Member Info for Peterson

I wonder if it had something to do with the SELL tip in the Sunday Times. There will always be some who slavishly follow these tips. Sadly I don't have a link to the article but it was little more than a regurgitation of the recent negative broker piece i.e. company is alienating loyal players, management displays a contempt for the media, which smacks of arrogance & hubris, the share price has had a very strong run on a three year view so a de-rating / consolidation is inevitable, etc, etc. I would expect volatility to continue until the next Trading Statement (and news of the size of the further special dividend, as per last year when it came on 7 December) and / or first Half Year update in early Jan. To the extent these provide comfort around sales and costs GAW surely rally hard, as it is not expensive on a fundamental view particularly when compared to some of the crazy growth stock valuations out there. However, the opposite would presumably result in a further sharp retreat. No wonder the volatility in the price. Tug of war between Greed and fear, Greed and fear, as people position on either side. Who will be proved right? As a LT holder I have my own view and hope. But who knows...

I suspect that the market is waiting for further news on cashew. Looking from a glass half full perspective many shares have hugely derated over the last few days. DKL has sailed through unscathed undoubtedly supported by Palm oil prices. That said given DKL’s rather turbulent track record is it any wonder the market is not giving them the additional benefit of the doubt for now. It’s a new commodity for them, in an emerging market, etc, etc. Timetable has already slipped a little, which is understandable for the reasons mentioned. Deliver on cashew and this will re-rate towards Arden’s target, and when it happens it will go very fast. Just the nature of this type of share

Looks like Chelverton Asset Management have added to their position. According to Stockopedia they were previously at 4%. Just disclosed they have crossed 5%. Good sign. For the most part institutions don’t tend to average down post such a dramatic fall unless they have strong conviction. Then again they did get caught out. Still. Positive. Looks like we have a floor between £7 and £8. Assuming no more bad news. Icing on the cake would be to see management re-investing part of their placing proceeds. If they believe in the business should be a no brainier. In the spirit of disclosure I now have a position. Market has over reacted in my humble opinion. Management have lots of ability to play / reduce marketing. Also trim admin overhead. Talk of a rights issue is ludicrous given the cash flow generative nature of the business and net cash balance sheet

But RetiredBanker with respect if that was the intention then surely Dominion SA or rather it's PE shareholder would just make a cash bid for DPP, and subsequently delist. The premium offered (if any) would presumably go some way to paying off existing shareholders for the future synergies. Personally I think this would be a much cleaner transaction. Instead what is proposed has the potential to be more invidious. Under a classic reverse DPP will be buying Dominion SA by issuing its own shares. Now of course the million dollar question is the valuation of Dominion. What is implied is that Dominion shareholders will have the greater resulting holding, and DPP shareholders will be in the minority. To my mind that suggests that DPP will remain listed and existing shareholders will remain exposed to any potential synergies / upside. However, the key question goes back to the relative valuation. Crudely it looks like the two estates are roughly similar in size. Presumably Dominion's is more mature / profitable and hence why it will enjoy a (far) larger share of the relative valuation and why DPP shareholders will be in the minority. Now I don't want to cast aspersions against Dominion and its shareholder. The relative valuations will presumably have been blessed by a quasi independent advisor(s) and will ultimately have to be blessed by DPP shareholders. But this is far from a clean outcome.

As an aside (and at quick glance) I fail to fully understand the synergy logic. The RNS talks of rebranding the Dominion chain as Domino's. But a quick glance at their website suggests their estate is very much focused on eat in rather than take away. So very different to the Dominos model. Their may well be synergies from reduced competition, reducing HQ staff, procurement, marketing, reduced store overlap etc. But the two chains don't seem natural bedfellows. Unless the ultimate intention is to leverage the PE's financial fire power for significantly more investment. That is all to the good but may well result in further painful dilution for DPP shareholders. And by then they will be a minority force, without blocking rights.

Will be interesting to see the docs when they come out. I have no stake here myself. But after a long and painful association with DPP I remain intrigued how the story plays out. And obviously hope for a happy ending for its long suffering shareholders

Was not going to post again on this share having said my piece but can't resist. It's obviously a form of therapy. So indulge me. Just to caveat that I'm not unsympathetic to many of your sentiments because that's where my perspective was until I had my damascene conversion.
1. Even at 7.5p DPP has a market cap of just under £20m. Share count has grown massively through the fund raisings. Note that that is still 2.5x what Telepizza went for despite having almost double DPP's outlets. Yes, compared to DOM, DPP is cheap on a rev/store basis. But interestingly not to DPEU.
2. The problem for the DPP valuation case is that to state the obvious businesses are only worth the sum of future cash flows. Sunk costs are largely irrelevant. In its latest fiscal year (2018) DPP lost £1.9m at the operating cash flow level partially offset by a (one off) positive working cap movement and pre- investment capex of £1.5m. Total negative cash flow of just under £2.5m. At the latest interim stage operating cash flow inc. working cap was a negative £1.5m. Investment capex added another £0.5m. So negative £2m in all. We know from the latest trading statement that cash balance fell another £1.5m in H2 despite DPP opening only 3 additional stores. So nothing in DPP's recent past suggests a sufficient step change in 2020 to prevent the business from burning at least £3m, even with a reduced stare opening programme. Cash balance was announced to be £3.6m at year end 2019. And presumably at the current burn rate will be largely depleted by end fiscal year 2020
3. Yes. Some of the short term pain could be offset by switching off growth capex and just letting the existing estate mature. That would mean DPP breaking the commitments of its master licence from DOM US to open x stores pa and also forgoing the scale benefits that 'should' come from a larger estate.
4. I say should because the latter have been largely elusive to date. DPP has previously talked about its most mature restaurants making £0.1m in EBITDA. Very crudely that should mean c. £7m in group EBITDA (ignoring the distinction between corporate / franchise) i.e. 69 stores x £0.1m. That would definitely be sufficient to start generating positive cash flow. But as you touch on in your post those new stores in secondary cities / locations must at least reach this level.
5. And here is my biggest concern. It is far from clear that these new stores are or can be equally profitable. Hence the difficultly DPP has in attracting and keeping new franchisees. You would think that DPP had by now reached sufficient scale where they would be lining up. Nope. It remains an entirely 'corporate' led roll out. So yes revenue is growing again. Good. But at what margin. Any business can give away subsidised product (see Uber). But that's not exactly a sustainable foundation
In summary for me the jury is sadly still massively out, even for new investors at 8p. I guess much will be clearer end of March. Best of luck - sincere

Just want to wish everyone who is still long DPP the best of luck. I have reluctantly taken advantage of this year's rally to throw in the towel on what has been my worst ever trade. The final straw was the recent trading statement. A few things that stood out (negatively) for me, in no particular order:
1. 69 stores at end of 2019. Well that's the same number as at the time of the Interim Results announcement at end of September. "69 stores YTD". So no further stores opened to year end. And only 6 for the whole year
2. Cash burn between the interim cash balance figure of £5.1m and year end figure of £3.6m equalled £1.5m. At this rate (c. £3m per annum) they will need to go back to shareholders within the next 12-18 months barring a miracle
3. The problem is that sales growth is just too pedestrian to create the economies of scale that will generate the operating leverage to cover fixed costs and start-up losses
What do I think has gone wrong
1. Overestimating the power of the Domino's brand and model. DOM's terrible experience in Scandi and Germany shows the model does not always translate
2. Under appreciating that the impressive growth in the Polish economy has been a double edged sword: rising incomes / take-out consumption has also caused significant salary / cost pressure
3. Rise of the aggregators / delivery to home competitors. This has doubtless had (is having) a massive negative impact on margins and the uniqueness of the Domino model. You can see it in the UK but luckily the business is much more mature
4. Highly competitive existing Polish pizza market. Ignoring what should have been a massive red flag, which was Amrest's takeover of Telepizza in 2018 for Euro 8m. I noted it but did not draw the right conclusion. If the more mature Telepizza business with a 107 locations was worth 8m why should the smaller / more immature DPP be worth a multiple of that
5. Another red flag should have been the consistent difficult in attracting franchisees. In hindsight (small) business people aren't stupid. I guess they saw the competitiveness of the market and tough economics and balked. Hence DPP management having to drive a much more capex heavy "corporate" store programme
6. And finally comments on message boards that DPP's product was considered expensive by local standards vis-a-vis competitors including one off local stores
All in all I look back now at a share price that was only relatively recently above 35p (and the equivalent market cap at the time) and can't believe what I was thinking in not exiting.
Finally I sincerely hope for all of DPP's long suffering shareholders that I am proved wrong this year: the new CEO snatches victory from the jaws of defeat, sales pick up, a random bid comes in, etc. But I fear that the March results with the associated red ink flowing down the P&L and cash flow will be a wake up call that another funding round is just around the corner. And at what SP then...

That makes perfect sense ADrunkenMarcus! Let’s hope the new year / new CEO marks a reset in management style / fortune. As as aside, some nice buys today by DPP standards. Here’s hoping we get a good trading statement in Jan

No official word sadly. Last year it was on 12 December and the year before that it was on the 29 Jan. And the year before that it was on 8 Feb. So I guess anytime between now and early Feb. The 3 year trend would suggest sooner rather than later. But I would imagine that management may well prefer for the financial year to formally end before updating. My money would be H2 Jan, which would also put DPP in line with the normal practice for DPEU and DOM.

As an aside I think it's a shame that DPP management have not made more of an effort to communicate their strategy / updates with shareholders. Given recent history management should be doing everything possible to engage with shareholders rather than the bare minimum. Why, for example, no announcement on the opening of the 70th store. Now many smaller companies are no different. And nor are DPP's sister companies DOM and DPEU paragons of engagement / disclosure. I just think when a mgmt team is shooting the lights out its more forgivable. DPP clearly is not in that camp. So how about starting with a financial calendar, which would answer your question for one thing. Disappointing

Good to see one of their key future developments receiving planning permission. Another positive signal following the recent strong Director Buying. This company feels almost criminally unloved versus its NAV / Intrinsic Value at the moment. Presumably the GE / Brexit is holding back sentiment in line with the rest of the real estate sector. And I guess its business model makes it a bit of an odd ball. With the GE imminent and (hopefully) some resolution of Brexit next year will finally allow it to fly closer to its true value in 2020. In the interim the generous divi eases the pain...

Also great to see all the Brokers re-iterating Buy Targets post results

As a final thought I can't help thinking about poor D1 Capital Partners being long Netflix and short Cine. "My friends you have this trade the wrong way round. See the light before you lose your shirts!" :)

Thanks ragnarlothbrok. Also a supportive piece from today's FT LEX column is probably not hurting sentiment. Being a dinosaur I only have a hard copy and can't be bothered to re-type the whole piece. But the gist is that whilst acknowledging tough times at the US Box Office it is relatively scathing on the short sellers' case.

"Short sellers think Cineworld's grand strategy of expansion will prove to be merely grandiloquent. They are the latest iconoclasts to believe cinema is dead. TV, rock 'n' roll, video rentals and YouTube were challengers before. Now Netflix and its ilk are pumping huge sums into loss making streaming services.

US Box Office sales could fall another 7% next year, reckons Morgan Stanley. So what? The Q for LT investors is what happens when the streaming war produces winners - and the vast destruction of value is tallied up among losers.

Cinema chains will survive the blizzard of content, if not precisely in their present form. Short sellers seem to think cinemas and streaming platforms compete directly. They are wrong. Movie theatres sell going out to customers bored with staying in. There will always be an audience for that."

Very well said...

Thanks jenks789 for sharing your thoughts. And glad it worked out for you. I think today's announcement should go some way to steadying nerves that the ship is about to founder, and this is reflected in the mildly positive SP reaction. The statement was obviously not sufficiently strong to generate a real bear squeeze, and I doubt with what you say about the film slate for the next year that the tenacious shorts will simply fold and go away in the near term. So ST caution is definitely warranted. That being said the stand out comment for me was the one that "despite a challenging comparative period.... We remain focused on operational performance, cash flow generation and de-leveraging which [and this is the key point] will be achieved within our current capital allocation framework with no change to the dividend policy." So despite a weak period the business is able to continue to invest, deleverage, as well as maintain a very handsome dividend, and all without recourse to additional equity or such like. I say again that that to me this is the mark of a very solid business. Now imagine what will happen to the rating once deleveraging progresses and the film slate improves. Because every single day that passes going forward that leverage number is ever so slowly drifting down, refurbs are coming on stream, synergies are coming through. In other words every single day the story is going against the shorts. I am very confident that on a 24M view we will be back above 300p, which is reflected in the broker forecasts. And there is a very generous yield to ease the wait.

Well, I think we're all sensitive about the shorts because we repeatedly hear that there's smoke without fire, etc, etc. But then I think back to LTCM, Marin Capital, etc. Right now Crispin Odey (v. smart guy) is having a bad year. The point being that these guys (assuming no access to inside information) are not infallible. But sure, it makes one think more deeply / uneasy. And that's no bad thing. And ultimately for those of us who invest LT and unlevered the ST is largely irrelevant unless you get to a point where the share price impedes the financing / running of the business. Looking forward to hear what management have to say tomorrow

As an aside and (you may well have seen it) but I recommend to others who want to learn more about UK cinema Everyman's recent H1 results presentation. For disclosure I have a long position here too. Different challenges and opportunities to CINE. Personally I see them as a long term consolidation target. That aside CEO / CFO talk interestingly about cinema demand, streaming, cinema counter-cyclicality in recessions, etc

https://www.piworld.co.uk/2019/10/21/everyman-media-group-eman-h1-results-presentation-september-2019/

Thanks Spielgood. Read the same over the weekend. It feels very much like some MBA kids at the hedge funds have come up with a narrative: streaming is going to eat the cinema industry's lunch. "So let's go long streaming (Netflix) and short cinema. Who can we best target? Why Cineworld? Well, they're the most heavily levered whilst carrying a comprehensive investment programme and still maintaining a generous dividend. And the controlling family has a margin loan on their holding to boot" And on the face of it you can see the attraction. But as per my earlier post I believe they are under estimating the difficulties streaming is facing (rising competitive intensity, rising production costs) and under playing the attractions of good old cinema. Personally if there was one stock I would be shorting is Netflix at the current valuation. And interestingly it is well off its annual high.

At the end of the day what gives me comfort being invested here is that there are a lot of levers for management to pull. They can play with the speed of the investment programme and the growth of the divi. Actually it reminds me a little of the situation at Smurfit Kappa a few years back when it was bloated with debt after a number of acquisitions. The market didn't like the leverage and the equity was severely squeezed. What happened. Well, SKG, being the great business that it is just got on with being the cash cow that it and gradually repaid the debt. As the debt ratio normalised there was a virtuous circle double tailwind for shareholders, the equity component naturally grew as a proportion of Enterprise Value and there was a re-rating as the risk perception decreased. I believe this is where we are with CINE, the point of maximum pessimism from the market. I don't know what the stock with do in the ST but I strongly believe that anyone who holds their nerve will do very well in the mid-term

PART 2

Of course you (and the shorts) are perfectly entitled to your view on the future of cinema. But just FYI cinemas actually had a very good H2. For example, Frozen has just had the biggest animated opening in cinema history. Also, do you know that cinemas tend to be good hedges in recessions, when all the historical evidence is that spending holds up well as people look for relatively affordable distraction.

Bottom line is that things will be somewhat clearer tomorrow. But IMHO there are a lot of other businesses I would be shorting in the FTSE before I focused on CINE. We shall see...

PART 1

So which one of the shorts do you work for? I'm joking of course. I don't think anyone at a hedge fund would be so financially illiterate as to mention profit, which is stated after interest costs, in the context of servicing a debt burden. As background I am a long term (unlevered) investor and perhaps in contrast to many others I actually don't mind the short term fall in share price as it allows the re-investment of CINE's generous dividends at ever more attractive prices. The share price has nothing to do with the underlying running of the business. As per Buffet's famous quote "In the short term price is what you pay for and in the long term value is what you get". Hence, I have no personal animus with the shorts. I just think they have it wrong here. And examples like Ocado underline that they are far from always right.

All that being said when one reads such a passionate but utterly uninformed post sometimes it's hard to resist the temptation to pick up the proverbial pen and counter, even when one should chuckle, ignore and move on. With all the greatest respect you miss the essential point. As per Merlin Entertainment, which was taken private earlier this year, CINE is a cash machine, which even the most cursory study of their results would tell you. How do you think they managed to raise the leverage to buy Regal in the first place - do you think the banks are idiots? Ok. Perhaps I'm doing my argument no favour with that one. But lets have a look at the Interim results to prove the point. And for purposes of leverage servicing and amortisation what really counts is the cash flow statement and not the P&L, which you cite. In the six months to June CINE generated $589m of cash, that's after tax and pre-interest service. It invested $183.5m in capex (new openings / refurbs) leaving some $400m dollars for interest (which came to $95m), debt amortisation and dividends i.e. An incremental $300m. I'm ignoring the one off sale and leaseback transaction. And that's just for 6 months. Assuming annual total annual dividends of c. $200m (15c per share), would imply roughly $400m available for annual debt amortisation. And this is after investing significantly in the business and paying a generous dividend (which in the worst case could always be temporarily lowered / suspended). In other words CINE is an incredible business or at least it is for one which requires significant physical investments. It's no AirBnB for sure. It is operationally geared for sure. But a la Merlin it is still a very, very good business. And to write about it in a tone as if it's a third tier airline or a Carillion dependent on low margin govt contracts is absolutely ludicrous.

Speilgood, to underline your excellent points, from this morning's headlines: "Frozen 2 has had the biggest opening for an animated film in history at the worldwide box office. The Disney sequel grossed $350.2m (£271m) in its first three days, with the film simultaneously released in countries including the USA, UK, China and South Korea." One swallow does not a summer make but it certainly underlies the continued draw of cinema for the right product. And as you say Disney (unlike Netflix) will not be messing with the exclusive cinema window in order to milk the cinema stream to the max. As an aside I suspect that Cine management tactically delayed the usual Nov trading update to early December in order to get a Frozen tailwind. A bit cheeky but if helps to counter the shorts all power to them...

I've been thinking about this share a lot as it's one of my bigger positions. As per some of the other posters down thread I am equally baffled. Barring any left field skeletons in the cupboard, which I find highly unlikely given the controlling family's massive skin in the game and solid reputation, I can only conclude that it's a bet on significant behaviour change as a result of the streaming wars, and, most recently, Disney and its massive content catalogue, joining the fray. I assume the logic is that as the most levered operator Cineworld will be worst placed to respond and most likely to have to cut divi, etc. To be clear I don't believe the shorts are questioning survival (a la Carillion, Thomson) but just predicting ST financial pressure, which will in turn further depress the SP.

Clearly only one side can be right and as a long my vote is with the family / management / brokers, etc rather than the shorts. There is comfort from the fact that H2 has been strong for the industry, as per competitors' results. And I don't believe that consumer behaviour will change as much as the shorts fear. In the interim Cineworld's strong cash generation means that leverage will steadily decline bringing a virtuous circle of diminished finance charges and BS strength. We will have a better sense of where we stand on the 3rd.

As a final thought I find the super conservative attitude to leverage in public markets interesting and creating a serious disadvantage for competent management teams that want to take advantage of cheap capital to dream big and achieve outsized LT returns for their shareholders. The message from markets / shareholders seems to be - don't. Leave that to the Private Equity guys to do off market, where much higher leverage multiples are routine, and not just tolerated but encouraged. And then the press / people are surprised that we are living in an ever more unequal society when those outsized returns accrue to an ever smaller pool of the most sophisticated / richest investors. But of course it does when there seems to be a net negative to staying / being listed. Rant over :)

Hi. threeputt. Bitter sweet day. I have stakes in both ETO and CCT. I must admit that Hasbro (a toy maker) bidding for ETO is not a scenario I had envisaged. The talk had always been of the likes of Netflix, etc, which would not have been less threatening for CCT. But we are where we are. Part of CCT's relatively lowly rating has always been the fact they don't own the original Peppa licence. Today's fall brings the company's valuation yet lower. I obviously don't know how this plays out and expect management to put out a statement on the implications. I believe that CCT have exclusivity on Peppa (in their markets) for at least another 2 years, so there is no immediate change. Today's fall also takes the valuation down to less than 3.5x EBITDA / 6x P/E historic. B/S is cash flow positive. All that said, Peppa is obviously a key line. My gut feel is that the market is over reacting (as so often), and I have top sliced a small portion of my ETO holding (it's trading above bid price on the expectation of a counter bid) and re-invested here. The dream scenario would obviously be a successful counter bid from the likes of a Netflix. One can dream. Alternatively, it may be expedient for Hasbro to come to a third-party manufacturing deal with CCT in their markets - where they have done a good job. let's see. Frustrating day...

Nice to see Crystal Amber adding / averaging down. 5% > 6.25% as per latest RNS. I don't normally play special situations but have been tempted in here. Surely the odds are that this gets taken out.