Is "Themarket" a Giant and very expensive White Elephant ?
The Market launched 1/8/2019 and in its first year they sold $58.1m on the platform and lost $14.7m (Source 2020 annual report)
In its second year despite the massive rise in online spending readily observable by all other retailers reports and despite lengthy lockdowns, sales through that channel reduced 17% to just $48.2m and the loss increased to $20.7m. WOW !! (Source 2021 annual report).
Yesterday they signaled "Increased investment in the market and an increase in digital spend. Hmmm
Perhaps it s a little early to call it a white elephant but relative to the extraordinary online growth by all other retailers the significant reduction in turnover and increased loss is certainly cause for real concern because in a Covid environment that prevailed in FY21 and only for a modest part of FY20 when there's been an extraordinary jump in online shopping one could reasonably have expected the market would have gained significant traction from its existing customer base and attracted new customers, not lost significant momentum.
Its certainly off to an inauspicious start and the loss of momentum suggests early platform adopters were most unimpressed. Yesterday's announcement suggests they are doubling down on their "themarket" bet. One of the reasons I sold out in early October is I was concerned that the market is going backwards...that's deeply concerning to me in the prevailing circumstances.
But hey...lets keep throwing tens of millions of dollars at it, double down and boost our digital spend by tens of millions more...what could possibly go wrong... Hmmm
Winner is right to remind us that their cash position was clearly noted by the company last year as being materially compromised by the lockdown and the subsequent payment of a ~ $60m dividend in November when the current half earnings are well south of there, together with increased capex spend means the cash on hand at the half year point will be a very long way south of the $160m they held as at balance date.
Capex spend is an interesting subject of itself. $85m in FY21 but this from the 21 annual report caught my eye. Guidance of $115m - $135m for FY22 and at that level in future years.
All the low hanging fruit has been picked. My view on valuation remains as articulated yesterday. $3.20 is where I see fair value at this point.
Estimated Cash on Hand at 1 February 2022. HUGE reduction
They started the year with $160.5m.
They had this to say at the time of the annual result.
The Group’s cash deposits have reduced significantly since balance date as a result of the decreased
sales but the Group’s bank debt facilities remain undrawn. The mere fact they saw fit to mention the fact that debt facilities were undrawn suggests the impact on cash was very significant.
What does "reduced significantly" really mean is anyone's guess but lets have a guess at $70m seeing as lockdown clearly hit them hard and they choose not to take Govt support. That takes us to $90m as a guess.
The dividend paid in November of 17.5 cps took $60.7m so we're down to $29.3m but we have earnings of about $40m + will have recovered the $70m but against that capex for the year of $115 - $135m, (assume mid point of $125m for the year and suppose half expended this half = $62.5m.
Crunching all that takes cash on hand down to $76.8m at the half year point from $160.5m at the beginning, (assuming no material change in stock held).
Gosh, that's a HUGE reduction in their financial strength. I think our laser eyed friend is in fantasy land thinking they have circa $200m cash.
In fact, I think from the tone of yesterday's announcement about increased digital spend and increased spend on the market that capex could be more front end loaded this year so could have materially less than $76m.
Not really the company they were 6 months ago are they ! But they did take on a new loan with special ESG terms so I suppose all is forgiven :D