a catalogue of errors, page-50

I’ve finally had a chance to listen to the presentation and look over the accounts

Overall I was satisfied with the result without being pleased.

EBITDA at 40.6 within guidance and debt 5 mil below mid point of guidance.

I was disappointed to hear they need to spend another 20mil on a new machine; part of my interestment thesis revolved around the decreasing capacity not requiring any big outlays for a few years. Obviously they see this 20mil as necessary to get their margins back up (?keep them stable). Fool me once, shame on you, fool me twice, shame on me.
I would have liked to ask Kevin about the forecast capex over the medium term - might still do when I get a chance.
I agree with jimmy that they are broadly guiding for stable ebitda  - (the wording sounds mildly positive with cost savings ‘largely offsetting’ the lower print volumes, which to me implies not completely offsetting the savings). I think (and hope) they’ve learnt the lesson now Kevin is in charge, to under promise. Clearly losing the coles contract which cost them revenues of 61 mil hurt their forecasts. Anyone know when this occurred?

So Base case proforma fy19 ebitda 40 ev 130mil with net debt to ebitda of o.75
Now if the 20mil new print is a once in 5 year spend, or if it results in margin increases (or both as I expect - but my recent record is tarnished) then 2020 should finally see significant cash flow positive and debt reduction (rather than 2019 as I’d hoped), and we will then get the re-equatisation phenomenon of decreasing ev with improving ebitda and improving multiple. Maybe ebitda 45*, therefore net debt down 25mil to 5 mil, dividend reinstated and ev/ebitda multiple of 5 which would result in a share price of >40cents - nothing too outrageous there imo).

A few extra points;

1. they were hit with significant paper cost increases over the last 9 months which have apparently stabilised but they are only now passing on those price increases.

2. The volume declines at the smaller end of town sound like they have already occurred and they see growth in this area in the medium term once their digital marketing info helps to prove the benefit of catalogues (of course they are going to say that...).

3. Ongoing growth in the big customers.

4. 10mil redundancy cost this year obviously was a big hit.

Interesting to hear Kevin emphasise PMP is not in terminal decline on a few occasions. Not sure that it made me feel any more secure.

So all up about a 5/10 result given the guidance and circumstances. Question is what is the market currently pricing in. Good chance there won’t be any surprises in the next 6-12 months so this could easily stagnate at these levels for at least 6 months. But I think there is limited downside unless they miss on guidance, and if/when they eventually become profitable again, I’m hoping the patience will be well rewarded.


* current ebitda 40 mil +4 year payback on the press implies 5mil ebitda benefit/year. EBITDA increased from 32mil to 40.6mil this year.  This doesn’t include price rises or  the Growth despite Kevin mentioning 4% July pcp catalogue growth and a strong q1 up to oct.