I can't say the same re: APT, fortunately for me, although it...

I can't say the same re: APT, fortunately for me, although it was quite stressful at the time.

Interesting reaction to results today. The H1 NPAT is going to be around 40m,with a 60% payout gives 25m to be distributed (or close to 15c). Given FCF has been running ahead of reported profit given the changes to lease agreements have reduced capital intensity since c2017, that gives surplus FCF in the order of 15-20m. If H2 has no growth and seasonality changes to increase H1 mix (possible this year), H2 may give a PAT of 20m, which if 13m is distributed will give surplus FCF of around 10m. All up that would give surplus FCF of 35m, or the entire contingent liability, even after allowing for an expected increase to the Mocka earnout from 32m to 35m.

My best guess of normalised EBIT and NPAT are in the vicinity of 70-90m and 45-60m at the end of FY21. Ie this is on a normalised PE of approximately 10. With the DC online and a clean balance sheet, if that 15-20m is re-invested wisely, I think a minimum 15% earnings growth from that baseline is eminently achievable (in fact organic growth in LL is running at about 15% CAGR, and Mocka is running higher) and with operating leverage hitting the online business right now, I think it could be substantially higher (if online continues to grow at 20% moving forward and stores stay stable, then the operating leverage becomes enormous, particularly with the DC on board). Given the current risk free rate, and the going price of comparable businesses that have far less visibility on their earnings, Adairs to me seems to be a low risk option. As an example, BRG is going for 3.5B (or 7x) even though EBIT is running at about 130m for FY21 (or 1.5x). Lovisa is roughly 2x even though its EBIT was lower last year and will be FY21 as well, and with revenue also only 50% of ADH revenue. You could throw just about any other retail business in the country in there and the comparison is favourable to ADH.

I've been keeping a close eye on Adairs' hiring which has continued at a breakneck pace, particularly in the IT/Ecommerce and supply chain sides of the business. If, as I expect, this is all expensed this FY (knowing Adairs that is exactly what I expect), it also sets up the business very well for the years ahead. I note that on three current job advertisements, it is clear that they are repurposing the ecommerce platform (which is already very good). Reading between the lines, it might be expected that this is to connect online with the supply chain project, but hopefully it will also be permissive for simplified international expansion in the years ahead.

As far as I can recall, I didn't quite get in at 44c (my first buy was in the 60-70c range from memory), but if there is a 20c cash return within a year on the principal and the capital growth which has already occurred, it shows just how good the opportunities were in March this year!