BBG - Billabong International

[Huskar]

Yeh thats what i figured. Shows someone is actually interested, and they can unlock some value, thus reducing the need for a possible cap raising

I think the jump is due to the mention in that market release (in the last full paragraph mind you) of a "non-binding indicative proposal" of $3.00 per share by TPG Capital.

 

[Huskar]

Any thoughts on BBG right now after founder Gordon Merchant spent ~$8m topping up on his holding?

http://business.transworld.net/89568/news/billabong-founder-buys-2-5m-shares/

This aggressive move appears to be in the hope that TPG comes back with an offer of something beginning with a 4. Either he will get his way and/or another suitor will arrive in which case there is plenty left on the table at a current SP of $2.70 or TPG will walk away and the SP will collapse back to ~$1.80 where it was before the offer.

If crudely assigning probabilities at 50/50 then risk/reward is:

$1.00 risk = ~37% downside
$3.80 payoff (at a conservative min) = $1.10 (~40%) upside

This indicates to me that the market is uncertain which way it will go (ie 50/50 is what everyone is thinking right now)..

 

[stocksforlife]

Now that we are close to the lows I think Billabong is one to start buying again. The difference between now and when the lows were reached last time was that there was a real fear that their debt covenants would be breached. The sale of Nixon went a long way to reducing their debt so that fear should not be a factor now. With new leadership and a cost reduction plan in place I think the risk vs reward is good for this stock right now.

The other major factor is that the Australian dollar is much lower than earlier in the year. The more the dollar falls the better for Billabong as it gets most of it's earnings in US dollars. The US economy is also showing signs of life and any pickup there would see a big lift in sentiment for a stock like Billabong.

 

[CanOz]

There is ZERO interest in this stock at the moment. Its very close to filling a breakaway gap as well. If this stock had great fundamentals then why are the instos not accumulating this? There does not appear to be any volume jumping in at 2.00 support...

I would want to see some really strong fundamentals here, otherwise there will soon be many other good uses for your capital, in my opinion.


CanOz

 

[stocksforlife]

There is ZERO interest in this stock at the moment. Its very close to filling a breakaway gap as well. If this stock had great fundamentals then why are the instos not accumulating this? There does not appear to be any volume jumping in at 2.00 support...

I would want to see some really strong fundamentals here, otherwise there will soon be many other good uses for your capital, in my opinion.


CanOz

Best time to get in IMO. But if you want to wait for the big boys to buy in and then tell you to Buy that's your choice. I just pointed out that the reasons it was pushed so low last time are no longer all valid. The downside risk to this stock is the lows of around $1.80. The upside potential is much bigger. It won't be long before others realise this. This is a stock with a very large turnover so it won't take much to turn things around in the right direction.

 

[CanOz]

Best time to get in IMO. But if you want to wait for the big boys to buy in and then tell you to Buy that's your choice. I just pointed out that the reasons it was pushed so low last time are no longer all valid. The downside risk to this stock is the lows of around $1.80. The upside potential is much bigger. It won't be long before others realise this. This is a stock with a very large turnover so it won't take much to turn things around in the right direction.

The downside risks are that it goes to ZERO. Why is this a sound business? What is the attraction fundamentally? Does it have an attractive PE ratio? Is there debt to equity ratio attractive? Are they a growth business?

You've offered nothing but the fact that the price is low so its a good buy???

Sounds like a ramp, if its unsupported.

CanOz

 

[stocksforlife]

The downside risks are that it goes to ZERO. Why is this a sound business? What is the attraction fundamentally? Does it have an attractive PE ratio? Is there debt to equity ratio attractive? Are they a growth business?

You've offered nothing but the fact that the price is low so its a good buy???

Sounds like a ramp, if its unsupported.

CanOz

Haha. So you want me to do your research for you? Ok here's some numbers then.

P/E less than 8.
EPS 25 cents
Book value of $4.70
Revenue over $1.5B
Market cap now is just over $500M
Recent takeover bid of $3.30 per share which was rejected by board.
Recent sale of half of ONE of their many brands (Nixon) brought in US$285M



Want any more numbers?

 

[prawn_86]

Haha. So you want me to do your research for you? Ok here's some numbers then.

SFL,

Before getting too narky i suggest you read the Posting Guidelines. ASF is a place for research and discussion and being tolerant of others research and discussion.

If you post that you like a stock, you must post evidence as to why, rather than simply saying you do.

 

[stocksforlife]

SFL,

Before getting too narky i suggest you read the Posting Guidelines. ASF is a place for research and discussion and being tolerant of others research and discussion.

If you post that you like a stock, you must post evidence as to why, rather than simply saying you do.

If my post seemed narky I apologise but it was not meant at all to be that way. I did actually think it was funny that someone said I was ramping. I justified my post by saying that the debt had been reduced which was the main reason I believed the stock had previously been pushed so low. Well the numbers are there for anyone who is interested anyway. I would love to hear an opposite point of view backed up with numbers too. If anyone cares to add one I am all ears.

 

[skc]

Now that we are close to the lows I think Billabong is one to start buying again. The difference between now and when the lows were reached last time was that there was a real fear that their debt covenants would be breached. The sale of Nixon went a long way to reducing their debt so that fear should not be a factor now. With new leadership and a cost reduction plan in place I think the risk vs reward is good for this stock right now.

The other major factor is that the Australian dollar is much lower than earlier in the year. The more the dollar falls the better for Billabong as it gets most of it's earnings in US dollars. The US economy is also showing signs of life and any pickup there would see a big lift in sentiment for a stock like Billabong.

I agree with what you are saying. The Nixon sale stablised the balance sheet so it shouldn't be priced in distress like it was back in Dec. The currency impact from the fall of AUD/USD is beneficial but is offset by the rise in AUD/EUR. Plus while the US economy may be showing signs of recovery, the Australiaisa and EU consumer figures are turning quite negative.

On the P&L front, did your figures take the Nixon component out?

Nixon 12 month EBITDA was US$50.6m, so BBG sold 51.5% of that which is $26m. BBG's EBITDA in H1 was ~$74.1m. So the new EBITDA is (very roughly) $120m per year ($74.1 x 2 - $26).

Assuming all Nixon proceeds went into debt reduction, debt is now ~$220-230m. So Debt/EBITDA is <2x.

Buying today with a stop at $1.79 looks like a decent play. But it looks too straight forward and that level is where every men and their dog would place their stop.

So I think I'd enter after signs of strength, or if there was a big wash out if it tags below $1.79 and trigger all the stops. I also won't hold too long just in case they throw a negative trading update announcement out.

 

[CanOz]

If my post seemed narky I apologise but it was not meant at all to be that way. I did actually think it was funny that someone said I was ramping. I justified my post by saying that the debt had been reduced which was the main reason I believed the stock had previously been pushed so low. Well the numbers are there for anyone who is interested anyway. I would love to hear an opposite point of view backed up with numbers too. If anyone cares to add one I am all ears.

I said it sounded like a ramp, if its unsupported. My view is that it at all time lows and showing no strength at all, this is a weak stock...especially for one that you say was bid for a takeover...go figure.

Until the trend-line is broken this stock is in a downtrend and could never again see the original issue price.

Good value, or is management not telling you everything?

But then again accountants don't lie do they?

CanOz

 

[Huskar]

For knife-catchers *I mean F/A's like myself it looks like a bargain at first.

But even if the accountants are telling the truth (PWC and Centro anyone?) I'm not so sure.

From $74m EBITDA for HY12 x2 = ~$150m to FY12.

Then -5% for guesstimate of likely growth, -$26m for Nixon sale and -$15m for likely further impairment charge (mgmt said 100-150 stores and 400 jobs would be shed) = ~$101.5m.

Then -$35m (about the same as 1HY) for I,D&A = $66.5m.

Subtract tax @ 30% = $46.55m (18.3c EPS). So current price is ~10x P/E which is about right!

It always amazes me how right the market can be most of the time.

Of course now that I have said that TPG will come back with a $4 offer.

Or some wag will show me how wrong my numbers are .

 

[skc]

I agree with what you are saying. The Nixon sale stablised the balance sheet so it shouldn't be priced in distress like it was back in Dec. The currency impact from the fall of AUD/USD is beneficial but is offset by the rise in AUD/EUR. Plus while the US economy may be showing signs of recovery, the Australiaisa and EU consumer figures are turning quite negative.

On the P&L front, did your figures take the Nixon component out?

Nixon 12 month EBITDA was US$50.6m, so BBG sold 51.5% of that which is $26m. BBG's EBITDA in H1 was ~$74.1m. So the new EBITDA is (very roughly) $120m per year ($74.1 x 2 - $26).

Assuming all Nixon proceeds went into debt reduction, debt is now ~$220-230m. So Debt/EBITDA is <2x.

Buying today with a stop at $1.79 looks like a decent play. But it looks too straight forward and that level is where every men and their dog would place their stop.

So I think I'd enter after signs of strength, or if there was a big wash out if it tags below $1.79 and trigger all the stops. I also won't hold too long just in case they throw a negative trading update announcement out.

And here comes the trading update.

FY12 EBITDA = $83-88m so ~good 25% below the guestimates above. US as per expectation, but Oz and EU suffering as expected.

A massive 6-for-7 cap raising at a GFC-type distressed price of $1.02. TERP = $1.46 but hard to see it not trading below that on the open. It "should" stay above $1.02 one would hope.

 

[McLovin]

And here comes the trading update.

FY12 EBITDA = $83-88m so ~good 25% below the guestimates above. US as per expectation, but Oz and EU suffering as expected.

A massive 6-for-7 cap raising at a GFC-type distressed price of $1.02. TERP = $1.46 but hard to see it not trading below that on the open. It "should" stay above $1.02 one would hope.

At 6 for 7 it seems like less of a cap raising and more of a bailout. Definately a salvagable business, IMO. A few bad decisions have been amplified by the economic cycle.

 

[kermit345]

Its so hard to imagine a company like Billabong going under. I'm 25 and in my teenage years if you weren't wearing Billabong or something similar then basically you weren't cool. I still have some Billabong shirts I wear now.

Agree with you McLovin, they were travelling along nicely until they decided to go on a debt fuelled shopping spree at the peak of the GFC which in combination with online shopping has totally smashed Billabong. They are certainly doing their best to salvage the business and potentially give shareholders at least some respite from the painful downtrend its in at the moment but its unbelievably hard to see light at the end of the tunnel currently.

Consumer confidence is likely to stay dampened for some time and online shopping in my view is only going to grow further. Billabong does have the potential for a turn-around story but is anyone willing to gamble on it, and currently its exactly that, a gamble.

 

[prawn_86]

Its so hard to imagine a company like Billabong going under. I'm 25 and in my teenage years if you weren't wearing Billabong or something similar then basically you weren't cool. I still have some Billabong shirts I wear now.

They really do target the teen market, and that is part of their problem imo. Personally i find that all surf brands, tend to just copy what other brands are doing. So there tend to be other leading brands and then a year later the surf brands pick up that style and make it cool for the kids.

I think i owned some Billabong boardies once, but always thought it better to support smaller, more innovative clothing labels rather than surf brands with very little originality. THat said, a lot of my friends in high school had heaps of clothes from surf brands.

Perhaps if they were to target people our age, who grew up with them, with a more fashion conscious, less lairy, clothing label that may be successful.

 

[trillionaire#1]

They really do target the teen market, and that is part of their problem imo. Personally i find that all surf brands, tend to just copy what other brands are doing. So there tend to be other leading brands and then a year later the surf brands pick up that style and make it cool for the kids.

I think i owned some Billabong boardies once, but always thought it better to support smaller, more innovative clothing labels rather than surf brands with very little originality. THat said, a lot of my friends in high school had heaps of clothes from surf brands.

Perhaps if they were to target people our age, who grew up with them, with a more fashion conscious, less lairy, clothing label that may be successful.

Agreed.Billabong may need to broaden their market appeal to keep things moving in the right direction.

 

[carmaduke]

BBG 6 for 7 rights issue...how does an existing shareholder actually "accept" and buy into this offer. I thought the forms get sent out in the post but looking at their dates, it says "Institutional Entitlement Offer: Thursday 21 June to Friday 22nd June at 11:30am, which is before the record date of 26th June even. And Trading of new shares issued under the offer just days later at 29th June.

With the short timeframe, does this mean an existing shareholder has to act on this in some other way before 11:30am on the 22nd? Confused...

 

[skc]

BBG 6 for 7 rights issue...how does an existing shareholder actually "accept" and buy into this offer. I thought the forms get sent out in the post but looking at their dates, it says "Institutional Entitlement Offer: Thursday 21 June to Friday 22nd June at 11:30am, which is before the record date of 26th June even. And Trading of new shares issued under the offer just days later at 29th June.

With the short timeframe, does this mean an existing shareholder has to act on this in some other way before 11:30am on the 22nd? Confused...

The insto offer will be done and dusted before the retail offer opens on 29 June. You won't need to make a decision until before the close on 17 July.

 

[kermit345]

I dont have the offer open infront of me but fairly sure if you read on there is a retail offer open until roughly 17th of July from memory?