@thunderhead1 I most definitely am still holding this, and in fact have added a small amount on results (I took about 50% off quite a large holding off the table over the last year as part of significant portfolio changes in the setting of the market volatility which compelled me to take some interesting opportunities).
This is my thinking: 1. The Adairs business - looking at the FY report segment reporting suggests that the Adairs business has massively deteriorated (PBT down nearly 50%). But when you analyse by halves, what you see is an over performing H121 and an underperforming H122 in the setting of Covid + DC issues. This is clearly temporary, and comparing just H2 figures shows that PBT has risen from 27m to 28m for Adairs in H222. Parsing the expense statements also seems to suggest many of the costs were temporary and some cost control (eg employee costs) can already be seen in the accounts.
Ignoring the slight seasonal variation (H2 tends to have slightly higher revenue but lower margins historically), with the ongoing store opening and upsizing program and continued strength of linen lovers, I think 55-60m PBT is likely at a minimum over the next FY. 40m NPAT for just Adairs, in my mind, underwrites the value of the entire business. As a sense check, 2019 was a terrible year for consumer discretionary and Adairs managed to eke 9% net margins on ~345m in revenue. From just growing online and store footprint, 450m in sales at 9% margins gets a 40m NPAT.
Overall a PE ratio of <10 for a business that has consistently grown profitability by ~15%pa for many years is good value in my mind.
2. Mocka - @daicosisgod has clearly articulated the problems with Mocka. I think they can repair the damage over 18 months, and aim/achieve for 10-15% EBIT margins on ~70m revenues for the next FY and then better growth and higher margins in FY24.
3. Focus Focus is clearly performing much better than Adairs planned for and there is plenty of upside if they execute the growth strategy and maintain the current margins. It isn’t clear to me exactly what the margin profile looks longer term (whether 20% EBIT margins are sustainable), but by just adding stores as planned they should be able to gradually grow revenue and profit. The added 5 months this year should also add ~10m in EBIT.
From where I stand I think the 645 revenue and 70m EBIT seems likely to be surpassed- my calculations above get me closer to 90m in EBIT and 60-70m NPAT. Assuming economic growth resumes from FY24, ongoing organic 10-15% growth could be achievable thereafter (particularly if Focus fires).
4. Acquisitions Although Mocka has had its problems, acquisitions almost never work out smoothly and compared to many other acquisitions- Adairs management did not overpay for either acquisition. To my mind, this negates some of the operational issues. In terms of the earnout, Mocka was their first big acquisition, and I distinctly recall Ash or Mark saying they learnt a lot from the process on structuring these deals.
5. Relatively downbeat trading update the 4% increase in sales off a lockdown period compares unfavourably to the likes of NCK, AX1 etc but I think this is pure channel mix. TPW was down ~20% (100% online), and with Adairs at 35% online, 4% overall growth isn’t that bad.
6. Bigger picture Although as @neoteric points out, there have been a number of operational issues over the years, they’ve always been fixed. The bigger picture is one in which m, since 2018 revenues and profit have roughly doubled, the business is much more resilient with a strong omnichannel presence and three separate business lines encompassing different tiers of consumers- all done with very little recourse to additional capital from shareholders.
overall - sure this result isn’t great, but the market pricing is absolutely dire and doesn’t reflect the strengths of the business (in my opinion).
(20min delay)