Friday, December 23, 2011

Diary: BSLA - dangers of turnarounds

This one just happened to cross my path today, as it's in the news: BSLA (Blacks Leisure). It has dropped 43% so far today on news that the struggling outdoor goods retailer said that it neither has nor expects to receive an offer for its equity.

Taking a quick look at the fundamentals, it aint pretty. Gearing is 48%, but that's an unreliable overall indicator of financial strength. It has net debt of 16.5m, against a market cap of 1.5m. Clearly, Mr. Market is telling us something! It has a PBV of 0.04. Alas, the company has been losing money for the last 5 years, and hasn't been able to cover its interest payments all this time.

It's interesting to look through the ADVFN bulletin boards. The page happened to open at 5 May 2011. Then, the price was at about 15p. It's now 1p. Ouchies. There were three analysts rating it as a "hold", with a forecast price of 40p. Hmmm. Not so prescient there, guys. What's impressive is the dissonance of what they're saying. Surely, if a company is selling at 15p and is really "worth" 40p, then it's a screaming buy, not a hold. Either that, or you really think that it's a piece of junk, it's worth 0p, and is a screaming sell.

It's also interesting to see the commentary at the time, which was completely wide of the mark. "looks cheap" was one comment ... with hindsight, no. "Blacks did well from the cold snap, unlike most retailers. The camping boom which is taking place now, will not have been picked up in these results." ... nice idea, but wrong.

One poster wrote "With the worst seemingly behind it, is Blacks set to multi-bag?" No, it wasn't. Motley Fool picked up the story at that time. BSLA had a corporate turnaround specialist (Neil Gillis) at the helm for 3 years. TMF says: "Blacks, in short, was once heading for the buffers -- and Mr Gillis has confounded many by managing to adroitly steer the business around the resulting trainwreck". TMF notes that despite the gloom, some stores have been closed, new stores have been opened, expensive leases have been renoegotiated, and the company has pulled through the worst recession for 60 years.

Mr Gillis ended his tenure, to be replaced by Julia Reynolds, CEO at Figleaves, and previously category director at Tesco. TMF expresses the opinion: "Blacks' worst days do seem to be behind it ... if you're looking for a retail multi-bagger that will hit paydirt over the next three or four years, you won't find it in Tesco ... you just might in Blacks"

A cautionary christmas tale.

1 comment:

Monevator said...

A lesson of the past couple of years is things can end very quickly for troubled retailers nowadays, whatever the overall sales or purported assets, as in today's hyper efficient retail channels they just can't get the stock / effective lines of credit from their suppliers that they need once the market is genuinely worried about their survival (/getting paid).

I suppose it's been a while since UK investors have been failed so spectacularly by the UK consumer! ;)