Member Info for Senator1

Yes, I do own shares, a starter position, just under 1M shares directly and i manage others bringing the total to circa double that. Thankfully, we only bought in over the last 12 months or so as my biggest issue with any management team is raising money at 24p and subsequently watching the price go under 10p. They of course will say that is not something they control but I disagree. Great management teams understand the importance of building momentum and always delivering, over and over again, on what you guide. The price chart of Creo sends a very strong message to management (and they have been the same people) on how they have done so far. Lets not forget this is a tiny company trying to bark with the big dogs and yes while it may have hundreds of patents it is interesting to me that most of the expenditure has been expenses. If it was so enduring surely it would have been capitalised. Their capitalised IA is £0.7M as at June, insignificant really. From June to Dec the cash burn has been just under £8m, £6.3M on receipt of the available for sale. They are running out of things to sell. They do have another tax receivable of £2.9M but after that, they are just left with Medtech. On this entity they dont need to tie capital in this entity, they can achieve what they need with a contractual relationship and a smaller "good faith" equity stake. At the end of the day at 49% they are still out voted. If there is some other reason for retaining 49% they should be explicit about it. From an IR perspective I find them very poor communicators which you only have to look at the share price for an independent view on.

Ok, let's see what results day brings. We already have most of the numbers excluding the Europe DVD from their associate so it will all be about the revenue guidance. Personally, I think it is too tight on the cashflow and I think a further sale of their holding in Europe may be required so it is important to see confirmation that this entity is performing well as this is their backstop as equity funding would be very difficult below 24p.

In a dredful year for BMUK's operating margin this will still throw off £200M of FCF and the public markets worry about a leverage ratio of 1.6x possibly creeping up. This could easily take on another £1bn of debt in a private setting which is almost 60% of its current market cap and at 8% that would cost £80M before tax shield and thats with £100M capex spend. The sale and operating leaseback is just a cheaper form of secured debt, where the lender has ownership, so its easier to put in place. But, by any PE perspective this is very under-leveraged. It wasnt the competition that hit the operating margin, it was previous management thinking it could bring in tat (cheaper ranges), sell more and recover labour's increased costs of £75M odd. That clearly didnt work as the numbers show. BME trades at just under 6x ev/adj.ebitda(pre-ifrs16) pro-forma. It doesnt get better than that for PE. 4 turns would cost £128M p.a. pre tax shield. In fact the 6 turns would cost £220M , thats about half the adj. ebitda (of a bad year). PE would only need to put in £500-700M and they would easily double that over the next few years with the current turnaround plan, getting back to 10-11% operating margins in the UK. Home Bargains do >11% so no reason BME cant match that without a price war.

If that is their growth trajectory, still 40-60%, then they have more to do on the overhead base

At a 60% GP and £18M overhead base you actually need £30M of Rev to breakeven at PBT level. At 60% Rev growth that will take over 3 years to get to £30M, so that brings you to 2029. So bottom line, the Rev growth has to accelerate from the 40-60% range, that is imperative. If they accelerate to 100% growth they get there in just over 2 years but we need to see that jump up. Its a small base so it is possible but they have missed so many financial targets in the past. It will be interesting to see how they guide on Rev for 2026 on results day, but 40-60% isnt enough.

I'm most certainly not suggesting for a second that Morrisons acquire BME, that makes no sense. CDR manage funds and so its not about overkill, they would be held totally seperate, more likely than not in different funds. The fact is the deal between the Arora family and CDR made the Arora family very rich, £500M odd and ultimately CDR did very well by the time they sold out, by some reports over £1bn. This inside knowledge that CDR have, together with the Arora family, is their edge and a new CEO who I suspect would prefer a private market than a public one. This thing throws off cash and in a private setting could support far higher leverage than the public market allows. So improving underlying performance and higher leverage and there is serious money on the table for the equity side. The Arora family still own over 4% of the shares and are the 6th largest shareholder, behind 3 Americans, a sovereign and a charitable trust. For me it was interesting that one of the Arora family only resigned from an executive role in the last year or so, I suspect to give him independence. Lets see what happens but the value of a listing in the UK has much eroded and is not worth the trouble.

Down 56% over past 12 months and founder is back. Makes sense they would try and appeal to the younger generation as the older ones die off and thats a problem. Its rare in the fashion world that different generations agree so that is one hell of a marketing achievement. Im not close enough to the detail of their products as everything i want to know is in the chart and so i would say, without any detail, its not working.

Majority owned by 3i, it would ultimately be a PE takeover. You think Action Group could do it without 3i approval? You think the CEO of Action Group would let the BME CEO survive? The new BME CEO has worked with PE before. CDR have the resources and importantly a relationship with the Arora family and they know the business well having made serious money before with it. Of course anything else is possible but Im pretty sure it is being watched closely by CDR & the Arora family. Thats probably why one of them took a payoff and resigned from an executive role.

As they have no real IR department drumming up interest and selling the story on a continuing basis that might explain it. Danson could easily double the value of his holding with a proper hire here. I find it extraordinary that he hasnt worked that out. Maybe he just doesnt care, gets to run things his way and doesnt want the hassle. Why then step up to main market. Makes no logical sense.

Its quite remarkable that with insiders + Liontrust owning nearly 75% of the shares and Data in the market every day being 10-20% of the market trades that this share hasnt moved more. There must be a lot of IHT investors moving out. Last notification Liontrust increased by 2M shares, so who else would be selling? On FY 26 concensus this has an ev/adj.ebitda multiple of circa 7x and then there is the prospect of joining the ftse 250, for which they will easily qualify unless Danson's 60% disqualifies them. The theory says the market is efficient, definitely not in midcaps and definitely not if it has a UK label. There is just no interest.

The problem with your analysis is the Q3 TU wasn't bad news. Superficially yes, they guided down but their reasons were good. The CEO wants a simpler SKU range and so he is reducing price to get rid and his investment in this will cost about £30m compared to previous guidance. this will bring cash in to the business, yes at the expense of profit, but it will reduce the leverage from the 1.6x at the interims to below 1.5x, with a strong tailwind, well below 1.5. The market is smart enough to consider the reasons for the downgrade. If BME deliver at the nowthird time £440M that translates to circa £200M net, or 20p a share. Thats still a 12% return on the current market value, so a 6% dividend yield is definitely on the table at a 50% payout ratio. Bottom line, you are paid to wait while he sorts out the margin in the UK that got hit by £70-75M of increased costs from labour. On a business turning over in excess of £5bn he needs to find a 1.5% margin improvement to recover this. First step to any transformation, clear out the crap (people and for a retailer, stock). He's doing/done that so he has made a very good start. I dont think he can put prices up but can he get better deals from China and the Far East, given the quantities he pushes through in the UK, with a slimmer product line that is retailed in a much better way with proper stock taking. My bet is he can. In a bad year (FY to March 26) for BME to do a 12% return on market cap and double that if you use equity book value i.e the resources management actually use, its not too shabby. Their real strategic strength is this entity is very asset light, yes IFRS 16 makes you capitalise the leases but thats all crap and typical accountant rubbish as this doesnt recognise the break options in leases and thats of course why management present pre-IFRS 16. IFRS 16 replaces cash charges with made up numbers, crap in, crap out. It has to be one of the worst accounting changes ever. Its not as if we didnt know about the hidden debt, in the old days we used to multiply the lease charge by 6-8 times to get a measure of the potential full term charge. Anyway, I think this Danish guy has one of the best jobs in the UK, he's going to make a reasonable amount of money out of his options and share purchases over the next few years, without too much of an effort as its all pretty basic stuff really if you have a good understanding of discount retailing. And best place to be is either end, be a real discount alternative or go high end with all that entails. Squeeze is always on the ones in the middle or the really stupid extremes (like everything £1 or stupid high end brands (lulumelon)).

I wonder if Clayton Dubilier & Rice are looking at BME for the second time? They reportedly made over £1bn on their original £500M investment in 2014 before the IPO. The new CEO is a private equity guy and so he is used to operating under their rules and of course will make far more money if they execute a take private. Ex the goodwill my estimate of the ROIC for FY 26 is 22%, down a lot from the 34% of FY 25 but still not a basket case. The insults of the imbecile Trump at Davos probably makes this impossible for any American PE firm (and righly so) but I suspect there are many non-American firms looking at this in some detail. Im sure the Arora family must be looking at it, a chance to make another £1bn from an unloved sector in probably the cheapest stock market in the developed world, particularly in the FTSE 250 and below. It has all the ingredients, a new CEO who knows how to work with PE, a cheap valuation, capital light and a plan (as yet unproven but I think very doable) to get the operating margin back to 11% and after the clearout of the "Schmidt tat", a relatively clean balance sheet. I bet the CDR guys think Trump a clown as they know this business well enough to be the obvious candidtate but with his big mouth & his sick entourage I would like to think he has killed any American PE firm doing anything big in Europe, if not everywhere outside the US

With the revision down in Adj.Ebitda (for which I like the CEO's reasons) the market is focused on the leverage. Because the pro-forma adj ebitda is lower than the historial 12 month, the leverage has gone up from the 1.6x at the interims before working capital adjustments. Yes, the new CEO wants a stock clear out so he can get the margin corrected but he can also fee the leverage issue and is acting to address it. The second half for BME sees a big run down in stocks and last year in the second half it contributed £125M of cash. It will be more this year given the aggressive clear out and so if he didnt do anything pro-actively the leverage (assuming zero w/c contribution) would go to 1.76x but if he even does the same as last year (£125M), it falls back just below 1.5. But if his clearout goes really well and he reduces stock by an extra £40M, the leverage falls to 1.39x and yes it will go back up again when he restocks but he will have a higher adj.ebitda going forward. The market is skittish and confused and just isnt giving the new guy credit for what he is doing. Its repricing the equity for the increased leverage and not really focusing on fact his aggressive clearout has 2 objectives and one of them addresses the increased leverage that would rsult from the lower adj. ebitda if he didnt take aggressive action. None of the big boys have sold in fact they have all increased over the last 12 months so its retail selling that listen to the third tier equity analysts that downgrade their price targets way after the event and are miles behind the market. The problem is GIC, Capital Group, Fidelity, Blackrock & Arora family all have large stakes so the CEO needs to get on the road and get a few more big boys involved on his turnaround. Calls for £1 are just dumb, that implies a market cap of just over £1bn on something producing operating cashflow AFTER LEASE payments but before w/c management of £440M at the min of guidance. The new guy is smart, the old CEO has as thick as 2 planks. He knew the increased wages and NIC costs were coming and what did he do to offset, nada. His costs went up £70-£75M, what did he do? He brought in lots of tat, broadened the range and yes sold £70M more stuff but what did that do to profits. Not a thing! The new guy is reversing all that & simplyfing with a focus on margins and his clearout will also address the leverage and give him another 12 months to get adj.ebitda growing again, particularly in B&M UK which is where most of the increased costs fell. I would like to see him sell Heron as well buy I do recognise that might be tough to sell at the moment and so rather than him spend any time on Heron I would rather he focus on B&M UK and France, get the next seasons stuff in at good margins, sort out a loyalty card, get a new IR Director and someone new in charge of all stores and get rid of more of the old guard as that will keep resetting the expectations.

If they got offered £100m, I would like to think they would be overjoyed and doping cart wheels. It did £5m of adj EBIT in 1H 26 so peanuts at the net. If I got offered £50M for it, I would sell it. Unfortunately, everyone knows its a crap business so if it was me I would put someone on it to sell it piece-meal and give the buyers a wholesale supply contract on the products that overlapped with B&M grocery and so they benefit from my buying power. Its never going to get to an adj. EBIT margin of double digits. The overhead base on small stores is just too much.

Not correct, if they dont get debt back to below 1.5x their Ke goes up and this does far more damage to their WACC than a higher debt weighting. Buying back equity doesnt increase the firm value per se as it doesnt increase the firms free cashflow. All it does is redistribute value between those who sell and those that retain their shares. In situations like BME which at the half year was at 1.6x, if they stay permanently above after telling the market the range is 1-1.5x, investors will re-price their required return up due to increased risk. For BME it would be a monumental mistake to buyback shares before getting the ratio comfortably below 1.5x and staying below pro-forma. It would be a rookie mistake to buy equity now as the share price would definitely fall and specials are without doubt one of the most stupid things you can do, as has been proven for BME. Value is a function of a few things, FCF, RoIC, growth, WACC and given it is the future of all these, sentiment (for short periods). Right now sentiment dominates as the market is awaiting proof on the real value drivers. They should do nothing that negatively affects those factors, which buying in Equity at a 1.6x leverage ratio would definitely do.

I looked at this in more detail this pm. Im pretty confident they will beat slightly the adj. ebitda of £440M. When you run this down to Adj. NOPLAT before IFRS 16 I get £260M. At FY 2025 the equity base was £752M, the non lease debt £1016M and cash as at Sept of £170M gives c.£1.6bn of net invested capital, so NOPLAT/ Inv capital gives a RoIC after tax of c.16%. I estimate the WACC at 8.7% after tax so this is generating a return way ahead of its cost of capital, in a challenging year in the UK. My adj. ebit margin is 6.2% for FY 26 based on their low point guidance. If he gets this back up to 11% over the next few years, they will be back at 30% RoIC. A 7x PE is the multiple applied to wholesalers not to the end retailer and not one doing 16% RoIC after tax. Further down the P&L I think they profit after tax of circa £200M, which will allow a total DVD of 10p while retaining 10p for investment and debt reduction. Then get to 8% operating margin next year on route to 10% the year after. The big boys will figure this out over the next few weeks and the trigger might be an announcement on Heron. It has a 10% gross profit margin compared to B&M UK at 36% and at the net it is just irrelevant. This would send a strong signal on the capital allocation priorities. The question is, would anyone buy it and knowing how badly BME has been run in the past is it a fully seperate entity with its own IT support or is it too woven in to BME. That would be my top question for BME management. What they have to do on the rest is pretty clear and they are on top of that. I think he is 100% right to give himself a near clean slate even if it meant him cutting the guidance from £470m to £440M. This new guy is just doing the basic stuff right and setting things up nicely. The best thing the old guys did was lease most of the stores and thats why the RoIC is so good. No more stupid special dividends and leave the buybacks for a bit, get the debt down. Thats why I think he didnt even mention the redomicile as their wont be any material buyback this year and again I think that is the right decesion. Once the adj. EBIT margin is back in double digits there will be lots of opportunities for all that, put any spare capital for now in to France.

This wasnt a poor TU. Dec LfL +3%, January also positive. The fact he reduced adj. ebitda guidance by £25-30M on £5bn plus of rev or across 799 stores is neither here no there. His reason is good, he is accelerating the clearout and reading between the lines he now recognises that Heron is a rubbish business. The operating margins in that business are a big drag on the Group and the sooner it goes the better. B&M UK is getting fitter, Heron is half way out and France just keeps building as it needs more scale, 8% odd LfL in France is really good. It is the cheapest retail stock in the UK that exists at scale and has the most valuable commodity of the lot. Free cashflow, £200M odd.

Not really, he still didnt know how golden Q would go or jan sales or results of trials reducing the SKUs. He has all that data with only 2 months to go and after his experience of listening to the old guard he has his own view with his new CFO. He will beat £440M, not by much. If he doesnt then he is an idiot and is no better than the last lot.

Another way to look at revised guidance. The £440M adj. ebitda will translate to a net profit of about £200M. At FY 25 year end the book value of equity was £752M, thats a 26.5% return on book value of equity or 11.8% on the market value of equity. At the current price you are being paid to see if the new CEO can deliver. At some point, market will jump on this as there are few companies in the UK doing these sort of returns in a tough year due to very poor past decesions and just not reacting to the increased costs and hoping that increased sales would bale them out. Yes they increased sales by having too many SKUs and because of that it didnt help profits. It's a tough environment out there and BME need to get fight fit by shedding quite a few pounds which they are doing. Also if I were the CEO I would make damn sure i set this guidance as definitely beatable. To do anything else would be plain stupid so I think £450M is the real number that gets delivered, maybe slightly better.

They did £191M in first half, so at low end the guidance for second half is £249M. The first half was down 30.3% on the same period the previous year, the second half guidance at low end is down 28.4% so it is a marginal improvement. Given the stock clearance process to reduce SKUs (which is the right thing to do), it is showing first green shoots. i always thought £450M was the more realistic as never thought £475m was doable. I have always thought Heron was a piece of crap, it was and still is and always will be. They should sell this retail in bits a pieces to those that will work 24-7 and give them a wholesale arrangement and recycle money in to France to get scale. Adj ebitda of £440M still translates into free cashflow of circa £220M