Card Factory Share Discussion Threads

[wiseman1967] 05/1/2020 18:30

The second time Clinton landlords and creditors have been burned in 7 years. I imagine it will be hard for the new entity to get credit in future which will mean the shareholders will have to inject equity instead - and they should think carefully about doing that. It may also allow CF to pick up some (there may not be many) of Clinton's good locations when the leases come to an end. CF will have a much stronger covenant for landlords.

[devonbeachbum] 05/1/2020 18:01

I am more than happy for Aldi's to sell Card Factory concessions Stevie B. People have been picking up the odd card at supermarkets for years. Why not get in on the act? Cards are in most supermarkets regardless of supplier. To me, both that and the Australia 5 year deal show that the BOD are leaving no stone un-turned in their efforts to promote growth. If I was them I'd be trying to get the other 400 Aldi stores from IG. Another option the BOD can consider while the share price is so low is a buy back on the open market. I recently sold shares in SSPG that did exactly that instead of paying a special dividend. Obviously that may not be popular with all shareholders but it would leave CF in better shape with less debt. Even for those who have bought in up to 185p they would still get a dividend of 5% based on last years payment of 9.3p.

[ukneonboy] 05/1/2020 18:00

Sunday Times - 05 Jan 2020 (page 3)

"Card retailer Clintons Cards owed £9.5 miilion to unsecured creditors when it was sold back to its owners (American Greetings Cards and the Weiss family) back in December".



Reading this article made me smile, because this shows the difference between a well run business like Card Factory and its closest competitor

:-)

[stevieb2190] 05/1/2020 16:29

Excellent insight wiseman....deff like the idea of price increases..straight to the bottom line and they have nothing to fear from doing so...i don't think Aldi was such a good idea as its selling to the same market thus these customers are saved a visit to cf..this sort of thing does not help like for like sales and cf become their own biggest competitor.. would have been more excited to see them in m&s..aussie good though and cf in north america would excite..i might take up your tips...

[wiseman1967] 05/1/2020 16:09

Stevie - the debt is provided by a syndicate of banks on a cheap basis: Libor + between 1.0% and 2.5% depending on their leverage levels. (Page 105 annual report) At last year end the rate was L+1.40% which equates to about 2.0%. This is part of the capital structure - a mix of debt and equity. The loans enhance the returns to shareholders as profits grow (and vice versa). It is much the same as a buy to let investor may take on some debt even if they can afford not to. During the buyout the company had 3.5x ebitda of leverage with an average rate of interest in excess of 5%, this helped generate a 5.25x return for the equity.Some people are terrified by debt, and may have missed out on generating massive property equity over the past 20 years, but most understand that used prudently it can help enhance returns.

[wiseman1967] 05/1/2020 15:57

Stevie - I think a combination of things is needed:1. Evidence of a willingness by management to use price increases to offset cost base inflation whilst still maintaining its value proposition. Huge scope there.2. An improvement in gbp/usd to 1.45 should generate c gbp11million more to ebitda once the hedges unwind - that's down to Boris...3. Evidence of profitable sales from Aldi and Australian partnerships4. A return to PBT/EPS growth (see 1,2,3)This should give investors the confidence to buy again and take the PE from 10x towards 16x of its peers (NB WHSmith is at 26x) - [as a spreadbetter you could short WHS and go long CF]. Interestingly, an analysis website called simplywallst puts fair value at 238p.Finally the largest shareholder would hopefully stop selling...

[stevieb2190] 05/1/2020 13:57

Hi wiseman..looking for some of your wisdom....i honestly believe at some point there is money to be made with CARD..but when...there has been a steady decline for years on the share price so what will it take to reverse significantly and not just a temp blip on opening everyday...xmas results?, my feelings on this is they will disappoint but say im wrong, how good do they have to be to make any meaningful upturn in share price..or, how low do they drop before a bid comes in from somebody who likes and needs the cash it generates...finally, what is their debt made up of..they make their own cards from raw materials with good margins and sell them for cash..no waiting 30/60/ or 90 days for payment so who do they owe and why is this increasing..

[minerve 2] 05/1/2020 13:42

Some good/intelligent conversations going on here. Thanks to all contributors for providing decent debate.

[wiseman1967] 04/1/2020 19:10

Hi marksp - I agree with some of what you are saying but suggest:- it can still grow (with new sales through Aldi and Australia)- there is an opportunity to raise prices to offset the cost base inflation- I am comfortable with the leverage of between 1.5x-2.0x ebitda. It was actually 3.5x before the IPO and some debt was paid down at IPO. The institutions buying into the listing were comfortable with 1.5-2.0x as it creates positive financial leverage without overburdening the business.

[marksp2011] 04/1/2020 18:27

I see the "I'll be happy to buy all day for this yield" muppets have moved on taking a 90p capital loss with them.

i think CARD is a pretty decent business. It isn't going to grow much and it has too much debt - primarily because it was loaded up before the IPO.

The pros

The integrated model is pretty dynamic
Shops cost little to set up and can be on very short leases
Clintons won't last butI am not so sure that matters as competition is local not national chains.

The cons

It won't grow much
It has a lot of debt
Costs are rising - rates, minimum wage etc that will balance out additional stores
High St footfall is critical
Divis should have been spent on reducing the debt
It is highly operationally geared....... small changes will be heavily leveraged on the bottom line - but that could be a strength.

they are a better bet at 140 than they were at 230 and the story hasn't really changed. My view is that they are fairly valued as long as holders recognise they have a low growth cash cow where the cow is getting squeezed a bit.

[wiseman1967] 04/1/2020 17:54

JusticeFTM. I hear you and have taken a look at the Debenhams financial statements for September 2018. Between Sept 2017-18 the Debenhams ebitda fell from gbp217.0m to gbp157.3m and PBT from gbp95.2m to gbp33.2m - that is pretty extreme trading. The goodwill was written down from gbp819m to gbp517m - as it turns out, not by enough but it should have been a warning signal. The share price had been declining for six years as I suspect the trading would have done. It was the poor trading that did for Debenhams rather than its goodwill, and the gw impairment was a warning signal. In CF's case it's goodwill has not been impaired (though I accept that the non material getting personal was reduced as the CF online business grows and takes share off it). I hope that helps.

[justiceforthemany] 04/1/2020 17:13

I have no position here. All I will say is be very wary of the amount of intangibles/goodwill on a balance sheet. The figure is often wildly inflated - Debenhams being a recent example where pretty much the whole intangibles/goodwill figure of £620M was actually worth closer to zero. Card Factory is not exactly a Coca-Cola or McDonalds is it? Net assets at H1 were £221M. If you subtract the intangibles/goodwill figure of £321M you get negative equity; if we say the true intangibles/goodwill figure is nearer half then equity is ~ £60M. Cash/cash equivalents of just £4.8M. Operating profit H1 down ~ 10%.

[wiseman1967] 04/1/2020 15:35

Completely agree with you DevonBB. Opportunities arise when share prices bomb out but the underlying business is still sound. CF generates some £80-90million cash each year.

[devonbeachbum] 04/1/2020 13:57

Thanks for the welcome and information Wiseman. The deconstruction of Ross's reasoning was far better than mine.

I'm relatively new to the stock market but from what I've seen share prices are fragile things. It only takes a bit of good / bad news to send things soaring / plunging. Sometimes, as in the case of Ross's article, his reasoning is flawed. The Muddy Waters report into NMC crashed the share price 50% in a week. I have no clue (or real interest) in it's legitimacy. It just appears to be the power of positive / negative publicity.

The reason I bought Card Factory is that revenue increases every year and the PE is better than ever. With a great dividend policy to fall back on, at some point investors will want a slice.

[wiseman1967] 04/1/2020 10:41

Thanks UKNB. I think the share price underperformance is driven by a few large institutional shareholders looking to reduce their stake in a relatively illiquid share. Take Mark Barnett at Invesco, he certainly understands the business and bought c28% of it in 2014/5. His average in price was around 275p and he has collected 100p in dividends. His net in price is thus c 175p. Invesco seem to have pushed him aside and the new fund managers may not fully understand CF - this may be why they have chosen to sell down.

[wiseman1967] 04/1/2020 10:34

He then suggests that the "website, where sales are growing at 16.2%, should be the priority". Online single cards represent 2.3% of cards sold by CF (p4 Annual Report) - so Andy please calculate 16.2% growth on 2.3% of your sales - is this really the answer?His wisdom continues...CF "is reliant on selling ever more ancillary items". That is their business model! (page 1 Annual Report), "Card Factory is the UK's leading specialist retailer of greeting cards, dressings and gifts" - Sorry Andy, perhaps Dean Hoyle should have called it "Cards, Dressings and Gifts Factory" to help you understand? Amazon is indeed larger than CF but I doubt if it sells more of these "ancillary" products than CF in the UK and perhaps not even cheaper.So DevonBeachBum - I don't think the share price underperformance is down to the Motley Fool article...

[wiseman1967] 04/1/2020 10:17

Hi Devonbeachum - welcome! Just because someone gets an article published online like Andy Ross at Motley Fool it doesn't mean they understand what they are talking about - as perfectly demonstrated by Ross. He talks of CF operating in a tough market and cites mid market clothing retailers as comps! They are getting beaten by online rivals such as ASOS and BooHoo. CF doesn't have this issue - online card retail penetration is 5-8% and Moonpig has been a big presence for over ten years. It is simply not economic for a retailer to distribute a card that may sell for less than £1.Next he cites that Clinton's is in trouble and this "casts a massive shadow over CF". Rubbish. Clinton's went bust in 2012/3 because it sells its products at too high a price and has over-rented locations on long leases. CF has neither of these issues...

[wiseman1967] 04/1/2020 09:51

Justice for the many - Not so. The £328m goodwill is not a problem at all. It arises because Charterhouse paid £367.5m for the business when the net assets were around £50m. If Charterhouse had paid £500m, the goodwill would have been £460.5m if they had paid £50m the goodwill would have been virtually zero. The management buyout happened in April 2010 and KPMG review its value each year. How is this a problem?

[devonbeachbum] 04/1/2020 09:10

In Devon there is an independent called Bastins which has been around for years. Paignton has CF, Bastins and Clinton all within 30 yards of each other. Both Bastins and CF looked busy to me at Xmas. In regards to the MF article Ross's reasoning wasn't sound IMO. If Clinton is failing, to me that means CF has a bigger market share. Just because Thomas Cook failed does that mean TUI is going the same way? Course Not. They're doing fine even despite their 737 MAX problems, and the share price went up, not down. Despite Ross's thinking, does everybody buy all their wrapping paper, tags, tape etc on Amazon? We don't. The armies of people I saw in Bath and Exeter show that Xmas shopping is a social occasion. I would agree with his one assumption about personalized cards on the net tho. If the CF and Getting Personal websites can take more share from the opposition, then great. But if the shops are profitable then opening more is a good growth factor. Location and lease agreement being key factors. But there is a lot to like in the business model. The shops are space efficient with low overheads and little investment required. Should generate cash for years to come.

[ukneonboy] 04/1/2020 08:05

if you believe all the negativity posted on this message board and others like MF the assumptions being made range from Card Factory is in trouble, Card Factory is going into Administration, Card Factory is going bust !!!

All total nonsense - and posted by "shorters" to try to destabilise the Card Factory share price.

Yes an increase in the National Ninimum Wage will (in the short term) hurt Card Factory but it will also hurt Asda, Tesco, Sainsburys and other retail outlets. J D Wetherspoons have already stated that pay rises will signal increased pub prices

But this is only one side of the equation - businesses will either raise prices or they will offer employees shorter working hours to offset.

The Xmas trading statement is due to be released shortly and I'm not expecting any nasty surprises.

I personally visited 6 Card Factory shops in various locations in West Yorks, during the run-up to Xmas and EVERY SHOP WAS VERY BUSY !!! People were spending not just looking.

So moving back to fundamentals, Card Factory is basically a solid and profitable business. The recent fall in the share price to 142p is a buying opportunity. The P/E ratio is historically very low and the prospective dividend yield is mouthwatering for income seekers.

At this price, Card Factory shares are worth a punt.

[justiceforthemany] 03/1/2020 22:52

Biggest problem here is the balance sheet. >£300M of intangible assets.

[devonbeachbum] 03/1/2020 21:46

First time poster here. I've bought and sold CF shares before and bought some again on the recent weakness. Just wondering if the regular posters think the Motley Fool article by Andy Ross on 21/12 listing CF as one to avoid had any baring on the price? It's an easy Google find. Since then the price has gone down almost 20p. Interestingly, the MF states at the bottom of the article that it does own shares in CF.

[wiseman1967] 03/1/2020 14:01

Fenners66 - I agree that management don't appear to have increased prices. The core 59p, 89p and 99p levels have remained unchanged since 1997. Average inflation of 2.5% pa would have taken them to £1.02, £1.53 and £1.70 by now. They have become even better value over time, but opening 50 stores when you have 1,000 already is not the same as opening 50 stores when you only have 250 and so it is now appropriate to reconsider pricing levels (though maintaining some at 59p). I disagree with your arithmetic though. If underlying wages increase by 6.2% then total staff costs (if you gave all the head office and management the same increase - which I wouldn't) would also increase by 6.2%. Pop it into your spreadsheet to check if you like. Total staff costs as a % of sales were 26.2% last year (114.1/436.0)

[kiwimonk] 03/1/2020 13:10

not a great surprise really, i can't believe they have such a heady market cap. the only things making money on the high street are sausage roll vendors selling fake meat to bloody snowflakes. couldn't make it up!

[fenners66] 03/1/2020 12:51

Having said that the half year results had margins falling by 1.5% so passing on cost increases is not something they have been good at this year.