focusIR May 2024 Investor Webinar: Blue Whale, Kavango, Taseko Mines & CQS Natural Resources. Catch up with the webinar here.
I'm encouraged by the gradual reduction in shorts 2.31%, notwithstanding there are some below the 0.50% disclosure level. It's a good indicator that some of them are getting jittery on this share and see better prey elsewhere.
I see the update next week as being merely a holding statement indicating matters are proceeding satisfactorily and that they are confident of meeting their end of year aims, or nearly so.
My view is that they are not going to reach profitability as quickly as envisaged. The recent placement and refinancing arrangements will add large costs and will adversely affect the bottom line. It's precarious given the huge challenges ahead (details I've highlighted before) but the rumours are keeping the shares steady around the £3.50's.
Any murmur of continuing bad trading next week will see this drop another 20% imo. MASH is in there to ruffle feathers of the big two shareholders. He's onto a win/win anyway. He can either carry on with his strategic aims with Asos (recipricol selling deals etc suit both) or alternatively, if things goes wrong, getting the company for peanuts if administration looms, or if a big boy enters the takeover fray, he makes a tidy sum from the sp increase!
There are many 'wishful thinkers' on here today perhaps being too hopeful. Plucking potential SP figures for next week out of the air serves little purpose. This is still a company in a precarious situation, hence why it felt the need to go to a specialist lender attached to a predatory hedge fund. Its done this at high cost to avoid having to adhere to onerous covenants from their normal corporate banking lenders who quite rightly saw them as high risk.
It is hardly surprising that bigger concerns are sniffing around at this relatively low valuation. The likes of any of the names muted are hardly likely to offer much of a premium. I'm not saying that an offer won't materialise but I think this is in danger of being over-hyped. I sense that any further approach may be a bit further down the line when the excitement dies down and when the company issues another profit warning.
Meanwhile, if the company confirms the December approach but says no further discussions have taken place with anyone, or are planned, we know where the SP will be heading again.
Paulleydee.....I tend to agree with you. The price is bound to increase in the morning.
The big article I read in the Telegraph today was very interesting. Mike Ashley, and indeed Schroders were left out of the loop with regard to the recent refinancing and must be fuming.
The Asos management were seemingly intent on leaving Frasers (Ashley) out of the equation. The top two shareholders Povlsen, and Californian Camelot were given preferential information as to what was happening.
What I find annoying is that the big Hedge fund operator Elliott has been pulling the strings. They control / influence Bantry who did the refinancing. That refinancing comes at a massive cost (£45 million in the second half of the year). two)......given the consultancy fees and the ridiculous 11% interest rate.
There is speculation that if it all goes pear shaped later in the year, that Elliott will simply do a debt for equity deal with Asos, thereby screwing the small shareholders.
I'm not convinced that Asos management have the best interests of the shareholders in mind. They've favoured a vulture in hedge fund / shorter Elliott. I know Ashley is no angel either but at least he is in favour of building the brand and his empire rather than short term opportunism.
Either way though, it is pleasing the price will be moving in the right direction.
People are getting excited by the rumours. If something comes to fruition, I do hope the small private shareholders don't get screwed by some sort of debt/equity swap. That could happen if things are worse than we know about.
Some of the so called experts commenting also don't seem up to date with events. I was mildly amused by the MorningStar guys assessment on 2nd June when he said that Asos was 'the most shorted' share on the Ftse. Erm....maybe a couple of months ago mate, but at the time of his video it was down to 2.81% and about seventeenth in the league. Okay there are a few lurkers under the 0.50% level, but it is nevertheless abundantly clear that Asos was not the most shorted when he was giving his readers this inaccurate information.
This could be the beginning of the shorts moving away, having already made their millions. The current figure of 2.88% (as opposed to over 5% for many months) looks very promising but is a bit misleading given there are some shorters just below the 0.50 level which do not have to disclose. Nevertheless, this will definitely become an interesting play if the figure continues to reduce over the next few weeks.
I remain of the opinion that they have to change their returns policy to stop the rot emanating from TikTok. A policy of allowing someone to return a package for free, say up to three times in any calender year, otherwise a fee of £1.99 per item kicks in, sounds entirely reasonable to me. Nearly everyone else charges. It would be interesting to know just how much this is costing the company. They say £6 per return, but what are the numbers? If it was 20k per month, then they might argue its only approx £1.5m per year. If its 20k a week playing the game, then we're talking £6.25m per annum. Introduce £1.99 for everyone, then we're talking of big savings. It's a no brainer to me but clearly the top management seem fundamentally opposed to it.
The share price has been drifting down following cautious statements of late. In my view this is a well run company where its services will continue to be in high demand. The P/E ratio is too low given the potential. I remember Jim Slater some years back saying that it ticked all the boxes, had good people running it, and it would only be a matter of time where there would be significant growth or a takeover. I think this is a good entry point. I'm investing now and tucking away for a year or two.
BooHoo are down 0.79% today. Asos down over 7%. This is all down to the market's view of Asos's recent inadequate placing. CEO buys today, which is a bit late to express his confidence. Maybe he sees a bargain or maybe he's just trying to prop up the share. What a disaster for most shareholders, down 92% in two years. Ashley is no doubt biding his time, waiting in the wings, ready to pay peanuts.
Returns was already an issue but was built into the business model as something they could tolerate. Customers understandably return items that are not quite right for them or don't fit. However, the present situation is as a result of a different phenomena. It has little to do with the cost of living. Firstly, people are buying items for special one-off occasions and then returning them a few days later. They are taking the mickey. Secondly, and even more of a problem is the game being played by young people on media sites such as TikTok and Instagram, whereby they order loads of items every week and pose in the clothes with a view to getting votes as to which one to keep, the remaining 90% being returned. This is a 'massive' fad on social media and costing the company loads. The only way I can see them stopping this is to either identify and ban those who are doing it (which could alienate many from buying anything in future) or introduce a reasonable returns fee.
Very interesting little news item in the Telegraph on Friday. I know the corporate actions have already occurred but this adds meat to the developments. I'm unable to provide the link but this is a precis:
'' Struggling Asos has turmed to Elliott Advisors amid a surge in shoppers frequently returning purchases. Asos say that Bantry Bay, a London based fund backed by the Wall Street investor Elliott, has agreed to provide £275m of banking facilities. This replaces its £350m revolving credit facilities with banks that was due to expire in November2024.
The new facility provided increases flexibility against a challenging macro-economic backdrop and the stability to focus on long term value creation. It comes as Asos battles to turn around its operations and struggles to stop shoppers from returning items, where it is costing the company £6 for each return. While larger orders are being made, some customers are automatically returning up to 90%. Elliott advisors employs about 500 people and, in the past, has taken stakes in UK firms such as GSK and Taylor Wimpey, where it has called for sweeping changes in the management, together with sell offs''
It is the last sentence in that news item that caught my eye the most.
We presently have an SP around 2% lower than the placing price. Not surprised. The three large shareholders stumping up the bulk of the cash didn't really have much choice. It was either that or intimating a lack of support. Lenders were insisting on this corporate action otherwise the new facility would not have been forthcoming. And, as I said last night, the borrowing is at a high interest rate through a 'specialist' lenders. Presumably their lead bankers Barclays, Lloyds and HSBC didn't want to know....(too much risk).
At least this will see them through this year. As I commented yesterday, even if sales and profit margins improve, there will be further financial pressures over the next two years what with the Bond reneg and the higher interest rates eroding the bottom line. However I'm comforted by the fact that the major shareholders, by the looks of it, are in there for the long term, including Nick Sleep's company. MASH remains in the background too and might be laughing this morning. He will buy more at a cheaper price.
The market has been fairly neutral on this action. This remains a good long term bet. However if there's bad news in the reporting season later this year, I think it will be curtains for the CEO who, to my mind, shouldn't have been promoted from within in the first place, given the management's sloppiness over the last two years.
In terms of the private investors placing of £5m, this is mere tokenism. I notice Lloyds-Iweb have still not announced a 'corporate action' even though the offervfinishes mid afternoon. Obviously mad to take it up anyway given the market price. I expect there will be some not savvy enough to realise. They will all be taken up, and if not the underwriting shareholders will take a few more!
Pauleydee,,, with respect, I disagree. This type of arrangement doesn't take place overnight and had been in the making for quite some time. It definitely implies that someone within their lending arrangements insisted on this raising of additional capital in order to agree the continuation of ongoing facilities and to strengthen their position. The two biggest shareholders , together with Nick Sleeps investment vehicle, had to underwrite this in order for the company to move forward. It just shows how critical a situation they see the coming months ahead. Lets hope for everyone's sake, it is a sufficient amount. The high interest rate will hit profits. Asos must re-model itself successfully this year. It faces an uphill struggle for quite some time given it still needs, as far as I can see, to renogotiate a £500m bond in a couple of years time. Presently the bond pays out 0.75%. Based on the new borrowing facility being 11% , and that base rate is predicted to be around 5% for quite a while, that renewed bond rate could put a lot more pressure on profits. Sorry to sound gloomy but this is not going to be a quick turnaround. However the market works in mysterious ways and might well see positivity in their capital postion being strenthened albeit for the short term.
...........and I forgot to mention the finer details - --- 11% interest on the new borrowing facilities....that 's a huge hit, and reflects how the specialist lender regards this as fairly 'high risk' . It will be interesting to see how the market reacts in the morning. I also can't see how brokers will be able to communicate to all their small shareholders in time (and get a reply) re the tiny £5m placing for them.
This is what I said just over a week ago:
''CEO's normally caveat their answers re cash raising with the quote, or something similar like, ''there are no present plans''....or ''at this time'' there are no plans for a rights issue. Then come next week, blow me down, there is one! ''
We've basically had a raise in capital. Never believe a word a CEO has to say, particularly this one, when asked if they need more money. To be fair to him though it would have been difficult to announce at the time, especially if it hadn't been fully agreed then.
The only good news is that Nick Sleep is entering the fun (I.G.Y. Limited is his private investment company). He's a shrewd investor and looks long term to make loadsa money.
The bad news is that I think there will be an element of dilution in this financial restructure to the benefit of the large participators, but to the detriment of small shareholders. I hope I'm wrong.
I imagine one of the reasons for the tie up with Hirestreet is to get customers to 'pay' for borrowing clothes for a few days, rather than what they do now, which is order clothes for a night out and then return them for free but at a cost to Asos of £6 a time.
But in respect of this huge game on Tiktok etc of asking friends ''how does this look; which one shall I send back,'' something has to be done to stop this where, in some cases, 90% of orders are returned. The company is losing big time. I still believe that introducing a 'returns fee' is inevitable to deter this, otherwise people will continue to take the mickey.
Meanwhile, I cannot see MASH doing anything regards Asos accept waiting to see what develops over the next few months. He maintains a strong position irrespective of whether the company struggles or improves. Presently, he's more interested in the 'higher end, higher profit margin' sectors of the fashion market, hence his present activities at Mullberry and Hugo Boss.
Meanwhile has anyone noticed the total shareholding of CEO Calamonte. Last time I looked it represented 0.009% of the company. Hardly a vote of confidence. Actions speak louder than words. Why isn't he and other executives not buying at this price? I don't believe they are prohibited in doing so at the moment.
All speculative rumour of course. I'm sure a few are keeping an eye on the stock. As I've said before, MASH's holding is strategic, basically a win/win for him. If company struggles he will be there to bail them out. If they improve their model and turn a profit, the sp improves and his holding appreciates. He also is hoping for increased reciprocation of retail sales on each other's sites. All in all he's in a comfortable position. I doubt he will let someone else barge in in front of him. He had that happen to him once before. Meanwhile people here are mentioning Marshall Wace reducing their exposure. Well, only a bit and there are a few other hedge funds actually still increasing their positions. As of last night the declared shorts are 5.51%....still high, and will probably hold back any big rise in the price unless by some miracle someone comes in witha bid 'now'.
Claire......Asos has a market capitalisation of about £450million. They have a large debt, and innumerable issues to resolve. They have cash to last them till about the end of the year. if Qatar make a £3billion - £4billion bid next week, I'll eat my hat.
Claire, please tell me......what is it like living in fantasyland?
Meanwhile, back on earth I have been reading what has been happening in reality. I have pasted this comment from elsewhere. It demonstrates the challenges facing Asos and the way the younger generation are costing the company a fortune. The Asos model has to change to survive:
At TikTok, the ''KeepOrReturn trend is costing ASOS huge amounts of money'' and hordes of young Generation Z influencers are busy trying on outfits for an appreciative audience of millions. In 30-second clips they model everything from swimwear, underwear, dresses and footwear, showcasing “hauls” of clothing from fast fashion brands like ASOS, SHEIN and BOOHOO. Underneath the videos, viewers post comments as to which items they think should be kept, and which should be sent back. These TikTok videos are immensely popular, commonly racking up views in the hundreds of thousands, while the hashtag #KeepOrReturn has been viewed more than 250 million times. This trend shows just how shopping habits have changed over the last 10 years. Nowadays, buying and returning masses of clothes is easier than ever. According to a recent survey from the British Fashion Council, roughly 30% of all online clothing purchases are unwanted, compared to 10% of garments bought in physical shops. More importantly online retailers like ASOS and BOOHOO say it costs them a lot of money to deal with the sheer volume of clothes being returned. ASOS recently warned it suffered a £100 Million hit due to shoppers buying up discounted clothes, only to return most of them. Although a few pieces of clothing being returned per month doesn’t sound like a lot, these returns cost ASOS at least £6 per order. Remember, this problem with returns looks set to get even worse in the coming months, due to the current cost of living crisis.
If there is someone eyeing up Asos, they must have deep pockets and face up to the serious challenges ahead. MASH holdings are a clear contender if Asos enters a distressed state.
The requirement to notify the market was reached yesterday, meaning the offloading of 4.5% probably happened around 17th . I'm guessing Fraser, and T.Rowe may have swept up quite a lot of these.
As for FinallyRetired's comment about shorters being of 'zero influence'.......I've just stopped PMSL. I suggest he has a quick chat with Chris Hohn who might put him right on a few things.
People here are either clutching at straws. Either that or trying to ramp up the shares. Karl, you may as well change your name to Claire! With the price at £4.38 on a positive day for the markets, unless there is anything other than rumours, this share is destined to drift a little downwards again. Shorts in evidence still at an uncomfortable 5.56% . Too high.
DC2007.....I concur with your view. Ashleys increased holding is simply opportunistic and not necessarily a sign he will make an offer. It simply strengthens his position strategically should someone else enter the fray. He's a bit of a vulture and rarely pays a premium for anything. He tends to buy companies nearing administration. I too think that a £1.5 - £2 billion offer is is pie in the sky. In the present climate and the precarious state of the company, I can't imagine anyone coming in with an offer in excess of £6 (and certainly not Ashley at that price). Just my opinion.