Card Factory (CARD)

[CommissarJones]

Karen Hubbard, CEO of CARD, spent almost £16k buying shares last week, increasing her stake by about 6%.

[PinkDalek]

Karen Hubbard, CEO of CARD, spent almost £16k buying shares last week, increasing her stake by about 6%.

... to 0.04% including connected parties.

Petty cash?

[jackdaww]

Karen Hubbard, CEO of CARD, spent almost £16k buying shares last week, increasing her stake by about 6%.

... to 0.04% including connected parties.

Petty cash?

=========================

i take notice of director buys over £30k , much less than that is just token.

[CommissarJones]

Seems to me that CARD had a rather good Q1, according to today's trading statement. Like-for-like sales rose 2.3%, versus a flat performance in the fiscal year that ended in January, although this partly reflects weakness in the comparative period, as the company notes. The board is predicting marginally positive LFL sales for the current financial year, full-year profit expectations are unchanged, and the directorspeak is positive.

[CommissarJones]

Woodford Investment Management has reduced its CARD stake to 8.9% from 10%, not particularly surprising given the events affecting Woodford's funds. Meanwhile, activist investor Teleios Capital Partners has doubled its holding to 10.5% from 5.1%.

[vrdiver]

I've been following this thread, as it sounded very positive on Card's outlook, and the company is in a sector I have very little exposure to currently.

What I don't like is the shape of the price graph, looked at over one, three or five years (https://www.londonstockexchange.com/exc ... ml?lang=en ).

What am I missing that makes this an investment case, with that price history?

VRD

[Alaric]

What am I missing that makes this an investment case, with that price history?

There's the high dividend yield, although not as high as it was before a recent cut.

I would have thought at the speculative end of possible share picks.

[simoan]

What am I missing that makes this an investment case, with that price history?

VRD

You're probably right that if you're a momentum investor only interested in shares that are rising it's not for you. But CARD is a high quality retail operation with average ROCE > 18% and Operating margin > 19% that could be of interest to HY investors. When you consider the high dividend is covered more than twice by free cashflow, then you won't find many safer 7% dividends.

I don't hold BTW but it is on my watchlist as a safe contrarian play on high street retail.

All the best, Si

[vrdiver]

<snip>... But CARD is a high quality retail operation with average ROCE > 18% and Operating margin > 19% that could be of interest to HY investors. When you consider the high dividend is covered more than twice by free cashflow, then you won't find many safer 7% dividends.

Thanks for that.

I took a look at the data*:


I agree, both the OM and ROCE have been pretty good for the five year period (tailing off a little now). The dividend cover seems to be poor (LSE sheet I'm looking at doesn't show the FCF) and EPS growth negative although revenue per share is ticking up steadily.

With the dividend uncovered for the three years before the cut, and in the latest report (Jan 2019) being covered 1.05, I didn't get the feeling it was a "safe" dividend, but rather that it is, in my view, unlikely to rise until the cover ratio is improved significantly, with a further cut if the share-price decline continues.

Not a share that screams "buy me for my yield" as I can't help worrying if the dividend is going to survive, let alone keep up with inflation, whilst the capital value has been on a downward trend for the last five years; I don't really want my capital handed back to me as a pretend dividend!

Question is, what is the recovery trigger, or is this just going sideways and further down for another five years?

VRD

*https://www.londonstockexchange.com/exchange/prices/stocks/summary/fundamentals.html?fourWayKey=GB00BLY2F708GBGBXSTMM

[simoan]

I agree, both the OM and ROCE have been pretty good for the five year period (tailing off a little now). The dividend cover seems to be poor (LSE sheet I'm looking at doesn't show the FCF) and EPS growth negative although revenue per share is ticking up steadily.

With the dividend uncovered for the three years before the cut, and in the latest report (Jan 2019) being covered 1.05, I didn't get the feeling it was a "safe" dividend, but rather that it is, in my view, unlikely to rise until the cover ratio is improved significantly, with a further cut if the share-price decline continues.

Not a share that screams "buy me for my yield" as I can't help worrying if the dividend is going to survive, let alone keep up with inflation, whilst the capital value has been on a downward trend for the last five years; I don't really want my capital handed back to me as a pretend dividend!

I don't know where your earnings figures are from but I suspect they are not using adjusted EPS. Free cashflow per share has averaged just over 20p for the past 5 years, so easily covering the 13.9p dividend. You can question EPS numbers all you like, but such great cash generation is a sign of a good business. The FCF yield is over 10% also. If the debt was lower I'd be backing the truck up...

Question is, what is the recovery trigger, or is this just going sideways and further down for another five years?

I would suggest that any rent renewals and new leases are going to be on much better terms given the current high street problems. If I were a landlord I'd want to keep a tenant with such strong cash generation very happy. It's also possible that the government will have to row back on the changes to business rates they made that effected retailers so badly in the next budget.

I need to be careful as I may start talking myself into opening a position

All the best, Si

[monabri]

Morningstar info on CARD.

http://financials.morningstar.com/ratio ... ture=en-US

9.3p and 14.3p Inc the special divi....seems well covered (21p /14.3p).


(12m trailing dividends)
https://www.dividenddata.co.uk/dividend ... ?epic=CARD

[vrdiver]

Morningstar info on CARD.

http://financials.morningstar.com/ratio ... ture=en-US

9.3p and 14.3p Inc the special divi....seems well covered (21p /14.3p).


(12m trailing dividends)
https://www.dividenddata.co.uk/dividend ... ?epic=CARD

I don't know where your earnings figures are from but I suspect they are not using adjusted EPS. Free cashflow per share has averaged just over 20p for the past 5 years, so easily covering the 13.9p dividend. You can question EPS numbers all you like, but such great cash generation is a sign of a good business. The FCF yield is over 10% also. If the debt was lower I'd be backing the truck up...

OK, I guess my hesitation / doubts are based on the LSE using EPS to calculate dividend cover, rather than using the FCF figure. I didn't think Card was capital intensive, which is where I'd normally expect to see the switch from EPS to FCF focus, but live and learn... Now I just need to understand what they're spending 6p a share on that explains the 21p:15p difference between the two values...

Reading last year's report, they do seem to be in an expansion phase (planning to open c50 additional stores, or approx 5% increase), investing in their IT systems and sales infrastructure, but I don't think that explains the gap looking at previous years data for EPS FCF and their similar capex activities.

The report looks good; the FCF looks good, the ROCE looks good, the dividend looks too good(!) The FCF has taken account of current rentals, so both EPS and FCF should rise if landlords find themselves in a rentee's market, which would be nice (but if demand for units is low, then I'd expect that to show up as lower gross sales per store as demand is a function of footfall and spend).

I just don't see why the market isn't thrilled with these numbers and driving the price to where the yield looks "normal". Looking at the analysts views, it seems they are divided as well (https://www.reuters.com/finance/stocks/analyst/CARDC.L ) with two very bullish, two neutral and two negative - no help at all.

Perhaps there is still a lingering effect of their Jan 10th RNS that warned of flat sails and a difficult 2020: https://www.reuters.com/article/card-fa ... SL3N1ZA2MF ?

VRD