It was a well balanced, reflective post. Credit where it’s due!

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13/12/22

06:50

Post #: 65286011
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Originally posted by meghotcop ↑

It might surprise you, but TTT gave me the thumps up.

KTD started off debt free, and when they took on debt, TTT showed a beautiful model of how the extra cash would leverage more turnover. It looked very convincing, and turnover did grow; but the economics of scale never materialised, qoq realities fell short of expectations.

Turnover growth is the only thing HLF has going for, and even that does not look assured going forward. Management can never really know whether big orders (from China or supermarkets) get repeated; and even if so, then at cut throat prices.

It would have been better to have big t/o with lots of small orders (than fewer big ones), as - stochastically - if one order drops out, it would not mean that much. I think that is one of the reasons (amongst a few others such as justifying a CR, restructuring debt (perhaps some lenders had questions), vertical integration) they were keen on THM.

And as it turns out, THM is in itself very disappointing - and that is not even a low margin business. The market would have accepted a no-growth proposition for THM, but shrinking? One has seriously to question whether due diligence was properly executed at the time. Since JT was CFO then he is therefore responsible to a considerable degree for the outcome and how it was communicated and indeed how it was managed.

I am aware that there are more benign views around, but looking back now, I kind of find it disingenuous for myself to bet that the management that got the company into this mess is the right management to get the company out of this mess.

And this is another problem in itself, because now - in this situation - the BOD will hard pressed to hire competent and promising replacement. If there is anyone suitable and willing, there would be a truckload of performance options (certainly not at strike prices in the twenties and thirties like a few years ago) and at at least the current salary levels - you bet. So that alternative brings more dilution for the existing share holder - albeit at a higher price than 2.7 cents. Overall, this outcome would 'bake in' a lower SP, making the return into the tens more difficult.

Enough said. And as a good friend of mine advised: "It's only money".

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It was a well balanced, reflective post. Credit where it’s due!

HLF Price at posting: 2.8¢ Sentiment: Buy Disclosure: Held
2 Upvote

0 Great analysis

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