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Not much new learnt but I think I heard what I wanted to. Seems that the penny has dropped that it is interest costs and not leverage that is the concern
I think it was said (although not concretely) that M&A will not occur for the rest of the financial year, unless they are very attractive
Interest costs forecast to be £12m for this year and fall to £10m next year which reflect the 3.5% base rate and then repayment of debt
Exceptional from integration I think are expected to be £7m next year but I lost signal so please update me if wrong
On this basis then I think the forecast cash generation will be strong and the business reduce debt massively. I think at that point, if the interest rates at a macro level calm and debt market re-open, I think this becomes a P2P target
Doesnt matter if someone does make an apology T4G you’ll just bring it up over and over despite you’re multitude of errors, lies and manipulations
You'd like to think so but when no one is sure where interest rates will go I think they have to be prudent and start chopping debt to slash the interest cost. SONIA rate (3%) plus up to 2.8% (this will be based on the leverage ratio) is a hefty bill on £200m of drawn facilities. Especially as we are due another rate rise this month
That is a huge chunk of cash which is wasted on debt
Re a placing. I think given you raised £130m at £10 a share no investor will pony up at this price. I think this is one for the business to prove the model and trade out of
£40m worth of deals done already this year is plenty so let's now focus on cash generation. Assets might be cheaper still in 12 months as smaller competitors don't have the scale
I don't think so. £80m of cash at hand (given the £56m draw down). EBITDA of £80m annually less NWC (£10m), capex (£15m), tax (£15m) and interest (£10m) leaves a strong FCF
So if they pause M&A there is a very strong cash engine to come. £30m of cash generation move net debt (excl leases) to £125m (£155m today) and that is 1.5x leverage which is the low end of the guidance
I think this is just a case that the CFO was asleep at the wheel with regards to taking out loans that were linked to interest rates rather than taking fixed loans. It's this extra interest which has caught them out and needs to be addressed
What is your take?
- While leverage on a multiple of EBITDA doesn't look aggressive (particularly against PE peers) it is the rise in interest costs which is the greatest concern and will eat into cash returns. Will a guidance of interest cover, after capex and consideration payments be added
- Assuming an additional 0.5% base rate increase in December what will the annualised interest cost be?
- Can the current acquisition pipeline be paused so that the business can deleverage (achieve a greater interest cover ratio)
- What level of exceptional costs should we expect in H2 and FY24 assuming no more M&A
- Can we have a greater level of NWC insight across each division and particularly in relation to the software assets (which should be NWC negative)
Basically all focused on cash and getting the interest payments down
I HOPE we have found a floor with the price here. PTSG was taken private for 17x EBITDA so I think at these level PE may be interested, particularly as there is a potential international growth angle for Marlowe which they could buy into
All I can quote is what I see from the app and the purchased numbers were insane all weekend
The google traffic data for myprotein is also great
Obviously price plays into it and MyProtein was giving some things away!
I think beauty will be the upset
THG paid something like £5m for the tree planting business
Don’t get too excited it’s just ESG not much more
Hopefully with the share moved as it has management have taken note that debt repayment needs to be a focus
If you think organic growth can sustain at 8% and the £83m annualised EBITDA is real than £90m should more than cover elevated capex, interest and tax and leave a very healthy amount
70% of sales are not repeat orders via the app. 11% of sales are via the app (pg 7 of the H1 FY22 update)
Oke you do this a lot fella and post a lot of numbers and figures that are incorrect or misunderstood
11% is the data point
Lookfantastic was c.80% of last years Black Friday volume. Cult exceeded PY obviously Sephora now being here has an impact
Google data of course doesn’t equal sales but it’s a proxy for volume. App use isn’t caught in this but for THG that 11% of sales mix so online search is a vast majority
MyProtein last year peaked for traffic at New Year but traffic for PY Black Friday was 50 and this year is 80 so a huge gain in traffic
There is no way Q4 expectations will be hit in my view. This leads to cut cutting needing to come hard and fast in the new year to get to FCF neutral (or positive) as sales will not grow mid-teens
THG need to start smelling the coffee and be a leaner business!
Stock it seems it doesn’t work like that. These things take months to plan and execute. Also you have to agree quantities with the individual brands etc
Cong happy to accept that. But the point I was trying to make still stands. We were told those calendars were “pre sold” and would be gone instantly. Last year this was the case. They were all gone (two seperate “drops”) within a few days
This year they are still about and being discounted. Cut it how you want but 160,000 waiting list should cover 30,000 items
My feeling is beauty will undershoot in Q4. Nutrition will rise to the rescue and Ingenuity will be a damp squib
I think next year will be a turn around. With hopefully ingenuity growing (Matalan commerce revenues) and other wins (SME clients don’t work so we need whales!)
Beauty if it trades flat next year would be a great result. Nutrition to be the star
Clear whey selling over 5,000 this is typically 1,000
Impact whey selling 10,000 and usually 5,000 or 2,500
It’s been like this last few days
Novice, go listen to what Matt said
“Mute point
Reducing from £235 to £199.99 for Black Friday is part of sales and marketing, we all know that.”
It’s not as Matt told us they were PRE Sold. If you have a waiting list of 120,000 how are 30,000 calendars not sold?
The narrative we were told (and what has been in previous years) is that they would be gone by now
Drd hope she likes it!
But agree and that was my point. Matt made out like they were sold already!
I do love this business but management just seem to lie constantly. Makes me think that’s why they didn’t do a Q3 call as they had run out of yarn
Cult advent waiting list was 120,000 (or something like that) and 30,000 made
Well it’s still in stock and now reduced to £200 from £235!
On the other side google data for LF vs Sephora is positive. And Cult is beating Space NK
MyProtein data from the app (I posted about this a few weeks ago) looks insane. MP is so much cheaper than competition at the moment so hopefully big market share gains
Positive that Management have put some cash in today
Agree but the share price reaction may lead to this being rethought. For me it was more the lackadaisical answers from the CFO which were most frustrating. Clearly all the Q's had picked up on it but he didn't seem bothered
Excluding the "odd" add backs in the cash flow it looks like c.£10m of FCF for H1. If the organic growth remains and no more M&A then this could be a more comfortable H2 and debt stepping back
It's certainly a long way off dividends
But if the deals stop (and they should for a short period) then these costs fall away also. This business can be highly cash generative but that is at risk atm from the high debt and high interest rates
Hopefully the stock slide is the message management need to see that they need to degear the business
But for perspective my brother works at a PE backed rival to Marlowe. Their EBITDA gearing is 5x and up to 7x permitted!
Agree. I think it’s more the top half of the cash flow. £23m of cash from operations becomes £14m after tax and interest. If capex is now £8m a half then you’re £6m cash for everything else
And given they drew another big chunk of the debt the interest cost will rise again
It’s time to slow a bit (Optima was a very big deal) and pay down some leverage. I think the CFOs very relaxed attitude on the call might be what has spooked here