Card Factory Share Discussion Threads

[wiseman1967] 15/2/2021 08:29

Kaos - how do you form the view that the CFO is dominant?

[middlesboroughfc] 15/2/2021 08:28

UK reached 15m first vaccinations yesterday, ahead of target. CARD shops will definitely be open for business again soon.

[kaos3] 15/2/2021 08:20

thank you - different view on CFO now (less of a loose cannon now - but still very dominant - instead of serving the business I got impression he is leading it) - their hedges were big - when I looked

[middlesboroughfc] 15/2/2021 08:17

Card rocketing

[wiseman1967] 15/2/2021 08:14

Kaos - the currency hedges are there to hedge their purchases from the Far East which are priced in USD. These are mainly non card items.

[kaos3] 15/2/2021 08:01

and I wondered why currency hedges in the simple CARD business - history that I do not know is there (stick and snake)

[finkie] 15/2/2021 07:41

Debt for a retailer in this climate is at the moment perceived as risky too many cva options being misused. A rights issue is there only card but why invest today when dilution is on the way? Also over the years I have often found it’s better to wait post rights as often the price falls further. Not long to wait the banks have only extended for a month but I accept could roll on another month or two to allow them to set up a rights issue.

[wiseman1967] 13/2/2021 11:18

Finkie - the huge debt you talk about was 1.76x ebitda at the last set of accounts (Jan 2020). That is not huge in my books - it is a level that is tax efficient. You may be of the school that no level of leverage is acceptable, at which point the banks have no lending business and house prices collapse as mortgages disappear - is that what you want? Clearly because of Covid, leverage to ebitda is (temporarily) higher today. The leverage is a corporate rather than buyout facility (with fewer "teeth") clearly it is sensible to do something whether it be raising more expensive debt to reduce the current cheap corporate debt package (silly in my view) or raise some capital through a rights issue. I favour a rights issue as this can be returned through a special divi once the business is through Covid.

[finkie] 13/2/2021 07:23

I may be wrong but I think the clue is senior debt only rolling for 1 month. I think they’re losing patience. Don’t forget CARD have paid out over £1 in divis to shareholders over the last 5 years, while maintaining huge debt. Highly irresponsible. If I were the banks I’d insist it were time for the equity to take some pain.

[wiseman1967] 12/2/2021 18:50

I know you don't like ebitda but I suspect you may agree that if this is making £100m ebitda it may be worth the IPO price (by the way 2017 ebitda was over £98m). So I see this as a slow burn, a two to three year journey back to the IPO price of 225p. Wanna jump onboard?

[wiseman1967] 12/2/2021 18:47

Minerve - you are right that business has disappointed over the last 4-5 years. This was largely down to the CEO (was fired last summer) who failed to control costs (see other overheads as a % sales), national minimum wages pressures, and impact of USD/GBP exchange rate on Far East purchases of non card product (now reversing). This saw ebitda margins compress from 25% to 18%. This all happened at the same time as the roll out strategy was beginning to reach saturation - requiring a strategy pivot, to raising prices which had been flat for over 20 years as the roll out meant it could grow without increasing prices. The business listed at 225p - a market cap of 767m gbp. Debt could be repaid over the next two - three years leaving an ungeared business making £80-100m ebitda

[wiseman1967] 12/2/2021 18:30

My daughter has just uploaded an iPad picture she drew to both Moonpig and CF online and personalised a card. Both arrived at the same time, MP was more expensive but quality and finish on MP was disappointing. She will use CF to print her cards from now on.

[wiseman1967] 12/2/2021 18:27

Minerve - I am not yet arbitraging Moonpig as it's maiden results could be strong given the continued lockdown keeping its competitors stores shut. As for the long term advantages of CF I see them coming from vertical integration (capturing the design, printing and retail margin), its scale (1,000 shops and 250m+ card sales each year), and its everyday low prices (that are 1/3 of it high st and online competitors). Absent the pandemic I don't believe they have a long tail of unprofitable stores and store level profitability and ROI is strong. I have never used a home made card option delivered by Amazon but a quick look on the Amazon website suggests the cards are expensive. There is always the danger that card quality is poor from a mom & pop Amazon retailer.

[minerve 2] 12/2/2021 17:41

Wiseman

Thanks for the reply. Don't worry, I'm just teasing on the AA. I'm not a great fan of EBITDA, I'm old school Buffett. ;) But yes, I understand your point of view.

Are you arbitraging Moonpig?

I generally look for long-term investments. I don't see what durable competitive advantage Card Factory have. Yes, vertical integration is a point they like to promote but when you have a marketplace of home businesses selling cards on Amazon utilising Prime to deliver to your door for 'free' I don't see how Card Factory can compete. I like the fact Card Factory have the convenience of instant purchase when perhaps out grocery shopping but even then convenience stores have their own cards for sale. Good ROE, ROCE, CROCI, Gross Margin etc.. but has done nothing to post tax profit for the last 5 years. Maybe a short-term undervalue play here but nothing with long-term promise that I can see. I'd like to be persuaded otherwise.

[kaos3] 12/2/2021 17:03

same here - great business. even for the online future.

BUT imho

weak leadership or better said CFO is too strong.
do not know if they have financial "back up" and support if needed.

AA did not have one and the rest is history

[wiseman1967] 12/2/2021 16:58

Minerve/Kaos - What I like about Card Factory is that it is the clear market leader (in physical card shops), vertically integrated, highly cash generative with strong gross margins (especially on cards), some 80-90% of cards sell for under one pound and it is undervalued by the public markets. The business has a temporary issue in that COVID restrictions means the stores are shut and this has caused leverage to be high relative to ebitda. But the quantum of debt is not excessive once stores reopen and run rate ebitda tends back to 80m gbp. The other thing I find interesting is that Moonpig and Card have similar amounts of debt but the MCap of one is 1450m gbp whilst the other is 100m gbp.

[wiseman1967] 12/2/2021 16:48

Hi Minerve - all well here, thanks and I hope likewise with you. What I would say on the AA is it didn't turn out as I had hoped because the debt issue turned out to be more significant than the shareholders could fund ie the deleverage needed was 2-3 times the market cap. I still managed to make a single figure percentage gain (on a decent sum) but will look to roll into the PE deal (which I believe will be 3x+ given how little they are paying). It means I will make my return (hopefully) but over 4-5 years rather than 4-5 months.

[minerve 2] 12/2/2021 14:38

I'm not bothered who is here first. That's irrelevant. By-the-way, I've been watching CARD for years. Way before Woodford days.

I'm interested to know WHAT attracts him to CARD.

No offence but AA didn't turn out quite right did it?

Minerve was right on that one. Again.

[kaos3] 12/2/2021 14:31

he was here first - probably of most..... heh heh
go look at the corporate CARD history
but - wise is to tell himself ...


EDIT
was he in PE CARD team - knowing CARD inside out?
I am humble and listen
eg - if a swiss banker is jumping through a window - I jump out of the window
for us stupid poor and uninformed that is the only option

[minerve 2] 12/2/2021 14:10

Ah Wiseman, we meet again. Hope all is OK. :)

What brought you here?

[wiseman1967] 12/2/2021 12:41

Perhaps not...- short this at your peril!

[hardupfedup] 12/2/2021 09:15

doom doom bust broke ......

[finkie] 11/2/2021 19:26

Peteret....Bottom was 30.5 closed 31 to sell? A share placing will dilute massively closer to 20p than 30p is my guess.