Pick that Fossil (FOSL US), an interesting value stock

The story: Fossil watches came under the radar more than a year ago, after reading about them on a post at Value and Opportunity, one of the blogs that I admire. Since then, the stock is down more than 60% as Fossil is in the middle of two transitions:
a) tries to accelerate the shift from mechanical watches to smartwatches (acquired the Misfit activity trackers/smartwatches and cross-fertilised their technology developing an interesting wristwatch collection)
b) tries to increase online sales while closing shops in department stores
Though Fossil doesn’t have enough time left, as debt could become an issue if the turnaround doesn’t bear fruit in the next two years.
I think today the stock offers an attractive risk-reward balance. If the transformation programme works out, then the stock could become a double or triple bagger. Of course, there is the downside that competition accelerates eating out their small market share. In that case, Fossil could become the next Motorola or Nokia. I want to believe the founder, Mr Kartsotis (owns around 15%) wouldn’t let his poster child go bankrupt.

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Sirius Minerals ($SXX), digging deeper into the myth

Is the recent dip in stock price an opportunity to buy?

3 interesting facts that every investor should take into account.

A)The external auditor warns the company might go bankrupt because Sirius is running out of cash. PricewaterhouseCoopers reports: “The Group is involved in efforts to secure short and long-term finance for its polyhalite project in North Yorkshire, the outcome of which is uncertain.  These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.”  (going concern means “open for business”)  Read more

The bear case for Hanesbrands (HBI US)

Hanesbrands makes underwear and the alike (shocks, fleeces, sweats, thermals) under the brands: Champion, Hanes, Maidenform, Playtex, L’eggs and Just My Size.
Most of the brands it controls came after acquisitions and to fund them it has raised USD 3.3b in debt (quite high at x3 current EBITDA).

The bull case is that underwear / innerwear have little fashion risk and Hanesbrands has a big market share in the US (management says 4 in 5 Americans purchased something from them)

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Hostelworld (HSW LN) stock price seems over-sold

Hostelworld (HSW LN), cheap and cheerful 



Summer is here and most of us think about holiday. I will never forget the great time I had in hostels, those days balance between cost and convenience was tilted towards cost. One interesting stock that taps into the growing demand for travel among millennials is Hostelworld. IPOed recently, floated on a 5 start valuation but ended up 53% lower as market was expecting growth but bookings entered a soft-patch in Europe, after the recent events in Paris/Belgium. I think there could be some hidden value at current price. 


Business: Hostel booking service, market leader in hostels, followed by booking.com. Technology is developed in-house (both app and web-platform). Their business model is quite straightforward, customer searches and books accommodation through the app, Hostelworld collects a deposit, customer pays the balance at the hostel upon arrival. Employes 256 people across Dublin, London, Shanghai and Syndey.

22% owned by Woodford’s Patient Capital.


HostelWorld’s recent campaign: In Da Hostel with 50 cent, costs almost 50 cents of every 1 euro collected in Revenue.


FY15 Results: bookings grew 1% to 7.1m, Net Revenue Eur 83.5m  +5%yoy,
EBITDA 23.6m. Profit after tax: Eur 21m v 25.6m yoy impacted by higher marketing ‘investment’. Marketing expense is the single biggest expense item, came at Eur37.4m (+29%) or 44.7% of revenue, which means for Euro 1 HSW collects, 45c go to marketing

G&A came at 64m as marketing increased Eur +8.5m

Net Cash of 13.6m

Capitalised R&D: 4.3m v 1.4m yoy staff costs (not so good)

Divi: recommended 2.75c, policy payout 70-80% of profit after tax

Brand positioning:

Integrated Hostel Bookers and Hostel World brands, with Primary focus on Hostelworld.

Hostelwold contributes 3/4 of bookings and reported 17% growth

Mobile: 41% of bookings were though the mobile app, 59% via desktop

Geography: UK is only 12%, rest of Europe 34%, US 24%

Target Age: 78% between 18 – 30 yrs olds

Generates Eur 22.6 per booking on average


Market Cap GBP 148m, EV/EBITDA x7.1, Divi 1.4%, P/E 8.7

Assuming net income falls 8%, in line with consensus and comes at Eur 19.3m

then HSW trades at forward P/E x9 and a potential dividend yield of at least 7%

Most recent guidance: AGM statement 26 May:

– trading in Q2 has been below management’s expectations, due to softer demand in EU

– average booking value has been lower

– marketing expenditure will be below the previous guidance of 45% – 50% of revenue

-It’s all about the Summer:  ‘the year’s outturn will be depended on the recovery in key European destinations over the important summer travel season’


App Annie statistics show downloads across key countries remain stable, the 8% revenue decline projected by consensus seems fully priced in.



Key risks:

Goodwill and Intangibles reported on Dec 15 with a carrying value of Eur 159m, representing 88% of total assets. Most of these non-tangible assets relate to domain names (Eur 136.8m). Management has fully written down the goodwill from hostelbookers acquisitions. Total impairments came at Eur 50.6m (or five year’s worth of amortization)

you can see but can’t touch..


Insiders started buying


Comparing rental hire stocks, Lavendon (LVD LN) offers value

One of my favorite blogs is Value and Opportunity, where I am a subscriber. The more I read it the more I realise we share a common approach in valuing stocks (i.e. moats at a reasonable price with a margin of safety), we also share the same taste on blog templates 🙂

The recent post on Silver Chef cought my attention, as I like rental businesses because if they get right the utilization rate, then ROIC is amazing. Comparing Silver Chef with other rental stocks, I think Lavendon and Northgate offer better value, as they are cheaper and yield a better divi. Their stock charts also look oversold.
m11Lavendon is the leader in ladders, specialising in such niche offers better bargain power with customer sand suppliers but also is more cyclical.

Today Lavendon trades at a down to earth P/BV  x0.97, one of the cheapest in sector

Name Ticker Mkt Cap (GBP) Price To Tangible Book Value Per Share P/B ROIC LF EBIT / EV Yld 1Y Tot Ret
Average                   820                  2.96    2.1               7.0 6.1 -18.5
VP PLC VP/ LN                  289                   4.03    2.5              11.4 8.2 10.8
ANDREWS SYKES GROUP PLC ASY LN                  138                   3.17    3.2              20.5 10.7 10.9
LAVENDON GROUP PLC LVD LN                  217                   1.27    1.0                2.4 5.4 -33.6
SPEEDY HIRE PLC SDY LN                  212                   1.22    1.0         (3.4) 1.4 -45.8
HSS HIRE GROUP PLC HSS LN                  170  #N/A N/A    1.1 (2.2) 2.1 -46.1
SILVER CHEF LTD SIV AU                  171                   3.42    3.3                6.7 5.7 11.5
NORTHGATE PLC NTG LN                  526                   1.20    1.2                9.3 8.0 -37.5
ASHTEAD GROUP PLC AHT LN               4,840                   6.41    3.4              11.4 7.4 -18.3


Although technical analysis isn’t my forte, Lavendon seems oversold

Lavendon stock chart

Lavendon bloomberg quote : 4% divi, awards patience

Lavendon bloomberg quote


Makes decent margins, consensus forecasts single digit growth, Leverage seems reasonable. I don’t know what they plant to do with CAPEX, the GBP71m consensus forecast looks quite high.

Free cashflow yield test: If we were a private equity group, taking Lavendon private, we could pay say GBP 340m at today’s Entrerprice Value and get a nice Free cashflow of 30m (estimated as EBITDA 80m – CAPEX 50m), hence locking a decent 8.8% yield.

Lavendon financial analysis

Lavendon financial analysis

Lavendon stock chart

Restaurant Group, easyJet & Braemar Shipping Services yield above 3%

Some weekend thoughts:

Restaurant Group, Cheap and Cheerful
The Restaurant group, which owns chains like Frankie & Benny’s and Chiquito, is one of the biggest fallers this year, down 46% year to date Analysts downgraded forecasts after management reported 1.5% softer like-for-like sales and “challenging conditions in the first 10 weeks of 2016”. Rollout continues and 44 new sites were opened last year and 10 closed, bringing the total number of Frankie & Benny’s to 506. A similar number of new openings is expected for this year and this brand represents 52% of group revenue.

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Tribal stock (TRB LN): The Tribe got new chief

Unloved and under-covered restructuring themed stock with high revenue visibility, decent margins.. and a history of over expansion. New management got skin in the game and promises to set things straight.
Business: TRB stock is ‘the SAP’ software for universities, manages all aspects of learning experience from admission to tuition, learning and monitoring. Revenue is split 58% in software related activities and 42% in service related activities. Tribal operates in the UK, APAC and Africa. Significant customers: University of Bristol, TAFE Queensland, British Council
tribeWhat happened: Over expanded, grabbing bigger projects than what can handle. Dealing with universities and the public sector involves planning uncertainties as slow authorization progress could cause delays.  According to the recently published annual report: “Tribal experiences operational challenges on large projects for the Student Administration and Learning Management (SALM) programme in New South Wales and the TAFE Queensland programme, resulting in slower revenue and cashflow” A series of bolt on acquisitions magnified the liquidity problem once the new entities failed meet expectations.

Tribal share price: a disaster .. but underlying business still alive


faRights issueAims to raise up to GBP 21m to reduce net debt
1 for 1 rights issue of 94,849k shares @ 22p, underwritten by Investec, at 32% discount at announcement date.
Rights expire on 18th of April 2016, new shares to be admitted on 24 April, doubling the sharecount from current 94,846kKey dates: 29 April last day of dealings on main market, 3rd of May will start trading on AIM
Skin in the game: CEO subscribes to 250k, NEDs 1.25m. CEO appointed in Feb ’16.
Disposal of non-core Sydney business for GBP 20.2m
GW impairment of GBP 38.8m, produce development of GBP 8m written down
CFO Steve Breach indicated his intention to stand down and pursue other interests, will remain on the board and the process to appoint his successor has commenced by recently appointed CEO Ian Bowels
Outlook: the board expects an improvement in 2016 and results to be weighted towards the second half of the year.
Guidance: (p14 FY15 Annual Report) EPS at 17p, increasing OP margin to 16% v current 3% via cost cutting. Orderbook: bullish GBP 121m v 102m last year.

Results: FY15 Revenue down to GBP 106m v 124m yoy with EBITDA GBP 8.2m v 19.7m yoy. Reported Loss GBP 47m but relates to write-offs / impairments
International revenue remains a key driver, 32% of business and management aims to increase it to 50%. Recurring revenue from services makes 28% of total
Net Debt rocketed to GP 32.5m v 12m yoy to fund acquisitions and software development
Headcount: employs 1,323 people (flat yoy), 600 of them in product development and 232 in central services (hmm..)
Cashflow was a disaster, turning from a positive freecasfhlwo of GBP 12.7m into negative GBP13.9m attributed to: GBP -4m in negative operating cashflow due to slower receipts, GBP 6.7m CAPEX and GBP 4.5m on M&A (old habits die hard, in FY14 alone spent GBP 15.1m on acquisitions)
Directors’ Remuneration: perhaps executive remuneration was overly generous, awarding 7 figure sums and awarding full bonuses in the go-go years of ’11 ‘12. Conversely a 14% of shareholders disapproved remuneration onMay ’15 AGM   Hopefully the new CEO’s interests are better aligned with shareholders.
Top shareholders: include the activist Crystal Amber with 6%, Majedie 5% , Schroders 11%, Henderson 5%
Auditor: Deloitte, gave greenlight, setting materiality at GBP 470k. Key Risks:
– Loan refinancing if capital raising fails
– Goodwill impairment (opening balance was GBP 78m  – a trace of the M&A excesses of the past) took a GBP 39m impairment hit.
Current balance GBP 38.3m + GBP 14.7m ‘other Intangibles’= GBP 54m ‘hot air’ assets, quite material if we consider the Book Value is only GBP 6.1m and market cap GBP 46m
– capitalization of development costs (will these internal investments bare fruit?), currently worth GBP 6m though took a GBP8m  impairment hit
– Revenue recognition: risk of recognizing revenue pre-maturely like iSoft or Autonomy
Working capital: Receivables appears reasonable, given the long payment cycle in the public sector
Leverage: if they manage to turn around the business and improve NI margin back to ’12, ’13 levels then Tribal could achieve a GBP 20m EBITDA, setting current net debt at a comfortable x1.6 EBITDA
Current EV: Market cap + Net Debt + Right’s issue = 46+32 +21 = 99m, say GBP 100m
for a business that last year generated Revenue GBP 106m and a recovering margin.
or EV/EBITDA x5 for a business taping into the growing demand for education services.

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