CardFactory CARD H1 trading update

Crazy Times

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, Everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.

Well the long awaited interims for CardFactory were released today and what read as excellent results to me were met with big selling.  Why?  You tell me, but one reason, I believe is Teleios who have been selling down for some time.  JP Morgan recently took around 5% from Teleios but they still seem to want to sell, into the market and any strength.  Teleios appear to be stale bulls.  They started buying a little while after the floatation and seem to have been buying between £2-£1 on the way down. Now, after holding for 5 years, as Cardfactory has put in a remarkable red hot recovery, for whatever reason they want to sell. Perhaps a new fund manager, perhaps a different strategy. They seem to be interested in the building sector here.  Whatever, they are certainly destroying investor value by dumping in such a way. If they just let the share rally on news where it wants to go up and sell in a more controlled way they would likely sell more, faster and at a better price.  All they seem to have done here is spook traders who likely don’t even read results, they just go with the short term direction.  Still, it is what it is and when Teleios are sold out, which could be in a day if another fund comes in and buys a stake, then there will be few sellers left to supply buyers in my opinion.

Here’s my take on the results

Onto the results and I cannot remember when I last saw a set of results this good and these are high street retailers

Group revenue of £220.8 million in HY24, up by 11.5% compared to HY23 which included LFL store sales up 10.5%

Strong store sales growth of +10.5% LFL

That is an increase of £22.8m in H1

Operating Profit up over 40% from £20 to £28.1m

Pre-Tax Profits up fabulously from £14.3m to £24.7m, adjusted PBT up 100%

Cash from operations of £36.3m from £19.7m last year leaving net debt falling to £71.9m from £96,6m in H1 last year. It’s important to compare debt at H1 with debt at H1 last year.  Cardfactory get a lot of up front costs in H1.  H2 sees higher sales and stronger cash inflow so year end debt tends to fall in H2. Year end debt last year was  £57.2m so after a £25m reduction in H1 and possibly more in H2 the year end net debt could be far lower than last year imo.  Adjusted PBT margin now up to 10% from 5.4% last year means the target 14% PBT margins are drawing closer. Net debt reduced in H1 despite paying £2.7m for SA Greetings, paying much higher interest charges and much higher corporation tax.

Despite the higher Corporation Tax, cash flow was helped by an end to the deferred rents last year.

Adjusted EPS was 5p in H1, double the 2.5p in H1 last year. With 13.7p EPS for the full year last year the trailing 12 months EPS is now 16.2p.  If they can manage similar earnings growth in H2 the EPS will be up to the near record levels of 2018. At the current share price of 100p that means the PE based on the trailing 12 months is just 6.1 and likely to be lower based on this year’s earnings.

All of the Covid loans will be repaid by the end of January.  This means the company will be free to pay a full year divi with the results in early May.

News today was a deal with Matalan to sell cards in their stores. They have tested 20 odd stores and now they will roll it out in all 200+ Matalan stores before the end of the year as a ‘shop in shop’.

Cardfactory have completed the realignment of over 700 of the 750 stores targeted in ‘capital light’ method meaning better laid out stores and better use of floor space.  All stores now have click and collect and 10% of shoppers who buy by click and collect spend extra in-store. The first 4 store opened in the Middle East. The co now has 1043 stores across the UK and Ireland and 11 new stores have opened.

Non-card products now make over 50% of total sales and rising. Online which makes up a tiny fraction of sales was off 18% as they remodel the business and a similar fall is expected while this completes in H2.

I think it’s interesting to compare last year’s outlook with this year.

2023This outlook was followed by 2 x ‘materially ahead’ trading updates and a further ‘ahead’ update from November till just before the results.

Now 2024

This outlook was followed by 2 x ‘materially ahead’ trading updates and a further ‘ahead’ update from November till just before the results.

Now 2024

If anything I find this trading update more confident.

Looks like a divi coming at the year end results. This final divi might not carry anything for H1 this year but going fwd a divi 3 times covered has been touted by Darcy. 

So the year end looks like seeing near record earnings, net debt much lower, a return to paying a divi and earnings growth of around 30% and a PE of 6 at this price in my opinion. I expect to be very long when the selling stops and nobody knows when that will be imo.

These are a large holding of mine so obviously do your research as I am biased.

This has been my take away from the results and presentation.  It’s well worth watching the results presentation.  Darcy WR has a swagger about him, you get a lot from body language in these things. No question dodging, just a very confident presentation imo.

Cockney Rebel