LON:BON | Bonmarché - Any Reason For Today's Rise?

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28th Dec '17 by Edmund Shing

8 comments 4145 reads

I am a happy holder of Bonmarche Holdings (LON:BON) this am given a reported 8.5% rise, one of my value buys in the retail sector. Net cash, single-digit P/E and well-backed 6% dividend yield, with forecasts of EPS growth for next year and beyond...

But I am puzzled as to the reason for this rise? Is it simply an artefact of the typically thin volumes one sees in the post-Xmas pre-New Year period? Or is there a real explanation? I see nothing in terms of RNS announcements, but I wonder if I have missed something...

Any explanations gratefully received.
Thanks,
Edmund

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About the Author

Edmund Shing

Premium Member

The Idle Investor author (Harriman House), Global Chief Investment Officer at BNP Paribas Wealth Management, PhD A.I. from University of Birmingham Working in financial markets since late 1994...

8 comments

Albertos

28th Dec '17

Its because I sold them on 21st December when I noticed their 50% sale had started before boxing day.

Hey-ho! Where's that brandy.

Phil

Orangetree

28th Dec '17

I had a look at Bonmarche last month and concluded the stock going to rise back to IPO price within 18 months. The increase in net cash in their CF statement tells me that trading is recovering. And with the demise of BHS, Bonmarche is happy to fill in "the gap" left behind.

Edmund Shing

28th Dec '17

Orangtree, good point on the demise of BHS leaving a gap. I also like the fact that their target demographic (older women) are less likely to buy clothes online than younger women, thus giving BON a better chance of hanging on to decent profit margins in the future...

Albertos

28th Dec '17

The brandy's worn off so I'll give you my actual opinion.

The retailers I watch have had a bounce recently - from the closing on the 15th to now, Next is up 7%, M&S up 4%... The market seems to be having a minor punt on consumer spending holding up over Xmas/New Year - or at least not being as bad as some of the recent surveys would suggest. Bonmarche has recently had some good publicity ( I bought after Roland mentioned it and my research confirmed all the things Edmund and Orangetree mentioned above - I even talked to my mum on the BHS factor) so it's getting leveraged impact.

That leaves current holders with a key date - 3rd January - when Next gives its Xmas trading update because it will wash through the sector in the short term.

If I still held Bonmarche I would be seriously pondering the risk/reward of holding through the 3rd January given their recent performance and profit they'd be showing (I only held for 4 days and made 10%). Thankfully, in a way, I don't have to make that decision.

Phil

(As an aside I was reading an article in one the majors which stated there would be two January sales - the normal we're used to and a second, with bigger discounts, half way through the month when the on-line sales returns have come back in. It quoted 1 in 3 sales returned!)

Gromley

28th Dec '17

(As an aside I was reading an article in one the majors which stated there would be two January sales - the normal we're used to and a second, with bigger discounts, half way through the month when the on-line sales returns have come back in. It quoted 1 in 3 sales returned!)

I've not really made a study of the "rag trade" before, although I regard it as a sector I find interesting at the moment.

I have read a very diverse range of opinions in the press on various nuances of the market (which I suspect are evenly balance between nonsense and vaguely true).

I don't recall the concept of "mid-January" sales before - have they been a major feature in previous years?

If not then the story is surely bogus : on-line has not suddenly notched up an order of magnitude, if they have happened before then that is surely in the comparatives and analysis; even if the growth of online might make them bigger.

It will certainly be fun interpreting the trading statements from this sector in the early days of the year.

Albertos

28th Dec '17

Hi

Since the demise of the NME paper (Parsons, Burchill, CSM...) I only normally read the Telegraph or the Times.

Link is below - my memory being what it is I thought they said the 15th rather than the 5th - apologies. It was more about the 1 in 3 figure and (at least in my own mind) ,on that basis,how can Next do a trading statement on 3rd Jan without doing a lot of estimation?

www.telegraph.co.uk/.../january-5th-could-best-day-hunt-sale-bargains/

Phil

Gromley

29th Dec '17

Thanks Phil,

(btw, your link didn't work, in case anyone else wants it, it is here.)

Seems to me a bit of a non-story written for the sake of saying something.

With online sales probably up around 10% overall then there might be 10% more returns sitting in the warehouses than last year (not sure what proportion of total items in the sales this would be).

I don't really know much about the online 'order several and keep only the one I like' phenomenon as I don't think anyone I know does it, but I would have thought the unwanted items get returned quite promptly, whereas in my experience shop bought items get returned 'next time we go to town' so I wouldn't have thought there was much in it in terms of delay.

I would guess Next and the other retailers understand the trends pretty well, so any estimation would be pretty well informed and in fact they only report on "actuals" up to Christmas Eve I presume any variation in return rates would be settled up later in the period.

Just as an aside, the first comment on the Telegraph article makes an interesting point that the "reverse logistics" of "buy and decide" eats into the cost benefit of selling online vs the high street. I think we intuitively knew that, but I hadn't previously considered the scale of that.

Orangetree

30th Dec '17

Here's another supporting fact that people may not have analysed, that is Bonmarche's trade receivables are less than 1% of group sales!
It's because over 85% of receivables are prepayment (£13.3m). The make-up of this includes:
"Prepayments at 1 April 2017 include £9.4m of business rates charges relating to FY18 (26 March 2016 in respect of FY17: £9.1m).”

So, Bonmarche is paying their rent early without the need to borrow money for working capital.

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Bonmarché - any reason for today's rise?

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Edmund Shing

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