AX1 - Accent Group

[Knobby22]

Jeez, the shorters are having a field day! Ouch.

 

[McLovin]

Not often you see a company commenting on its share price! Amazon is really spooking retail at the moment.

 

[notting]

I remember calling the death of department stores 10 years ago, but in truth the US stores are starting to die out only now.

Well you got that right. You weren't even early. Apart from Apple stores. It's been a slow death.

 

[skc]

Not often you see a company commenting on its share price! Amazon is really spooking retail at the moment.

It was a lol moment for me. In order to defend the share price move, they outlined all the reasons (completely rational ones) to sell the stock. It reminded me of this (from 00:53)

 

[So_Cynical]

27% one day fall - one for the ASX shockers thread now.
--
Signed up for the Linclon stock doctor 14 day free trail today.

RGC was a Star Growth Stock & Star Income Stock yesterday today the stars are shaded out and the stock is under review pending closer analysis of today's market update...like im going to pay $1600 per year for rear view mirror stuff.

 

[Triathlete]

Should the stock not hold this level here at $0.88 and accumulate......then a move to $0.70 is on the cards in my opinion so another 20% drop........Time will tell though....

I guess today for RCG is a good example of.. "not trying to catch a falling Knife".
39 weeks in a downtrend

This is a good time to go back and look at the RCG chart to see how it is playing out.

I was hoping that the $0.88 level would hold as my chart analysis had shown but hoping is not a word I like to use in trading and we need good analysis to back up our reasons for entering a trade.

If we look at the monthly chart below we can see that we were still in a downtrend and could not confirm whether the "Wave C" had completed, it was only at the minimum price level for a C wave by my calculations so a further leg down was possible unless we could confirm a change in trend.

At this point no buy signal had been given to enter this stock long at least from a trading point of view and was only on a watch list for now.

Even though the Fundamentals looked good at this time the chart was not supporting that view , this was also a reason not to enter too early and to wait for confirmation.

A trading rule I like to use is.

Never trade against the direction of the next highest time frame as this will also keep you from getting into trades too early, as even though it can cost you money it will save you a lot more in the long term if you have got the timing / entry signal wrong.

It does not matter if you miss out on the first 10% of a move as long as you can pick up the next 80%..we can leave the first 10% and last 10% for the speculators......

Monthly Chart:

RCG was still showing that the down move had not yet completed....If you open up your own weekly chart you can also see that the downtrend was still in progress and we had no reason to get in early......Patience is everything..!!

 

[Triathlete]

27% one day fall - one for the ASX shockers thread now.
--
Signed up for the Linclon stock doctor 14 day free trail today.

RGC was a Star Growth Stock & Star Income Stock yesterday today the stars are shaded out and the stock is under review pending closer analysis of today's market update...like im going to pay $1600 per year for rear view mirror stuff.

You are exactly right...that is why I never trade unless the chart supports the fundamentals which for this stock they were not...

 

[skc]

You are exactly right...that is why I never trade unless the chart supports the fundamentals which for this stock they were not...

The fundamentals supported the chart... some just got the wrong fundamentals.

 

[galumay]

The fundamentals supported the chart...

I know I completely dimiss anything to do with charts, but just for interests sake, what fundamentals do you think support this sort of fall in the share price?

 

[skc]

I know I completely dimiss anything to do with charts, but just for interests sake, what fundamentals do you think support this sort of fall in the share price?

Looking at the price chart, the price fall from $1.80 to 60c is some 66%, while the change in profit expectation was only reduced from EBITDA of $90m (Aug 2016 per full year result) to $77m (mid-point of range offered today), or a 15% fall. So yes on the surface it appears that the price fall has far exceeded the actual deterioration in performance.

Obviously the change in NPAT forecasted is more pronounced, given the fixed nature of the D&A and I terms. Assuming a D&A and I of $25m for the full year (roughly double half year figure) and 30% tax rate, NPAT has fallen from $45.5m to $36.4m, or a 20% fall.

Looking at the next layer... H1 NPAT was $21.2m, so management original expected H2 NPAT of ~$24.3m, or a growth of 15% on H1. Now H2 is looking like $15.2m, or a fall of 28%. That is a fall of 37% in H2 - a major and rapid deterioration.

Then there's clearly a market re-rate when a company downgrades profits twice in 3 months. Back in Aug 2016, RCG had a market cap of $975m against a NPAT of $45.5m, traded at PE 21x. Today, with market cap of $328m and NPAT(e) of $36.4m, it trades at PE 9x. But that's assuming the profit falls no further. A pessimistic analyst might use the downgraded H2 performance and look for low $30m's in NPAT on an annualised basis. In which case RCG trades at ~10-11x multiple which is low but not crazily so.

If the average retail sector had a PE of 14-15 (sorry don't have the exact figure offhand), then arguably, RCG got de-rated from trading at ~50% premium to ~30-50% discount. I don't think this discount is excessive (it's no more excessive than when things looked rosy) given that the deterioration all happened within one reporting period after a major acquisition, in the backdrop of a tough retail environment. The market is right to discount it until the company can prove itself that operations can be turned around.

If this period turns out to be temporary then the current price is certainly "cheap". But the market isn't about to give RCG benefit of the doubt given what transpired. We have all seen this movie before, we just don't know whether the ending is DSH or LOV. I don't have a good insight on RCG's balance sheet, but it seems to have $110m of shoes supported by $100m of debt. If the price falls further it'd indicate that the market is concerned with the balance sheet, which warrants an even lower PE multiple.

I am happy to accept if you think some of what I am saying isn't true and pure "fundamentals".... but my definition of fundamentals is simply anything other than the price (and volume) chart. So in my opinion the fundamentals and current price (and the price actions leading to today) are not completely disjointed.

 

[So_Cynical]

I know I completely dimiss anything to do with charts, but just for interests sake, what fundamentals do you think support this sort of fall in the share price?

Its sentiment and weight of shorts and today's ann, hard to spin the ann as neutral or just a blip..retail is in a death spiral, ala Media.

 

[Triathlete]

27% one day fall - one for the ASX shockers thread now.
--
Signed up for the Linclon stock doctor 14 day free trail today.

RGC was a Star Growth Stock & Star Income Stock yesterday today the stars are shaded out and the stock is under review pending closer analysis of today's market update...like im going to pay $1600 per year for rear view mirror stuff.

I see that it is still a Star growth and Star income stock after their further analysis today.

Their valuation is now $0.98 and the consensus valuation is at $1.51 so plenty of value if they have it right.

 

[galumay]

.....
I am happy to accept if you think some of what I am saying isn't true and pure "fundamentals".... but my definition of fundamentals is simply anything other than the price (and volume) chart. So in my opinion the fundamentals and current price (and the price actions leading to today) are not completely disjointed.

Thanks for such a detailed reply skc. I was out fishing for the day yesterday so hadnt read the latest release in detail. I dont disagree with the gist of what you are saying. I will have to go back and rerun my valuations for RCG, given that they have fallen back well below the last range of IV I calculated.

At least we caught some nice fish!

 

[Tightwad]

better catching fish than falling knives.

 

[galumay]

Oh I dont know, catching falling knives has been one of the most profitable areas of my investing! There is a knack to it, but buying partial ownership of a business at a discount to its intrinsic value is better the bigger the discount!

Mind you I have some scars, SGH being the sharpest and biggest knife!

 

[Tightwad]

yeah i made a hash of rcg, bought hsn about right though. how much discount do you look for?

 

[craft]

I don't have a good insight on RCG's balance sheet, but it seems to have $110m of shoes supported by $100m of debt. If the price falls further it'd indicate that the market is concerned with the balance sheet, which warrants an even lower PE multiple.

Perhaps looming larger than the balance sheet itself is the notes to the balance sheet and in particular future lease commitments. I think RCG is now pushing 300 Million in this regard. Ultimately if Amazon/online does have a real impact and shop front retail is in for an across the board paradigm shift then land lords are going to get it in the neck but until leases can be renegotiated down in line with earnings it could be a nasty squeeze for retailers.

Of course if your retail offering just isn't up to scratch against other retailers then you can't look forward to eventually reduced rents because competition will keep them high - that's not a problem with Amazon/online changing the retail landscape - that's a problem with your business offering.

No insights into RCG - I haven't looked into them much yet.

 

[Muschu]

I see that it is still a Star growth and Star income stock after their further analysis today.

Their valuation is now $0.98 and the consensus valuation is at $1.51 so plenty of value if they have it right.

i have this 2 week trial... Weird... No plan to subscribe and never had one... Bought at 89c and hanging on... Loose bait on a long hook

 

[galumay]

I have a lot to digest with the RCG story, i bought in first at 62c in 2014 and added at 70c in the SPP in 2015, my calculated range of IV for it by late 2015 was $1.35-$1.45. It ran all the way to around $1.90 from memory and became the first multibagger in my SMSF and the best performer overall.

I have yet to form any firm opinion about the path forward from here, I will have to spend some time digesting the impact on the business and what it might mean for the future.

 

[Klogg]

I have a lot to digest with the RCG story, i bought in first at 62c in 2014 and added at 70c in the SPP in 2015, my calculated range of IV for it by late 2015 was $1.35-$1.45. It ran all the way to around $1.90 from memory and became the first multibagger in my SMSF and the best performer overall.

I have yet to form any firm opinion about the path forward from here, I will have to spend some time digesting the impact on the business and what it might mean for the future.

Every time I try and understand retail, I just get more confused.

My first purchase of RCG was under ten times earnings with a large net cash position, so it was very conservative. I was lucky even then, because bad choice on inventory and obsolescence whittles away your cash balance.

Unless opportunity slaps me in the face and I get the business extremely cheap, I won't really be touching retail.