Bad Sentiment

This stock listed in 2015 at $2.40 per share representing a forward price-to-earnings (PE) ratio of 16.3. Forecast earnings before interest and tax (EBIT) for 2016 were $36.8 million and net debt on listing was $40 million. Latest 2019 EBIT guidance is between $42.5 million and $44 million and net debt was $10.1 million at December 2018. Return on capital was 35% in 2018, no new shares have been issued since listing and the stock paid dividends totalling 14.5 cents in the past year.

The stock is Adairs Ltd (ASX:ADH) and its share price is currently $1.25, a 48% discount to its listing price despite an 18% increase in profits and an 18 cents per share reduction in debt since then.


  1. As Buffett's said 'Retailing is like shooting at a moving target.'

  2. One of the problems with (very) high GMROI retailers (which is an attribute of most of the ex-Brett Blundy stable viz Lovisa) is that they also have very high CODB (rent, staffing - fixed costs). So when GMROI turns down from peak levels because I doesn't turn as quick or (hopefully not) GM starts coming down, the impact is very dramatic. Agree stock looks cheap but environment not that controllable & looks horrible with a way to go yet. If you model this thing out, once you start playing with GM.... very much like BBN which is an excellent business, but the shares are nowhere near cheap enough.

    1. Agree the operating leverage is high and environment is poor at the moment. I was looking at what happened a year back when the share price hit 70c. You could buy near the bottom with the knowledge that things were improving. I'll be more interested when things look like improving this time assuming the price is attractive. Having said that I reckon long-term $1.25 will prove to be good value, but like you think these retail businesses can get much cheaper before then if external conditions continue to worsen.


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