Member Info for TheFatGeneral

Reading between the lines. Overall sales down approx 2-5% (lfl). The Xmas “bounce” of 9% was against very soft sales due to big train strikes. But things heading into an environment of +9% cost increases (admittedly wages isn’t all costs…but a significant component). The jaws being shut firmly. Unfortunately probably need to see 15%+ sales growth to get ahead of costs and payback into refurbs etc. Makes next year precarious-trying to find 10% more sales just to cover cost increases…

They need to explain how they got it so wrong with Watford. Opened in Sep 22-closed “pause in trading” June 23. 500k wiped out. They talk about a much more favourable environment re rents so I assume when they go into a new location it’s with much lower overheads to make it work… this was a huge miss and a red flag for if they’re disciplined enough to execute their roll out strategy. Great concept, but need to ensure strong negotiating skills to ensure new locations are profitable

As an example of how valuable some of these brands can get/become once they reach scale. Bondi Sands has been announced as having an all cash $450m takeover (~250m pounds).

on the face of it, it looks like an amazing deal. definitely some risk with the leases etc, but overall a great fit and a very opportunistic buy. i do note that they needed to fund this with another raise however-which is dissapointing, they mentioned generating $4m in cash from operations in the last half...assuming this continued for this half they should've been able to fund from existing balance sheet. i appreciate it de-risks, but given its such a good deal i would imagine that was an appropriate use of funds. noting the update also mentions a miss at the ebitda level i suspect costs are rising quicker than can be accounted for and potentially some sites might be finding themselves loss making. when they announced the last opening they mentioned something like 18 sites in negotiations etc. not a single one of these has come through, i was hoping that the decision to slow the roll out notwithstanding, there would've been a site or two that was such a good offer that they would've pulled the trigger regardless (better to get in now with a great rental offer than not). this tells me that given the rising costs they're unsure of the economics of new sites and have just implemented a blanket freeze. time will tell, but xmas season 2023 is looking like a very importing trading period to gauge overall profitability and inform further roll out potential. from memory the average ****tail club at ipo was approx $350k fit out cost v $250k contribution once all up and running (the fabled ~75% annual return) - we're now up to 13 ****tail clubs. even if all the other sites purely covered costs + overheads for the group, these should be getting us $3.25m ebitda. i suspect below the surface there has been a decline in overall site economics (hence the decision to pause the roll out).

Be interesting to see how they're managing costs. From memory in the last update they mentioned that the minimum wage increases will be setting them back 2.5million. The cost pressures keep on rising. I was up in Scotland briefly in July and the one in inverness wasn't very busy. Unfortunately if they continue to lose ~6% on the LFL sales at the front + costs rising it's an almighty squeeze. Might end up being that peach saves them and can ensure the group can tread water.

Yep, notice roots double effect is closing down (according to website), just clearing old stock via Amazon. For Nuthing - no longer doing online orders... - very much a slash and burn approach. I thought the whole idea was IDP had brands needing investment and BAR had cash -appreciate it's economically very tough, but the contrarian in me says now is the time to invest

Rewatched the recording. Telling comment was right at the end …”we expect profitability in 23/24” weird turn of phrase if you think it would be this fy -would just say 23 or fy23, so my base case is given they’re already 5 months in (& past the peak sales period for ST) then it appears they are already well behind/forecasting a loss for this FY. (Prob why they haven’t said anything, hoping it’ll turn around).

I note Peter Gyllenhammer keeps buying, looks like a good strategic shareholder to have on board, but wonder who is selling out

Interesting to see if it's in the update today 4.30pm UK time. Very little detail really in the report re current trading.

So can't help but notice the merger presentation said that Edward Beale would resign once the half year results are announced in late September... It's now early October, what's happening???

I guess I should reiterate. Then added value I can potentially see is deploying a lot of BAR’s excess cash to launch ST & C+L …but if this was an option (& given the current covid climate I’d be advocating a softly softly approach) reckon it would be better to hit up existing shareholders to avoid the dilution. Yes a top line headcount reduction will reduce costs and spread them over more revenue but these aren’t mature businesses and we’re better off going for growth. All the talk is synergies but I think BAR just wants to get their hands on ST. Weird scenario where the 35p capital raise gets 7p back + upside. So short term a win/derisk but reckon they’re losing a lot of upside from the deal.

On the face of it I’ll be voting against. Seems like BAR are wanting a crown jewel brand at pauper pricing. Been a tough year but we should be right going forward. This just dilutes the shareholder base and provides a company that is trying to manage too many brands across too many areas.

Questions:

A few questions to begin (some of these might be answered in the preso)

What's happening with the overdue debt?
Any luck in recovering and any comments re doubtful debts?

Payments to contractors where it is unsure any value was obtained for IDP
Have we sought legal advice to sue for non delivery of contract/recover monies?

I've noticed that ST is no longer stocked into local priceline- is this range still being stocked by priceline?
notwithstanding the focus on core business (ST in the UK via B2C) - what progress to expand retail distribution?

Any comments on US? Prior announcement of a new US distributor hasn't seemed to drive much revenue - any luck in getting traction amongst retailers/distribution partners in the US?

Neon management - been a while now, beyond Liberty, what have they done? Is the partnership working - any comments? Have we lined up future NPD with Neon as a partner re influencers?

Acknowledging that we are focusing on ST - any chance of seeking partners/JV's (along the lines of Prolong) for the other junior brands? (Nuthing, roots etc)

Any commentary re change in behaviour since UK recently reduced restrictions? (admitting it might be too soon to know)

What's happening with the move to consolidate into the UK? Noticed job adds for aus, how do management feel about how the business is spread out/appropriate to where revenue is/where is will be?

Hi,

Quick summary and take away points from the AGM yesterday.

I liked the fact that we are now getting updates from the finance director - shows a good sense of control/oversight. Overall I got the feeling that management (only really heard from Blake and Andrew) are reasonably confident going into the peak tanning market.

They definitely seem laser focused on Skinny Tan and looking at how to grow and expand on their marquee brand - a mention was made around the notox range and the opportunities in NDP that exist to capture more market share. I got the impression that the Liberty deal is working and this or something similar is what they will look to do in future. Other than the key buckets (incubator stage etc) no real mention of what is happening with their other brands. I was hoping for an update on the JV re prolong but probably a bit too early. Was interesting that they have now pushed a significant amount of sales through Amazon (when the preso is published I can confirm but think it was something like 20%), will need to get a handle on if this is new sales and other channels have hugely declined (brick and mortal due to restrictions) or are we seriously losing ground and amazon is sort of masking it. Overall revenue is lower but lots of moving parts so hard to say. Best case - the other channels kick back and we still get this amazon tailwind - but probably an element of people shifting how they purchase our product. Questions got asked about funding and if it's likely they will need to raise - other than the usual comment re if it was in the best interest of the company at the time - they seemed very confident they wouldn't need to raise any more capital, mind you this was followed up with comments that they're seeking to drastically reduce marketing spend on social media. Will be interesting to see how much is people buying because of an add in their face v strength of the brand and they will buy from us regardless. Lots of comments around trying to re-market via cheaper means (email) to existing customers. Overall I came away with the impression that they're going to rely more on the strength of the brand + existing customer base to drive sales with a very low marketing cost and reinvest marketing dollars into influencer partnerships and pushing NDP -- probably a good thing, but does run the risk of losing sales and acquisition of new customers...sure you might spend more to get the 1st sale, but the LTV might be huge - need to remember 5 years ago we had hardly any customers so still a young brand in the land grab stage. That said, overall happy with the strategy and will wait to see how it tracks.

I had copied/pasted a bunch of (quickly written) questions - the stupid program got rid of spacing, but hopefully management publish soon.

Yeah-a bit of a nuthing burger announcement. I guess big update will come at the end of the month. I think they’re still in a bunker mode to see when covid finally recedes. Still was significant lockdowns in aus in the half + no doubt an impact on tanning. Last year they reported one key retailer said the segment was down 44%….slowly climbing back. I guess the key going forward is have they gotten the NPD and innovation pipeline with ST and C+L right given the other brands seem to have completely fallen away. I’m still convinced Nuthing could be a big winner-every time I see Nair in the supermarket I think it’s such an old tired brand ripe for disrupting.

Yet again they have noted in the notes that the afterpay board have put in the liability at aud99.9mil. Some big difference between the two (125m gbp is roughly double) - someone’s telling porkie pies

I wish they’d provide clarity on what is likely to happen to the 3.5% esop share-is it likely to all be achieved (assume so as the company is booming)-does Thinksmart get any benefit from this etc?

factsheet online seems to have been updated early

https://www.thinksmartworld.com/wp-content/uploads/2021/09/ThinkSmart-Fact-Sheet-20210901.pdf

Net assets of 126pence/share. clearpay stake worth 125m.

Mind you, TSL seem to apply a 20% discount as it's not a 'controlling stake' which I guess has some merit (offset by the fact that they may well be in a position where they want/have to buy - so a 'sellers market' premium could arguably apply)

Note 16 from the afterpay annual report.

"The valuations are conducted by a reputable, licensed and qualified independent valuer using the
valuation principles outlined in the relevant Share Purchase Agreements and use cash flow
projections based on operating budgets which reflect management’s view of the expected
long-term growth profile of the businesses.
The determination of cash flows over the life of a business requires management judgement in
assessing the future number of merchant acquisitions, customer usage, potential price changes as
well as any changes to the costs of the product and of other operating costs incurred by the
business.
The valuations are then derived by discounting the cash flow projections to present value using
discount rates that reflect current market conditions, external analyst views, industry benchmarks,
and, where available, the underlying businesses cost of debt and/or equity.
Because the valuations are determined using cash flow inputs that are not based on observable
market data, they are considered to be level 3 within the fair value hierarchy as per AASB 13 Fair
Value Measurement (see Note 17)"

What is interesting is they seem to be mostly based on cash flow forecasts-I guess a "bottom up" approach, whereas Thinksmart's expert seems to be doing a top down approach (APT say we think this will generate X cashflow, which should be then worth Y, Thinksmart say APT is worth X and the Clearpay component is then worth Y). I smell a lawsuit coming given how far apart these numbers seem to be. No commentary as to if they would initiate the exercise of the option in the event of a takeover...

On rough numbers we're looking at 6.5% of whatever clearpay is worth out of the total group. All we know is that there is reference to the composition of revenue (share of afterpays revenue that is clearpay) and customer base (share of afterpays customers that is clearpay).

As at Jun 30 - we have 13.5% of customers (noting that clearpay Europe only went live in March...so some dilution but most should be UK) and 8.5% of total transaction value. This has gone up from 10% and 5.4% respectively at the December 30 results-i.e even though the total pie has grown significantly, the UK share has gotten even bigger. I'm going to assume 1% of this is Europe.

So - given it's clearly growing and a younger base - let's take the 2/3rds point between these numbers (less the 1%)- 10.8%.

If Afterpay is worth USD 30b (noting squares share price has risen). 10.8% of this is worth USD 3.24B. 6.5% of this is Thinksmarts (removing the ESOP shares) - 210m USD. Reduce valuation by 20% as it's a non controlling stake - and we move to 168m USD - or 124M pound (115pence/share).

Now the interesting part is what this will be in approx 9 months time. In the last 6 months we moved from being ~10% of customer base to ~13% - I could see this easily going to closer to 15-17.5% in the next 9 months (until the change of control when afterpay can exercise the option). We also have upside (and downside) if the square share price moves and in effect increases the overall value.

Can the customer base go up another ~50% in the next 9 months, I reckon it's a long shot, but definitely possible. Could the price of square shares (affecting total value of the takeover) go up, definitely. And, this is a long shot, but is there an incentive for afterpay to seek to buy out earlier to make the transaction cleaner etc (remove the 20% discount for the lack of control), definitely. So there's lots of scope for an upside move and limited scope for downside (square shares dropping a lot).

I'm not sure about 3pound/share, but reckon we could easily get close to 2.