Noni B (NBL)

NBL was a trade I was hoping to make a return of 3-4 times. I came out break-even! Pictured above, NBL is a struggling woman's clothing retailer with sliding sales and an even greater sliding share price. See the share price graph below from 2010 to now:

The stock has been dirt cheap on a historical basis (e.g. at 50c, the market cap is $16m v 2014 sales of $112m), but in my opinion quite rightly so - the company has just not 'got it right' and as revenues have slipped, the effect on the P&L has been magnified thanks to a high fixed cost base. Feedback I have received is that introducing the more expensive but brand-equity devoid name Liz Jordan into the stores has not worked, the company still uses local (and therefore far more expensive suppliers ) and poor inventory purchasing. So couple that with a deteriorating balance sheet, it was/is conceivable the company could go bust.

I got interested in NBL when some opposing white knights came on to the scene, namely Alceon and Gannet Capital. Gannet is run by Glen Poswell who I have met previously and strikes me as a seriously smart operator. Alceon made a takeover bid for all of the company while Gannett subsequently bought a blocking stake and proposed that the company stay listed so shareholders could choose to participate in the turnaround of the company, touch wood.

I wanted to hold-on to NBL to hopefully earn a multi-bag return through the turnaround of the business. In simplistic terms, take the market cap of $16m plus a capital raise of ~$10m would bring the effective entry price to $26m. Conceivably, with some inventory cost cutting and a turnaround in sales, EBITDA could be ~$8m and applying a multiple of 10* could see the market cap eventually move up to $80m excluding any dividends paid along the way. Yes, the company could go bust however with at least one of the white knights likely to win the day, I didn't judge that probability as high.

And I personally think the Noni-B brand name is actually pretty strong with middle(ish) age women in Australia: it has been around for a long time, has been fairly consistent in its model and has high brand name recognition. We visited some stores around the Sydney region and concluded the stores looked clean, appropriate and respectable. It reminded me a little of visiting Coles in 2007 (when Wesfarmers was in the process of taking them over): they just need to put some more of the right stuff on the shelves!

Anyway, the original condition of the Alceon bid had a minimum acceptance of 90%. Gannett had managed to get ~11% of the share register and therefore enough to block the original bid. However that condition was waived by Alceon which basically removed hopes that Gannett could win the takeover. So where we now stand is that Alceon has an offer of 51c and has 62% of the register. Sure, a higher bid might come along but I don't think that's likely (read the bidders statement...). A bit annoying, but the main point was that risk was managed. I recently sold.

Kristian 

Disclosure: no position in NBL