Member Info for Paulof2

No one wanted them at 10p either!

Opportunities like this don't come around very often. As I said back then and continue to stand by now - Value always gets found by out by the market eventually it was always just a case of a matter of time.

Still definitely has a long way to go though.

The only way you have to consider the debt and financial services element really is as follows:

If you had a business and someone said we want to borrow £600m from you at 59% APR. Would you take out a £400m loan at US commercial paper rates (<5%) to facilitate it?

Course you would and every business would bite their hand off for such an opportunity. It is very much a USP for n brown, it’s high margin and provides good stability in difficult times. Someone mentioned below the credit impact of tough economic conditions, however the business has been around for years, it’s performed consistently well through that time especially through the last recession which was actually when n brown had some of its largest years of profit.

The trouble is people look at the debt in isolation and don’t consider it with the loan book. That’s about as logical at assessing a business purely based off its costs and ignoring its revenues...

Spot on Skittish.

To add though we know that when lockdown was first announced sales absolutely fell off a cliff which was evidenced in their update and we know trade has been recovering since. Therefore I wonder if the cash generation is actually far greater than the average £454k, if you think there will have been a good few weeks of a big downward drag on that average. So I’d imagine that figure in recent weeks especially since lockdown lifted could be far greater than that figure.

I know I’ve mentioned this before but if n brown could maintain say a £100m debt reduction each year which certainly seems feasible then in just 4 years time they are essentially a debt free business, but more than that they’d also have a whopping £600m loan book asset on top of that.

At that stage the loan book asset would be worth £2.10 per share alone. You’d also have all their other assets and a £800m + profitable business on top.

I know many people expect quick gains here and I agree it’s well deserved, but thinking long term even if trade continues at subdued levels we could easily be in the situation where just one single asset of theirs would value the company at more than £2 a share. A not to be scoffed at 300% gain over 4 years. It’s that what I think makes this an incredibly safe bet. I expect to see growth return but it’s good that even if it doesn’t return for some time the value of the business is constantly increasing in the background.

As Ian alluded to it’s simply not right to be comparing the brands to the likes of Boohoo it’s a completely different Target market.

It’s like the famous quote from Lamborghini marketing, you never see a Lamborghini advert on tv, because the people who can afford them aren’t sitting around watching tv. It’s the same situation here by large especially for the likes of jd williams where I believe the average age is 50+ the vast majority of the target market simply isn’t on social media so why would you be looking to push it. They’re not going to be getting anywhere near the same engagement as brands like boohoo who’s whole target market is younger people who are glued to social media.

I’m sure as time goes on, the population ages and there’s a older digital generation the focus will shift more towards social media.

That being said I do know that a lot of the current social media team were let go to bring in new people during covid so it’s definitely something they identify they can improve on.

Hi Skittish, sorry maybe I should have been clearer don’t want to spread false hope. If I was in charge I’d be looking to do the buy back but as you say no indication that they’re planning to.

The interest in the securitisation facility is absolute peanuts though and the amount they’d saved on dividends in just a year or two would offset that. That being said I do agree that the debt does unfortunately put people off as they don’t understand it.

Just to add to some other great points others have mentioned you need to remember that this was previously a huge dividend payer especially compared to the industry norm. I believe the clientele effect is why it’s currently dragging its feet somewhat.

Sure enough though dividends will return, the debt will be at a much lower level and the business will be coming out of covid much stronger than when it went in. When those dividends do return this will fly. We’ve all seen between the past announcements how quickly they have been generating cash so they can certainly return to dividends at some point without trouble.

That being said if I was them I’d definitely be considering a share buy back rather than paying dividends at these ridiculous prices, it’s an opportunity they will probably never have again. I believe they were, before lockdown was fully lifted, generating about 500k net cash a day on average so really in just a month they could be using that cash to buy back at least 1/10th of the shares and they’d then save that amount on future dividends in just a few years, no brainer in my eyes.

Although impossible to guess I’ll go for 55p.

Lots of interest yes and still very undervalued but perhaps the potential buyers didn’t expect it to shoot up this quickly and we’re looking at even a 50% premium on the SP back at low levels. I’d love to see more but I’ll stick with a relatively conservative 55p.

I note a lot of people saying they should be driving organic and efficiency in marketing. I kindly suggest reading the report they put out and q & a. They know this and it’s something they have been driving for a number of years, marketing expenditure has reduced dramatically over this time .

It’s all well and good saying move from paid to organic but it’s not just a straight swap, you can’t just throw money at organic and get results straight away, it’s a slow build.

That being said about 2 years ago they recruited a whole new seo team which was neglected until then and the benefits are already starting to materialise as the marketing reduction has been very impressive.

I always think you can tell a lot by a companies recruitment, paused or stopped during challenging times and then really go for it when experiencing good growth when you have that added confidence.

N brown are now currently recruiting more than 70 active roles which have just gone up in the past two weeks or so. If that isn’t a sign that trade has dramatically improved I don’t know what is.

https://www.jobtrain.co.uk/jdwilliams5/vacancies.aspx?txtLocation=&lstLocation=&txtKeywords=&chkCategory=&lstRegion=&chkSalary=&lstDepartment=&optMatch=&chkDivision=&PageNo=0&AttachedSAF=0&chkdepartment=&chkEmploymentType=&cmbSearchwithin=&txtpostcode=

Value always gets found out eventually, good to see the II’s finally discovering it.

What I found interesting about the ASOS update was uk sales were actually slightly down while the big growth was overseas. While n browns overseas presence is limited it shows that the demand for online shopping increases even as lockdown is lifted.

With more people out and about in pubs and restaurants it’s no surprise so I’d expect a similar story for the uk in general but more importantly n brown over the coming weeks.

Very very impressed by that update.

They burnt 7m cash March to May but you need to remember this is when almost all their stores were shut of course they’re burning cash. Now they’ve reopened I’d imagine that burn would have reduced substantially if not turned cash generative with the mitigating actions they’ve highlighted but suppose we can only wait and see. I’ve been in and out here a few times recently with some decent quick trades but at these prices just took a holding for a long and will be picking up more if it drops further

I understand people always want quick results but this will likely be a slow burner I imagine.

Personally I’m just sat back relaxing knowing they’re currently reducing net debt by about 500k a day so as another day goes by the share price might not rise but the underlying value of the business is and the two will match eventually.

Hi Skit, you’ve made some good points regarding debt. However, just an FYI n brown no longer has any physical stores they were all closed last year, the 10% non digital is catalogue based customers.

In my eyes the reason the sales have not recovered fully is because this was a very heavily marketed business, they’ve said their operating costs are reduced by 46% and majority of that is marketing so in any business with that scale of a marketing cut you wouldn’t expect sales to remain flat.

It’s not necessarily a bad thing and in my eyes is the right view, when the demand is there as people go out and about and on holidays they can start to rescale up the marketing albeit through more efficient channels and I’ve no doubt the sales will return. In the Q &A on Thursday they mentioned how going forward there will be a continued reduction in marketing but it will flex back up once the demand is there.

So it’s definitely a deliberate move and they acknowledged in the Q&A that this is the perfect time to accelerate that transition, they could throw millions on marketing to get those extra 20% sales at the moment but likely to have little impact or even be negative on the bottom line.

Hans, while I do agree with you there have been some questionable decisions i do think the existing management team need some credit for recognising them.

When you’re growing substantially as they were at the time it’s easy to really be looking for new opportunities, the us is a natural progression and the stores provided much needed high street visibility.

However what I respect is that when they noticed they weren’t working they didn’t dawdle they just stopped them. They recognised stores were making a loss and so closed them and noticed that the us wasn’t particularly profitable so reduced operations there. Those initial decisions were made by previous management but it is this new management that has recognised they weren’t working and took action. Let’s also remember that when they announced they were closing stores they got a lot of stick from people saying it was the wrong decision, but given the current environment it’s one of the best decisions they could have made.

The new management teams has been solely focused on ‘driving profitable growth’ as they put it, that’s seen the revenue fall in some areas such as through direct mail as they’ve scaled back unprofitable marketing for example but has lead to big increases in profit.

Profitable growth seems like the right approach to me in a business such as this so I think they’re now going in the right direction. I think there will be more on this tomorrow in the strategic review they have mentioned so will be interesting to see where that gets to.

That’s just a complete myth their share price was roughly 70 before covid, still almost double where we at now.

Sales fell after covid obviously as in almost every industry but then recovered to less than 25% down with a substantial reduction in marketing of 80% there’s been a number of comments calculating the impact of that on profit and it’s incredibly positive which will only be further improved by government support.

Also not sure what you mean by now even more so with regards to highly leveraged when actually net debt reduced substantially between the first and second trading updates?

Mostyn, they said home and gift sales are up 74% overall, not home essentials on its own. No doubt home essentials has contributed to that but doesn’t explain all of it, don’t forget almost all the brands sell home and gift items too.

For reference, on a full year basis LY home and gift sales were 203.5m , up 74% thats an increase in revenue of £151m

If they had drawn anything down on it they would have to specify the amount e.g drawn 10 million on it. Just like they did on the overdraft (before they paid off) and also like they do on the RCF

Really is some hopeless attempts at deramping here today, no doubt by people who sold on Friday. E.g ‘ They are deliberately unclear about the additional £50million loan from the gov over 3 years. Basically it's their entire cash balance. So without that £50mill, things look a lot worse’

What are you talking about, they haven’t even drawN anything on that loan at all so it is not reflected in the cash balance. They obtained that facility in case they needed it, they’ve not used any of it. There’s no reason to either seen as they generated substantial amounts of cash and reduced net debt significantly between the past two trading updates, and that’s when trade was at its complete worst.