LON:BON | Bonmarche - "Needs To Run Fast To Stand Still". Difficult For The Over 50's Ladies.

10th Jun '16 by Dearg Doom

22 comments 15469 reads

Share Price £1.27 (Down 1.2% today) Bid/ Offer (1.26 - 1.35)

Market Capitalisation £64.5 million

Original article was published on 10th June 2016. Readers can read my original personal notes on the company and how my views continued or changed as the months moved on.

*My updated views 21st January 2017

http://www.stockopedia.com/content/bonmarche-quotn...

*My updated views 28th September 2016

http://www.stockopedia.com/content/bonmarche-quotn...

*My updated views 21st July 2016

http://www.stockopedia.com/content/bonmarche-quotn...

About the Company

Sells clothes to mature women in a niche section of the fashion market through its 292 stores and concessions. The company has a small on-line sales presence amounting to 7.9% of total sales. The company in recent years introduced a limited mens' section as a trial in a number of shops. Research had shown them that 80% of female partners would like to buy for their partners. Hmm! The company produces its own mail order magazines to promote its products to its customers. The company promotes designers David Emanuel and Ann Harvey in shop and on-line to give that exclusivity.

“Bonmarché is one of the UK's largest women's value retailers, focused on selling stylish,
affordable, premium quality clothing and accessories in a wide range of sizes, via its own store portfolio, website, mail order catalogues and through the Ideal World TV shopping channel. Established in 1982, Bonmarché has more than 30 years of experience in this growing market segment, operating across the UK”.

The company moved from AIM to a full listing last year in October 2015. A couple of recent profit warnings will see CEO Beth Butterwick depart. This is Beth Butterwick’s final report as CEO. The new CEO will be Helen Connolly who seems well qualified having worked with ASDA responsible for purchasing for the ASDA brand George.

Financial Highlights:

· Total revenue up 5.3% at £188.0m (FY15: £178.6m)

· Store like-for-like sales up 0.7% and online sales up 3.6%

· In line with revised expectations, PBT at £9.6m (FY15: £12.4m)

and pre-exceptionalPBT of £10.6m (FY15: £12.4m)

· Underlying basic EPS of 18.3p (FY15: 20.7p)

· Strong cash flow - cash generated from operating activities £10.5m (FY15: £11.1m)

· Recommend final dividend of 4.64 pence per share, bringing the total dividend for the year to 7.14 pence per share, up 5.0% (FY15: 6.8p)

The share price has fallen from above £3.00 down to…

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qimotte

10th Jun '16

One problem appears to be future cashflows. Implementing the new EPOS system will all but wipe out cash this year. . .

. . . And that's assuming 'trading conditions normalise' later in the year!

dfs12

Hi, Just to put a few counter points to add a bit of colour... I'm rather a fan of this one (not the clothes but the share!). They've got piles of cash, generating more by the bucket load, pays a great yield, taking on interesting approach by creating shops into garden centres (which I think will provide cost savings and a good match to target demographic). Many of the revenue problems have been shared by much of the clothing retail sector in the last 12 months - therefore fixable (assuming the weather returns to normal). Absolutely right to expect some kitchen sinking - but I think it's worth the risk. Looking at Stockpedia ranks V is 94 and quality is 90. Get a bit of an upturn on the sentiment (M rank is currently 14!) and this could easily be a 90+ Stock rank share. BTW spread looks wide on this but often when you actually put an order in the price is massively inside the range. Last but not least, looking at the relative strength indicator the stock looks pretty much oversold on both the short and long term (my long term RSI figure is 27 and short term is 31). I'm a holder btw and not meaning to provide any sort of recommendation - just thought it would be interesting to add to the discussion.

With all due respect, I think you are mistaken dfs12. Bonmarche aren't generating bucket loads of cash. They only generated cash after tax, dividends, capex, etc of £1.9m and that was flattered by destocking! What's more, hidden away in the accounts, it's admitted capex will rise by £8m next year!

Via Lactea

Dearg Doom.

Thank you for your reply.

You wrote, "No one could buy or sell at the mid market spread price." That is not true. There were a total of 15 trades before the one you used as a reference point. All 15 were around about the mid-price of 131.5p.

You also wrote, "The issue is future earnings, rents, labour costs, declining sales ..." The problems of the sector in the second half were widely reported, in terms of sales There are some comparisons, eg. M&S Q4 clothing and homewear lfl down 2.7%, and Next full price retail sales were down 4.7% at the last update. Some fashion specialists (notably Superdry) have done better, but for a commodity type clothes seller, Bonmarche did ok to show an H2 lfl decline of just 0.6%, in my opinion.

Regarding margin, yes, the underlying PBT margin fell from 6.9% to 5.6%. Gross product margin scarcely moved. It was the administrative costs that jumped. They are looking at ways to address this. FY 2017 costs will be impacted by the living wage. An increase in sales would obviously help. PBT margin may fall again in the current year due to the living wage, maybe reach 5%? That would put the shares at 130p on a price earnings ratio of about 8, and dividend yield of 5.5%.

Unlike yourself, I don't view Bonmarche as a turnaround. Year end 2013 operating profit £5.8M, 2014 £8.2M, 2015 £12.6M, 2016 £9.6M (in a difficult year for the sector) Current year maybe £9M (due to living wage impact). As with all retailers, profit numbers are very sensitive to sales. I'd view Bonmarche as a fairly steady performer in a sectoral context.

You mention Mothercare. Mothercare's exceptional costs in each of the years 2012 to 2015 far exceeded its underlying profit. It produced its first recent statutory profit in 2016, about £10M on a turnover of £1,149M - a margin of 0.9%, with the impact of the living wage to come. Struggling to achieve a profit after five years, Mothercare would be too risky an investment for me.

I wish you well.

Dearg Doom

Hi Fleecenflogged,

Points well taken. Thank you for your detailed response.

This Morning

The market maker price bid/offer spread at £1.26 - £1.35 was wider than normal this morning was the main point i was making and not a true indicator of prices. Could I have sold at the mid price. The answer is no. The fact you could buy at the mid point shows it was a misleading bid/offer spread. Taking a flash price of a deal at £1.27 was the one shown on Stockopedia pages at that precise moment. If it had been higher figure, the higher figure I would have shown.

Re: Bonmarche plc v Mothercare plc

Two planes, one descending on one runway and the other plane speeding along another runway about to take off.

Bonmarche plc is the descending plane and may have further to fall.

The price action in Bonmarche today shows no real shareholder expression of joy. Bonmarche may find itself in the baby's cot beside Mothercare shortly, requiring necessary changes to the business. These changes become the one off exceptional costs.

Mothercare plc is in take off position and may rise. My downsize is protected by brakes called a Stop Loss. Mothercare plc shares have risen 12.4% in less than 3 weeks since the article I wrote.

This Afternoon

Bonmarche Bid/Offer £1.26 - £1.32 currently. I can buy at market price of £1.289. Market makers appear to have plenty of stock sub £1.30 for willing buyers today. Probably those same institutions off loading shares because of their different company financial reading of the situation for the future.

Regards

PS (Great to see Paul Scott back writing his daily blog.)

Hi Dearg Doom.

You wrote, "Points well taken." Maybe not as well taken as I had hoped, though. You made a mistake with the mid share price you originally quoted. I told you. You tried to defend it by saying that no one could have traded at the mid. I showed you that you were definitely wrong; people were trading at about the correct mid (131.5p). You have now come back with some fuzzy story about a misleading spread.

"When you find yourself in a hole, ...."

You would have done yourself less reputational damage if you had just said you got it wrong.

Moving on, I don't know whether Mothercare or Bonmarche will have performed the better over the next 12 or 24 months, but I do know which one has been producing statutory profits and paying out dividends. I like to use facts to inform my investment decisions.

If you have been lucky enough to buy Mothercare at a point when the share price was about to lift, then well done. However, if you look at the 6 year chart for Mothercare, you may not feel comfortable sitting on that paper profit?

Whatever you decide, good luck!

FnF

Rusty2

Actually this morning trades were between 126p and 132p, 132.3 being the highest of the day and 126p being the lowest of the day, so really the mid point was around 129p.

Hi Herbie47.

Take a look at the prices of the first 15 trades this morning, you'll see for yourself.

Yes I have they are all around 130-132p but these are all buys. The first sell was 127.55p, therefore the mid point is around 129p.

You can't say whether the 130-132p trades were buys or sells unless you did them yourself. You can say, though, the average price of the first 15 trades of the day was around 131p. It was not 127p!

Can't you? Well they were all around 130-132 then one which is a sell is 127.55p think that is fairly clear, then a load of sells go through around 127p then dropping to 126p. Average price does not mean anything.

Hi FnF,

There is a possibility that today, we are both choosing to discuss two poor quality shares based on which company has the less fleas, To say one share is better than the other is rather pointless and simply a matter of opinion.

The exchange of opinions on companies is worthwhile because it forces us to re-consider other investors' opinions. Without them, we accept company utterances and our own thoughts without question. We too often neglect pertinent information which should have been noticed.

Have a good weekend! Re-match next week Flybe plc v Fastjet.plc

PS I stand over 127p as a single share price from a trade shown on stockopedia as distinct from a mid- quote price which it was obviously not. The 9p bid offer spread for the first period in the morning on results day was just market makers playing us investors for fools. Normal spread is normally less than half that. Share price 127p at that precise moment was the correct price along side bid/offer spread. It gave sellers at least an up to date price point.

PS Good day for Bonmarche market makers overall with extra spread earned on many trade deals Worth noting for future reference.

cig

Market makers face higher risk on news days, especially at the open before it's clear what the response of market participants will be. It's fair the spread is higher. If you think you can do better, why don't you become a market maker? (For some stocks, you can do it with a retail brokerage account.)

11th Jun '16

Hi Cig,

When I deal in European and USA stocks, I can enter a bid directly into those markets. Works very effectively picking up clumsily sold stock in the morning and selling later that day for a quick turn. Also no stamp duty in some countries

UK listed stocks are more challenging with market makers' spread and stamp duty. Longer holding time required and more conviction. A fill or kill order for me is the only effective way of entering bids between bid/offer spread. A few brokers do offer direct entry of bids to the UK market. My broker currently does not.

The spread in Bonmarche on Friday took a long time to tighten to a more normal 4p from the large 9p at opening. I thought myself it took several hours. Someone no doubt will know exactly when it tighten back to 4p.

Zipmanpeter

18th Jun '16

Back the issue at hand: is Bonmarche Holdings (LON:BON) worth it at current price.

Whilst Bonmarche Holdings (LON:BON) has produced a recent profit history (as it should having been able to select only best performing stores from a wider estate a couple of years ago) the question is what the future will bring to a bricks&mortar retail chain selling to female customers (ave. age 65). The detail of their latest trading statement showed them doing well and growing LFL with (about 400K from memory) existing core customers who buy regularly.

But by implication LFL sales from new and marginal customers in existing stores must be well down. These must be key to LT growth- and so not much sign they will benefit from a windfall of ex-BHS customers either despite these being right age/income group/similar instore shopping habit. Furthermore internet sales are acknowledged as poor, growing only slowly and only 7% of sales. No evidence of digital skills and focus in Bonmarche Holdings (LON:BON).

An interesting read across is thus to N Brown (LON:BWNG). They seem to be acquiring new customers much better and seeing a very rapid increase in conversion of new JD Williams consumers (ie women 50-70) to online tablet purchase. At the younger end of mature especially, digital is becoming a viable option. This is important as JD Williams brand is only slightly smaller than Bonmarche despite taking much of its consumer base through a paper to digital switch and seems to have a bigger and better advertising/PR plan with Lorraine Kelly.

Clearly 2016 is going to be tough for all clothing retailers so roll forward 2 years. Do you still want your money in £BON's store network or £BWNG's internet game to reach these same consumers. Arguably £BWNG's conversion and turnaround to be 'fit for the future' is much further advanced than Bonmarche Holdings (LON:BON) (which even stole the same phrase). In 2 years N Brown (LON:BWNG), will be nearly all digital and thus hoping to attract a story and multiple more like ASOS and BOO.

Net, I like Bonmarche Holdings (LON:BON) quantitatively and qualitatively. It's distinctive and aimed at a growing demographic. It can still rapidly improve its execution instore - the new fascia ec as a huge step up for instance and personally I think their clothes look awful!. But it is fighting the future and I fear it will go down with its core users as they literally die off or become (care) home bound and switch to modern digital catalogues.

At the end therefore, I think it risks becoming a value trap and I have doubled down on N Brown (LON:BWNG) vs opening up on Bonmarche Holdings (LON:BON) despite its price falls.

I think with Bonmarche Holdings (LON:BON) a lot depends on the new CEO Helen Connolly, she has experience at George Asda which has been very successful. ALso with BHS closing down there is potential market to tap into there. I'm not a woman so don't know about their range but I suspect it could do with a good shake up, if it was not for this Brexit I would probably add some to my portofolio, will be interesting to see how they do compared to Debenhams (LON:DEB), Ted Baker (LON:TED) and Next (LON:NXT) which I hold.

28th Jul '16

Last Trade 110p bid/offer 109p - 112p

Bonmarche, updated this morning with a trading statement.

The poor weather in recent months has put another nail into any potential recovery in sales. Even Bonmarche's own on-line sales have declined slightly. One can expect massive end of season sales with even keener pricing to encourage sales not only for Bonmarche but also for other fashion retailers in general.

"Sales for the quarter ended 25 June 2016 decreased by 3.6%. Store like-for-like ("LFL") sales declined by 8.1%."

"Trading during the first quarter of FY17 has been difficult principally due to continued poor weather. It is not unusual for external conditions to create significant variations in quarterly performance, and therefore our expectation for the full year remains unchanged on the assumption that trading conditions normalise through the autumn season."

The share price slide continues and my target price of 80p still remains a likely possibility. The sales drop magnifies changes in profitability very quickly. This is unlikely to be a once off poor quarter. Expect exceptional write-offs and shop closures at some near future point.

I do not share the company's confidence regarding meeting its full year expectations. The trend is not Bonmarche's friend

21st Sep '16

Share Price 87p (Down 25%)

Bid/Offer (84p - 90p)

Bonmarche released their trading statement this morning. Shareholders now know that the new CEO has not turned the business around. Much had been expected. The share price is dropping quickly this morning to reflect a new reality.

July and August trading were in line with lower expected levels. Worse followed in the first few weeks of September with sales appearing to have fallen off the cliff. The reason cited is because the summer stock was not sold off quickly enough to get in the full range of Autumn stock.

Profits forecast from the company are between £5m and £7m. I fear the company may find their own forecast even drops below these levels to under £3m. A dividend of 2.6p is being paid with an intention to pay the final dividend of 4.6p. I expect this final dividend will be cut to conserve cash.

Store refurbishments are not working to halt overall LFL sales declines. The range of stock on offer is not grabbing the customers' attention. The shopping experience still appears jaded, and the price points are not seducing customers to buy. Shop closures are necessary quickly of any loss making shops where practicable. Time for company management to fact reality earlier rather than later. Obviously it would help to have better sourcing of fashionable stock which is new and exciting and not just the same-same clothes lines season in and season out.

Is this company more an asset play or do you think it is likely to be a recovery business?

My new price target reduced to 60p.

Regards

Dearg Doom

PS (I have no current position in this company)

Bushranger

28th Sep '16

I had my eye on this company. QV is still very high but I can't shake the feeling the company could go the way of BHS. My trader split is Bid /Offer 87/97.

21st Jan '17

Bonmarche Holdings (LON:BON) Share

Price 82.5p (up 4.4%) Market Cap £45.2 million

I was tempted by Friday's RNS trading statement to press the buy button. However, the price jumped thankfully a few pence giving me time to reconsider my options.

Profits of at least £5 million expected this year even with LFL sales down 5.1% and online sales down 2.1%. These declines are continuous and not once off. Things do not look too encouraging before operational leverage clobbers profits altogether. Margins up 2.2%, due to less discounting this year which I will choose to ignore.

Tracking the declining cash balance each year can be instructive on how hard companies are peddling so hard to effectively stand still. Bonmarche's cash balance is losing altitude.

Does experience help in situations like this to buy or not to buy?

Have I seen a similar mid-cap companies like this play out with declining sales, loss-making stores, share price never ending declines, poor management decisions, coupled with a tired brand name for a declining number of interested customers?

Ah yes, most of them got took over before they ran out of cash or they went bust. Shareholders buying supposedly asset back cheap stocks lost big time on the share price subsequent performance

French Connection (LON:FCCN)

Share Price 32.13p Market Cap £37.5 million

French Connection plc springs to mind as a comparable. Many of its shops too are loss making and many of the rest will follow suit. Most areas of the business whether retail, licensing or wholesaling have falling LFL sales. The company lost £7.9 million at the interim stage a few months back. The company still has a cash balance which seems to decline each year.

Both companies have cash, asset backing and low p/e. Playing the game of recovery in their core business has proved a loss making lesson for investors. The odd success story may not recover other losses.

Must make a personal note to myself to invest in retailers who can make an increasing amount of money from their core business which piles up cash. What were their names again......?

PS (No current position in either company. Both companies are on my watch list. Weekend reading only)

Bonmarche - "Needs to Run Fast to Stand Still". Difficult for the Over 50's Ladies.

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Dearg Doom

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