Member Info for LorenzoLynch

Simes20,

You've set up an account on here today. Since doing so, all you've done is attempt to de-ramp Card Factory whilst contributing absolutely nothing of any substance to the BB. You remind me of a few faces we haven't seen on here for a while for some reason. Talk about 'obvious' :D. What name are you going to opt for when you next set up an account on here? TransparentClown would be quite fitting imo. Can you please show me (using numbers) how you've arrived at the conclusion that we 'could be looking at under 20p soon'? What stocks do you actually hold in your portfolio?

Noisey,

My hypothesis: the market expected the RNS to be slightly more positive than it was. Consequently, we saw a slight downward movement in the share price initially. Once it was apparent that the share price was likely going to head south or, at best, consolidate, I expect that CF traders starting selling out of their positions. I mean, why would such traders continue to hold CF when there is no obvious catalyst for a share price increase in the near term? They'll surely be back for the next round of results though

Dan,

Something I forgot to add: I completely agree with your statement regarding the importance of CF thriving in the future, as opposed to merely surviving, but being as highly leveraged as we are, in the current economic climate, I think we should focus on survival and improving our balance sheet for the next 12-24 months. Rome wasn’t built in a day and I believe that this company needs to be rebuilt on much stronger foundations that it has at present. I think there are amply opportunities for us to capitalise on in future, so for now at least, the growth strategy is not at the forefront of my mind. That said, I still expect CF to perform reasonably well over the coming months; should CF report a loss over the next 6 months without very good reason (a 4 month lockdown, for instance), it will indicate to me that the company could very well be on the decline, but that’s a story for another day

Dan,

In terms of cash generation, operating free cash flow was £36.1m over the most recent 6 month period... on the back of a lengthy lockdown, with the stores being closed for almost 3 months of that 6 month period, in the quiet half of the year for us (as you’ve mentioned umpteen times previously, and rightly so). I think that’s quite remarkable, given the circumstances. The high street was never going to recover overnight, but I expect footfall to return much closer to normal levels over the Xmas period as people buy their Xmas shopping; speaking of which, I expect our gifts to fly off the shelves in the run up to Jesus’ birthday

While we could split hairs over the numbers (the £8m grant, for instance), what we do know, is that these results are likely not an accurate reflection of how CF will perform in the next 5/6 months, let alone 5/6 years. The turnaround has already begun imo and it appears as though we have sufficient headroom, even if the realistic worst case scenario should occur, so I have no complaints at all and my only major concern is in relation to future lockdowns. When I’ve finished work tonight, I’ll look much deeper into the numbers and share my thoughts on here

Then why haven’t you sold your shares Pfen? You could have sold at 90p? I don’t know what irritates me more, your blatant de-ramping or the way you pretend to have a single-digit IQ

In terms of risk management, these paragraphs caught my attention most:

The Group has modelled a number of severe but plausible downside scenarios involving further closures of its stores, including scenarios where government imposed lockdowns require a three-month closure during the winter period including where the Group's stores are closed for the whole of the peak trading month of December 2021.
On the basis of implementing a number of mitigating actions, the sensitised forecast cash-flows indicate that, even on the basis of full closure for the three months, the Group would continue to be able to operate within the terms of its facility and to settle its liabilities as they fall due for a period of at least 12 months from date of approval of these financial statements. Based on these factors, the Board has a reasonable expectation that the Group has adequate resources and sufficient loan facility headroom and accordingly the accounts are prepared on a going concern basis.

Until the business has no outstanding amounts under the Term Loan and CLBILS facilities, there will be a prohibition of any payment to shareholders by way of dividend or share buy-back. The facilities are structured to incentivise an early reduction of overall debt, with fees of up to £5m payable if pre-payments are not made in line with specified dates by 30 November 2021 through until 30 July 2022. The Company is permitted to facilitate these repayments through the issue of new equity or by using funding from subordinated debt sources. The Company continues to evaluate the options available to the Group and will update further as appropriate.

I hope the above statements alleviate some of the market’s concerns regarding CARD

Jed,

Whilst I understand your reasoning and also believe that no investor should ever encourage another investor to purchase or dispose of shares, I think it’s highly unlikely that a placing will be announced in the interims, primarily for the below reasons:

- To the best of our knowledge, there is no immediate requirement for a placing at present
- A prudent, experienced and diligent CEO acting in the best interests of themselves and shareholders would not announce a placing whilst the share price is depressed (a P/E of 4 based on pre-Covid earnings), when the share price will almost certainly increase significantly in the event of positive interim results (and we have no reason to suspect that results will be poor imo)

Should the share price of CARD find itself around the £1 mark after the interim results, however, I think it’s possible that Darcy could then decide that a placing is justifiable, so I’ll be ensuring that have a sufficient amount of cash available for such an event. With the above said, none of us can predict what is going to happen, but we can, and should, ensure that we are fully prepared for either scenario

Danl90,

MoonPig may expect the market to shrink, but CF expect it to remain stable until 2024, giving us ample opportunity to expand the business in other ways (as we are currently doing). The U.K. greeting card market, according to CF, is valued at £1.3 billion, so I wouldn’t panic just yet, especially when you consider how much of our revenue comes from our gifts. Moreover, MoonPig’s statement evidences that there is demand for purchasing greetings cards online, which should have a positive impact on our future online sales. What moat does MoonPig have that we can’t compete with? We can produce cheaper cards and we have a large physical presence that we can use to advertise our website for pennies. As I’ve said on this BB several times before, if I was the CEO of CF, I’d focus a lot of my efforts on online expansion (whilst keeping the high street as the main earner), as I think the self-cannibalisation would be minimal

Firstly, to those of you who have shared your research and offered real value to this BB. Like many of you, I have a balanced view towards PRD, but I’m invested here as I believe that the risk vs reward on offer here is tremendous, especially after the recent capitulation in SP. I’ll refrain from giving my opinion on the company at present, as I’m no expert in this field, albeit I am learning more by the week.

Secondly, I’d like to thank the derampers of this BB for never failing to make me laugh. It inspires me with confidence seeing how clueless they are. The post earlier that referred to a 300% loss was the tip of the iceberg. Get this man on stage at the Apollo!... if he’s not too busy down the circus, that is :D

Tovers,

Speak for yourself mate! Some of us are thoroughly enjoying frequently topping up our holdings on the cheap! Myself and my bank account are eternally grateful to the derampers (who have interestingly disappeared recently... mission accomplished, perhaps?)

0109,

I'm equally impressed with the results, albeit I've only scanned over the RNS as I've been busy today. Imo we have a strong management team, lockdown-proof earnings, inflation-proof (price inelastic) goods, a healthy balance sheet and we're growing in a sustainable manner (as you've said, acquisitions should play a key role here). I also like Creighton's products and how affordable they are. My current valuation for CRL is slightly north of £1 per share, but I expect revenue, profit, and consequently my valuation of the company, to increase during the next 12 months

Roxbury,

From these lowly levels, I expect a 2x (at least) once we've adequately strengthened the balance and earnings have recovered to pre-Covid levels. The only question for me is how we're going to get there e.g. will a placing be used to get us there as quickly as possible. A quick glance as Saga's financials tells me that you'll probably live by the sword with CARD, prior to dying by the sword with Saga, so I can see where you're coming from :D

Rox,

I topped up yesterday. I’m incredibly confident, but CARD still only makes up 18% of my portfolio (I don’t like having more than 10% of my money in one stock). If I had 60% of my portfolio in one stock I wouldn’t be able to sleep at night! You’ve got some serious bottle. I take it you’ll be trimming on the way up to fair value?

Dan,

If I was trying to ascertain what our cash position will be in Nov, then yes, averaging would be a stupid thing to do, but it has a use in establishing a shortfall over a 12 month period. Does it tell us everything we need to know? No, but neither do your calculations. If I wanted to estimate how much cash we'll likely have in November, I'd do my own cash flow forecasts based on different scenarios and I'd use bracketing to give a lower end estimate (for a realistic worse case scenario) and a higher end estimate (for a realistic best case scenario). It's not a difficult thing to do, but it would be time consuming and pretty useless in this circumstance as the brackets would be so far apart. I imagine the bracket would be something like £10m-£70m. What use is that to anybody? Hence why I'm prepared for any situation to unfold. I'm not just going to make an educated guess. Imagine if we have a 4 month lockdown covering Oct, Nov, Dec and Jan 22. What use would your calculations be then?

I assumed that the business had been putting cash aside from May, yes. Obviously it isn't as simple as accumulating the same amount of cash per month. I should have made it more clear that that's not what I meant. I understand the confusion now. I can't recall my original post now, but I was basically looking at the company over a 12-month period (say June 2021 to June 2022), which of course, would eradicate any seasonal fluctuations. The question I asked myself was 'do we absolutely need to raise £70m via an RI?' The short answer was probably not, because as you've said, we should be in a strong cash position in January. The 3 most likely things to make a £70m RI occur imo: 1) As you've pointed out, we may need to raise a significant amount of capital for the production & sale of Xmas stock (I haven't attempted to calculate this yet), 2) A black swan event, such as another lockdown and 3) Darcy may decide that reducing gearing should be prioritised as it would open the door for institutional investors and reduce risk. However, I do think that Darcy would have announced a raise at 90p+ if #1 or #3 were his main concerns.

On your point regarding liquidity, as I've said countless times now, it's really not a concern for me. Having to raise £70m due to a short-term liquidity issue is completely different to having to raise £70m to prevent a business from going bust or from paying a £5m fine that the business can't realistically afford, because in the former situation, the £70m would be reflected in the balance sheet after the stock had been purchased and sold to customers. The market would then correct itself, and as shareholders, we'd likely be no worse off. In fact, we'd likely be better off as a stronger balance sheet should theoretically command a higher P/E.

I shouldn't have been so lazy in my initial explanation, but it was a very rushed post with a limited purpose

Dan,

That'll be my last post on this subject as I don't wish to waste anymore of my time on such a pointless discussion

Genius Dan,

I really fail to see where you're going with this. Why do you think I'm unaware of how a seasonal business works? I'm not using averaging to establish what CF's cash position will be in November. As I've already explained, I don't care. Ironically, one of the main reasons why I use averaging with CF is exactly for that reason: IT'S A SEASONAL BUSINESS. I'm only concerned with how CF perform in each financial year. What use is even a 6 month period to me? If such information was useful to me, I'd have already included it in my calculations. Now, instead of trying to insult me, why don't you educate me? Please tell me how much money we're going to spend on Xmas and Valentines stock, how much cash we're going to have in the bank in November and December, and as averaging is for idiots, please tell me what our revenue and costs are going to be for each month from now until July 2022. May as well just do a full cash flow forecast, but make sure you include 'very low' in your calculations to ensure accuracy. Cheers.

Dan, if I was concerned about how much cash CF will have in November, I would have already done a cash flow forecast based on educated assumptions. This might surprise you, but at uni, I had to analyse company accounts and cash flow forecasts on an almost weekly basis. I also had to cost and value multi-million pound investments based on my own assumptions and comparable evidence, so I am quite capable of GCSE-level maths and estimating. As said above, I am averaging, because unlike yourself, I am not trying to establish what our cash position is likely to be in November. My concern is whether or not we're going to remain solvent, and averaging is more than sufficient for that purpose. What use is knowing how much cash we're likely to have in November when we don't know how much the banks are going to request from CF in Nov and Dec? It's a completely pointless exercise imo.

I would presume that the banks would request a cash flow forecast from the company, which they then analyse and scrutinise, before analysing their accounts from recent years. I would expect that they would then create their own cash flow forecast, which they would compare and contrast with CF's forecast. That's what a chartered surveyor would do, anyway. The problem here, however, is that I'm not a bank and I don't have access to their forecast, so it's mostly irrelevant to me until CF inform us of the details in a TU later this year. I haven't assumed flat income, I was merely treating CF as if the company has a flat income in my calculations, as that allowed me to roughly estimate how much equity we may need to raise. Yes, that figure could change significantly for a whole variety of reasons (of which we have already mentioned several), but I'm not concerned about that. We could establish that the company likely needs to raise, say, £20m, but they could still raise £50m... again, making a detailed projection a complete waste of time

Dan,

According to the annual report, receivables currently stand at £9.2m, which is 13% of the £70m. Of course, it’s not that simple, because we also have outgoing receivables, but sure, why bother with actual numbers when we can just settle for ‘very low’. My original point was that I used averaging, because there are so many unknowns in the equation, and if you start using incorrect numbers in calculations that involve millions of pounds, the compounding effect can often leave you with numbers that are significantly more misleading than if you simply used averaging. Next time however, I will just put ‘very low’ into my calculator and then I’m sure I’ll know exactly how much money we need to find each month and where it’s going to come from. For all you know, we could have a new deal lined up with a large retailer or two. Wouldn’t that increase revenue? We simply don’t know enough to make exact projections.

When did I say that the business would be ‘full of cash’? I expect the business to be cash flow positive in those months, yes, but I can’t recall stating that we’d be ‘full of cash’. As I’ve said before now, so what if CF is ‘pregnant with stock’ during the Xmas period? Does that mean that we’re 100% going to have a £70m RI? I’ve used averaging, because neither of us know how ‘pregnant’ CF will be at the period, nor do we know countless others things about the business... hence why I used averaging, as that at least gives us an idea of how much cash we need to find, albeit it doesn’t tell us when we’ll need any of that cash, but as you’ve admitted, you don’t know that either. How and when we raise cash is irrelevant to me. What I care about is knowing that the business is going to survive and then thrive, and I’m very confident about that. I couldn’t care less about the details at present, and I’ll care even less when this multibags for me again.

If the bank want £40m over such a short period of time, we’ll raise funds, one way or another. So what?

Cheers Dan,

I didn’t know that businesses worked in such a mysterious way. I used net income in my initial calculation to make an allowance for that as well. It’s impossible to give a detailed forecast when we don’t have access to the information required. For instance, do we know when our receivables are due? Isn’t that an important factor when considering working capital? In my calculations, I’ve used averaging, because I accept that I don’t know the full details, whereas you seem to think it is more appropriate to take a complete guess and then treat your guess as fact. I prefer to take an average, and hedge my bets. If we don’t raise any equity, I don’t mind, because I’m a long-term investor. If we raise £70m, then I will buy more shares on the places. If CF issue bonds, then I will purchase the bonds. As I’m prepared for any eventuality, what is the point in splitting hairs?

Ok then, let’s assume that we don’t save £1 until December. In this hypothetical situation, we could simply raise, say, £20m in the form of issuing bonds or an RI, then we’d be in the clear. If 40% of our revenue is made around Christmas, why would we struggle to buy stock for Valentine’s Day? That makes no sense whatsoever.

They might very well make much less FCF than I’ve estimated, but as I’ve said, I don’t really see that as an major issue.

I see the benefits in a £70m raise for sure, but we don’t know if that is coming or not. I would have thought that CF would have announced a raise when the share price was above 90p though, rather than implying that a £70m RI could be coming, when that was obviously going to result in a sell off. Where is the sense in that?

Dan, why can't I use averaging for the purpose of estimating how much money CF will likely need to raise in order to make the repayments? If Christmas was due 9 months after the first instalment, then I'd understand your apprehension, but we're likely talking about 2 payments before we're in a solid financial situation due to Xmas earnings. Surely we banked a few quid thanks to Father's Day as well? Imo, should we need to raise capital before then, we can issue bonds or raise equity via a RI (I can't think of a scenario where more than £15m-£20m would need to be raised, so I'm not losing any sleep over this).

While the additional stock will cost us in November, we'll also see an increase in net income that month, which we could put towards the December repayment (if the repayments are monthly).

I can't say it reads like that to me and I don't think Darcy will entertain the idea of wasting £5m on a fine. Honestly now, if CF pay that £5m fine, I'll immediately liquidate my holding as I'll be of the belief that the company is being ran by idiots of the highest calibre. My understanding is that the recent refinancing (the increased RCF, I imagine) will cover the Capex, so we can do both. How much do you think we need to raise?

Dan,

I had to use an average monthly net income for ease of calculation and I believe it was sufficient to do so as Christmas is only 1 month after the first repayment is due. In terms of the Capex you've mentioned, Darcy stated that 'the recent successful refinancing provides the business with the necessary financial resources to focus on our future growth strategy' in the latest preliminary report. That sounds to me as if we've got that covered for now, but I completely agree with your point regarding the importance of us continuing to invest in future growth. A careful balance needs be struck for sure, and I'd also rather a small RI than us waste £5m on what would essentially be a fine or us neglect the growth strategy. The priority however, has to be sorting out that balance sheet imo, and I think we can probably do this by issuing bonds. If not, a small RI would likely be suffice. Thank you for your reply, because I wasn't giving enough thought to the financing of growth strategy tbh

Roxbury,

The director buy also speaks volumes to me, but it comes as no surprise at all. While the assumptions made by many of us are often based on 'very little', they allow us to put things into context and they help us estimate the level of risk. Without assumptions, business plans, mortgages, property valuation, insurance, money and economics etc wouldn't exist