Member Info for LorenzoLynch

Hexam,

Apologies, I should have clarified that I think it will get to £1.50 eventually. 2 years seems about right imo. I think we’ve got more chance of seeing 80p than £1.50 in the coming months though. I wouldn’t be surprised if we even saw 70p. I’ll be throwing money in if that does happen.

I mean, look at how oversold CARD has been in the past. People with paper-hands seem to love it (ironic coming from me after selling yesterday :D). On this BB, I’ve seen several people buy in heavily, then jump ship before it rallies. If your game is staying in, I fully understand that. I personally don’t have the stomach for it. In 2 years, you’ll almost certainly be quids in. Only a national or global crisis could prevent that imo

I sold out of my position today, although I do still see upside here in the future. I just think I’d be waiting a long time for it. As for the dividend, if we deduct the £3.5m one-off benefit to the PBT, apply a 25% corporation tax rate and then apply the payout ratio mentioned in the report, what are we looking at? 3.5p- 5p per share, per annum? Or something in the realm of that. It’s good, but is a dividend-mad investor going to pay today’s share price and wait until next year for it? I doubt it. The numbers look better at a glance than they actually are imo, although I’d say CF is fairly valued atm (give or take 10%). Some things that I don’t believe are being considered by some: - Net debt (£57m) should imo be added to the market cap, for reasons that I’ve mentioned on here before. That gives a current valuation of c.£417m (I’m using the MC provided on LSE, which might not be accurate). If we assume a 25% tax rate in the future and deduct the one-off benefits, net profit would have been around £36.5m today. That’s a p/e of 11.4. I don’t think we’ve seen enough yet for CF to warrant a p/e significantly higher than that, but I sell most U.K. stocks at a p/e of 12, because my primary concern is always not losing money.- The Capex spend isn’t peanuts for CARD, although I do think it’s the right move.- £650m revenue target is now FY27. Wasn’t this Scheduled for FY25, then FY26? Maybe my memory fails me, and it might have been a £600m revenue target initially. ‘14% margin’. What margin? Net? Gross? PBT? I can’t see where this is specified. - Look at the wider economic situation. This isn’t a pandemic bull market, so we have to temper our expectations in terms of valuation. - The balance sheet fails to limit downside (as we’ve seen before when CF has tanked to ridiculously low levels) - Opportunity cost. - While around £45m of net borrowings has been paid off, cash and cash equivalents has fallen by £28.5m. Cash flow was unimpressive for me. There are many positives and I think the management team are doing a great job, but I think the positive things are priced in. I like a sure bet, and I think this could fall just as easily as it could rise. I’ll be keeping a close eye on it, and at the right price, I’ll be back in. Since 2020, I’ve ridden it from the lows to near the highs twice. I’m not risking those gains in hope for an extra 20p per share. Some argue ‘it could go to £1.50’. I’m not sure how they’ve arrived at that conclusion and I haven’t seen any calculations that convince me. At £1.50 per share, market cap + net debt = £572m. I can’t see it, but once net debt is reduced to nil, cash flow has improved (no interest on borrowings to pay or borrowings to pay off) and the growth strategy is properly underway, sure, this is certainly achievable imo, if not, likely. I’m looking forward to when this is in sight. That said, the market makers allegedly determine the SP here, so i

***en,

Compare CARD’s balance sheet back then to the balance sheet today, then add in the far superior management team at the helm and the online growth… not to sound condescending, but there’s a lot more to valuing companies than just using a P/E ratio. Although I must admit that I often feel alone in this way of thinking. For example, 2 companies in the same industry can have a net income of £100m each. Apply a p/e of 12 for both; resulting in a valuation of £1.2bn each. Now what if one company is burdened with a net debt (excluding L.L) of £800m, while the other is debt free, with £2bn of cash in the bank. Should they not be valued differently? I would sell every share of the former at a market cap of £400m, yet I consider holding the latter at a valuation of £3.2bn. The market rarely seems to make this distinction though, or at least not to the right magnitude

As most of you here are value investors, it might be worth having a look at National World’s (NWOR) full year results today. Draw your own conclusions of course. I’ve been a holder for a while and continue to be

Exceptional full year results today imo, especially considering the recent headwinds and how they battered one of NWOR’s main competitors during the same period. I think there’s plenty of upside here when net cash is factored into the valuation. By my estimation, the dividend will cost under £1.3m, leaving us with over £25.5m cash once it’s been paid out to shareholders. Looks a very sustainable dividend in relation to net income as well. I’m astounded at where the share price is, considering where it has been previously with no dividend, a much higher reliance on print and circulation and far stronger inflationary headwinds

Billybob,

Cheers for that. I just looked at the FY22 report and amortisation only came out at £2.9m last year, so it looks like it could be mostly be the right of use assets again. There was also a £5m impairment on right of use assets. I’ll read into FRS17 this evening. I’m also mostly impressed with the increases in earnings, but also with the reduction of net debt. I think I’ll be holding for another year, as that net debt should be even lower, assuming the dividend is reasonable, and not as unsustained as it once was

Stach,

What date will the annual report be released on and what is Card Factory’s financial year then? Please take a quote from the RNS.

The profit before tax and EBITDA I’ve used are from the last CF RNS. Please explain to me how they’re forecasting £106m EBITDA and only £48m profit before tax? ‘Interest’ payments in the first half of the year were £5.7m (from memory). You think they’ve paid £52.3m in interest in the 2nd half of the year? If you look at previous annual reports, they have written off sizeable amortisation sums, and I think it’s highly probable that we will see the same this year. Why wouldn’t they when it’s evident that their intangible assets are ridiculously overvalued (roughly equal to the market cap… and more than 6x profit before tax). Occasionally with investing, it pays to make assumptions. Mine have served me well to date. The other assumption that I’ve made is my own subjective valuation of the company… doubt I can find that in an RNS. What’s your valuation of Card Factory and why?

The elephant in the room for me with CARD is the huge difference between the forecast EBITDA (£106m) and forecast profit before tax (£48m) for FY23. I estimate that the interest/finance cost for FY23 will be around £11.5m (say £12m), leaving us with £94m. £94m - £48m = £46m depreciation and amortisation. Looking at previous annual reports, I think £20m or so of this will be amortisation. Consequently, the cash generation should be significantly better than the profit before tax implies. I don’t think CF’s intangibles are worth anywhere near the value they assign to them, so I always write them down by £200m or so anyway when valuing the company. To summarise, I think the real profit before tax could be around £68m. I don’t understand the tax-saving implications D & A will have, but let’s just assume that they pay the full 25% corporation tax. That results in a net income of £51m. I assign a p/e of 10 for CARD (conservative, I know). An argument could be made for net debt to be factored in, and I do that currently, but at the rate CF are paying off debt, they could move to net cash in the next 12 months. A £510m valuation in a year, assuming no growth? Just my 2p on how I value the company

Ladin is correct Stach:

'As a result of the continued trading momentum, the Board now expects that EBITDA for the 12 months to 31 January 2023 (FY23) will be at least £106 million'.

Is Card Factory's profit falling? In tough economic times like these, I highly doubt it. The time for concern is when the economy is booming and the share price is flying into the stratosphere

Can't say that I agree with the NAV here, but pre-covid earnings were exceptional, in relation to the current market cap. Can anybody who has an extensive understanding of this company and/or industry shed some light on how likely AVAP is to return to such levels of profitability. Also, what sort of timeline is expected for this to be achieved? I understand that none of you have a crystal ball, but this is currently outside my circle of competence

We’ve only just reached the inflexion point here and we’ve seen a strong performance after a year of headwinds. This hasn’t proved anything in terms of how profitable CARD is going to be; what this is shown is how resilient the company is in the face of adversity. The balance sheet is getting stronger y-o-y, which should start drawing in the attention of the institutions. Next years earnings and a dividend reinstatement are going to send the share price significantly north of £1 imo, and I mean significantly. £50m net profit is very possible imo. A £600m market cap once that’s achieved?

Lag-sword,

What about after you’ve hit the £20,000 limit (aside from a SIPP, as I have no interest in locking up my money until I’m 55)?

Wiscos,

I’m very grateful for ISAs and the like; we’re much more fortunate than retail investors in many other developed countries. I agree that it’s not the end of the world, but the country is far from bankrupt. Debt is only a concern when it suits. During 2020 and 2021, they couldn’t print money quickly enough. Our economic problems, imo, stem from a lack of productivity. The financial economy isn’t overly difficult to stabilise… unless you deliberately suffocate production whilst increasing the money supply. Where have I seen that happen recently? Call me an idealist, but as I didn’t benefit from the Covid policies at all (not even £1) and consequently found myself out of work for a year, I don’t see why I’m now expected to pay more tax; especially when you consider where much of the QE cash has ended up (residential housing, used cars/vans, pockets of bent businessmen etc). I’d rather lose my money in a casino or a marriage, and that’s saying something! Ah well, I don’t think it will affect me for the next year or two, and it’s no big drama anyway

N1shares,

I find it quite remarkable how you’ve referred to Yorkshireman’s comments as ‘rubbish’, when what he’s said is evidently correct. Are the govt discouraging small investors? Yes. Are the govt penalising poorer investors for no good reason? Yes. Are the govt attempting to reallocate wealth at a time when doing so is absolutely critical for the long-term future of the United Kingdom? No. Could the govt increase revenue by targeting wealthier investors? Yes. Are they doing that? No. Labour and the Tories are two sides of the same coin imo. No matter who wins our elections, the same people will own all of the important assets in this country. That’s all that really matters to our politicians; that and the opportunities that are presented to them as a reward for protecting and enriching the British establishment. All we can do is emulate their legal ‘tax avoidance’ tactics. Unfortunately, an ISA is still sufficient for me… for now

Mdunsire,

What makes you think that? Btw, the pawnbroker that I was invested in previously was HAT. I sold my entire holding a while back at around £4.45. No value left in it from here imo. The time for counter-cyclicals has come and gone imo

Badflaw,

I asked you when he shorted it. That’s a question, not a declarative statement. How can I be wrong about that? You have proven my point with that post. Do you honestly think that such a post offers a sufficient level of analysis? In my experience, the devil is often in the detail with stocks. I’m not going to share everything I’ve learned, because it’s all written in the reports and presentations, but I’m going to respond to some of the points Robbie made.

1) The share price rose, because the market didn’t realise that CF were able to use their RCF to make payments on their liabilities which were due sooner than the expiration of the RCF. They also paid down some of the debt with cash flow. This was done with the business being closed for several months of the financial year and at a time when high street footfall was low.
2) Continual decline: mostly because we’ve just had this thing called a pandemic. We haven’t had a full year of trading since Covid-19 first landed in the U.K.
3) The ‘guff’ about FY26 doesn’t interest me. I haven’t factored it in to my valuation at all. No management team can foresee that far into the future, so I think it’s a ridiculous target tbh.
4) Net debt excluding lease liabilities (which should be excluded, as lease payments are paid from revenue, not cash, providing that a company remains profitable) looks expensive vs last years net profit, yes, but is that the most accurate reflection of CF’s earning power moving forward? You think we’re going to have lockdowns every year?
5) Nobody buys cards anymore, yet over £1bn is spent on them every year in the U.K?
6) The CFO is leaving… isn’t that a good thing, considering the dire state of the company’s finances, according to yourself and Robbie?

I cba to respond to your comments at the bottom of your post, because they don’t make a lot of sense to me and a response wouldn’t contribute to the B.B. I’m not trying to belittle you, I just think you’ve got this very wrong. I don’t think CF is perfect btw, I just think it’s very undervalued and I expect the business to perform well during the next 2-3 years. I don’t forecast beyond that

Badflaw,

When did Robbie open a short in CF? I can't see a CF short position on his website. Ok, so you've never posted on here before, but you're now posting entirely one-sided negative posts about CF, even though you don't hold a long or short position in the stock... and you're doing this at a time when you want the share price to go up? What are you smoking?

Badflaw,

You seem like a very genuine, well-informed trader. Your comment 'Might be ok if it was an online business but no-one really shops much for cards anymore and the youth of today have given up on Xmas cards' is the sort of statement I'd expect from Warren Buffett or Charlie Munger. Are you sure that your CARD short isn't still open? I'm just trying to ascertain why a transparent, upstanding person like yourself would attempt to de-ramp a stock PRIOR to opening a new short position. Why not just open a short, then watch the share price capitulate as the company goes bankrupt? I mean, CF doesn't get even one customer during peak hours, according to you. All things considered, I'm left wondering if you're clinically insane? I'm not sure what your game is, but I can see that you're not very good at it. I'd like to buy more shares at 30p-40p, so please continue to de-ramp. I strongly recommend looking at the 'going concern' section of CF's last annual report, BBC News and the Mayan calendar for some ammo.

Badflaw,

I’ve read the most recent edition of The Naked Trader, and with all due respect, it’s an incredibly simplistic book. It was one of the first investing books I read, and all things considered, it was the least informative, by a distance. It doesn’t even scratch the surface. If you’re shorting companies based on what you’ve learned from that book and his seminars, I hope you’ve got deep pockets. Don’t you think CARD would be heavily shorted by numerous institutions if it was in a situation half as dire as you believe? I couldn’t care less if you keep your short open, but here’s something to consider: wouldn’t it make more sense to short companies who have high debt, have consistently made losses (and are likely to continue to do so) and, ideally, have quite lofty valuations? USA was riddled with such companies during the recent rally, and they’re now dropping like stones