Member Info for TheTrotsky

LOK this morning announced a recommended cash offer of c£378m (£11.10p per share) from Shurgard who are apparently the largest self-storage operator in Europe. Based on LOK's latest available accounts to 31 July 2023, that represents c1.64x of LOK's net assets or c1.53x of LOK's adjusted net assets.

Applying the same net asset multiples to SAFE's net assets as at 31 October 2023 (c1.93bn), you'd get a current market value of between c£2.95bn and c£3.1bn or between c£13.50 and c£14 per share!

Interestingly LOK is currently trading above Shurgard's offer price which seems to suggest that the market thinks that its offer is a bit low (although how the market suddenly arrives at that conclusion when it was only valuing LOK at c£8.70 at the beginning of the week, before the rumours seem to have started to circulate, is somewhat amusing) and that a competing offer might yet emerge.

TFIF tends to declare its dividends either mid-afternoon or after markets close, so there may be annoucement later this afternoon. Watch this space.

Relative to the price of tiles in speciality, high end, tile stores they are cheap. It's all relative.

You really do need to expand your narrow mindedness. When I said "pile 'em high, sell them cheap" you clearly didn't follow my drift. "Pile 'em high" = large volumes plus supplier volume discounts. "Sell 'em cheap" = relative to up-market, local, niche, low volume retailers.

Unlike you (obviously) a lot people are quite finicky about the tiles they buy. It's often a large outlay, so they like to touch them, feel them, compare patterns, matxh them with other fittings, compare them in different light etc. etc. That's hard to do online. This is exactly the same problem Amazon encountered and why they were forced to open bricks and mortar shops in the US after they'd driven all of the natural bricks and mortar competition to the wall. We all have different views on online vs bricks and mortar but one shouldn't just simply ignore the actions of one of the largest online retailers on the planet and simply persevere with the unproven view that bricks and mortar are dead. Don't be so naive.

Alfista, As I said in a previous post, TPT regularly reviews its store network and closes/downsizes where appropriate.

Have you also considered whether TPT's offering is something that might actually appeal in an area with "with higher than average property values and with affluent residents". TPT has always tended to offer a standardised line of products across all of its stores (it doesn't tend to change its product offering to meet specific local market demand) which means it has to carry fewer product lines and can maximise both volumes and supplier volume-based discounts.

I wouldn't be at all surpised to find more local, niche, up-market tile retailers trading in more affluent areas rather than "pile 'em high, sell them cheap retailers" if you follow my drift. I'm not disparaging TPT's products but its sales model has always been based on selling high volume, low/average value tiles rather than low volume, high value tiles.

I suggest that you have a wander around said Midlands town and tell me if I'm wrong.

Alfista, What do you want? If you want to sell tiles then you are going to incur cost of sales and, the more tiles you sell, the higher your cost of sales will be (you can't sell and incur zero costs)! TPT may have the highest cost of sales (£s) but it also has the highest sales (£s) and gross margin (%), so go figure!

Rent, rates, heat and light are not just the blight of bricks and mortar retailers (online retailers do incur some of these costs too, either directly or indirectly) and you don't just throw out the baby with the bathwater (sell your stores) because there's been a general economic downturn. TPT's current trading issues aren't simply down to increased online competition; all tile retailers are suffering. Badly run businesses, like Tile Giant, will always go to the wall eventually, regardless of whether or not they are trading through bricks and mortar or online. I wouldn't be at all surprised to see both online and bricks and mortar retailers going to the wall in the coming year but TPT is one of the strongest tile retailers in the market and there's no current reason to think that it will be amongst those failing businesses.

As Amazon has clearly proven, online cannot prosper without bricks and mortar (Amazon drove bricks and mortar retailers to the wall in the US but then had to open its own bricks and mortar outlets because customers still wanted to touch, view and compare before they bought big ticket items) Some bricks and mortar retailers will flounder but some will survive and I expect TPT not only to survive but prosper (I wouldn't be too surprised to see TPT expanding its own, existing online retail offering through ProTiler is due course).

Dessertstar, When was the last time TPT made £40m+ profits? Not in the last 15+ years! In part it's poor profits performance since 2008 is due to the c£100m debt it took on to purchase its own shares in c2006; that additional financing cost weighed down the profits performance for over a decade (which explained the poor share performance and the collapse in the share price) but that debt has now been repaid. Margins are lower than they have been historically due to the impact of Covid and input price inflation (these factors have affected all tile retailers not just TPT) but TPT is now in the process of rebuilding its margins, as outlined in its FY23 results and the recent H1 trading update. Whether gross margins can be increased back to 60%+ remains to be seen. There's no doubt that increased online competition will continue to apply pressure to TPT's gross margins (there's only so far that volume discounts from suppliers can take you) and I think that mid to high 50s, rather than low 50s, is a more realistic expectation. Online competitors will want to take market share from TPT but they won't want to drive it out of business because they are able to piggy back their own sales off its bricks and mortar outlets (think Amazon).

Whatisgoingon, I accept that management bonus schemes should always be kept under review but the 1:5 target is, I believe, soley in reference to tiles and ProTiler doesn't sell tiles (it sells ancillary products). Most, if not all, of the growth in tile sales have been through organic growth.

"Online giants". There may be large online tile sellers but TPT is the largest UK tile seller and has been increasing its market share. Which "giants" are you specifically referring to? I've checked out the latest available accounts of Tile Mountain, Total Tiles and Tiles Direct at Companies House and they don't bear comparison to TPT. The sales of the largest, Tile Mountain, are only c30-35% of TPT's, whilst the others are just a fraction of that. Also, their gross margins, operating margins and net cash are all worse.

I'm not sure why you would say selling the main warehouse would necessarily increase fixed costs. There are benefits to having a de-centralised warehouse network e.g. it allows you to better cater to a wider geographic market, more nimbly supply stores/customers and, potentially, in smaller volumes (your're not gong to send a transit van from, say, London to Falkirk to just meet one relatively small order but you might send one from, say, Glasgow), it more readily enables you to increase your warehouse capacity (expanding one central warehouse can disrupt the whole business). I would also suspect that a lot of the competition don't just operate from one main warehouse either; so it's not necessarily going to put you at a competitive disadvantage.

Discounting does not equate to profits e.g. if you (say) sell £1m of tiles at a gross margin of (say) 40% and drop your prices by (say) 10% then you'd have to increase your sales by a third to achieve the same level of gross margin (£s). Discounting in the current environment would more likely result in an increased cash burn.

Shareholders weren't against the "Polish outfit" acquiring TPT per se; they were againts them acquiring TPT at undervalue or, worse still, just diverting profits from TPT to themselves (by forcing TPT to source 30% of their tiles from them at a price dictated by them).

Despite what you say, TPT is a succesful operation and in the current environment all tile sellers are suffering. Selling tiles through bricks and mortar has been successful for TPT in th past and the current market environment does not vindicate selling online over bricks and mortar in the long term. That may change but currently the TPT model works and I feel sure that TPT will come out of this current economic turmoil stronger as the more marginal, often loss-making, operators, both bricks and mortar and online, are pushed to the wall.

Fresh new management? TPT has expanded its sales and sucessfully moved online over the last two financial years. We now have an economic environment that is affecting all tile retailers (if any tile sellers are increasing sales in the current market environment it's likely at the cost of margins, profits and cash; and none of the large online retailers have the cash resources to throw money away) and you want to blame management?!

Seriously? You think the last 12-18 months are worse than the 2008 financial crash? TPT has been here before. Recessions and interest rate rises/falls are nothing new (the benign interest rate background of the last 10-15 years hasn't completely prevented the normal cyclical movements). You're talking as if the world has come to an end. It hasn't. I'm saying TPT is financially strong (stronger than it has been for over 20 years) and is very well placed to withstand the current economic/cyclical headwinds.

Management can't force customers through the doors (mass discounting in this environment would be a perilous course of action; any potential increase in sales would unlikely offset the fall in gross profits). Management aren't stupid. Whilst the market and the economy in general are in the tank, they will manage their cost inputs as best they can. Interest rates are now likely to start falling later this year, all other factors being equal and it's likely that the tiles market will start to pick up again in FY25, again all other factor being equal, as mortgage concerns start to diminish and the housing market starts to pick up.

The economy and interest rates aren't really a threat to financially strong bricks and mortar retailers in the medium/long term (this cycle might be worse than some some but not as bad as others); the potential movement to online retailing is and, as far as I'm aware, there does not appear to be any significant movement to online tile retailing at this juncture (the ancillaries are another matter and TPT has already got that covered off by ProTiler).

As regards, "... multiple failed businesses in the sector, this year alone ..." nobody is denying financially weak businesses go to the wall in recessions like this but my point is what specific reason do you have to believe that the largest UK tile retailer with c£25m of net cash and access to c£53m of undrawn committed credit facilities is currently at risk? There was nothing unexpected in the last RNS given the current economic backdrop. Growth at ProTiler may be cross-subsidising declines in LfL sales at Topps Tile at this present moment in time but that's a perfectly legitimate management decision if the market is expected to start rebounding again over the next 6-24 months. You might decide to prune some of your stores (something TPT regularly reviews) but you wouldn't shut them down wholesale simply because of a short/medium term "blip".

Despite what some people think, bricks and mortar aren't dead. Even the largest online retailer, Amazon, is expanding its bricks and mortar presence! The death of bricks and mortar is as much heralded as the death of paper with the advent of the PC; it never happened (indeed we probably use more paper now than we did before the advent of the PC).

... the larger the discount becomes! A "tad" irritating as one feels quite certain that if the next assets start to fall again, so will the share price. This market is becoming Looney Tunes on steroids!

Last sentence should have read:

The tiles business, like the economy, is cyclical and this is not TPT's first rodeo!

Piffle, you clearly don't understand the company or its operating metrics, and have no appreciation of the current wider economic backdrop. To suggest that more funds are outflowing than inflowing, the acquisition of the remaining minority interest in ProTiler aside, based simply on the fact that sales have fallen (whilst gross margins have risen) is just unproven conjecture. They say that net profits have been impacted; they don't say that profits have become losses. Also, H2 always tends to be more profitable than H1 because of the lower operating costs (in particular, the unwind of the accrued holiday provision and lower utility costs).

Cash wise, TPT had net cash of c£25m at 30 Septmebre 2023 and headroom of ~£53m in its committed borrowing facilities. In my recollection, this is probably the strongest financial position TPT been in for over 20 years. Acquiring the remaining minority interest in ProTile will probably cost TPT c£8m and there is probably scope for further complimentary acquisitions if the opportunity arises (it's unlikely that TPT would be permitted to acquire another large, tile business in the UK because of its existing share of the UK tile market).

ProTiler does not sell tiles and its operating margins are akin to Topps Tiles; TPT would therefore be fairly ambivalent as to whether Topps Tiles loses some sales to ProTiler. It probably means that Topps Tiles will, over time, have to hold less tiling tools, cutters, trim etc. stocks in store, can potentially charge a higher mark-up on said items in store (the opportunity cost of the customer not having bought enough in advance online and having to make additional purchases in store at short notice) and, over the longer term, can use the additional space created in store to potentially increase its tile range (the vast majority of tiles sale still continue to be supplied through bricks and mortar outlets).

Given that there was an already existing trend to purchase tiling tools, cutters, trim etc. online, the acquisition of ProTiler has actually complimented Topps Tiles rather than detracted from it; it's far better for Topps Tiles to lose sales to ProTiler rather than another competing, third party, online retailer. Topps Tiles might have tried to create its own online presence but that would have been costly and time consuming. The acquisition of ProTiler may ultimately cost c£13m but I think it will probably prove to be money very well spent. Not only did TPT hit the ground running from day one with an established online brand but it's been able to leverage its existing purchasing power. Plus, the initial ROI following the aqcuisition of the remaining minority interest is likely to be c15% and rising.

The bizarre thing is that TPT's earnings per share fro FY24 will still probably be higher than FY23, despite its falling tile sales, because of the vagaries of minority interest accounting.

The tiles business, like the economy, is cyclical and this is not TPT's

Rolls Royce isn't really a fair comparitor. Five years ago, pre-Covid, RR was trading at c905p and by June 2020 it was trading at c403p before reaching its nadir at c75p in November 2020. RR has since recovered but is still c53% below its share price five years ago!

By comparison, five years ago AV's old shares were trading at c426p each. Adjusting for the subsequent capital return and capital reduction, that equates to c425p per new share, as compared to c497p as of the close on Thursday (plus dividends).

So, yes, it's not unreasonable to suggest that AV, a strong buy at 420p, might become a moderate buy at 496p. RR on the other hand still has a lot of ground to make up but hasn't done too badly the last 12-15 months (up over four-fold).

It's been announced this morning that the UK competition authority has decided not to perform an in-depth probe of the merger. Good news. Might give the share price another small boost.

Monk, Out of interest, what infrastructure and bond funds are you rotating into? Also, why would you rotate out of TFIF to other bond funds, other than to spread risk?

One would have thought that, when interest rates start to fall, bond prices would start to rise i.e. there will be a switch from rising income returns to rising capital returns (as implied by the the MTM yield). Would you disagree?

Trek, You were saying that it was a solid long-term income play when the yield was c33%. Just saying ;-)

Before somebody gets hot under the collar because of further price falls today ;-)

The share price might be expected to fall as much as 2p today because of going ex-div. Hopefully not but we'll have to wait and see.

Calm down, calm down! FY23 was always expected to be an annus horribilis. Despite DLG increasing premiums throughout FY23 it was never going to immediately fix the problems created by its underpricing in FY22 and the initial part of FY23; it's called accruals accounting. It means that expenses are recognised as and when they arise whereas income is, more often than not, spread over the term of the policy i.e. there is a lag. There are already indications that the "worm" has turned in the first two months of FY24 and hopefully this trend should now continue without any further material inflation-related cost shocks in motor.

Weather-related claims are, perhaps, slightly elevated and perhaps there is more work to do on home premiums over the next 12 months. In the past, claims might have expected to be materially higher in the first quarter following winter-related weather events but we do now seem to be seeing more regular weather events outside the "normal events window" e.g. summer flooding events to appear to be on the rise (either that or there was chronic under reporting in the past). Whether increased flooding events are entirely related to Climate Change remains to be seen e.g. the increase in flooding events may in part be explained by (unscrupulous) developers having built more new properties in recognised flood zones over the last 20-30 years.

Monk, Any thoughts on the widening discount to NAV? Am slightly surprised that whilst NAV is continuing to trend upwards the discount is rising having previously started to narrow at the end of last year (TFIF was trading on a 0.25% discount as of the end of December but this increased to a 3.35% discount as of the end of February and, as of today, is currently c4.46%).

I see from the latest factsheet that the purchase yield was 11.4% at the end of February, which would suggest that they will be paying a final dividend of c5.5p (to be declared in April).

Just can't help feeling that this is just putting the final lipstick on the pig. DEC's not only managed to destroy shareholder value (just over 15 months ago it was trading at more than £26 equivalent) but now it's managed to slash the dividend by two thirds too! To suggest that something is not "rotten in the state of Denmark" beggars belief. US investors may prefer capital, rather than income, returns but even they don't tend to like capital losses! The share price is down c45% since it listed in the US. It's all well and good blaming the shorters but you can't have smoke without fire. I got out with a hefty loss back in December (which would have been even heftier if I was still invested today) and have been keeping a watching brief ever since. I've seen nothing to suggest that shareholders are doing anything other than cannibalising their own capital to pay the dividend (in the intervening period the share price is now down c200p and shareholders have been awarded c84p of dividends in return - the Q3 and Q4 dividends).