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The Big Short Thread


sancho panza

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On 03/09/2018 at 08:56, Castlevania said:

In terms of disasterous flotations, Footasylum seems to be having a nightmare. Shares were down 50% at £0.40 this morning after another profit warning. They floated less than a year ago at ~£1.90 and peaked at over £2.60. Ouch!

Which I guess leads us to asking is this a management problem or a wider high street malaise. And if the latter it might be worth looking at JD Sports.

I missed this one

image.png.552424daa5c86ddcda776192933c50df.png

I struggle to see the top in their chart.Very volatile stock to say the least,

image.png.6ffdcff5f0a52e01f47c262f16c01c90.png

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Time to update the short list.Comments,opinions and ideas always welcome here.Weightings are varied ie some minimum,some slightly higher,as ever DYOR if you get involved.

Working towards Facebook/Domino's/Netflix/Boeing/Starbux/Denny's next year.

 

 

Currently Short

Barratts

Redrow

Bellway

Taylor Wimpey

Rightmove

Prudential

Restaurant group

Travis Perkins

Inchcape

Glencore

 

 

 

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What's your thinking on Netflix?

I have a friend who works for them on film productions, says they are spending a lot of money on original content, typically much more per series than BBC, ITV, Ch4 etc., and even more than Sky and HBO.

On the other hand, most people I know are now subscribers.

Market saturation and high production costs leading to overvaluation?

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Just now, Hardhat said:

What's your thinking on Netflix?

I have a friend who works for them on film productions, says they are spending a lot of money on original content, typically much more per series than BBC, ITV, Ch4 etc., and even more than Sky and HBO.

On the other hand, most people I know are now subscribers.

Market saturation and high production costs leading to overvaluation?

Absolutely. Their cash burn rate is unreal. The only issue might be that if they run out of money, they might be a takeover target for Amazon or Apple?!

I'm very bearish on Netflix in general. Amazon are likely to eat into their subscriber base. I used to have Netflix but ditched it 2/3 years ago for Amazon Prime.

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24 minutes ago, azzuri82 said:

Absolutely. Their cash burn rate is unreal. The only issue might be that if they run out of money, they might be a takeover target for Amazon or Apple?!

I'm very bearish on Netflix in general. Amazon are likely to eat into their subscriber base. I used to have Netflix but ditched it 2/3 years ago for Amazon Prime.

We're on Prime jsut because Mrs P is hellbent on next day delivery and hates getting the kids into the car for a trip to morthercare.Patience isn't one of her many virtues.The TV is a bonus and good.We then travel between netflix and Now Tv for series.

Your caveat is what would always keep me wary in a way that I wouldn't be shorting Domino's ie that one of the big guns comes in for it.Amazon is running up like a train and much as I think it's a bubble,experience is keeping the hell away from trying to call the top.

With coffee shops/restaurant chains,there's loads of competition that will step in if you die,there being no need/reason for a take over.

31 minutes ago, Hardhat said:

What's your thinking on Netflix?

I have a friend who works for them on film productions, says they are spending a lot of money on original content, typically much more per series than BBC, ITV, Ch4 etc., and even more than Sky and HBO.

On the other hand, most people I know are now subscribers.

Market saturation and high production costs leading to overvaluation?

I think they're overvalued much like Tesla,but they're charts are really hard to read and take a punt on.High costs,decent competition,big cash burn.......portents aren't great.

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42 minutes ago, azzuri82 said:

Absolutely. Their cash burn rate is unreal. The only issue might be that if they run out of money, they might be a takeover target for Amazon or Apple?!

I'm very bearish on Netflix in general. Amazon are likely to eat into their subscriber base. I used to have Netflix but ditched it 2/3 years ago for Amazon Prime.

There's a new EU rule coming into force soon -- that all EU 'broadcasters' (including IP) must have 30% of their offering produced in the EU.  There's a feeling that Netflix will be hurt by this -- essentially, they're having to buy up a load of crap just to get their %age up, and crap still costs $$$s.

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They should just produce some really low grade programming to get around that. Like those videos on YouTube that just stick a camera in the cab of a train and you watch it go from Paris to Avignon, or whatever (not that I have any experience of watching such things obviously)...

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57 minutes ago, sancho panza said:

We're on Prime jsut because Mrs P is hellbent on next day delivery and hates getting the kids into the car for a trip to morthercare.Patience isn't one of her many virtues.The TV is a bonus and good.We then travel between netflix and Now Tv for series.

Your caveat is what would always keep me wary in a way that I wouldn't be shorting Domino's ie that one of the big guns comes in for it.Amazon is running up like a train and much as I think it's a bubble,experience is keeping the hell away from trying to call the top.

With coffee shops/restaurant chains,there's loads of competition that will step in if you die,there being no need/reason for a take over.

I think they're overvalued much like Tesla,but they're charts are really hard to read and take a punt on.High costs,decent competition,big cash burn.......portents aren't great.

I agree re: restaurants, if that's the case, why would you be wary of shorting Domino's?

In particular, given they're quite heavily a franchise business, they don't have as much of the associated costs as many big centrally-controlled 'chain' rivals.

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43 minutes ago, dgul said:

There's a new EU rule coming into force soon -- that all EU 'broadcasters' (including IP) must have 30% of their offering produced in the EU.  There's a feeling that Netflix will be hurt by this -- essentially, they're having to buy up a load of crap just to get their %age up, and crap still costs $$$s.

What a nonsense rule!

3 minutes ago, Lavalas said:

They should just produce some really low grade programming to get around that. Like those videos on YouTube that just stick a camera in the cab of a train and you watch it go from Paris to Avignon, or whatever (not that I have any experience of watching such things obviously)...

Very clever, never thought of that.

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7 hours ago, azzuri82 said:

I agree re: restaurants, if that's the case, why would you be wary of shorting Domino's?

In particular, given they're quite heavily a franchise business, they don't have as much of the associated costs as many big centrally-controlled 'chain' rivals.

Sorry was thinking Netflix and wrote Domino's Azzuri..

 

btw put my first little wager on WH Smith today.Revenues flat for four years up 8%, net profits up £92mn to £116mn 2014-2017,share price up from a tenner to twenty quid.

 

ref Domino's.looks like it's touched $300 end of august but could have peaked.Was $73 USD four years ago.Bottomed in 2008 at $3.88.Interesting times.

I think the franchise model is a strength in boom times of easy credit,I think in a downturn,it's a weakness due to the fact that big chains can borrow centrally and borrow cheaply,particularly if they're asset rich.In a downturn,they're relying on the balance sheet strength of many individuals,who may have leveraged their family home as much as they're willing to or may be unable to get credit.

 

I'd never dream of shorting McD's for instance.They own huge chunks of land,the most profitable restaurants and they're meals are probably the last treat the average family will drop.Domino's is expensive for what it is.But the US is in a sweet spot hence my caution.

Edited by sancho panza
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21 minutes ago, sancho panza said:

Sorry was thinking Netflix and wrote Domino's Azzuri..

 

btw put my first little wager on WH Smith today.Revenues flat for four years up 8%, net profits up £92mn to £116mn 2014-2017,share price up from a tenner to twenty quid.

 

ref Domino's.looks like it's touched $300 end of august but could have peaked.Was $73 USD four years ago.Bottomed in 2008 at $3.88.Interesting times.

I think the franchise model is a strength in boom times of easy credit,I think in a downturn,it's a weakness due to the fact that big chains can borrow centrally and borrow cheaply,particularly if they're asset rich.In a downturn,they're relying on the balance sheet strength of many individuals,who may have leveraged their family home as much as they're willing to or may be unable to get credit.

 

I'd never dream of shorting McD's for instance.They own huge chunks of land,the most profitable restaurants and they're meals are probably the last treat the average family will drop.Domino's is expensive for what it is.But the US is in a sweet spot hence my caution.

It's certainly a weakness if you're a franchisee and you're having to pay 10% of your gross sales to a company who are more interested in your turnover than your profit, and force deals/offers on you that you can ill afford. Subway sandwiches must be in big trouble as well now?

What sort of % of your portfolio are you playing with for this WH Smith trade, and what's your target for it?

Edited by azzuri82
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28 minutes ago, azzuri82 said:

It's certainly a weakness of you're a franchisee when you're having to pay 10% of your sales to a company who are more interested in your turnover than your costs and force deals/offers on you that you can ill afford. Subway sandwiches must be in big trouble as well now?

What sort of % of your portfolio are you playing with for this WH Smith trade, and what's your target for it?

It's a smallish portion across my shorts, from profits made speculating elsewhere.I like that phrase-'plan your trades,trade your plan'. How much I put in depends on how good the opportunity looks.I think we're starting a seismic downturn-retail has definitely rolled over,CRE has confirmed that, builders have peaked.It's game on in the UK I think.

Internationaly,it's more up in the air.But I could be massively worng and have been before.

 

I really like your thinking on the franchise element.I'll try and dig a few more examples out.The local kebab shop owner where I grew up looked at a Subway fanchise but said the costs were off the scale and just not worth the bother.They're a private company sadly.

Edited by sancho panza
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Starbucks have a fair few franchises as well. I was forced into one with my visiting parents last week (only place nearby that could take both a pram and a dog, sadly), bloody awful place, filthy, uncomfortable, just a bunch of people sitting on their laptops for hours, using the free WiFi, having purchased a single drink.

So many coffee shops where I am in central Edinburgh, literally 5 of them (both chain and independent) within 100 yards of that one.

We hate Starbucks. Not a fan of any chain coffee shop, really, but I'd choose Costa or Cafe Nero anytime over Starbucks. Yuck.

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11 hours ago, sancho panza said:

It's a smallish portion across my shorts, from profits made speculating elsewhere.I like that phrase-'plan your trades,trade your plan'. How much I put in depends on how good the opportunity looks.I think we're starting a seismic downturn-retail has definitely rolled over,CRE has confirmed that, builders have peaked.It's game on in the UK I think.

Internationaly,it's more up in the air.But I could be massively worng and have been before.

 

I really like your thinking on the franchise element.I'll try and dig a few more examples out.The local kebab shop owner where I grew up looked at a Subway fanchise but said the costs were off the scale and just not worth the bother.They're a private company sadly.

RE: WH Smith, looks like their stock was largely flat during the financial crisis 10 years' ago - why would this share be largely unaffected?

And it looks as though the run up in their share price started in early 2012, and has quadrupled since - is this pure speculation, or is there anything in the business that's fundamentally changed/improved to explain any of this run up?

Can I ask your thinking behind this short? Don't they own most of their prime retail units?

It's really difficult at the moment to see any businesses in the market that I like the look of, but there's plenty I don't like the look of. That's why I'm getting more interested in shorting stocks than going long on anything - for every business that I like the look of long-term, there's ten as many I think are screwed.

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27 minutes ago, azzuri82 said:

RE: WH Smith, looks like their stock was largely flat during the financial crisis 10 years' ago - why would this share be largely unaffected?

And it looks as though the run up in their share price started in early 2012, and has quadrupled since - is this pure speculation, or is there anything in the business that's fundamentally changed/improved to explain any of this run up?

Can I ask your thinking behind this short? Don't they own most of their prime retail units?

It's really difficult at the moment to see any businesses in the market that I like the look of, but there's plenty I don't like the look of. That's why I'm getting more interested in shorting stocks than going long on anything - for every business that I like the look of long-term, there's ten as many I think are screwed.

They make all their money from airports and train stations, where they’ll charge you a pound for a stick of chewing gum for example

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From doing a wee bit of digging it seems their average store revenues are around £1million per annum. P/E ratio of around 20 at current share price - realistically how much might this fall to - at best perhaps £500-600 per share?

What's your target price for it SP?

Edited by azzuri82
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1 hour ago, Castlevania said:

They make all their money from airports and train stations, where they’ll charge you a pound for a stick of chewing gum for example

They make 60% of their profits from travel based outlets:

Quote

 

WH Smith has not been immune to the high street’s travails. High-street sales have declined every year since 2003, more than halving in that period from £1.4 billion to £610 million. However, management has begun to focus on more high-margin items such as stationery and food-on-the-go and stopped selling low-margin items such as CDs and DVDs.

As a result, since its 2006 demerger, retail sales have fallen by 40%, but operating profit has shot up 48% in the same time. “They have completely offset that revenue decline by growing margin. Margins have gone from 4% to 10%,” says Abbot.

In contrast to the retail business, sales in its travel division have been booming. Revenues here are up almost 250% since 2003 and have almost doubled since 2006. Last year was the first in its history that sales from travel have been higher than from the high street.

The division, which include its outlets in rail stations, motorway service stations, airports and hospitals, now accounts for 60% of group profit

http://www.morningstar.co.uk/uk/news/168305/is-wh-smith-the-best-stock-on-the-high-street.aspx/

 

 

 

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Another one I don't like the look of going forward is Bayer. They merged with Monsanto earlier this year, and it's since been found out that Monsanto have circa 8,000 lawsuits pending. Monsanto are the GM food shills that have been shown to bribe scientists / researchers, try and silence their critics and incessantly lobby Washington over the issue.

Bayer has lost approx. 30% value over the last couple of months.

Edited by azzuri82
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On 11/09/2018 at 22:46, azzuri82 said:

Starbucks have a fair few franchises as well. I was forced into one with my visiting parents last week (only place nearby that could take both a pram and a dog, sadly), bloody awful place, filthy, uncomfortable, just a bunch of people sitting on their laptops for hours, using the free WiFi, having purchased a single drink.

So many coffee shops where I am in central Edinburgh, literally 5 of them (both chain and independent) within 100 yards of that one.

We hate Starbucks. Not a fan of any chain coffee shop, really, but I'd choose Costa or Cafe Nero anytime over Starbucks. Yuck.

Re this,when I go to coffeee shops I always engage in a little footfall reaseach and watch the tills,count the staff and assess the rent/rates.A lot of these coffee shopsaren't making nay profit.

On 12/09/2018 at 10:00, azzuri82 said:

RE: WH Smith, looks like their stock was largely flat during the financial crisis 10 years' ago - why would this share be largely unaffected?

And it looks as though the run up in their share price started in early 2012, and has quadrupled since - is this pure speculation, or is there anything in the business that's fundamentally changed/improved to explain any of this run up?

Can I ask your thinking behind this short? Don't they own most of their prime retail units?

It's really difficult at the moment to see any businesses in the market that I like the look of, but there's plenty I don't like the look of. That's why I'm getting more interested in shorting stocks than going long on anything - for every business that I like the look of long-term, there's ten as many I think are screwed.

I took the elder bambino panza to Leicester market for his monthl;y lesson in weighing price/quality/volume.On teh way back we waited outside WH Smudge and I ffered him the choice of watching the tills with me or going in for Mrs P.

Even with two staff on the tills, the queues were long and mostly people buying newspapers(older end),in terms of cash generation,I don't think it's that strong on he High St particualrly as their aging customers won't be replaced with millenials.I was surprised their till operation wasn't more efficient.

 

My thinking on the short has two sides

1) fundamentals-retailers are getting burned.Their share price has rocketed up on flat revenues and whilst they've squeezed some extra profit,does it really justify a quadrupling of the share price

My answer-no

2) charts-the longer term indicators I use haven't rolled over yet, so I've had a little exploratroy dabble,

 

In answer to your broader question,whether they own their retail units or not is no matter to me,because what I'm targetting is the markets overvaluation of the stock versus what I see,

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On 12/09/2018 at 10:43, azzuri82 said:

From doing a wee bit of digging it seems their average store revenues are around £1million per annum. P/E ratio of around 20 at current share price - realistically how much might this fall to - at best perhaps £500-600 per share?

What's your target price for it SP?

At 75% off peak,I'd look to bail tbh.Having said that Im organic as getting emotional loses you cash.I like the trend to be in the direction of travel my fundamental analysis thinks is bang on,I then bet with the trend and try not to be greedy.

I think they're way overvalued for what they are.I could be wrong etc.

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On 12/09/2018 at 20:09, azzuri82 said:

Another one I really don't like the looking of is Snap chat. Will likely interest you SP, the chart looks like crap.

Just looked, lost 7% today!:

 

Screenshot_20180912-200810.png

 

Tim Knight at 'Slope of Hope' hates the stock:

https://slopeofhope.com/2018/09/the-disappearing-ghost.html

Have to say the only thing that chart screams is down..................................Although not a great deal of history

17 hours ago, azzuri82 said:

Another one I don't like the look of going forward is Bayer. They merged with Monsanto earlier this year, and it's since been found out that Monsanto have circa 8,000 lawsuits pending. Monsanto are the GM food shills that have been shown to bribe scientists / researchers, try and silence their critics and incessantly lobby Washington over the issue.

Bayer has lost approx. 30% value over the last couple of months.

Genreally,from what I've read,most mergers destroy capital,looks like this one is no different.

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