7:59 cut – RBG, QUIZ, BKS

Revolution Bars (RBG) – H1 Update

The company today issues a trading update including the Christmas / New Year period. While the headlines are bombastic, the most relevant figure is that like-for-like sales for the second half are +1.2% despite significant spending on refurbishments. Not only is this likely to be barely sufficient to cover increases in staffing costs from the ever-increasing minimum wage, but it also underlines just how necessary ongoing capex is, and the irrelevance of EBITDA figures from an equity holder’s perspective.

Continue reading “7:59 cut – RBG, QUIZ, BKS”

7:59 cut – SOM, PEG, QUIZ

Note

After a quiet patch, it is quite busy today and I also expect to be commenting on Beeks tomorrow and UPGS on Monday.

Somero (SOM) – H1 Results

Somero issued a profits warning on 7th June citing unusually poor weather, followed by an in-line trading update on 11th July. However reports from US Concrete and others report ongoing poor weather in certain locations and so guidance for the remainder of the year in today’s update will be followed closely, as will anything about longer-term trends.

Continue reading “7:59 cut – SOM, PEG, QUIZ”

7:59 cut – QUIZ, MPAC

Quiz – FY Results

This appears to be a slight revenue and EPS miss. Back in September EPS forecasts were for 7.8p which fell steadily to 0.54p vs the 0.33p reported today. Net cash has fallen by £1.7m to £7.5m. The cash may be be helped by trade payables increasing £5m on flat revenue, although receivables have also increased by £3m and debt has reduced.

With the stated plan for “a reduction in our exposure to UK department stores” (i.e. Debenhams), growth of 34% in online revenue to approaching 1/3rd of the total is critical. In the outlook they confirm this growth has continued albeit at a lower level.

Despite a weak high street, overall they say sales have been broadly flat since the last update. If they can recover margins then this would imply a considerable bounce-back next year – 3.7p was forecast before these results.

The dividend has been cancelled.

Even adjusting for cash the shares do not look especially cheap on previous FY2020 forecasts and there is no indication that these forecasts will be raised or FY2021 will be significantly better. I have a small holding I will try to sell today, albeit partly motivated by a desire to tidy up my portfolio.

Mpac – Pension Update

Back in August 2018 Mpac traded at a negative enterprise value having disposed of their main cigarette packaging business for cash, issuing a profits warning and having a large pension recovery payments uncovered by profits in the remaining business.

However, on an accounting (IAS19) basis they had a significant pension surplus and it was evident that the timing of the last triennial valuation was unfortunate, locking them into recovery payments over 10 years based on a high deficit that was significantly out of date even by the time negotiations had finished.

Since then they have bought another business for £15m (leaving cash of around £12m [edit: £10m after pension payments]) and today have announced a halving of the actuarial deficit. As expected, the trustees have not been willing to reduce the level of the recovery payments, but this does of course imply a recovery period of half the length. Other aspects such as restrictions on dividend payments remain.

The reduction in the deficit was broadly as projected (by me and likely others), but today’s statement may focus investors minds on the light at the end of the tunnel. Not only can meaningful dividends be expected in 5 years, but the absolute liabilities have now probably peaked since the scheme was closed some time ago and this should limit future risks. However, it is unlikely the company would be able to access any of the accounting surplus for 10+ years and the insurance company buy-out value likely remains considerably in excess of even the actuarial deficit. Longevity, interest rate and investment performance risks to the pension remain. Admin costs and pension protection fund payments must still be borne by the company.

There may be a rise this morning, but five years is still a long way off in most investors timeline and the recent acquisition has yet to bed in. I will continue holding off from any investment.

7:59 cut – QUIZ

QUIZ – FY Trading Update

The good:

  • No deterioration since the last update on 7th March
  • Slight revenue beat against forecasts
  • YoY sales growth across every channel, including stores / concessions
  • 58% growth from QUIZ’s own websites
  • Suppliers unaffected by Debenhams plc administration

The bad:

  • Debenhams contributed 23% to overall revenues (this is over the year, not a year-end run-rate). In the best case these sales will reduce over the next 12 months as stores close – based on current plans total revenue looks to fall 5-8% from this effect alone (23% x 20-35%). In the worst case the Debenham’s operating companies could still collapse resulting in significant bad debt.
  • Online growth overall of 34% is relatively lackluster compared to e.g. BooHoo or ASOS at this size / stage.
  • A significant majority of sales continue to be from stores. Most sales are from UK stores.
  • No news of efforts towards closure of stores / concessions until 11th June.
  • No news on current cash

FY2019 forecasts of 3.3p EPS are now secure. FY2020 forecasts of 3p look like a reasonable best guess, although highly dependent on the store review and there may be some exceptional closure costs. Forecast revenue growth requires online to add more sales than it did over the last year without too much tailing off in percentage growth.

On a normal valuation metrics they appear cheap, especially when cash adjusted. However Bonmarche has shown us how quickly trading can deteriorate, how seasonal cash can be and how quickly it can be consumed. For me, the main distinguishing factor from Bonmarche is the Operating Margin which runs at approximately double what they achieved.

The share price was not affected by events over the last couple of weeks at Debenhams and so this . There may be a small relief rally as trading has not deteriorated further, but the market will then start looking forward to the outcome of the review on 11th June.

I have a small holding. I will be looking for further price weakness or less FY2020 uncertainty before adding.