Henderson European Share Discussion Threads

[michaelmouse] 12/2/2006 18:26

A final word from me on the 'value' argument - HET's current market cap. is about 4 weeks sales. Anyway suit yourselves. IMO you either get it or you don't!
Regards
Michael.

[michaelmouse] 12/2/2006 17:42

"Just to correct one fact without wishing to become embroiled in personal mud slinging - net assets are not as good as they look - they are all fixtures and fitting so are only worth a small fraction of book value. Freeholds are only about £1m out ofthe total."

insidenews - Are you saying that the NAV isn't around £1.00? I think you'll find the balance sheet says differently. In other words you are not correcting anything at all. I appreciate what you are trying to say but please be careful with your wording. The NAV is circa £1.00. Fact.

Regards.
michael.

[goonertone] 12/2/2006 16:44

You can find hundreds of articles on the net showing that the market leader itunes make hardly any profit on their downloads and that they just use it as a loss leader for the i pod itself and as a hook to move people over to the mac.

Other big names like Napster haven't been able to turn a profit despite millions of downloads being made.

a few examples both old and new relating to the download business:







As for Music downloads and HEC I think, despite your supposed insight into the way I think, that it would be a waste of resources and time. If they sold cd's then maybe but as they dont then I cant see the point. Movie downloads as and when they finally come in would make sense as they are in the current sphere of products.

The only way I can see it being worthwile is if they use their website and its membership to link to another company like they do with lovefilm and they get paid for the traffic they provide.

GT

[insidenews] 12/2/2006 16:12

Just to correct one fact without wishing to become embroiled in personal mud slinging - net assets are not as good as they look - they are all fixtures and fitting so are only worth a small fraction of book value. Freeholds are only about £1m out ofthe total.

[she-ra] 12/2/2006 15:34

goonertone - You keep saying music downloads are not profitable and yet you provide no evidence to support this claim.

As for HMV, it is half a book store that being Waterstones. As for them not being hit by downloads I think you will find that they moaned about piracy, free newspaper DVDs and downloads. However HMV is embracing technology such as music downloads:-



Yes of course music downloading companies do not have to keep stocks of CDs which IS unprofitable.Of course they are not profitable.Of course they arent passing some of the savings on to customers which is attracting more and more to downlaods. Of course not.


Current market capitisation means nothing when a company becomes indebted, loss making and hammered by competitors of the old and new types of products.


I know full well that if HEC was to enter music downloads tomorrow you would say it would boost HEC.

[goonertone] 12/2/2006 13:41

I think everyone here is agreed that the advent eventually of movie downloads will have an effect on HET. However they are at odds over the extent of this effect.

An interesting parallel to look at is HMV. This high street music and dvd retailer and owner of waterstones is a company that should be on its knees following the uptake of music downloads if the doommogers are to be believed. However although it has been affected it has not fallen over and gone out of business. It now has , alledgedly, 3 bidders for this supposedly outdated concept.

The offer is likely to top out at 200p which values the company at £800 mill for a price per million of turnover of .42p applied to HET this would give a price of £58 mill. Knock 30% of for the rental part of the business leaves £41 million.

Current market cap - £11 mill

Food for thought.

GT

[goonertone] 12/2/2006 12:48

Dear all

Here it comes - "I agree with she-ra" and accept that they have a valid point, our only argument re downloads is when and how much of a mass market it becomes. All I can say is that mass market penetration, wont be tommorow, next month or even this year.


My other slight argument regarding music downloads, which I accept is big business I have never denied it, is who makes any money out of it and I would have the same reservations about movie downloads.

Anyone who has read any of the postings over the last two days will have to make their own mind up about where the future of movie formats is going. All I would say is do your own research, draw your own conclusions and then apply what you find to HET's business model.

As a starter if anyone wants to read up on blu-ray and HDDVD then you could do worse than visit



Which has an overview of Blu-ray and sonys vision for it and links to several articles on the blu-ray v HDDVD debate.

GT

[michaelmouse] 12/2/2006 12:10

Here is an abbreviated investment argument as I see it.

Net asset value circa £1.00 (all tangible assets).
P/E ratio 4 (based on average last 7 years earnings - earnings varied between 10p-20p).
No long term debt.

What will happen next?
1) Company adapts and recovers from recent disappointments.
or
2) Company becomes a bid target.
or
3) Survives but earnings fail to recover to previous levels.
or
4) Company goes bust.

My rationale for investing is as follows. Option 4 is unlikely in the near future since the company has no debt and strong asset backing. Option 3 is already factored into the share price Which leaves options one or two.
I have no idea what the future holds for this company but then neither does anyone else.
Good luck!
Michael.

[she-ra] 12/2/2006 10:02

goonertone - You havent a clue. I download all my tracks for 59p a track from Woolworths. I can cherry pick from albums of the past and albums of today.The singles chart has a had resurgence because of downloaded music.You can be a download deniar till you are blue in the face but music downloads are the pre-cursor to movie downloads (and of course you will get your porn).Music downloads and the popularity of them have aclimatised us to this format.You dont seem to realise that companies like Sony spread their bets. Blu-ray was obviously concieved for the gaming industry.6GB would make the opportunities in gaming software unbelievable. So even if the DVD has lost its popularity it WILL work for Playstation and the added copyright protection is vital for gaming. I see Sony,now even before movie downloads,with the RDR-HXD910 which has 250GB with 428 hours of recording time putting its faith into the non DVD format.Companies like Philips,Sony and Panasonic are creating the hardware for these new opportunities.Dont forget Sony has a vested interest in downloads-they are also a music and movie publisher.

I suppose you are going to start denying that the PC even exists next.




6040 - I dont do aliases.

[6040] 12/2/2006 08:58

She -ra

Why do you put so much effort in to bashing this company?
If you were short on it, surely you've made your money by now. Isn't it time you moved on and tried to drive some other sp's down.

Do you also post on the AEN and CBM threads under the name of Biswell?

p.s.
Could you please take all your A.K.A's and nip over to LLOY, I'm short on them and they are refusing to go back down.

[goonertone] 11/2/2006 23:26

She -ra

This is the last post on this matter as I have managed to get myself dragged into an argument with someone that I would not normally bother with. If you feel that is a victory so be it.

I will leave others to bite if necessary. I have answered all your questions and arguments and got no real answers other than on music downloads. As the original argument was on dvd's then I consider that you had no argument on the main questions.

As for downloads then yes they include them in the charts and that is whether you have to pay, they are discounted or free. Hence the arctic monkeys getting to No 1.

I-Pods are selling at a phenomenal rate and are full of peoples CD collections and swapped/file shared files. Due to the size of the files it is one evenings work to download an i-pod/MP5 player full of music from Kazaa or the like.

So yes I agree downloading is the future but the only genre that will make money out of it is the only genre that makes billions out of the internet already which is porn. Until the music/movie industry can make it socially unacceptable to buy music/films from the high street or acceptable internat sites then the only people who can charge normal or premium rates for content is porn.

If you cna give me a company that I can invest in that makes legitimate money from music downloads or from movie downloads then I'll invest in them as well. Until then I will go with the 3- 5 years that HET has got to trade with before downloads or the next big thing has reached a decent level of penetration.

Next time I want to invest my money I will go and check with the teenagers and 30 somethings whether I am doing the right thing or not. However whether they will understand the question is another thing entirely.

GT

[she-ra] 11/2/2006 20:46

goonertone - Yes the charts dont really count downloads when they are compiling the singles charts,iPods havent really been selling at a phenomenal rate and Google isnt really pioneering the video downloading market.

Yes RIP downloads.You tried your best but we all dont want cheaper music and movies.Kids to 30 somethings arent really downloading music.No, they got it wrong, what a waste of investment by the big record companies. Im sure the movie studios wont make the same mistake.

[goonertone] 11/2/2006 18:56

She -raaaaaaaah

You are now showing yourself to be a pathetic idiot.

attacking me on music downwloads was the only response I wanted.
Nothing on the important points but just a sad attack on an already failing product.

I am going to say this only once music downloads are not the answer to anything. They thought it was the holy grail and then realised that who was going to make any money out of it!!!!!!!!!!!!!!!

Answers on a postcard....... oh I Tunes Ok I've given you that one


GT

[she-ra] 11/2/2006 18:39

siwel100 - World Cup 2006.

140-150p, because some Swedish speculator who has bought into some turkeys, such as Gaskells, has decided to have a bet on HEC?. Look at Tandem, he has done nothing for the share price.

The fact remains HEC is loss making and operating in a rapidly changing market. On the one hand there are new entrants regulary entering the DVD etail market, on the other movie downloads and the constant growth in on demand satellite and cable customer numbers are hitting and going to hit even more companies like HEC. Then you have the fact that newspapers do free DVDs every weekend. People only want to watch so many movies a week.

Once this company starts to become in debt, and one has to wonder whether this will happen with store refurbishments and continuing losses, it will become a very unattractive share.

Your theory about no one selling is deficient. If someone was to start dumping the shares they would crash even more. There is also the fact that they will be holding with a big loss. The fact is many companies go under with very few shares changings hands in the run upto collapse. Mayflower Corporation was just one example. Infact the directors were buying shares prior to administration and there was a Bermuda-based investor who had built up a large holding and he neither made a move to buy the company or to sell his shares.

Someone has got to be holding shares when companies go under.

[siwel100] 11/2/2006 16:45

bletherer....Have a look at volume over the last two years, its non existant. "The market" also includes holders of the stock. If it was thought to be terminal then the holders would have and would continue to dump. The price has fallen on simple illiquidity. The difference now is that the company is back in play rather than declining on minimal trades and lack of interest. The first step is a bounce to 140-150p, beyond that its up to the company developing, performing and showing opportunities for future growth.
Above and beyond discussion regarding the future impact of technology on the company, HET is a simple trading play, I doubt very much anyone particularly wants to hold for 10 years, but simply to benefit from a bounce to fair value.

[bletherer] 11/2/2006 15:01

Pjetr - basically agree with your analysis although I think if HET can even make a profit of the level you are talking about for one year its share price will at least double.

Though she-ra is getting a lot of knocking on this BB the current share price is backing his/her argument: no company would be priced this far below book value unless "the market" thought that the slide into losses was not just a blip, but rather part of an irreversible decline. The interims clearly implied that a return to profitability later this year is a possibility, but we will have to wait and see whether that in fact materialises - it is not unknown for AIM-listed companies to see the world through rose-tinted specs. Meanwhile any further signs of "shareholder activism" could also (positively) affect the sp, as the city has a well-established habit of rewarding management shake-ups at struggling companies (whether or not it is really the management's fault). With a 20% rise this week there's a little momentum now as well - if the price gets above 65p then the bulls will be firmly in control and a short-term move back to the 90-100 mark would be a very real possibility.

[she-ra] 11/2/2006 13:30

goonertone - When I started reading the part where you ask who is making money on music downloads I started to realise you are completely ignorant of the market. Music downloads are supplied by the record companies, as the product isnt a physical product there are no transportation, wharehousing and stock writedown costs. HMV,Woolworths,Apple,Microsoft, BlahDVD etc are doing it.

You ask why they should do it considering they are DVD/Video business.Thats rich considering you were telling us a few posts back that Choices is a Games Console retailer and £20 million in revenues are going to save the day for this company.Make up your mind!
Music downloads need very little infrastructure.They are the cheapest product in terms of costs.The retailer or end seller has very little costs.There is no need for sales to clear overstocking.Why I say HEC should have been in music downloads is that they could have exploited there customer base (a dwindling one I know).

Just wonder how they will cope with this years World Cup.They didnt have that last year.Not a good year for a troubled DVD/Video rental/retailer to be operating in.

[pjetr] 11/2/2006 11:06

The discussion about the long term potential of HET is valid, however who knows who will be right and who will be wrong? And does it really matter to decide whether the current share price represents value or not?

Some thoughts on the future
1. Yes, in 10 years time (2016) we can be pretty sure that a lot of people will be simply downloading their movies and games (through PC, TV, PS3 or 4,... connected to sky or google etc).But it won't happen overnight: there are many many technical and commercial hurdles.
2. Note that 'filmed entertainment' sales have Never In History been so high as today (in volume that is). Everybody's buying series on DVD like Lost, The Office etc etc (even Knight Rider is available). New technology presents threats but also opportunities.
3. Music 'sells' (and is shared) well online, but what about e-books? People are talking about them for many years already, but 100% of the population is still buying paper books. My point is that it's not because one category works online, that all categories will work online...

Anyway, I think it's fair to say that selling movies and games in a disc-format will not go on forever, but will AT LEAST continue for 3-5 years.

Is there value in HET?
For the first time, HET provided operational results per division in their 1st HY results.

1st Half 2005-2006(000)
ChoicesUK Local 860
ChoicesUK Stores -1540
ChoicesUK Direct 670
Mosaic 55
ChoicesUK TV -830

The results were clear about the 2nd half: Stores are back to profitability (modest), and the TV losses will soon turn into profits.

2nd half can get these BACK-TO-NORMAL results I'd say (I assume no profit growth for Local, Direct & Mosaic, modest profitability at Stores & TV):
ChoicesUK Local 860 (same)
ChoicesUK Stores 300 (modest profit)
ChoicesUK Direct 670 (same)
Mosaic 55 (same)
ChoicesUK TV 100 (first time profit?)
= almost 2 million of EBIT profit

On a full year basis this would 4 million of EBIT, which gives 3 million NET (assuming 25% tax rate, no interest payments).

Current market cap is 12 million ---->> P/E of 4.


What HET needs to do
1) Prove that it can effectively make 2 million EBIT in 2HY. HET needs to show that they can get their business back to normal.
2) Investments in stores, stock etc must be kept as low as possible. Profits + Depreciation should be almost equal to Free Cash Flow. And they need to pay out the FCF as dividends. No use re-investing a lot of profits in a business that will eventually disappear.

My conclusion
HET must prove it can make decent money the coming 3-5 years, and show its commitment to returning all generated cash back to shareholders.
If they do, the value of 1 share is at least 80-100p, imho! (FCF per share: 15 p, during 5 years, + terminal value generated by sale of leaseholds etc).

[goonertone] 11/2/2006 09:46

Sporticus

I only glean what I know from the RNS's, websites. internet and the highstreet. I have no inside knowledge.

As far as I'm aware Lovefilms was a internet video/DVD rental company at the same time as Choices set up their internet rental business. HET didn't really push their site although they did sign up for a joint agreement with bertelsman to host their offerings. HET eventually sold their subscriber database for just £385k to Lovefilms but in return HET manage and fulfil Lovefilms stock.

I have no idea what the arrangement is on this but I would assume a management charge, distribution charge plus a small per dvd commission on all DVD's sold. They have similar management and fulfillment agreements with many catalogues including freemans, littlewoods, bertelsmans etc.

It also does this in a smaller way with choices local which supplies and manages the offerings of DVDs,videos and games etc to smaller retailers, off licences etc. These now total over 8,000 outlets and each outlet generates £2k plus for outlet.

As for Peterborough I have no knowledge of this but if they moved in I would expect that it was due to the fact that this is Choices head office and main distribution depot. The actual office space needed for lovefilms is probably quite small and when they took over the Choices business it was probably easier to oversee the business from there and give up the offices they were using. Just a guess on my part but I don't think there is anything supicious in it.

GT

[sporticus] 10/2/2006 22:16

Goonertune theres something I dont understand about the relationship with lovefilm. If HET sold it to them why did lovefilm move into the same building as choices in Peterborough? It doesnt make sense to me and Im sure the landlords would have something to say about it. Can you throw any light on it? I think Siwel has some link with them. Maybe he can tell us whats going on. Maybe he doesnt want to say anything.

[scumdog] 10/2/2006 18:11

but you seem to be getting it wrong with the SP, she-ra.

[she-ra] 10/2/2006 16:34

nick - You know full well thats 2 days old. And you know im right when I said before that report that the city scribblers would fill in the gaps.

[nick] 10/2/2006 16:22

from times on line




Investors check out video chain as Swede crops up on register
By Nick Hasell

Smaller capitalisation shares


BUYERS returned to Home Entertainment, the owner of Britain's second-largest video store chain, as a respected Swedish value investor emerged with a debut 6.1 per cent stake.


Shares in Home, which trades as Choices, have fallen 80 per cent from their peak four years ago following a collapse in profitability. An investor revolt, backed by 6 per cent-holder SVG Capital, the former Schroder Ventures, has gathered pace during the past few months, culminating in the move last month of founder Iain Muspratt, who still speaks for 27 per cent, to a non-executive role from April. With the rebels still said to be pushing for Home to go private, followers speculated that Peter Gyllenhammar, the smaller companies investor who cropped up on the register yesterday, may aid their cause. The shares rose 3p to 54½p, with the FTSE 250 off 2.8 at 9,240.7.

[she-ra] 10/2/2006 16:02

siwel100 - File sharing is going to get more common.
Im not talking about Sky you fool. Soon people are going to be able to download movies either to purchase or be able to watch for a limited amount of times.

The fact is, even without all these new technologies HEC's revenues are falling especially in their outdated 200 stores.

As for it returning to profit; says who?

You only need the effect of the World Cup and for a warm summer combined with the ever increasing piracy market and HEC are going to be struggling, because unlike HMV and play.com, Choices have 200 rental stores that dont get busy during popular international sporting events.

I know, as a student I worked in a Blockbuster video store during a world cup. It was dead and it was also a hot summer which only compounded it.