CARD FACTORY

[jackdaww]

may be of interest to income seekers , having a good basic yield and some special dividends .

a flexible simple low capex model , they design , make and retail the cards.

the CEO bought shares at 310 in june and at 270 in october .

price now under 250 .

.

[staffordian]

They tempted me after reading their interims in September and I bought for the income as part of my high yield portfolio., though I paid a smidgeon over 309.

A good yield at that price; significantly better at 250, of course.

I find most card shops a complete rip off, but Card Factory seems to be the only one with decent prices, and the ones I've been in always seem to be busy.

Staffordian

[jackdaww]

I find most card shops a complete rip off, but Card Factory seems to be the only one with decent prices, and the ones I've been in always seem to be busy.

Staffordian

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i havent looked at their shops , its good to know they are busy , i take that as a big plus.

i bought into greggs many years ago partly on seeing queues into the street , they have done very well for me.

i will look at my local shop on tuesday , and probably buy this week , still a decent buy at 300.

.

[staffordian]

I find most card shops a complete rip off, but Card Factory seems to be the only one with decent prices, and the ones I've been in always seem to be busy.

Staffordian

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i havent looked at their shops , its good to know they are busy , i take that as a big plus.

i bought into greggs many years ago partly on seeing queues into the street , they have done very well for me.

i will look at my local shop on tuesday , and probably buy this week , still a decent buy at 300.

.

How strange you mention Greggs.

I was thinking about them as I wrote my message above, because I too investigated them then invested in them about ten years ago after walking past one of their shops every day and seeing queues out the door each time I passed.

Staffordian

[CommissarJones]

I own CARD in my HYP and am delighted with its performance as an income stock. I bought in June 2015 at about 330 pence and topped up in October 2016 (on the same day as the CEO) at about 270p; the company has declared dividends exceeding 40p a share in total since my first purchase, so more of same, please.

[tabhair]

I have to say that Card Factory looks interesting at these levels. If you remember back in 2011, they drove their biggest competitor (Clinton Cards) into bankruptcy by undercutting their prices; WH Smith have a value cards business and a lot of the supermarkets will have large cards sections, but realistically, there isn't going to be a lot of people looking to get into bricks and mortar card shops at the moment, so you would expect Card Factory to continue to do well. Of course, the challenge in this business is the internet. To be honest, I am not convinced that the internet will kill their business. From reading the CEO's commentary, it sounds like most of the business that Card Factory are doing is at the value end, and I don't think that online firms can really do damage here (I don't imagine it's cost efficient to be paying postage on a £1 card).

Digging deeper into the financials themselves, they look great. The company has manageable debt and is currently trading at about 10x free cash flow, which is a low multiple considering that there is still some (minor) growth ahead. That brings us onto an interesting point. I live in a bottom tier UK basket case of a town and we already have a card factory (Which does well from what I can see). If the town that I'm in already has a Card Factory, realistically, growth has maxed out, or is close to it. If they're looking to expand, then they are going to need to look abroad, which would be a risk.

My only other worry is that of the 81M of free cash flow that they did last year, all but 1M went back out the door to shareholders either through the special dividend or regular dividend. Certainly not for me to complain about bumper dividends, but I would have thought it was prudent to keep some of that cash on hand either for expansion or a rainy day.

[jackdaww]

I have to say that Card Factory looks interesting at these levels....

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many thanks for all that , its good that other views are emerging.

re. the estate , this weeks IC says the plan is to increase it from 860 to 1200.

the business model apparently needs little capex.

the SP hasnt changed much today , i think i will plunge in tomorrow when ive looked at our local (small welsh town) shop.

.

[Nocton]

IMHO you would have done/will do better with IG Design (IGR) who actually make cards, gift wrap etc. They're reporting tomorrow:

IG Design Group PLC, one of the world's leading designers, innovators and manufacturers of gift packaging and greetings, social expression giftware, stationery and creative play products, will announce its Interim Results for the six months ended 30 September 2016, on Tuesday 29 November 2016.

As they have big overseas sales the lower pound should be good for earnings and turnover.

[jackdaww]

I called in at our local shop today - it was busy and so were the tills.

it ticks most of my boxes so i bought in at 248.

IG design - formerly International Greetings - did report today - they are doing ok .

.

[brightncheerful]

I used to have a client with a chain of greeting card shops. The client sold the chain to a larger group.

As I understand, there are about 7 segments in the greeting cards market, of which CF targets the value and mid-market segments (cheap and cheerful).


I don't think it's correct to suggest CF put Clinton Cards out of business: CC was in difficulties after it bought Birthdays and its property cost commitment was ott.

I have no comment to make whether CF is a good investment, as distinct from a good business. it's a vertical business which makes sense in an intensely competitive market. The divi and surplus cash is presumably partly if not most funded by the £200M debt. Amongst the risks stated by CF: "Our funding arrangements and the fact that we source the majority of our non-card merchandise, as well as handmade cards and certain raw materials, from suppliers in the Far East mean that a lack of appropriate levels of covenant headroom and/ or cash resources in the Group, or significant variations in interest or exchange rates, could have an impact on our operations and performance."

Having just bought some party poppers from a pound-type shop that last year I paid £1 a pack for, whereas now the price is £1.99, I should think a combination of exchange rates variables, living wage minimums, etc could make customers think twice about buying what is essentially a discretionary purchase. Otherwise, all I can say i that mid this year CF opened a branch a few doors away from an independently owned gc shop: the latter's takings have dropped by about £600 a week putting a long-established gc business into difficulty so CF is evident making waves.

[jackdaww]

The divi and surplus cash is presumably partly if not most funded by the £200M debt.

.

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it would be interesting to know the basis for this presumption.

the dividend is twice covered by earnings as far as i know.

i hope i havent missed something important !.

[brightncheerful]

it would be interesting to know the basis for this presumption.

When I assess whether a company is a performable investment. I consider all sources of the company's money including borrowings.

I don't know much about company accounts so are you saying that the divi is covered by earnings and earnings alone? And if so, is that the same thing as where the money actually comes from to pay the divi? And if not then would CF be able to pay the divi out of earnings alone?

(For example, Sainsbury's borrowed about £200M for general corporate purposes, which I interpret as used for anything and everything.

[dickscovered]

BnC

I wouldn't worry too much about the 'general corporate purposes" stuff. It is just standard verbiage that the lenders need for form filling.

Specifically wrt to Card Factory, the final results annoucement says:

'For the year ended 31 January 2016, the Board is recommending an increase in the final ordinary dividend of 33.3% to 6.0p per share (FY15: 4.5p), giving a total ordinary dividend for the year of 8.5p per share, an increase of 25.0% (FY15: 6.8p) and dividend cover of 2.25 times underlying earnings per share.
...
As previously announced, over the medium term the Board expects to maintain leverage broadly in the range of 1.0 to 2.0 times net debt to underlying historic LTM EBITDA. Whilst this leverage ratio will typically vary during the financial year, the Board's current intention is to maintain average leverage around the mid point of this range.

To the extent there is surplus cash within the business, the Board expects to return this to shareholders. The Board will consider the most appropriate method of returning such surplus cash from time to time, taking into account, amongst other things, views of shareholders and the liquidity of the shares. '

Most companies have debt. It is frequently not used for specific purposes, just a tax efficient method of funding. Cashflow is key and CF seem to want to keep the debt at around 1.5 EBITDA, a proxy for cashflow. So superficially at least the ordinary dividends are well covered by earnings. The special ones are more based on what they regard as excess cash. In the old days, a recession, normally cause by higher interest rates, would probably clobber CF on both the sales and the cost of debt front, leading to potential trouble. In the new era, who knows?

I am not a holder, nor am I tempted to become one, retail being a sector that I am never comfortable with.

[jackdaww]

paid a visit to the sutton coldfield branch today .

the shop was heaving , very long queue - with 4 tills manned .

spent £2 on 16 xmas cards - i expect they also profit from stamp sales.

.

[jackdaww]

it would be interesting to know the basis for this presumption.

When I assess whether a company is a performable investment. I consider all sources of the company's money including borrowings.

I don't know much about company accounts so are you saying that the divi is covered by earnings and earnings alone? And if so, is that the same thing as where the money actually comes from to pay the divi? And if not then would CF be able to pay the divi out of earnings alone?

(For example, Sainsbury's borrowed about £200M for general corporate purposes, which I interpret as used for anything and everything.

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thanks for response.

i dont know accounting in any depth ,so i queried your assertion that the divi maybe paid via debt .

as far as i know , dividend cover figures commonly given are from earnings , it would seem a bit meaningless if it were based on debt.

[brightncheerful]

I wouldn't have thought companies ring-fence cash for specific purposes. more likely the money to actually pay dividends comes from cash-flow regardless of source.

For accounting purposes, the divi cover would be based on earnings but that's different.

[Wasron]

I read this thread with interest and took the plunge today adding CARD at 253. I like simple businesses that return excess funds to shareholders via specials.

I too noticed that the shops were always busy and the operating margin provides a cushion should market conditions get tougher.

In general I like this board, i don't remember an equivalent on TMF but it throws up plenty of ideas and some discussion for those of us still adding new shares.

Wasron

[jackdaww]

In general I like this board, i don't remember an equivalent on TMF but it throws up plenty of ideas and some discussion for those of us still adding new shares.

Wasron

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yes , agreed its a good board - shares ideas .

we can discuss any idea on any share .

.

[gryffron]

It is interesting that the internet does not seem to have dented the greetings card market too much so far. I know there are "virtual" Cards, but they're pretty naff, and if I got one I'd think "there's someone who forgot". Do young people still send cards, or just greetings of facebook? It will be interesting to see if they can survive the internet revolution.

gryff

[gryffron]

So I did a straw poll of the rellies over xmas lunch. Not a single one of the under 30s sent any cards at all to their mates! Only to granny etc. Neither do they send them on birthdays etc. Preferring facebook (et al) messages. It looks to me like greetings cards is a dying industry, to follow the way of video rental and newspapers. Not one to LTBH then.

gryff