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From Electra 2021 interim report I read the business interruption insurance claim could range from nil up to 15 m.
From the fact that during negotiations with WoolOvers the board sought to include the CVR as part of the consideration I would deduct that the board thinks there is a good chance to get something out of the insurance claim…
So my question is: why the market is assigning no value to something that could alone be worth more than Unbound current market cap? Am I missing something?
I agree with Tarquin34 - Marwyn proposal was supported by the board and blocked WoolOvers. With potentially a great deal of new shares to be issued, it would have been very difficult for WoolOvers to carry on a takeover without the board support…
On Marwyn, I might be wrong, but I don’t think they can walk away at will: the proposal was conditioned only on panel waiver and shareholder approval - I haven’t read of any other conditions… so I think they have to go ahead and honor their commitments.
In any case, the stock still look quite cheap for a company with 50-60 m sales and there is the business interruption insurance claim still there - potentially they could get an amount of cash greater than their market cap just form that.
Would be interested to hear from any different view…
Anyone has a clue for the disastrous performance of the last two days? Can’t find any specific news out on the company…
Today’s price weakness is strange especially considering Fulham reported decent results with no major warnings about the alleged “consumer squeeze”… I really don’t understand what’s happening with this disastrous price action
Increased my holding on the news - had a small position already before. I only see negative comments on their restaurant chain, but here it’s simply too cheap and a good risk/reward at least IMO… I understand there are some issues to fix with Fridays but still, pre-pandemic they were doing more than 10 m in true free cash flow and they have the potential to roll out the new 63rd + 1st concept pretty quickly considering the post pandemic environment. At 50 million market cap simply too cheap even for a skeptic like me. Just my opinion… Any different view?
I’m holding and I like Wickes especially for how it seems positioned to gain market share and grow its online presence. That said, I’m considering to switch a part of my position into Kingfisher because it’s a lot less leveraged and it’s buying back shares. While operationally I favor Wickes on Kingfisher, it seems to me that Kingfisher capital structure is more conservative and this is important especially when a potential recession looms. Both are valued roughly on the same multiple if I’m reading the numbers correctly. You keep saying that Wickes has no debt - this is certainly true, but debt is not the only form of leverage out there… Kingfisher owns a good chunk of its stores and has a good amount of tangible equity on the balance sheet, while Wickes is leasing all its stores and is highly leveraged on an equity to assets ratio. It is not a surprise therefore that Kingfisher can afford to give excess cash back to shareholder through a large buyback program. To be fair Wickes paid a nice dividend but I’m not sure it will have the same financial flexibility going forward. Looking to the balance sheet it seems to me that they are running it quite leveraged already and that there is no material excess cash in the business… While I understand Wickes has no financial debt, I can see the difference between the risk of going into a recession with lots of leases obligations to meet vs owning your properties instead. What do you think about that? Am I missing something?
...I have the following concern In the long run: the main thesis here is that since AD is a “niche” retailer, targeting hobbyists in a resilient market, with no competitors up to the challenge but only unsophisticated mom&pop shops, it should have a reasonable chance to succeed and capture market share both through m&a and organic growth. It sound logical and I like the story. But when I look to the facts I see that another company embarked in the same journey before: Fishing Republic. And we all know how it ended... So I really cannot reconcile the story the company is telling with the evidence by Fishing Republic that maybe the journey is not so easy... Does anyone know some detail about the reasons that pushed Fishing Republic into administration? Was it just mismanaged? An issue specific to FR? Why that happened and what’s different with AD that makes you believe they can manage when others have failed? I really like the story and I like even more what seems to me an absurdly cheap valuation. And with lots of cash on hand they must be pretty safe at least for some time... But still, when I found out FR going went into administration I was concerned and I would like to find out more about it... Anyone can help? Thanks in advance.
Haha I must admit that maybe you are right! I have seen that several companies in the same or adjacent sectors are buying back shares at richer valuation than Wickes. maybe I should just stop ruminating on it and buy more...
...and I’m trying to find any excuse to understand why the stock has been sold down so much, till now ...and I noticed that on 27 April 2021 Travis Perkins general meeting there was a pretty poor voting outcome (only 55% votes in favor) for the resolution re the Wickes share incentive plans. I had a quick read to the plans and found nothing too worrisome, even if it always depends on the tastes and perspectives one might take... But since so many shareholders voted against that particular resolution, I wonder if this could be one reason for many Travis Perkins shareholders to dump Wickes shares received? Could be that dissenters sells out of spite... Have anyone read the share incentive plans and found anything wrong with it? I want to clarify I’m an holder and just trying to understand the motives behind the selling pressure and have no clue if this could be one of the reasons... I would appreciate anyone’s opinion and also any other explanation which is a little more elaborated than the usual “spin-off overhang”. Thanks in advance.
Thank you Culpepper. I could be wrong, but I don’t think the debate about leases and debt is holding the stock down. I think it is clear for most that debt and leases are different kind of liabilities... The reason why the stock is so cheap IMO is the market is taking the view that 2021 profits are not sustainable and that’s why I was trying to see if I could find any reason to agree with the market (cost inflation for example...). But I agree there are multiple facets to that: for example, as management argued, shortages have the effect to differ revenue to future periods and this might mean 2021 earnings could be sustained more easily than the current P/E ratio would suggest. Strong outlook on housing market another factor probably. I agree with all you are writing about wickes and enjoying your analysis... Personally I believe the focus should be more on profits sustainability than debt. But you have discussed it in several previous posts as well... So again... thank you for your answer.
Hi Culpepper, I would be curious to know what you think in general about the impact of inflation on Wickes business model?
Personally, I’m not too much concerned on products shortages because those sales are deferred to future periods and therefore should increase profits visibility; I’m not too concerned on renewal of leases either going forward cause it seems there is an oversupply in commercial spaces given the migration towards e-commerce and Wickes themselves reducing the footprint a bit for this reason; what I’m a little concerned about is Wickes working force of 7000 employees and how they deal with labour shortages... I see this as a weak point in their business model with regard to inflation. I also notice their sector is correlated with the housing market - so would this help in an inflationary environment? I heard, on an anecdotal basis, in the 70s with the housing market boom fueled by inflation home improvement stores enjoyed quite prosperous years... Not sure if it’s true... I would appreciate if you could give your view on the topic... Thanks in advance.
...it’s important IMO to highlight that and consider what would have been the results if shop had trade for 52 weeks. 16 weeks are not a small detail and I wonder how the result would have been on a normalized base... Impressive.
Low cost is exactly the place you want to be when there is inflation... Today’s price action was caused by short term trader trying to bet on results, bad sentiment coming from US and illiquidity... Shoe Zone is easily worth 200p in the medium term IMO.
Thanks for your answers. Personally I see Gattaca as so cheap that IMO as long as the fine is not big enough to threaten the existence of the company the share price must rise. They also have a lot of net cash to handle it. It would be useful to have a worst case scenario in mind though... For this purpose, do you know if by any chance the fine must be proportional to the revenue Networkers received from Skycom (7,6 million)? Or potentially it could be even higher than that? I know it’s all theoretical, cause if we stick to the facts we don’t even know for sure if there will be a fine (I noticed that in 2020 and 2021 AR they added the wording “if any” after the usual disclaimer about the potential financial impact, which in 2019 was not there and maybe this could mean something...)... But I don’t see how one can value the company without any rough idea on at least a worst case scenario re the fine... Thanks.
Hi everyone. Does anyone have a view on the contingent liability related to the DOJ collaboration and if this could be a serious trouble going forward? I’m trying to assess the risk with the little information available and it seems this matter is very little discussed... To me it seems pretty relevant - they spent more than 4 million in legal advisory to cope with it - it doesn’t seem a minor issue and yet is seldom mentioned as a risk. I wonder why, am I missing something? Hope that some enlightened poster can share some insight/opinion on that...
Any view on today's update? EBITDA seems to be ahead of 2019 levels as expected...
Hi everyone. Like most posters here, I think Wickes is very cheap on the guidance management gave in the recent trading update. I also certainly think that leases should not be treated like debt, so in my view the company has net cash. However I have some concerns on free cash flow generation. If you look to the historical accounts provided on the demerger prospectus, after subtracting lease costs (which certainly are costs) they generated litte free cash flow over the past 3 years. In 2020 I arrive at a negative figure of around 18 m, in 2019 a positive figure of around 9m and in 2018 a positive figure of around 60 m. Overall in three years they generated 51 m cumulative. Major influence on free cash flow are movements in working capital, as one would expect given the business model... As a comparison, adjusted net income reported in the same three years is 40 m in 2020, 50 m in 2019 and 33 m in 2018. As you can see net income is more than double free cash flow... Just trying to assess the sustainability of reported profits, especially considering the industry is in a booming period that may not last forever. Could some enlightened mind explain me why the poor cash generation or if I did any mistake in my calculation? When I see a company with little tangible assets and little free cash flow generation (assuming I didn’t make any mistake in my calculation), I feel the urge to investigate deeper than taking reported earnings at face value. Hope someone could help clarify this point... Thanks in advance to anyone that would take the time to reply.
For a company engaged in a complicated business model reshaping, with a questionable track record over the past several years, in a highly competitive sector with low barriers to entry - a multiple of 7/8 times EBITDA doesn’t look cheap at all to me... Can someone explain what I’m missing? Thank you.
(PS. No intention to have a fruitless criticism, I’m genuinely interested in the stock cause I think uneconomic sellers are surely present here)
I’m not saying that the situation is easy, but there are a number of feature related to Card Factory business model and to its industry that gives it quite a headroom for achieving a successful turnaround.
Unless you believe that physical retail are doomed, in which case you should be on the chat of Moonpig, I don’t see how you jump so quickly to conclude that Card would be a complete looser... At least, I would give them the chance to present results for a period free from lockdown and possibly with more parties around before jumping to extreme conclusions.
Hi Simes20,
On a like for like basis I think your calculation about cards volume decrease is roughly correct. It’s how from this piece of information you jump to the conclusion that Card Factory is going bust that makes me a little bit skeptical either on your thought process or your good faith...
First of all, we have to remember that we are comparing to a pre-pandemic situation, since HY2021 includes February and March 2020, to the situation in May, June and July 2021 where even if we were open, there might still not be such a huge propensity to party... given the environment, if I was buying 10 cards pre covid and now I buy 8 cards instead, I would not be so scandalised and would not point immediately to “terminal decline” without even giving the company the chance to report in a period totally free of restrictions...
People do less shop trips and spend more - given the fact that cards purchases may be considered a sort of “impulse purchase”, if you do less trips to the shops I would expect you end up buying less cards. If you add to this a little cannibalization from the online channel, reduction in volume are not as worrisome as you are pointing out without giving much weight to the context... management strategy to bet also on the expansion of other products aside from cards makes sense to me especially if you factor in more online sales and less trips to shops. Seasonality is also important: if I’m in the midst of a pandemic I may settle for renouncing to some minor festivities, but absent lockdown I would hardly do the same for Christmas for example...
In general I think people expected to much in terms of results for a period that is still far from normal.
Second, if Card is in a terminal decline as you suggest, who the hell is going to take all its market share in cards? And if Clintons is going bust as well (which could be for real in Clintons case) who the hell is going to sell all those cards? All Moonpig with a price point triple of Card Factory and no physical stores at all?
I think you forget that Covid is not a Card Factory specific issue... we are not in a rampant physical retail environment and Card is doing poorly alone or has some sort of issue with its business model... Competitors are suffering as well and Card can easily be in the position to gain further market share in the medium term, as it always did in the past - it’s a relative game and, as tough as the situation might be for Card Factory, rest assured that competitors are even worse.
Third, it’s tough to see pricing power as a negative for a company, but in some ways you managed to insinuate so... Pricing power is a huge protection here compared to competitors which already sell cards with a very high price point. In an inflationary environment let’s see if Moonpig is able to double the price of its cards from 4£ to 8£ without loosing customers or if it’s easier for Card to do so when it starts from a price point of 99p...