe this short squeeze could be in the event of a positive outcome with the appeal?

Good luck and thank you for your insights.

Stockpickfree,

No wonder why you’re panicking if you’re using those numbers.

Below is some data from ChatGPT:

Analysts at RBC suggest Close Brothers could face costs ranging between £320 million and £420 million for motor finance claims alone. Including potential liabilities from other lending areas, like insurance premium finance, estimates increase to as much as £640 million under more adverse scenarios. This would make Close Brothers responsible for about 2-4% of the total estimated £16 billion liability.

According to the article I’ve just read, Moody’s estimate is between £8bn and £21bn, with an ‘absolute worst case scenario of £30bn’… sounds like they really know what they’re talking about. Between £8bn and £30bn really narrows it down! May as well ask the bin man.

Obviously, I have no idea what the total liability will amount to. If I was a gambling man, my bet would be on the Supreme Court finding a middle ground somewhere between zero and £640m mark… say £300m-£400m.

Moody’s have a long history of calling things horribly wrong though according to ChatGPT, so I can’t say I give much merit to their estimates.

Stockpickfree,

Where is the existential risk to the business? I’m not aware of such a risk?

My understanding is that Close Bros are putting money aside to ensure that there is no such risk. It’s basic risk management.

As I stated previously, I am not gambling on the outcome of the appeal. In my opinion, there’s a pretty penny to be made here, regardless of the outcome.

Imo, the market has priced in an outcome which is far worse than the worst case scenario… which seemingly creates an opportunity for contrarian investors imo.

But while we’re at it, what is this company worth if the appeal is accepted, and the compensation figure totals something small like £100m?

Then we have a company trading at £2 per share, with an EPS of say (being very conservative) 85p, a tan NAV of say £9 per share AND a c.£300m cash pile….

So they could pay out a £2 per share special dividend and the share price could quite conceivably rise to what? £8.50? More? £8.50 share price + £2 special dividend = £10.50 per share.

Imo, at this share price, it’s a ‘heads, you win.. tails, you win more’ situation.

If the current share price was £6-£7, then I’d certainly view it very differently due to the opportunity cost and potential for short-term downside etc.

I won’t be publicly sharing my exact valuations of Close Brothers, but let’s just say I’m very long and strong.

My thought process: with £400m being set aside, we’re well covered even in the event of a worst case scenario on the motor finance DCA front.

If we have to pay out an additional c. £240m as well, that equates to £640m (as per RBC's estimate).

With the FCA giving CBG another year to set provisions aside, CBG should be sitting on at least £500m of surplus cash prior to any payouts in my view.

I believe the additional £140m could also be set aside in fairly short order (or simply taken from the company's cash pile).

Now, bear in mind that this is the absolute worst case scenario to our knowledge, and in my opinion, i think it's unreasonable, and therefore highly unlikely to occur.

If other posters are correct, the CBG DCAs weren't exploitative, and moreover, it is reasonable for some level of commission to be paid.

Imo, the realistic worst case scenario is nowhere near that £640m figure, so there could be an opportunity for a huge special dividend in the future, albeit this is pure speculation at this stage.

Anyway, i digress… in the absolute worst case scenario (imo), in 3 years or so, CBG will have the cash to pay the compensation, and certainty regarding the company's future will be restored.

If we assume that adjusted EPS is around £1 at the time when the compensation is paid out (IF it is), the company will be trading at a p/e slightly north of 2…. with no major financial risks on the horizon. Is that a fair valuation of a company which will likely have a tan NAV of c. £9-£10, and an EPS of £1 (and I think I’m being fairly conservative there, when you look at pre-Covid earnings especially).

That to me, screams one word… 'multi-bagger', with the internal debate in my mind being '4x or 5x'?

This is not financial advice, and as with any investment, money can be lost. I'm just explaining how I perceive there to be value in this company at this valuation. As always, do your own research.

I foolishly bought in too early here and now have an average of around £3.50, because I ran the above calculations, saw the upside and was struggling to find undervalued stocks which met my criteria. Fingers burnt… lesson learned, but my word, I can’t believe the SP has fallen so far. I suppose this is the one downside to being an investor who isn’t fearful of uncertainty.

Good luck all, and thank you all for your contributions. Your posts and responses to my posts been very informative.

This is mostly a question for those of you with a long history of investing in financial stocks and/or those of you with industry experience…

What is the likelihood of a takeover bid coming in while the SP is so suppressed? Surely if a large bank wants to acquire an undervalued bank with an exceptional TAV/MC, they’ll be watching Close Bros closely?

Moreover, I imagine there are certain discussions going on behind closed doors regarding the likeliest outcome for the DCA compensation? In other words, it wouldn’t surprise me if certain individuals in certain positions of power are more informed than we are, in regards to how this all ends.

Pure speculation of course, but just a few things which are on my mind.

When valuing this stock, I allowed for a £400m hit (which I believed included a conservative margin of safety). With the money being set aside in the meantime, my theory was that by the time this is all concluded, the payout would be a mere balance sheet item, resulting in the SP re-rating to fair value upon the liabilities being quantified. What is the realistic worst case scenario here?

What’s really remarkable about this stock is that the FY22 and FY21 combined adjusted net income was c. £2.50 per share (statutory was around £2.40).

Yes, their earnings over a recent 2 year period were greater than the current market cap.

The last time I invested in a company trading at a p/e of 2 was Reach a few years ago at 60p. There was a significant level of risk and the company was largely regarded as dead and buried by the market. Within a year or so, I sold my shares for £3.88.

Personally, I don’t like financial stocks and I’d have loved for the court of appeal to have ruled in CBG’s favour, however, sometimes a stock is simply far too cheap imo, and I believe that this is one of those occasions.

In 2 years or so, I think a lot of investors will look back at this as a huge missed opportunity.

Even a modest rise to c.£3.50 sees this generate returns of around 50%. I’ll be amazed if it’s not trading well in excess of that figure in 2 years.

Imo, at even £4-£5 per share the worst case scenario was fully priced in.

What will the initial catalyst for the turnaround be? Dividend reinstatement? A modest share buyback? Supreme Court appeal? Guidance on the cost of damages?

I just hope that matters are concluded in a fairly swift manner as the market evidently hates uncertainty.

Prior to the DCA situation causing mayhem for the likes of CBG, this stock was trading at c.£15 per share.

That equates to a market cap, I believe, of around £2.2bn.

The current market cap is around £325m.

Is the company worth almost £1.9bn less today than it was back then?

Imo, the share price was a bit overcooked at £15, with, say, £10 per share being a more fair valuation. That would equate to a market cap of c. £1.5bn

Does the current DCA situation justify this trading at c. £1.2bn below fair value? Not in my opinion it doesn’t.

I think this stock is far too oversold, even in the event o a realistic worst case scenario.

The sale of CBAM has to be factored in of course, but I see some serious upside here once the dust settles.

Then there is the possibility of the Supreme Court accepting the appeal, or limiting payouts etc. Either event would see this multi-bag in short order imo.

To summarise, I think this stock is simply too cheap; far too cheap.

How can it trade so far below tangible NAV? Moreover, with all the cash being set aside, even a £300m-£400m fine (in effect) would essentially just be a balance sheet item.

At £5 per share, I wouldn’t take the risk, but at c. £2, I think it’s a low risk, high upside opportunity.

Mr Inconsistent aka Jimmy23,

Best of luck with Chariot moving forward.

Have they flow tested, valued and found a buyer for the water yet?

LWHL,

Director buying is the only thing that would reassure myself and the market at the moment, I think.

Looks like it was indeed a dead cat bounce earlier. I think the SP will settle at around £1 (probably rebounding slightly from the £1 mark, immediately after hitting it).

What I find odd is the reference to ‘meet expectations’, with no clarification as to what these expectations are. This implies a lack of confidence in targets being met to me, unless I’ve missed these targets? I’ve been through the last few reports and updates, but can’t find any numbers?

There’s no hiding from the fact that these are poor results in my opinion. Hopefully, the margin is destruction is short-lived, however.

The real question for me is how accurate is the outlook? Will be interesting to see in Darcy buys some shares in the dip.

Wouldn’t be surprised if this rebound is a dead cat bounce, so I’m happy to sit in my hands for now.

I’ve held my shares, but no topping up as yet.

I can’t believe how aggressively this is falling. Panic is appears to be setting in.

Will we see sub £4 again?

The billionaire could be wading in again? Or there could be a leaked takeover over bid?

Pure speculation of course, but I can’t see any relevant news story to this.

RetiredBanker,

I agree with you in regards to the demand for cheap shoes, but I don’t see what sets Shoe Zone apart from the competition in the long-term, and I think that’s evidenced by the margin deterioration witnessed recently I.e. why couldn’t they simply increase prices to maintain margin?

I like the business, and I don’t think it’s going bust anytime soon, but I think it’s fairly valued (or thereabouts) and I think it lacks a level of certainty, in terms of forecasting future performance.

In regards to moat, I think you raise a valid point. There is a space for such a business in the market, but I don’t think it’s a space where a business can truly thrive, due to the level of competition. Primark, George and others will always provide a sufficient level of completion to ensure that margins remain low. Any significant increase in margin, I would expect to be short-lived (as it has been). I think the business outperformed over the past few years, but I expect it to now see a reversion to the mean.

I could be wrong, of course. This is one of the few times I’ve seen a stock that really divides my opinion. Personally, I prefer a ‘sure bet’. SHOE doesn’t meet that standard for me, but equally, I wouldn’t be surprised if it ticks along at an ok pace, once it’s turned things around.

For me, it’s a coin toss where there probably isn’t much to be made, but equally, there isn’t much to lose. If I was a retired man with a diversified portfolio, it would probably make the cut for me (for a small position, albeit)