GFY - Godfreys Group

[Huskar]

Anyone know how to get information on this little IPO which I read about in AFR / Australian but can't seem to find any info about anywhere even though prospectus has been lodged?
Always more interested when it is difficult to find info rather than having it thrown down your throat (Medibank...)

 

[Tom32]

Data for 21/10/2015
Price at Close $2.50
Yield 4.85%
PE Ratio 7.610


I have been watching this share for a couple of weeks.

Today the MD's address (Mr Thomas Krulis) from the annual general meeting was published. All sounded positive to me except this:

"The retail environment continues to be volatile and highly competitive. As a result, recent trading has been slightly weaker than for the same period last year. We anticipate that this will continue through the first half and that this will see our earnings in FY16 more heavily biased to the second half than in recent years. We expect that the impact of a range of growth programs scheduled early in calendar 2016 will deliver a stronger second half and expect to report a full year net profit after tax for FY2016 in line with FY2015."

Anyway when this was published the stock took a hit. At a PE of 7.61 it doesn't need a heap of growth to justify it as a buy in my view.

On a positive note on this new branding he had this to say:

"Sales for the year were $182.6 million, an increase of 5.2% over the previous corresponding period, driven by the successful roll out of new products during the period and our store rollout program which saw the introduction of the new Godfreys ‘We are Clean’ store format.

This format—in stores like Caringbah in Sydney, Fortitude Valley in Brisbane and Traralgon here in Victoria—has been well received by our customers and has consistently delivered a boost in sales at these stores."

While the increased sales is old news from the FY2015 report the news about the new format sounds positive and reinforces what they were saying in the report presentation back in August. What I also like is that it appears they are rolling this out only as stores require refurbishment to save capital which is what I would do (old school / low risk) in the same situation rather than a massive spend on format.

BT has recently been a seller of it which yesterday I assumed was the headwind holding it back. Was going to wait till it turned up to buy in. Right now though there was enough volume today to get in, so have bought in today. Definitely not a stock you can allocate much into, not enough volume to get out if you needed to normally.

Reading the above does anyone have any opinions, or is there a hidden meaning I am missing that the investing community seems to have picked up today from the above?

Link to asx page for gfy announcements:
http://www.asx.com.au/asx/statistics/announcements.do?by=asxCode&asxCode=GFY&timeframe=D&period=M6

Edit: sorry removed a few parts of post as they appeared like advice on second reading. Maybe still too much like advice?

 

[skc]

Reading the above does anyone have any opinions, or is there a hidden meaning I am missing that the investing community seems to have picked up today from the above?

I think in any business update, the bold part scares most people.

"The retail environment continues to be volatile and highly competitive. As a result, recent trading has been slightly weaker than for the same period last year. We anticipate that this will continue through the first half and that this will see our earnings in FY16 more heavily biased to the second half than in recent years. We expect that the impact of a range of growth programs scheduled early in calendar 2016 will deliver a stronger second half and expect to report a full year net profit after tax for FY2016 in line with FY2015."

In most retail businesses, the first half is the most important because of Xmas trading. Now I don't know if vacuum cleaners are that popular in terms of Xmas gifts, so may be there can be a second half recovery... but GFY doesn't have a real track record as a listed company yet.

GFY is as boring as they come as far as retail businesses are concerned. It's business prospect is probably at the mercy of general population growth, $AUD, online shopping competition etc - most out of the control of management. I just don't see it being a meaningful investment proposition from a top-down view.

Does a fancy store format really attract people to shop for vacuum cleaner? Is it likely that people milling around shopping centre would impulse buy a vacuum cleaner just because they see a new store format? I dunno :dunno:

The nature of the business, however, does offer the media some terrible puns like this from the AAP.

FED:Godfreys shares sucked lower

Anyway when this was published the stock took a hit. At a PE of 7.61 it doesn't need a heap of growth to justify it as a buy in my view.

In FY15, PBT was $9.07m. Add back the IPO costs of $5.9m and apply a 30% tax rate, you get NPAT closer to $10.5m. I am not sure the income tax benefits of FY15 is to be repeated in future years. So PE is closer to 9.6x after today. It'd only take a 20% profit fall to make the PE "not a bargain".

On a positive note... cash flow is strong in the last 2 years. Question is whether the previous private equity owner made enough investment (in stores, supply chain etc) so free cash flow will remain strong going forward. The boring nature of the business means people like me just brushes it off. If it grows market share, maintains margin and keep capex in check, it can potentially deliver good steady dividends and some capital gains.

 

[Tom32]

In most retail businesses, the first half is the most important because of Xmas trading. Now I don't know if vacuum cleaners are that popular in terms of Xmas gifts, so may be there can be a second half recovery... but GFY doesn't have a real track record as a listed company yet.

GFY is as boring as they come as far as retail businesses are concerned. It's business prospect is probably at the mercy of general population growth, $AUD, online shopping competition etc - most out of the control of management. I just don't see it being a meaningful investment proposition from a top-down view.

Does a fancy store format really attract people to shop for vacuum cleaner? Is it likely that people milling around shopping centre would impulse buy a vacuum cleaner just because they see a new store format? I dunno :dunno:

.

Thanks skc. I can see I have to go deeper with my analysis than I had considered with this game, in this case which stopped after cash flow, eps and dividends plus a read of their report which to be fair to them was in plain English. I guess it is hard to complicate a vacuum cleaner business. I'll probably post my ideas before I Jump in, in future though.

On the Christmas shopping maybe I'll get my wife a vacuum for Christmas and report back whether she considered it an appropriate Christmas gift.

 

[McLovin]

In most retail businesses, the first half is the most important because of Xmas trading. Now I don't know if vacuum cleaners are that popular in terms of Xmas gifts, so may be there can be a second half recovery... but GFY doesn't have a real track record as a listed company yet.

Very popular would be my guess! If I was the copywriter I would have gone with "The gift that keeps on sucking".

Does a fancy store format really attract people to shop for vacuum cleaner? Is it likely that people milling around shopping centre would impulse buy a vacuum cleaner just because they see a new store format? I dunno :dunno:

I doubt it. How many people are that interested in their vacuum cleaner aside from price and if it can lift a bowling ball (this seems to be the mark of any good vac). Vacs seem like the sort of appliance that could be comfortably bought over the internet; out of sight, no one cares what it looks like etc.

On a positive note... cash flow is strong in the last 2 years. Question is whether the previous private equity owner made enough investment (in stores, supply chain etc) so free cash flow will remain strong going forward. The boring nature of the business means people like me just brushes it off. If it grows market share, maintains margin and keep capex in check, it can potentially deliver good steady dividends and some capital gains.

I looked at these guys when they floated. In the end I thought they had very little in the way of a competitive advantage. They have had some pretty decent margin expansion over the last few years, but I wasn't really sure how sustainable that was (do vacuum sales run with the housing cycle??), and coming out of PE, how massaged the numbers were. LYL sales are flat, and that also made me question just how many more stores these guys could really open. If they can get some stable CPIish growth and keep costs under control then they're not too bad value, but "weighted toward second half" is often management talk for "hoping for a second half recovery".

 

[skc]

Very popular would be my guess! If I was the copywriter I would have gone with "The gift that keeps on sucking".

Classic! Where do you find things like that?! Perhaps Tom32 will print this and make it into a Xmas card to go with the vacuum present.

Vacs seem like the sort of appliance that could be comfortably bought over the internet; out of sight, no one cares what it looks like etc.

Yes... except may be Dyson. It takes a true marketing genius to sell something like a vacuum at 10x premium price.

and coming out of PE, how massaged the numbers were.

I think there was some commentary around this during the IPO but I can't find the source anymore.

but "weighted toward second half" is often management talk for "hoping for a second half recovery".

May be that's what they meant.... "First half sucks, second half might blow too".

 

[Ves]

Pacific Equity Partners and Unitas Capital purchased this company in 2006 for around $300m.

It's now valued at about $100m by the market.

I suspect it looks cheap for a reason.

 

[Tom32]

So far as competitive advantage goes I guess you could count the last 40years of cheap annoying TV adds. I don't even watch TV apart from abc on Sunday mornings anymore, but those ads they used to run are certainly ingrained in my head. I don't think it is even possible to buy that level of advertising anymore. Actually it is a part of their strategy I don't understand. Why they continue to spend so much on TV ads v radio etc.

If you asked me where one could go to buy a vacuum I would definitely think of gfy but that said I'd probably buy it from Harvey Norman because Gfy is 10minutes further from my house... Not as compelling draw with a vacuum as say New tyres where I drove half an hour to get coopers, guess what you are all saying about format. Maybe in future I would make the effort or at least attemp to steer the wifey that way. She has been wondering why I have been asking a lot of questions about her vacuum buying habits lately.

 

[Tom32]

Current price - 1.70
Current PE - 5.03
Market capitalisation - 69M

Bit of buyers regret at buying into this one in spite of the warnings from you good people here. At least I didn't double down I guess.

What I cannot figure out is the large investors like BT / Westpac, CommBank. NAB etc have been exiting over the last three months and yet I cannot see how the business has fundamentally changed? They all must of bought into the float or soon after and now value the business at a much lower value.

I guess news from other retailers has not been strong and their comments last year about needing a strong second half are not overly flash.

Anyway I am not trying to convince myself and certainly not trying to convince others but I think I will hang onto this for now.

the next announcement will either be business as normal which should see the price rally or there is something more dire than the previous comment indicated going on behind the scenes which will get released and see the stock smashed.

I think it might be time for me to set up announcement alerts on my iPhone.

 

[skc]

I think in any business update, the bold part scares most people.

In most retail businesses, the first half is the most important because of Xmas trading. Now I don't know if vacuum cleaners are that popular in terms of Xmas gifts, so may be there can be a second half recovery... but GFY doesn't have a real track record as a listed company yet.

In FY15, PBT was $9.07m. Add back the IPO costs of $5.9m and apply a 30% tax rate, you get NPAT closer to $10.5m. I am not sure the income tax benefits of FY15 is to be repeated in future years. So PE is closer to 9.6x after today. It'd only take a 20% profit fall to make the PE "not a bargain".

Well there you go.... trading update. Comparable store sales down 5.2%. H1 NPAT down to $4.4m from $6.4m pcp. FY guidance was flat, now btw $8.5-9.2m. So they are actually looking for a similar number in H2.

Remember this:

"First half sucks, second half might blow too".

Now who wants to have a go at a new headline?

 

[Klogg]

Now who wants to have a go at a new headline?

Godfrey's first half far from suck-cess

 

[Clansman]

Godfrey's first half far from suck-cess

The static mop industry and the popularity of wooden floors seems to have had a huge impact on their business model.
People just aren't doing the vacuuming anymore.

 

[Gringotts Bank]

...

 

[skc]

The static mop industry and the popularity of wooden floors seems to have had a huge impact on their business model.
People just aren't doing the vacuuming anymore.

Ha.

Godfrey's first half far from suck-cess

Congratulations! You win by default (being the only entry).



Here are my takes

'Vaccum cleaner seller shows CEO the broom.'

'Godfrey's profit hits a vaccum.'

'Godfrey's sucky first half: Is there any more dirt left?'

"Godfrey's profit downgrade: Private equity made investors suckers again?'

 

[Tom32]

lucky I didn't double down or I probably wouldn't be laughing so hard at the puns.

Amazing how quickly it appears to have found its new price. Basically in an instant. I guess I could be reading it wrong.

Absolutely no opportunity to respond to the new set of announcements before price caned. I don't know if I'm more disappointed in doing 2.5k on the day or the $1.50 I spent on the three announcements.

I recall in 99-00 odd when lend lease announced stabilising profits due to fix studios balls up having about a week to get out before it routed.

Guess way more liquidity in lend lease v godfreys.

Anyway I am still going to hold on for now.

 

[Clansman]

Put a watch on this and wait for the dust to settle.
Might need to clean house a bit as far as management are concerned but times like this are a good opportunity to put the broom through the place.
I suspect if it falls too low, a few savvy investors will be looking to mop up. :1zhelp:

 

[Gringotts Bank]

God, free falling stock.

 

[poverty]

A useless business in this day and age. The one here is in a massive building, big empty car park. One day they were advertising a cheap vac on this big sign with a big inflatable man bouncing around in the wind. Went in there and rude/useless staff and they were out of stock. Went over the road and got my cheap vac at the Bunnings. If I was buying an expensive vac I'm sure I'd research it on the internet to find the best deal and I'm sure GFY with their big expensive building wouldn't have the best deal - and if they did, they wouldn't be making any money out of it.

 

[Clansman]

A useless business in this day and age. The one here is in a massive building, big empty car park. One day they were advertising a cheap vac on this big sign with a big inflatable man bouncing around in the wind. Went in there and rude/useless staff and they were out of stock. Went over the road and got my cheap vac at the Bunnings. If I was buying an expensive vac I'm sure I'd research it on the internet to find the best deal and I'm sure GFY with their big expensive building wouldn't have the best deal - and if they did, they wouldn't be making any money out of it.

The whole business model is dated and capital intensive. Expensive showroom style premises with expensive vacuum cleaners on display that aren\t going out the door often enough. Better leaving the vacuum cleaner sales to others and selling consumables for a range of cleaners out of a kiosk somewhere.
I also beleive they're intrinsically linked to how the real estate market is travelling.

 

[Klogg]

Interesting move to franchise models... and no mention of inventory obsolescence.
Not sure what their franchise agreement looks like - and more importantly, not sure how they plan on finding buyers for these stores.

Keen to see change in Inventory levels in the next set of financials