Marben's Misc Bits

Halfords has been voted the worst shop on the high street

http://uk.finance.yahoo.com/news/shoppers-rank-halfords-lowest-high-155745941.html

In reply to Isaac, post #49

Thanks for that Isaac. Looks like Roger and I are going to have to take a trip up to Birmingham again (or whereever they're holding their AGM this year, finals not out yet) and make their ears sting.

This is unacceptable performance. Halfords is supposed to pride itself on its customer service. Seems that something's gone badly wrong. I'd also better get off my backside & do some "mystery shopping" myself. Have to say, though, that I do get my car serviced by a Halfords Autocentre and a) was happy with the service (improved a bit since the Nationwide days); b) the manager (same guy as when it was Nationwide) said that the Halfords brand had increased volumes at the centre.

I'd very much appreciate hearing any other customers' views about Halfords' in-store service - especially whether they've noticed any changes (positive or negative) over the last couple of years.

Cheers,

Mark

Considering that Halfords rate "service" as one of their differentiating points from competitors (or the internet), this is certainly disappointing. Definitely a question to be raised at the AGM on this. And yes I hope they choose a more convenient time and place for it this year. Tesco have devised a cunning plan to avoid being mobbed by shareholders this year after their dismal performance - holding their AGM in Cardiff at 11.00 in the morning. I have been to an AGM in Cardiff once before, but the timing does not help.

In reply to marben100, post #50

I'd very much appreciate hearing any other customers' views about Halfords' in-store service - especially whether they've noticed any changes (positive or negative) over the last couple of years.

I'm very surprised indeed at Halfords being picked out (unfairly? given that many seem to have scored similarly).

I've visited both the local branches and found the staff at both to be very friendly and helpful.

I'd also worry about the sample, given that Lush seems to come out top........

Halfords problem is simple - people aren't as interested as they might be in buying their product lines. I was the only customer in the store on both occasions - and one of those was one of their massive "superstore" units:

In reply to emptyend, post #52

Halfords staff do tend to have a look of surprise when you enter the store, though by the worst customer experience and others I know have had is from Curry's/PC world. Sales boys and bimbos repeating what's on the sticker and looking blank if you ask further, and their supervisors ignoring you and explaining to staff what to do with the potential customer, whilst the potential customer stands next to both of them.

Mark

I don't agree with Soco directors taking a 100% bonus for their performance last year.

I am actually VERY ANGRY as I feel they are totally taking the p.

Can you please tell me what is ShareSoc's view on this? I have voted against their remuneration & I personally want to send them a message across that greed and excess for failure is unacceptable.

55,000 boepd at the end Dec 2011 was not achieved. If they did achieve it what kinda bonus would they get? 200%?

I mean seriously someone needs to put the execs of UK Plc straight.

Congrats on Faroe - http://boards.fool.co.uk/sharesoc-1-v-fatse-faroe-0-12561306.aspx

This afternoon, swapped FTSE100 covered warrant puts that I hold to hedge my porty as follows:

• Sold SY35 5700 strike, Jun 15th expiry
• Sold SY44 5500 strike, Dec 21st expiry
• Bought SY04 5250 strike, Sep 21st expiry

My rationale is as follows. Firstly, I wanted to take profits on the June expiry puts (bought in February when the FTSE stood at over 5900). They have now become rather risky in themselves, as wild market swings, in either direction, are quite possible in the short time remaining until expiry. What I want now is hedging that will last over the next round of Greek elections and subsequent events/market reaction. Hence the September expiry nicely covers that period.

As markets have fallen, I've been adding to my portfolio, so the amount of equity exposure I need to hedge has increased. By swapping to a lower strike and a shorter expiry than the December one I've had in place, I can buy a larger quantity of puts and free up a modest amount cash.

I can now feel comfortable to continue deploying cash, if opportunities present themselves, knowing that I don't have to worry about market crashes if the global economy looks like its going pear-shaped.

My intention is to review my position in a month's time (whilst there's still a decent amount of time-value left in the September puts). We (and the markets) should know a lot more about the European situation by then, but that still leaves concerns about China, India and the US. I will try to take those risks into account when judging what represents a real bargain, as opposed to an apparent one. A specific concern that I have (per the piece I wrote on TRY) is that banks have still not properly written down European properties that are now on their own books after the 2008 crisis. That presents a similar risk to that in 2008, that there could be a liquidity freeze-up, with banks scared to lend to each other. Hence refinancing needs for any indebted potential investments require close scrutiny. Those with significant debts may get sold off, but as long as the debt maturity is relatively long, the risk may be lower than the market judges (providing that there is a sound income stream allowing the debt to be repaid, ultimately).

http://www.youtube.com/watch?v=Jmg86CRBBtw

Cheers,

Mark

Results looked awful for Halfords this morning Mark....

I still have'nt bought, I would be a buyer after a prolonged period of sideways movement followed by a slow and steady rise on the back of a positive trading statement.

The chart looks awful, amazing how the markets tell Investors to avoid the downtrending shares - people could have sold much earlier & still can whilst the direction is down :

Well, I've added to my holding @ 237p today: nearly a 10% yield now, which appears sustainable to me. Still generating an FCF/share of 40p - not bad against an xd-equivalent share price of 223p. I'll be sticking to my simple strategy: buy things that I find cheap and sell when they're not or become overweight, rather that trying to read tea-leaves.

With put options in place, protecting against potential market crashes, I prefer to have my cash invested, earning beefy divvies. :0)

Marben

A quick Summary of Halfords results :

-Profit before tax down 27%
-Debt up from £103m to £139m - So they bought back loads of shares (£63m worth) whilst weakening the balance sheet
-Current trading 'very disappointing'
-Despite tough trading conditions they are growing their workforce by 1000 new employees
-Free cash flow generated last year was £70.4m vs Dividend payments of £44.4m so dividend was covered 1.58 times
-With increased debt = higher finance costs = lower cashflow to pay the high dividend, add in further weak trading & continued capex spend of £20m per year & the dividend becomes unsustainable. Finance costs are double last year.
-They won't recieve the one of interest income from 2011 in future years.
-Cost of Sales have increased but revenue slightly down

-Property rents are up

- Staff costs are up approx 10% to £155.8m, almost a third of the market cap

-Corporation tax down from 28% to 26% but profits still down on the year

I would also question the management on the following statement :

Capital Expenditure

 

Capital investment in the period totalled £19.7m (FY11: £22.8m) comprising £15.2m in Retail and £4.5m in Autocentres. Consistent with prior periods, management has continued to adopt a prudent approach with regard to capital investment and has focused on investments generating material returns.

 

Within Retail, £11.5m was invested in stores, and included £1.2m in three new London stores, together with two completed store relocations. It also included £10.3m of investment in 83 store refreshes, the rightsizing of two stores, other expenditure covering general maintenance and the investment in three laboratory store formats opened recently.  Additional investment in Retail infrastructure included a £2.4m investment in IT systems, including further development of the online customer proposition, £1.0m in logistics and £0.3m in central facilities.

 

A further £4.5m (FY11: £6.2m) was invested in Autocentres predominantly to drive the centre roll-out plan and upgrade centre equipment, especially in relation to the delivery of the tyre proposition. 

 http://www.investegate.co.uk/Article.aspx?id=201205310700104694E

Why is the value of the property,plant and equipment (PPE) down for the year if so much money is being spent on capex? Answer is ofcourse £21m worth of depreciation so in effect they seem to be almost  spending as much as depreciation. They spent about £17m on PPE.

Also a look at the cashflow statement shows a loss on the sale of PPE for the year, hardly prudent management!

One bright spark is management appear to have converted some of their short term borrowings into longer term finance that is due in over a years time, however I would urge caution, the balance sheet appears to be geared quite heavily and trading is in a downturn.

Let's not forget Halfords were voted the worst retailer for Customer Service recently.

In reply to Isaac, post #58

Hi Isaac,

A few points on some of your points...

Debt up from £103m to £139m - So they bought back loads of shares (£63m worth) whilst weakening the balance sheet

I quite agree and Roger Lawson and I complained bitterly about the buyback programme at last year's AGM. Shame more shareholders didn't come to support us. ;0) The good news is that the programme is now stopped. What we will be asking tough questions about this year, is the "worst retailer" report and I intend to do my own "mystery shopping" to form an independent (though limited) judgement.

With increased debt = higher finance costs = lower cashflow to pay the high dividend, add in further weak trading & continued capex spend of £20m per year & the dividend becomes unsustainable. Finance costs are double last year. 

Yes, I do not deny that there is a risk. Note, however, that FCF is after a £24.6m tax payment. Obviously, lower profits would mean a lower tax charge. Finance costs, however, are low: even a doubling to £11m is low vs an operating cashflow of £89.7m in 2011. Debt of £139m seems pretty manageable against that sort of figure. IMO the "margin of safety" is better than the market is giving credit for.

-Despite tough trading conditions they are growing their workforce by 1000 new employees

Now, that I give management credit for. Note the following points in the prelims:

In-store service revenue rose by 22.6% as fitting penetration hit record levels 

and

Sales at our Autocentres grew strongly by c.6% LfL and c.13% overall, driven by the growing awareness of the Halfords brand in the garage servicing sector and recognition by motorists of the value we offer. This performance is especially strong when compared to the overall auto aftercare market.

and 

Gross profit for the UK/ROI business at £399.8m (FY11: £419.9m) represented 53.1% of sales, a 140 bps decline on the prior year (FY11: 54.5%). This reflected the continued focus on the delivery of cash returns within the business, increased levels of promotional participation by our customers, reduced sales of higher-margin ranges and the impacts from our focus on efficient stock clearance. The effect of these, together with the adverse result from product-cost inflation, was partially offset by the continuing increased penetration of our unique, high-margin wefit and werepair propositions and continued focus on maximising product-sourcing efficiencies

and

There is a strong trend towards "Do it For Me" in Car Maintenance and Halfords has seen growing demand for our wefit services. The foundation of our fitting proposition is the fitting of Car Bulbs, Windscreen Blades and Batteries ("3Bs"), by our trained in-store colleagues. During the year some 2m wefit jobs were completed and 26.2% of all 3Bs sold were also fitted. This compares with 23.5% fitted in FY11.

The 3Bs market, selling both product and fitting, is estimated to be worth £950m and Halfords only has a small percentage share of the market while garages and dealerships have a 75% share. Our offer is unique, 7 days-a-week on demand fitting at the most competitive prices, so there is good potential to win sales and grow revenues. Fitting is also a high-margin revenue stream and an economically favourable one, as labour costs are based on retail wage rates as opposed to the mechanics rates that garages and dealers charge. 

I.E. the service side of the business offers high margins and is growing rapidly. Growth here can compensate for weak retail sales. Hence I fully support the strategy stated as:

In the year ahead we are investing in our key areas of growth, Cycling, Fitting Services and Autocentres. This will accelerate our transition to a contemporary solutions provider and will create up to 1,000 new jobs.

It may not generate profits in 2013, due to the additonal staff & training costs but I believe it will set the company in good stead for the future, beyond that, compensating for retail sales that are looking even weaker than I had expected.

Why is the value of the property,plant and equipment (PPE) down for the year if so much money is being spent on capex?

Sorry but that's nonsense. CAPEX of £19.3m is small vs PPE of £97.9m (and considering the operating cashflow). Bear in mind that PPE will mainly comprise store fittings and |AutoCentre kit that depreciate rapidly. Management's statement re prudent CAPEX seems entirely correct to me and reflects an expenditure that is less than the value of prudently estimated depreciation - which is why the book value of PPE is down. In this climate, expensive store refurbs probably won't yield many extra sales and can wait.

So, to summarise, my view is that you and many analysts are overestimating the risks and underestimating future improvements from the increasing proportion of high-margin service revenues Halfords will generate.

Time will tell who's right. Meantime, I'm happy to keep collecting the divvies. :0)

Cheers,

Mark

Hi Mark,

Regarding your " What we will be asking tough questions about this year, is the "worst retailer" report and I intend to do my own "mystery shopping" to form an independent (though limited) judgement."

I have to say I found it surprising that Halfords secured this dubious award havign frequented the Elstree/Borehamwood branch and been pleasantly surprised on each of the five occasions I happened to venture in there. The staff were both friendly, helpful, and eager to please regardless of whether I was picking up some bits for the car, or getting my bike its annual once over.

Must be very much a case of some stores being alot worse than others.

In reply to Fangorn, post #60

Thanks Fangorn,

Must be very much a case of some stores being alot worse than others.

...or maybe a case of misleading sampling by Which? ;0)

Useful to have independent views - but it doesn't do any harm to keep management on their toes and earning their hefty rem. packages. ;0)

Cheers,

Mark

Agree, some of the hefty remuneration packages seem to be getting out of control. I've no beef with those where it is justified (eg a significant increase in profitability/a large surge in payout/share performance) but it has become more obvious recently that many are still reaping siginificant rewards even as the companies they run publish dire results.

Good luck to you in your Shareshoc endeavours in that respect.

In reply to marben100, post #59

The 3Bs market, selling both product and fitting, is estimated to be worth £950m and Halfords only has a small percentage share of the market while garages and dealerships have a 75% share. Our offer is unique, 7 days-a-week on demand fitting at the most competitive prices

As a matter of interest, I recently had a new battery fitted. I compared Halfords with Kwikfit and my Main Dealer/supplier of the car. Kwikfit was marginally cheaper than Halfords but the Main Dealer came out on top at 10% less than Halfords. Not only that, the new battery was more highly rated than either Halfords or Kwikfit.

Looks like I won't have to ask the Board about the Which? survey. The question was already asked and answered towards the end of the Q&A in the preliminary results analyst presentation.

Wild, the CEO, said that the Which? report was not consistent with their own sampling. He reported that the Which? sample was only about 100 customers, whereas their own sampling was much more extensive. Halfords will, however, use this report as a "call to arms" to staff to action customer service training mentioned earlier in the presentation.

It was also stated that the company would target 2x dividend cover in the medium term, but was mindful of the importance of dvidends. [FWTW]

Mark

It was also stated that the company would target 2x dividend cover in the medium term, but was mindful of the importance of dvidends. [FWTW]

Easy - Halve the dividend and it's covered by 2.

Interesting tweet from @Wexboy_Value just now:

As I highlighted http://wexboy.wordpress.com/2012/05/25/ass … $FIG & others to benefit frm secular shift in institutional investing allocations http://www.bloomberg.com/video/94532081 …

Solves a small riddle that had been puzzling me concerning RIT Capital Partners PLC (LON:RCP) (and I intend to ask about at the next AGM): why the recent strategic shift into asset managers? Specifically:

• Investment in Brazil's BTG Pactual (some of which was realised in a recent IPO)
• Investment in Renshaw Bay, Bill Winters' company. [Bill Winters is now on RCP's Board]
• Investment in China Creat fund managers
• JV with Edmond de Rothschild, involving taking a 49% stake in Capital Holdings

They all fit the theme that Wexboy highlights: institutions are desperately seeking returns. Neither bond nor direct equity investment in traditional markets look particularly attractive [sic ;0)]  - so there's $5trillion (per the Bloomberg report) looking for a home with "alternative asset managers". That's one heck of a lot of potential fee income. ;0)

So, I'm happy to get my exposure to this sector via RCP. A pretty safe bet in turbulent times, IMO. :0)

Cheers,

Mark

marben.. if you can take time out from your busy twitter schedule, i'd like to ask a question - relates to stockopedia, quantitative analysis, & to your announcement today that you're now into WEIR. Obvs (as tweeters have it) you can't follow all the companies in a sector, so i can't tell with whom / with what you're comparing Weir, but i Rushed to stockopedia to compare them with other oil service firms.. i'd like your opinion of the valuation S'p puts on them..

in the 1st 2 columns, stockopedia's margins of safety. 'o' for % overvaluation, 'u' for under. the epv is, AIUI a retrenchment valuation, as if you got to take the company over and run the current products while avoiding extra spend on r&d and a growing sales budget. (is that, indeed, a informative way to value a firm??). then piotroski and Z scores.

the fcf>eps column is my rough measure of how those 2 measures compare, year by year. a 5 means fcf exceeded normalised eps, down to 0 indicating a complete undershoot.
the last column is a crude summary of the table, taking no account of recent news..
now, this isn't a ramp for the wonderful Kentz (LON:KENZ), but quantitatively, WEIR look like a mid-table firm. Why not (following buffett) buy Even More PFC, for instance?

In reply to snickers, post #67

Hi Snickers,

I do like S'pedia's comparison tool. :0)

I actually have three holdings in this broad area (of natural resources service and equipment), and after today's top-up on Weir their sizes are similar (I was waiting for a good price, which arrived today, to add a second tranche of Weir). Besides Weir, I also hold AMEC (LON:AMEC) and Fenner (LON:FENR) .

Comparing  Weir and Kentz (LON:KENZ)  (based on S'pedia data), I observe:

• Weir is a much larger FTSE100 firm
• Weir's P/E  and PEG are both lower than Kentz's and its yield is higher (forecast EPS growth is higher too)
• Weir's operating margin is much better (17.8% vs 4.84%)

[However, it's a bit of an "apples and oranges" comparison, as Weir is a manufacturer whereas Kentz and the others are service companies.]

Comparing Amec, Petrofac and Kentz... Amec wins on growth, yield and PEG.

All of the firms we're looking at in this sector seem pretty cheap at current market prices (unless the world stops requiring natural resources ;0)), so I guess it's a case of "paying your money and taking your choice".

I'm looking at my 3 investments in this broad area as very cheap GARP plays, rather than pure value plays, hence perhaps I'm setting more store on growth than you are? They are currently small to mid-sized investments within my porty and I will see how their businesses & outlooks develop before deciding whether to add, reduce or do nothing.

My own experience is that when I take big "conviction" positions, I have too often discovered that I'm missing some crucial piece of info. and I've made my largest losses in the past that way. I do not have Buffett's insight or due diligence capability (anyone that thinks he just looks at a few numbers to make his investment decisions is fooling themselves). Hence running a diverse portfolio works best for me. NB I have read too many sad tales of investors running concentrated portfolios who discovered that their "sure thing" wasn't and losing large proportions of their net worth. Unfortunately "survivorship bias" means that the stories one reads most are those of the lucky investors in the smaller number of cases where the "sure thing" turns out to be the genuine article.

If I had sunk a large part of my portfolio into a few of my my highly successful investments, e.g. the Kalahari/Extract/URU family of companies, Norseman Gold (LON:NGL) (during the phase when I saw its share price grow from 2.25p to over 50p), Encore, £LOQ without topslicing I could have retired from this active investing lark by now (there are other things I want to do, one day). OTOH if the investments I'd chosen were the likes of MBL (LON:MUBL), Lesiure and Gaming or Marchpole (all of which I also held) then my portfolio would have been decimated and my prospects of ever recovering would have been slim. Whether I succeeded or failed would have rested on the order in which things happened.

Norseman Gold (LON:NGL) illustrates my problem in microcosm: when its share price climbed the future looked bright so why not hang on ("run your winners")? Had I done so, I would have given up almost all my gains. By topslicing repeatedly, I managed to bank a decent profit, before it became evident that their mines weren't sustainable.

OTOH, when Encore soared following the initial Catcher discovery, my disciplined approach dictated that I had to topslice (repeatedly). Those that didn't topslice made larger profits than I did... but how could they have been certain that further drilling in the licence would be as successful as it turned out to to be?

Cheers,

Mark