Have you allowed for tax on your trading?
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@777 No, this is my pre-tax return. I would have had 21% gain but it started to drop halfway through my exit.
@Montana Keep in mind the time-frame. Instead of thinking of total return I think of it as return / unit of time. I estimate that cavalier will get up to 230 over the next 30 days, and that is a 10.8% gain from $2.05 where it is now. 10.8%/30days. If you have a trade that you are confident will give you more than 10.8% over the next month you should switch to that.
@macduffy Unfortunately I can't disclose that information yet... but if you search for me in a week I'll likely be posting from my next trade's forum:-)
For a complete and utter fluke how does 10% in three days sound. In at 1.83 last week and out at 2.04. Try that with your favourite bank. Now for the crunchy bit - original investment returned and I now have a bunch of Cavalier shares for nothing just in case they carry on. Maybe I'll make up for those woebegone RNS after all. Next - NPX. Hmmmmmm
Well the WSI acquisition isn't looking too promising anymore :(
http://www.nzfarmersweekly.co.nz/article/9552.html
Here are a few worrisome things about the market that Cavalier operates in:
Cavalier gets 54% of it's business from Australia and Oz is heading into a recession. Part of the reason CAV did so badly this year was the recession in Europe, but now that "recession" is turning into a full scale implosion with France, the second biggest economy in the Euro showing a PMI of 45. The Euro contamination is still spreading and getting worse and not better.
Australia's economy is dependent on China's economy and China is in a full scale crash right now. China's demand for Australia's things is going to continue to drop off the bottom of the longterm charts. With more than half of Cavaliers business coming from Australia I have serious doubts that Cavalier will turn much of a profit. Maybe 1-2million, but certainly not 8 -10 million.
The rest of Cavalier's business comes from New Zealand, and NZ's money comes from protein exports to Australia and China. As China's crash begins to negatively effect the new middle classes incomes it is possible that they could return to buying rice instead of protein. That would be a severe blow to New Zealand's economy.
Finally, the Rhino on the carpet ads have been extremely powerful in shaping public opinion and it is quite likely that Cavalier will not have nearly as much marketshare in the new Christchurch as it did before the earthquake, and Cavalier's new commercials are not effective in combating this durability argument.
In general, all this information makes it seem less likely that Cavalier's restructuring is going to have as positive an effect as management hopes, and for me personally this is preventing me from putting my money back into Cavalier.
Hasn't the Oz building market been in recession for some time already?
What is the percentage of Cavilier's sales go into Europe though? Is it even 1% of sales?Quote:
Part of the reason CAV did so badly this year was the recession in Europe, but now that "recession" is turning into a full scale implosion with France, the second biggest economy in the Euro showing a PMI of 45. The Euro contamination is still spreading and getting worse and not better.
mknz, those capital intensive carpet factories need a certain volume to cover their costs. Could it be that the rebuild of Christchurch might provide this, irrespective of what happens in Australia? The first consent for a new office building in the Christchurch CBD was only granted last week.Quote:
Australia's economy is dependent on China's economy and China is in a full scale crash right now. China's demand for Australia's things is going to continue to drop off the bottom of the longterm charts. With more than half of Cavaliers business coming from Australia I have serious doubts that Cavalier will turn much of a profit. Maybe 1-2million, but certainly not 8 -10 million.
Also I would be interested to know what percentage of Cavalier's sales go into refurbishing buildings (more likely in a recession to attract tenants to fill existing office space) as opposed to new builds.
Let those poor Chinese eat (rice) cake!Quote:
The rest of Cavalier's business comes from New Zealand, and NZ's money comes from protein exports to Australia and China. As China's crash begins to negatively effect the new middle classes incomes it is possible that they could return to buying rice instead of protein. That would be a severe blow to New Zealand's economy.
I never thought it was likely that the removal of sow crates would mean a large uptake in Cavalier carpeted 'porker hotels' to appease the animal rights lobby anyway. No matter how well the Cavalier Rhino proved the concept!Quote:
Finally, the Rhino on the carpet ads have been extremely powerful in shaping public opinion and it is quite likely that Cavalier will not have nearly as much marketshare in the new Christchurch as it did before the earthquake, and Cavalier's new commercials are not effective in combating this durability argument.
I am not saying you are wrong. Just putting a different perspective on events.Quote:
In general, all this information makes it seem less likely that Cavalier's restructuring is going to have as positive an effect as management hopes, and for me personally this is preventing me from putting my money back into Cavalier.
SNOOPY
Don't know anything about the company, but haven't wool prices come back down again??
Big yawn! Talk about losing perspective!
The Western economists, commentators and media have been predicting the crash of China now for over 15 years.
Why have they been wrong and will continue to be wrong? Because the Chinese do not borrow like Westerners and they certainly know how to work hard and save for a rainy day.
That's where the Greeks, Spanish, Irish, Icelanders, French, Italians, North Americans, Australians and above all, New Zealanders lost their way a long time ago.
BTW, do you know that the price of coal today is still 50% higher than where it was in 2008 and 300% more than 10 years ago? Shhhh ... we do not want to stop the scare-mongering.
From the agm speech:
So, once again, the mirage of improvement recedes into the distance and the share price heads back towards the lows (currently $1.55). I do not see this as surprising - I have been more surprised at the recurring buoyancy. However, I think we are close to seeing the lows for this cycle within the next 6-9 months, so hoping it will go low enough this time to finally offer an entry I'm comfortable with.Quote:
Given the slow start for quarter one and little or no improvement in Australian market activity, our previous earnings indication of $10 to $12 million is looking to be a bit of a stretch. Our earnings are difficult to predict in this uncertain environment because they are so sensitive to carpet sales volumes. The best guidance we can offer at this stage is for normalised earnings between $6 and $10 million tax-paid.
Funny, a few years ago, there was an AGM where the Chair or MD commented that the "stars aligned" in the previous year. This AGM, there is reference to "annus horribilis". Pick your entry.
Unlucky I picked this in the comp, thinking they would bounce back this year, in real life bought HLG and DIL - so cannot complain there!
Today's preliminary announcement makes for sober reading.
I actually think we might be close to a good time to buy at last... although I am still slightly reserved on that and would definitely watch the chart. While I think the chance of capital raising has not completely disappeared, if they have made it this far, I think they will see it through without.
Good to see reduction in inventories, but I'm not certain that they have room to go much below $50m before cuts in stock start to impact sales - especially as they roll out new synthetic product lines. Also not sure that they will be able to prune much more out of receivables. It is always possible the flow-on from Mainzeal could create a few slow payments on the commercial side - no real insights on that, but it is always hard to know where the fall-out stops. However, from my reading of debt-facilities and liquidity risk, I am guessing debt-repayment requirements second half will not be as high. So provided they DO see some pick up in sales second half (and it seems possible), then I think capital-raising will be avoided.
Overall, I would put it on the watch-list for a possible buy. Ideally, I would like to see it re-visit old lows and bounce again to make it worth the risk.
Very slow progress in their climb back to profitability. Price picked up in anticipation of better news ( and a small div)no doubt but will be interesting how far down it will go.
Surely Cavalier should be benefitting from the chch rebuild. Is it time to be positive about this share?
Cavalier is good exposure to NZ building uptick
They got hurt with high wool prices and dollar last two years but these problems subsiding
New problems for them are soft Aus building starts and floor retailer consolidation / direct importing
Plus nz has been big buyer of wool carpet but slowly accepting synthetic
Disclosure: despite all thAt I hold as value stock and expectation of nz building boom
Probably about 9 to 10 cents per share after tax normalised earnings. Positive remarks for the future. I guess it depends on the Australian economy. Any thoughts Ladies and Gentlemen?
I am cautiously optimistic in regard to their business prospects.
However, I wish the market would price a little more risk in to make the investment odds stack up...
Positive cashflow in the first 6 months came from significant reductions in inventories and receivables and was used to reduce debt to a more comfortable level. It seems to me that cashflow will likely have remained very tight during the second half and may continue to provide constraints around growing the business. So although they have done well to get this far without a capital raising, it would still seem possible. (Wonder if they could tap the NZDX for cash?).
I keep watching CAV, but hard to get excited unless offered an entry in the $1.10 - $1.30 region.
SP has been sitting around the 1.60-1.70 mark for a while now, has the market priced this as low as it's going to go? Pick up in building consents in the news today led by Auckland and Chch. With full year results released within the month, and earnings already expected to be at the lower end of guidance, is now the time to buy? Cav have cut the fat off their operation in the last few years so who margins are expected to improve. Slow Australian recovery is a risk, but is this already priced in?
Slow Australian recovery?
They haven't been really in recovery, their economy has taken a hit due to the mining sector, but its not like they are in recession. However, a large chunk of Australian's economy does depend on the mining sector so who knows where it would be heading in the next 12 months. Could recover in no time, or could go down even more...
So, does cavalier depend on the Australian economy?
Disc : Has been on my watchlist for awhile now...
I fear CAV will be on your wish list for some time baller ...so long that you may forget all about it
Great brand, great product but the money is in their premium carpet -the expensive end of the market
This end of the market is not growing, probably shrinking. Just too expensive for most punters who in the main go for cheaper stuff that does the job just as well. Synthetics taking larger chunk of market over the natural products like wool.
Will maintain their volumes in residential but no huge growth for them in this segment methinks, even globally. Still some demand in commercial space but the real lucrative contracts are few and far between
Somehow they need to reinvent themselves but they are finding that hard to do. The world has changes but CAV hasn't.
This thread has some interesting posts in the earlier days that support this view
Lizard says pretty fully priced with not enough room for the inherent risks involved. I agree with her. The market still having an optimistic view of future prospects
Seeing you into long term investments maybe CAV not for you
Yes definitely doesn't look like a long term holder right now, if it drops to $1.20 - $1.40 maybe??
I don't disagree with your points winner, but this is obviously a cyclical company and we are at the beginning of another cycle. They have trimmed the fat off their operation to get through the recent tough times. The pick up in building consents will impact the premium carpet market also. Even if we aren't expecting them to be as profitable as they once were there is still a lot of room for the SP to climb with modest growth.
As for the Australian market, this accounts for half of the companies revenue which is obviously a downside. Just need those Aussies to catch up. As for company performance - I see the expected pick up in the NZ market to kick the recovery of CAV off enough to warrant buying at current levels
It just struck me too.. if the Australian market accounts for half of the revenue... will this be impacted adversely by the recent slump in the value of the Australian dollar? Or or most of the costs associated with these revenues also denominated in AUD and therefore only the bottom line that is affected?
They did well in 2011 when AUD was peaking, so the current AUD plummet is surely not good for CAV.
Another headwind is that wool prices seem to be creeping up again:
http://www.interest.co.nz/Charts/Rural/wool-prices
Third and fourth warning signs are that the share price is trending downwards and lacks bid support.
I'm watching from the sidelines for now...
yup being real careful with falling knives, especially with first hand experience with DIL...
The other thing I forgot to mention is that Godfrey Hirst seem to run rings around them and they are a fierce competitor
Especially so in the commercial sector
Okay, time to watch a little more closely... share price collapsing - pick your cause:
- ACC finished their latest buying spree?
- Hills Floorings announces liquidation?
- Impending results season?
I think there is a possibility they may have taken the retrenchment drive a little far - perhaps raising equity (or maybe a debt issue?) would have been a complementary option to staff and inventory reductions if things are that tough?
There comes a point where spending-money-to-make-money has to pre-empt cutting costs and freeing up cash.
CAV has a price/book value of $1.13 atm... Is it undervalued or is something wrong with the company fundamentally?
Stockholders equity value at $1.239
So if it goes to $1 will it be a good buy?
Is CAV going through cyclical losses?
Will it turn itself around?
Colin McKenzie said about the restructuring of manufacturing 'The cost benefits that will flow through from the beginning of 2014 are EXPECTED to be significant and the LIKELY payback for the consolidation is expected to be within two years' (as quoted in NBR)
History would say that these benefits are not certain to be captured and if they are history also says CAV will then come across other hurdles that need to be overcome and then another 2 years for a payback.
They are in a sunset industry but I will give them some due that they have sort of seen that and are now pushing synthetics hard .... even though Hirst tore them to shreds in the courts about their misleading advertising of the 25 yeat guarantee. (see Hirst are playing hard and I feel they have more energy and desire to win)
Ouch 25 year guarantee on synthetic carpets .... seems to limit future sales somewhat eh
Lizard - being serious here.
I agree that a capital raising is a possibility. Total debt is some $70m based around a net profit of $4.3m (FY2012) makes for a pretty ugly minimum debt repayment time.
MDRT = $70m/$4.3m= 16.2 years
The problem is this business is structured for profits around $14m to $17m per annum, which is what they did earn from FY2008 to FY2011 inclusive. Until profits look like being restored to a consistent level, the capital raising risk looks too great. Maybe if the cash issue comes that will be the time to jump in.
Incidentally, I don't agree that Cavalier is on the way out. Perhaps woollen carpets will not regain the popularity they had in the 1970s, before synthetics were around. But when I replace the carpet in my house I won't be considering synthetic. The fire retardant properties (or lack of) are enough to rule synthetic out for me, whatever the price savings.
SNOOPY
Cavalier is, rightfully, well known for its quality wool carpets. Since the acquisition of the Ontera carpet tile business - which I assume are largely synthetics? -the business has diversified somewhat from its wool carpets/ wool buying/scouring base. I don't see any numbers on the respective wool/synthetic volumes or revenues but I wonder if anyone has any insights here?Quote:
Incidentally, I don't agree that Cavalier is on the way out. Perhaps woollen carpets will not regain the popularity they had in the 1970s, before synthetics were around. But when I replace the carpet in my house I won't be considering synthetic. The fire retardant properties (or lack of) are enough to rule synthetic out for me, whatever the price savings
Or am I completely wrong in that the carpet tiles are also mainly wool?
Edit: I've just noticed in the 31 Dec 2012 half year report that CAV "..expect to launch Cavalier's new high-end synthetic products before year end...
Of course, no-one would argue against the logic of having a good smoke detector, and as you point out Percy they are not exactly expensive. But I see that as quite separate to the argument of woollen verses synthetic carpet. The smoke detector gives you the signal to get out. Wool is slower to ignite and the fumes are less toxic when it does ignite. So the woollen carpet is giving you the time to get out, or perhaps snuff out any smoldering before the fire gets started. It is a slightly crude analogy, but I see the smoke alarm as the ambulance at the bottom of the cliff, and the woollen carpet the barrier at the top that hopefully means any fire will not 'take hold'. Ideally you want both.
Having said all this, I do admit my current house was built in 1991 as a builders spec and has a synthetic carpet. I don't lose any sleep over that. But it has got to the stage where the living room areas are due for replacement and it hasn't held its colour particularly well. So I intend to replace that section with a woollen carpet.
SNOOPY
Snoopy suggest you do a test with two scraps of carpet & make sure one is the fire retardant treated synthetic type. You might be surprised.
Personally I think natural fibres are way better than synthetics. I prefer to buy items made from Wool, leather, cotton and wood never plastic. I believe many people think the same way and there will always be a niche market for wool carpets.
Being a carpet retailer, we have tried to cover the field by using both wool and solution Dyed nylon carpets in our 2 level home. Both medium price points from the Cavalier group. The wool feels far fare more luxurious and less plastic under foot, and nylon easier to deal with when our aged cat fails to make the litter box. I believe the synthetics are over sold, and their infinite warranties do not cover their loss of appearance retention.
soar,
Welcome, and thank you for your comments.
A 4c dividend in October. Things starting to look up.
Cashflow a lot lower in second half - no longer freeing up inventory. No debt repayments. NPAT heavily reliant on earnings from the 50% holding in CWH. Dividend seems a keen move, but I guess 4cps not going to make or break at this stage. Banks seem relaxed.
YEah I also raised eyebrows a little when they said they will recommence div
On a positive note maybe it signals their confidence in the outlook.
My humble take is that NZ will start to underpin earnings for all of this exposed to NZ/AU building - namely CAV / MVN / FBU
People are worried about Australia but I have been reading quite a lot of press in AFR Smart Investor which indicates construction is falling moderately but is expected to pick up quite welll in 2014 as building mix tends more away from mining and into residential/commercial building
I am holding these guys and MVN for the time being and will give it another 12 months to see if the NZ uptick flows through to earnings
Everyone talks about CHC but Auckland is also desperately short of housing stock and the government is right now trying to make easier build....
Call me naive if you will but could someone help me out please. When CAV start saying things like... "normalised is a non-GAAP" form of reporting... etc is that not a form of deflection. Ie are they trying to hide something here? Or is reporting normalised earning "common accepted practice"?
I know there were "restructuring" (we stuffed up and have to fix our mistake) costs, but to me if you report "normalised" you can almost always report a profit if you have a clever enough bookkeeper. For what its worth, if they can avoid future "restructuring" costs, then profits at a slightly higher rate (increase in turnover in NZ and wool prices) and a divvie of 6-8 cents may make $1.40 a good entry point.
You are right its bad practice and it is definitely a deflection as the "restructures" etc still cost shareholder money despite not being part of usual ongoing operations
Brian Gaynor highlighted the exact issue that you raise a while back in the article below
http://www.nzherald.co.nz/business/n...ectid=10749064
The worst offenders I personally find are FBU who every single year manage to pull out at least $100m in "one-off" costs
This is total BS becuase even if its a asset write down, they are writing own an asset that was paid for with your cash!!!
The other thing is FBU break out costs for opening/closing plants when its done so often you would argue its normal operations
Thanks for the reply and the article Michael. Appreciated.
Doing it this way is to give you a reasonable picture of what is normal today and if we 'don't stuff up' again what can be expected in the future, or at least a better feel for next year anyway.
You meant to be forward looking .... so whats normal is important to see what the future holds ... so you can assess what the company is worth ...in normal times
The past is forgotten and forgiven ... just think future
A study a few years ago in the states (pre GFC) concluded that S&P500 companies wrote of 20% of profits were offset by write downs in the subsequent 5 years.
Michael - has the $300m plus writedown affexted the future of PGW?
Hi Winner...
I can see where you are coming from and it does make sense as you put it. But my major fear is that this gives inept management a nice little get our of jail free card and this "tool" for use of better word is able to be manipulated and therefore provide distortions. Surely an analyst worth his/her salt can provide future normal earnings by digging through the abnormals?
Any estimate of "future normal earnings" is only ever going to be an educated guess, whichever ways analysts juggle past years' abnormals.
To me, the encouraging bit was that the official GAAP NPAT number was +$3m, compared to the previous year's loss of -$1.6m. Oh, and the dividend.
You may have noticed CAV intrigues me as well .... or at least a morbid fascination for it
Zigzag ... wouldn't quite go as far a permanent turnaround story .... but possibilities of a cyclicaly if timed right .... but anything to do with these companies I have a morbid fascination with be prepared to be disappointed
My lesson from the PGW goodwill write-off was that if you're going to shrug off historical write-downs (as both company management and market appear to have done), you also have to plonk a big discount on anything that gets added to the balance sheet in the first place - that is, take any capitalized costs with a hefty serve of pink rock salt.
Shall we say a 50% discount for intangibles (e.g. goodwill) and 20% for tangibles, as a first approximation?
It was a shock to me as a casual investor that a company can pay too much for something and then treat their overspend as an 'asset'.
The problem is that it is often only in hindsight that it becomes apparent that a company has paid too much for an acquisition - and that can take years to become obvious.
On the other hand, there are instances of the opposite - real bargains - eg Infratil and NZ Super's purchase of Shell's downstream assets.
:cool:
Damn should've got in at $1.40! Argh missed my chance
Star performer today
If anybody wants a decent chunk they will need to go to 200 eh
Looking from the charts, CAV just had a W bottom, any TA traders out there who can confirm this with me? Even thought it was only a few days and the volume is still quite low, does this signal they will be going in an up trend if it breaks through at $1.55?
But looking at the bollinger bands, it hasn't touched the bottom of the bollinger band either but it hasn't flattened so...
Looks a very risky bet to me at present.SP at $1.52 means to me it is still in a down trend as the 50 day moving average is $1.60 while the 200 day ma is $1.74. Both moving averages are still in a downtrend.The ma,s need to turn upwards before I would consider buying.Also I am not sure what the MACD is signalling.
Craig's have updated their target price to $1.94.They are confident of strong earnings growth over the next couple of years.
Hey that is a neat W on the chart eh
Nearly didn't see it on chart that is still heading down from 4 bucks
You telling me the W is a double bottom or something
Cavalier bouncing nicely off the W bottom, to be on an uptrend
Another week or so has passed and it looks like CAV has settled a bit and the market is pricing in a bit of upside. Low volume, but it isn't the most liquid of stocks anyway. My main concern is the Aussie market that CAV relies on for half (or more) of its revenue, but it would appear even if that doesn't pick up for a while the NZ market will be doing enough to support a higher SP
I'd still like to know what proportion of CAV's sales are of synthetic, rather than wool, carpets. I seem to be hearing more and more people opting for the former as they recarpet their homes, acknowledging that the wool product is superior but that the cost advantage of synthetic makes it hard to ignore. There also seems to be more imported carpet available these days.
Yes, I hold CAV!
This would be an interesting stat. We do know they have a synthetic range sold under "cavalier bremworth" so the option is there. That along with their Norman Ellison brand which targets the lower end of the market suggests they are well positioned across the carpet market
Retailing has changed to becoming very brand-aligned. The Cavalier Habitat Collection (high end synthetic) is mostly selling through Flooring Xtra stores. Carpet Court are pushing imported synthetics under "SmartStrand". Godfrey Hirst using the "Flooring Foundation" to try to create a similar exclusivity with other independent retailers.
All of which has made it harder for the consumer to shop around on price using the one product - restricting the price war to "equivalent" products which may vary in texture, colour etc. Overall, this is probably benefiting the retailers rather than the manufacturers at this point.
Another disadvantage with wool is carpet beetles. Some friends had to replace their wool carpet with synthetic recently.
Thanks, Liz.
I think you're getting to the crux of the CAV problem there. It seems to me that the big retail chains are calling the tune rather more these days than was the case when smaller, local firms proliferated. Cavalier had the market recognition then which now has to be shared/competed with the likes of Carpet Court, Number One Carpets and other franchises who import cheaper, synthetic product.
If we accept this is true (I'm not arguing for or against this) what impact do people think this will have on CAV? Yes, they may lose some market share. But we are dealing with a cyclical that is at the bottom of the cycle. In my opinion there is an increase in company profit on the cards - it's just how much. Even if we don't get back to the previous top on cycle there is still significant room for the SP to grow. Not to mention the fat trimming that has gone on in the past couple of years.
Very true - retail concentration is the big threat to Cav as it has been to many manufacturers in other industries. When a few dominant retailers emerge they tend to rationalise suppliers so they can negotiate the best price (but not choice) for the consumer.
The additional threat here seems to be the retailers importing their own brands direct (not quite equivalent to supermarket home brand but not far off)
My brother recently bought carpet at Carper Court and said he asked about Cavalier/Bremworth and they just kept "ramming SmartStrand down my throat". He would say, "but isn't wool more durable", and they would say "forget wool, this SmartStrand is unbelievable"...
He did some research and bought Cav in the end but they tried and tried and tried to persuade him otherwise. I also have held CAV for a while and am in profit now but the more stories I hear the more I prefer MVN for cyclical building play
The way I figure is people care what brand of taps are in their bathroom whereas carpet its harder to have that brand advantage...
Cavalier has built its business over many years on having an (iconic) premium brand. There are a few companies like this but most are facing challenges as the world changes. They will not survive doing things the way have done for decades - they need to change and adapt to the new way. And invariably the new way is not likely to be as profitable as in the past.
Cavalier makes stuff for buildings - residential and commercial. If their business is similar to others in this sector the split is probably 60% commercial and 40% residential. The commercial segment probably growing faster than residential.
Commercial is both new buildings and the renovation/redecorating of existing buildings. Residential is new houses along with homeowners outing new carpet in.
Historically brand owners like Cavalier were the ones who had the greatest influence on both homeowners and those who chose carpets for commercial buildings (architects, specifiers, designers etc). How good their marketing was created the demand and the premium price people paid.
The rules gave changed. The influencers are now, as pointed out a few posts ago, the power is now with distributors and retailers, and with the architects and specifies. They are the ones who 'influence' the purchaser based on what is best for them. The manufacturers like cavalier are slowly losing control of their brand. The distributors and retailers are screwing them down on price and other things, ie margins are diminishing, even on their premium products. Somebody also pointed out the rise of channel/distributor exclusive brands. Just imagine when the likes of Bunnings get into carpets to see what will happen to market dynamics (they sell heaps of carpet tiles now so carpet not that far away)
All this is compounded by the demand for high value stuff like Bremworth is falling, both from an affordability perspective and the wide range of synthetic products available at much cheaper prices.
The commercial segment is highly competitive - price is everything in most cases. The Cavalier rep might be calling on architects and specifies touting why they should use Bremworth for their clients but so are the competitor reps and I know that Geoffrey Hirst outgun Cavalier in Australia. Even when it's get specified price comes into play. I would say this segment, even though the largest part of the market, is also the segment that has the lower margin.
So Cavalier (like others) are losing control of their premium brands - cheaper substitute products and the growing power of their distributors and retailers. Inevitability not really a good place to be in.
A cyclical play so Where are we in the current cycle. In NZ commercial activity is above average, new residential activity is still below average (even though 50% off the bottom of the cycle) and homeowners redecorating is pretty buoyant. Aussie is a bit tough but not desperately so in commercial segment. So on balance cavalier should be doing ok at the moment (definitely not bottom of the cycle stuff) with some upside.
Are Cavalier winning in market place? In Aussie I thing Hirst taking share. They have been slow to respond to meeting the market demand for cheaper products (anything below the high cost of Bremworth is cheaper) so are losing out there as well. And probably finding it hard to manage al the demands of their distributors etc.
So a good investment? They are good brand but struggling but will make an acceptable profit but not to the degree that may have been seen years ago, margins will continue to come under pressure. I wouldn't pay much more for CAV than what is worth today, and even that is not guaranteed to make acceptable returns.
Bored as today so just sharing as how I see it.
One thing which puzzles me. Carpet is generally purchased laid - who actually pays for the carpet laying? Comes out of the retailer margin or do they screw the consumer and add on heaps to cover the cost?
Carpet only a portion of Furniture, carpet and Homewares retail sector but how these sort of shops are going is probably indicative of how carpet retailers are going .... and a bit of a guide as to CAV slaes
Charts below from Stats NZ Retail Trade Survey and that sector.
As with a lot of home related industries the mid 00's were a boom time (bubbke) and an extraordinary event.
Long term trend is a better picture where these retailers are now .... about average/normal eh
And that long term trend line is only 0.8% pa .... not a particularly good growth rate eh and it is actual dollars of the day. Low growth from substitute/cheaper products? a bit of price deflation? homeowners not doing redecorating as often as they used to (new furniture and carpets every 15 years instead of 10?)
Great post winner. A very good argument - I have a couple of thoughts I'd like to add
Cavalier's earnings have hit a bottom and bounced back with their last announcement - this suggests that the cycle is only beginning for them (or they have been hit seriously hard and lost a lot of market share etc and are actually mid cycle - I doubt this though).
There is the Christchurch rebuild which is by no means a minor factor. From what we see on the news this hasn't started yet. I am a consultant in the industry and our company stands to get a lot of new design work from Chch, but none of this has begun yet.
Australia are still lagging, and even with reduced market share CAV still stand to benefit from the improved economy when it happens. My concern here is if it takes too long. Lets hope the election acts as the catalyst people think it will.
CAV has put in place significant cost cutting measures while they have been struggling which will also have a positive impact.
All things considered - I still think even if CAV don't hit the highs of the bubble they still stand to significantly improve on where they are now. I think we are in for above market returns for the next few years as a minimum.
CAV still puzzles me ... they should be making more than they are.
New residential builds are up 50% over the last 2 years .....currently 6000 odd extra homes a year than 2 years ago. Carpet sales up?
Commercial work, ESP the sectors that are likely to have carpets. Heaps busier than 2 years ago. Carpet sales up?
Carpet retailers in nz look they doing pretty well at the mo compared to 2 years ago. CAV selling more carpets?
Ok, Aussie a bit weak but commercial not that bad and new home building hasn't collapsed.
To me they should be selling more carpet than a few years ago but they ain't.
In the annual results they talk about growing volumes ...maybe margins are pretty shot still.
Residential construction going from 19000 homes a year now to 25000 a year home in 2 to 3 years time. Will CAV sell mor carpet? Or are the competitors going to keep on beating them?
I fear that competitors are winning.
Market heaps better than 2 years ago .... CAV not doing better. Market to be heaps better in 2 years time ......CAV do better.. You would hope so but there seems to be something holding them back.
I see CAV priced at the mo to both grow and to improve margins ....chances of that happening?
Prob wrong again but something not right at the mo.
All good questions. IMHO its a problem with retail landscape plus the wool price issue where they became priced out of the market.
Went to the Home Show yesterday (OMG are Aucklanders insanely crazy about their homes) and it was telling. The retailer that they are aligned with (Flooring Xtra) did not even have any wool carpert on display - and had a very humble presence overall.
Meanwhile Carpert Court with the massive rhino had a huge presence with a total focus on "smart strand"
Cavalier were in there somewhere but go lost behind Godfrey Hirst and Feltex.
On another note I wonder if Feltex are winning the lions share of Chc business due to being the local player (Cav = Auckland centric)
Michael - interesting observations
Cavalier in there somewhere but got lost behind Hirst and Feltex - to me that is losing share to a hungry competitor who is adapting better to changing times. Does the old iconic company always struggle in this respect?
And looks like the synthetic carpet is being pushed hard by retailers - not good for Cavalier
Re Chch - to date most of the extra work has been fixing things up (insurance work) which prob doesn't involve carpet to the extent as plastering and painting trades. New houses and commercial work starting to gain momentum though. Feltex prob do well because they are more hungry anyway?
One thing about Auckland is that as homes get more insanely overpriced homeowners might find buying real carpet easier ... What's a few more thou when thevhouse is worth hundreds of thou more. Wool carpets are discretionary buy ...and wealth effect helps
One of the triggers for buying carpets (and other redcocarating projects) is buying s house (an existing one)
Today's release from reinz still has the number of house sales growing strongly. Over the last 2 years house sales are up 40% and at just under 80000 in the last 12 months above the annual average number.
So where are increased Cavalier sales?
I had a bit of spare time today so went back to look into the question of what proportions of CAV's carpet sales are wool and synthetic respectively.
Note 27 to the accounts, Segment Reporting, reads, inter alia, as follows:
"In determining its reportable segments, the Group considered the criteria set out in paragraph 12 of NZIFRS 8 and was able to aggregate the Cavalier Bremworth, Norman Ellison and Ontera Modular operating segments into a single reportable segment.
In aggregating these three operating segments into one reportable segment, the Group identified similarities in the following: "
Then followed a lengthy justification for not reporting the three separately. I guess it amounts to the company regarding this as commercially sensitive - but it makes it difficult to judge how well, or badly, the company is faring against predominantly synthetic manufacturers.
CAV been a big mover the last few days ... even topped the gainers list
Whats up .... by the way whatever happened to Whats Up .... he was a good guy
Sparky. Nice to have you back on the forum. I read your latest buy with interest and will do some research myself.
I would like to challenge you on using current EPS as an input to your growth rates as this is a cyclical stock. Wouldn't you want to use an average of the past few years?
Thanks for your thoughts on CAV, Sparky and more power to your fingers and brain! As a fellow shareholder ( but of much longer standing) I hope your positive views have corresponding results shareprice-wise!
Noodles take your pick on what eps to use over the cycle - from the heaps I know about Cavalier file
2013 was 9.7 cents as sparks said. Over the cycle maybe 18-20 is the average.
But wha sparks is doing is valuing it today and seeing what returns he could get with 'growth' back to normal sort of levels.
If you used the average eps over the cycle (say 20 cents even) wouldn't you have to assume that the 'growth' rate to use in sparks formula would be zero?
Bit more from the CAV archives
Revenues over the years ... except for the boom times in the mid 00's (recall 33,000 new houses were built compared to average 24,000) CAV revneues struggled to get much over $200m. Seems that normal times they do just OK and every now and again when the market helps them out they have the odd real good year. And maybe one of thise is on the horizon.
Even today revenues about the same as they were last century
So it all comes down to margin improvement ... and sparks sort of eluded to that
Looks like Cav is on the move - it's hit it's highest point in 12 months. Excuse my ignorance, but why all the sudden interest?
After a lot of negative announcements it appears the market is pricing in the expected pick up in earnings. The pick up in earnings is due to the increasing building activity around NZ (and Aussie to follow at some point)
What is surprising is that recent rises are happening at the same time the price of wool is going up..
It is a negative for the wool carpet business though. Increases the cost of the end product - one of the reasons synthetic carpet is getting more of a look in. However, CAV have synthetics available now
Sparks keep the price in the 180s when building his stake
Now the turn of spark's fan club of dedicated followers to keep pushing the price up
that W bottom... sighs...
You guys will get over 200 tomorrow ....a real milestone hasn't been there since early last year
Must be a few more to jump in yet ...not too late ....remember the share price has been over 4 bucks once.