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Hi Wolf
Good points
I need to review the conf call again regarding the automation data it was some jump in productivity
Re Debenhams, first time they let slip ‘ GMV ‘ but didn’t provide the £headline
This platform is basically a tech /marketing play requiring little capital that has no requirement for the fulfilment centres.
An easy win is for Boo to spin this off with Alshaya Group to maximise the opportunity, makes sense to me.
Hi Hex
Thanks for the reply - fair comment
Could we look at it this way?Trying to see debt year end
We had £5M net cash back in April
We now have £35M of net debt after spending £35M on capex
if we have another £40M of capex H2 that’s £75M full year
Boo indicate they are there with inventory so no more FCF cash to be had here ?
They indicate 4% to 4.5% at best for margin so net debt year end must be £75M if all other costs are same ? Ex EBT
We then look at the total product mix and can they squeeze more margin from the ‘premium ‘ brands ? Is it enough to bring the overall margin above 4.5% ? Without doing so and assume their full year forecast for revenue is correct then the best year end result is £70M EBITDA and net debt £70M
What’s your call ? Does that look right to you ?
My take on today / reflection after conf call
Think it’s fair to say the BoD were not as confidant with today’s presentation as they were back in May in terms of delivery for H2 but they did deliver on their gross margin target H1 and they had said 10% to 15% down in revenue H1 a
FCF at minus £12M after £35M capex
To me they generated £23M of cash but spent it on capex and used £12M of debt to cover / top up to the £35M in total - suggest it’s the only way to measure the business Performace
They say apparel inflation is 8% which they didn’t pass on and they passed on a big chunk of deflation for Air Freight keeping their prices lower - net net they kept less than 1%
3.6% to 4.3%
Any smaller brands are not doing as well are rolled into Debenhams
It doesn’t look like any more inventory savings of note - the CFO was pretty clear
Outcome
4.5% EBITDA
£50M to £70M EBITDA
IF Boo are not going to retain more of the margin saving then other than cost cutting people then FCF negative has to widen year end to the 1X EBITDA
Helicopter view that’s the crux of where we stand today, I was hoping the would keep 2% of the 8% as a figure but they reasoned why it was under 1%?
Is the above a fair reflection ? Hex what do you think ?
Hi Hex
FCF ‘ £12M minus
Gross margin for last year was overall 50% to 53% now
Capex down to £75M from £85M
£70M now top end guidance vs £78M as you say
We now see if MA/ EBT / Kamanis add
Let’s see what they say on conf call and will they give the market some specific news on the brands?
Adjusted EBITDA of £31.3 million. Adjusted EBITDA margin of 4.3%, up 30bps year on year reflecting improvements in gross margin, distribution cost efficiencies from automation and overhead cost reduction
· £36.3 million of capital expenditure as we build the infrastructure for future growth, including capacity expansion as part of the Sheffield automation project and US distribution centre ahead of its launch
· Free cash outflow of £12.9 million, reflecting capital expenditure in strategic projects. Balance sheet strength maintained with £290 million of liquidity headroom on the Group's £325 million Revolving Credit Facility
For me short term about the EBITDA margin and FCF on the numbers tomorrow and will they highlight Debenhams growing revenue?
I think Debenhams as a brand is becoming a valuable asset within the group ( of brands ) it doesn’t require the USA / U.K. fulfilment centres nor capex as such and is a well thought of brand in MENA, 23 stores and growing across multiple countries
Not saying this will happen tomorrow but a corporate event to spin off Debenhams with a UAE listing could well have merit down the road as an Idea? - pure speculation btw but makes sense if this brand is performing and we know it’s profitable, maybe the Alshaya Group could buy in ?
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Hi Hex
Fair post / comments, agree with your gist.
I could be out with the 5% + FCF minus £10M to Neutral, would settle for 4.75% if we can FCF neutral and from a market point of view that would be a decent result.
Anything around last years 3.5% and £50M negative and the share price takes a knock unless EBT /MA / Kamani’s step in, hence I can’t see us holding the 22p(£275M m/cap ) being muted.
Let’s see tomorrow
Fair comment Bon
IF and it’s a big if as don’t know as yet
If Boo are close to 5% and FCF neutral and that’s after spending maybe £5M on Rev B shares/ legals and £40M capex plus £12M opening the USA fulfilment Centre, then the Shorts have to think how much more to go for them for the risk /reward ? They have called it spot on to 31/32p is there more in the tank ? Am not sure there is?
Boo EBT & MA/ Kamani’s may add, the former will, it’s been their MO recently but we don’t know about the others?
Thanks Brass
Posted -the last 2 weeks- a few of the Q&A with Stevenson and the BoD, he does his homework
Jeffries are singing off the same hymn sheet
4.75% looking like the possible margin, am still holding out for a 5 but appreciate non of the brokers think same
Cutting inventory is key to getting that FCF as close to neutral as possible
It looks highly likely we will see the 10% to 15% reduction in pure apparel sales but we may see a marked increase in Debenhams revenue which is a market place / no stock of note
I can’t see PP Pedro posts - the same person - as the poster offers nothing and it’s pointless reading their unintelligent garbage so I can’t respond to the message
CBA debating with PP who is not invested and looks to many of us they are mentally unwell
Re the 22p being muted, who knows, it would have to be pretty bad to get us down to £275M
We have £135M property no charge and maybe £24M Rev B stake
22p would be valuing the rest of the business at £116M ?
Including stock and the brands below
PLT does £750M making £75M profit
Karen Millen
Debenhams - we know it’s making a profit
Put aside the Boo EBT will be buying shares as they do and then it’s a toss up with MA buy more at this level or Kamanis
Suggest it why we have not seen a big increase by Shorts
Stand corrected if anyone can show how we get to £275M?
One more trading day to go and find out how the turnaround plan is going
For balance
Peel Hunt have us in for 4.75% and £775M call it £35M?
Capex on a straight line £42M but could higher as H1? Annual is £85M
Exceptional’s £12M for USA ?
Finance / legals £8M minimum
£62M less the £35M profit we would have a negative FCF of £27M
Again on a straight line bases to last years accounts the reduction in inventory could be £12M plus whatever else they squeeze out but vs this we have had to stock USA however small ?
Then we have a potential cut to marketing which would feed to EBITDA, that’s the big guess, did they cut or not ?
Even £10M from the budget helps gets them to 5% plus and they are 50% in the bag of the top end EBITDA guidance of £78M for this year
There is a fair chance they are pretty close to FCF Neutral IF they have managed inventory to bring the overall working cap days down again
Let’s see on Tuesday
We know Boo had just 200 staff July /August in USA
Then early August started recruitment for 400 staff - start September? DHL told us
Full automation will be phase 2 2024 - they told analysts in May
We know they told the analysts back in May next 4 months in affect USA will be supplied via Sheffield and steady build up in USA and stepping up September
I could be wrong but I wonder if supplier consignments are billed 1st September? Could be ?
Explains marketing presence so low H1 but increased H2?
I think it’s pointing to a surprise on inventory, they even told analysts in May that April was better with more to come ?
Lots of If’s and Buts but pointing to Inventory being tightly controlled H1
Tuesday going to be interesting
Thanks for sharing West - wasn’t expecting to comment this weekend as not much to talk about, interesting post
So Peel at 4.75% EBITDA if we have the full 15% Rev reduction
Let’s hope Boo pull a rabbit out the hat and get us a 5 in front of it, all about capturing deflation not headline revenue at this stage
Minus £15M FCF to Neutral IF they can squeeze working cap