ORL - OrotonGroup Limited

skc · 20 August 2012

Tannin said:
Strikes me that the loss of RL shouldn't really be such a massive blow. They still have the structures and the outlets, same as before, they just need to switch over to other products. I don't see that as being so difficult. (Disclaimer: I know nothing whatever about the fashion industry, and care less. But how hard can it be to find some alternative products to sell next year? Actually selling the stuff is usually the hard bit, after all.)

Summary: I see a good future for the company but I'm not interested at these prices.

From what I've read they are handing over the leases to RL as well. So they don't have empty shelves wiating to be filled.

notting · 20 September 2013

Has had a few interesting days.
Wonder if it was the Montgomery fund buying into that like it did MMS.

skc · 20 September 2013

notting said:
Has had a few interesting days.
Wonder if it was the Montgomery fund buying into that like it did MMS.

Makes me feel good about my short :

This 5 year chart looks interesting.

peter2 · 2 July 2014

skc was spot on with his assessment of the descending triangle pattern.

Nine months later, I notice a higher low (HL) on the weekly chart and an obvious resistance level which could be a reasonable buy trigger.

This would indicate that insto investors have/are accumulating this stock at the low prices. There wasn't a huge capitulation at the lows but the volume was above average for three weeks and price did go higher immediately after.

Have any of our forum FA guys looked into this company recently?
Is that div yield realistic? Are those earnings realistic?

I'm not looking for advice, just re-starting a conversation on a company that a lot of people commented on in the past.

leyy · 16 July 2014

on a 8 month high,

very attractive dividend yield 7% ++

Klogg · 16 July 2014

leyy said:
on a 8 month high,

very attractive dividend yield 7% ++

Maybe on last year's dividend. The interim dividend was cut from 22c to 8c - can't imagine it would have been sustainable otherwise, given the Ralph Lauren impact.

skc · 17 July 2014

peter2 said:
skc was spot on with his assessment of the descending triangle pattern.

Thanks.

peter2 said:
Have any of our forum FA guys looked into this company recently?
Is that div yield realistic? Are those earnings realistic?

Fundamentally it defied gravity for quite some time on the impact of a major reduction in earnings. The market got all rosy-eyed thinking that organic growth will mitigate the impact. But growth takes time and it didn't come quick enough, so the market gradually sold it down, to a level where pretty much no growth is assumed.

The dividend and earnings you see are historical. H1 reported EPS was 12.4c, and H1 typically is 60% of the full year. So annualising that you get ~20-22c, assuming some organic growth in H2. Dividend likely to be 80-85% payout range, so 16-18c for the year. Implying a yield of some ~3.5% or so at share price of $4.75.

The reward:risk was there back around $3.60-$3.80. I am still kicking myself for not actively monitoring it back then.

ROE · 17 July 2014

Bought a couple weeks ago under $4 and it had a Stella run since, luck of timing I guess
but I will hold for longer term, I think the future is bright for ORL after following it for a while and
search and dig a lot of stuff on it.

JTLP · 17 July 2014

skc said:
Thanks.

Fundamentally it defied gravity for quite some time on the impact of a major reduction in earnings. The market got all rosy-eyed thinking that organic growth will mitigate the impact. But growth takes time and it didn't come quick enough, so the market gradually sold it down, to a level where pretty much no growth is assumed.

The dividend and earnings you see are historical. H1 reported EPS was 12.4c, and H1 typically is 60% of the full year. So annualising that you get ~20-22c, assuming some organic growth in H2. Dividend likely to be 80-85% payout range, so 16-18c for the year. Implying a yield of some ~3.5% or so at share price of $4.75.

The reward:risk was there back around $3.60-$3.80. I am still kicking myself for not actively monitoring it back then.

They will be trying to offset the loss of RL with the introduction of Brooks Brothers - similar clothing store/style. Not quite sure it has the brand mark/recognition yet but they do do some nice things so will see how it goes.

McCoy Pauley · 18 July 2014

JTLP said:
They will be trying to offset the loss of RL with the introduction of Brooks Brothers - similar clothing store/style. Not quite sure it has the brand mark/recognition yet but they do do some nice things so will see how it goes.

Brooks Brothers definitely does not have the same brand recognition as Ralph Lauren has in Australia. It's a net loss for Oroton, IMO.

The question is whether Oroton can make their Asian expansion strategy work. IMO, it's a very risky strategy to pursue. Oroton simply does not have the reputation that the true high couture products (such as LVMH) have in the region. Whether Oroton can tap into the upper-middle class consumers in Asia will dictate the company's fortunes.

I think I'm also right in an assessment that Oroton is opening more standalone stores and with the demise of DJs, I would expect that that market channel would be crimped given Woolworths SA will wish to push its own brands at the expense of third party brands.

I haven't looked at Oroton for quite some time, so I'm relying mainly on memory, but I'd be cautious about holding Oroton for the long term. Their strategy involves a great deal of risk and I'm not sure that the pay-off is worth that risk.

ROE · 18 July 2014

I wouldn't classified ORL as high end luxury, I say they are more like high quality products at middle class price.

I know plenty of people who use ORL products and my family use them as well.
Their price is reasonable for a high quality products.

If you are looking for quality at an affordable price tag ORL is one of the brand
Oroton is very popular with middle class Australian Asian, if that is an indication of Asian taste then
I see great future ahead.

I am prepare to wait for 5-10 years for their strategy to play out...I dont mind going in at this stage, clean balance sheet, decent dividend income, by the time you wait for the strategy to deliver fruit it is too late to get them cheap.

McLovin · 18 July 2014

ROE said:
I wouldn't classified ORL as high end luxury, I say they are more like high quality products at middle class price.

I agree. I think we've had this discussion before, a few years ago. I see ORL's competitors as being more like Coach, Guess, Chanel etc than LVMH.

skc · 18 September 2014

skc said:
The dividend and earnings you see are historical. H1 reported EPS was 12.4c, and H1 typically is 60% of the full year. So annualising that you get ~20-22c, assuming some organic growth in H2. Dividend likely to be 80-85% payout range, so 16-18c for the year. Implying a yield of some ~3.5% or so at share price of $4.75.

The reward:risk was there back around $3.60-$3.80. I am still kicking myself for not actively monitoring it back then.

Just coming to blow my own horn a little bit. Today's result revealed a NPAT of $8.3m, an EPS of 20.2c and dividend of 16c for the year.

Assuming decent LFL growth, continued plodding on the international scene plus full year contribution from the 2 new brands (both loss making in FY14)... a 10-15% jump in EPS is quite doable.

I didn't realise the share price fell off a cliff in the last 3 days before the report (probably due to weak overall market and weak Myer results)... At low $4.1 the forward PE is ~17x. Not cheap but with 2 promising brands at their infancies it seems like a fair price.

Fundamentally here's the best slide from their presentation imo.

But really... what a crappy business ORL is. SBB makes $6.8m in half a year and is only 1/4 of the market cap!

skc · 15 January 2015

skc said:
Just coming to blow my own horn a little bit. Today's result revealed a NPAT of $8.3m, an EPS of 20.2c and dividend of 16c for the year.

If I blew my own horn when the call was right, it seems only fair to come back and laugh at myself when the call is wrong.

The 2 new brands are still underwater, while the core Oroton brand is not being managed probably. Price = margin = image = can't just discount things to move stock. You'd thought that's luxury retail 101.

On the bright side, they did warn in early Dec's AGM that things are not rosy. Anyone listening could have gotten out ~$3.50-$4.

VSntchr · 15 January 2015

skc said:
The 2 new brands are still underwater, while the core Oroton brand is not being managed probably. Price = margin = image = can't just discount things to move stock. You'd thought that's luxury retail 101.
.

Yeah. As soon as Sally left they started on the whole discounting route...and I thought "WTF is Ross thinking". The whole time she was there they both made it clear that they would not discount as to protect the brand image.

It didn't take long for her absence to cause a bunch of headaches. Key (wo)man risk!

Pitty I was too slow to read the announcement and missed the trade. Free fall down to $2.90...that would have made for a good week!

Rainman · 15 January 2015

Retail - and especially fashion retail - is a godawful business in the absence of a genuine competitive advantage. And that ORL simply does not have.

Huskar · 19 March 2015

Horrible result this morning too. Cash balance all but gone. -ve OPCF. Inventories blowout. Not looking good..

ROE · 19 March 2015

Huskar said:
Horrible result this morning too. Cash balance all but gone. -ve OPCF. Inventories blowout. Not looking good..

yeah rolling out too many loss making stores, need to slow down and get some cash flow going first

skc · 19 March 2015

Huskar said:
Horrible result this morning too. Cash balance all but gone. -ve OPCF. Inventories blowout. Not looking good..

I can't believe they didn't get punished more... and I can't believe I couldn't get any borrow to short this.

Cash gone and now in net debt. And what happens after inventory blowout?! You have to do a big discounted sale!

They really should have cancelled the dividend.

Sub $2 soon by the looks on the chart now that the old $2.50/$2.60 support is well and truely smashed.

May be PMV can take it over and fund its expansion. Sol, you reading this?!

VSntchr · 20 March 2015

skc said:
I can't believe they didn't get punished more... and I can't believe I couldn't get any borrow to short this.

Cash gone and now in net debt. And what happens after inventory blowout?! You have to do a big discounted sale!

Agree. I was smiling big time as I could get borrow on this and happily used it on the open at 2.64. Shame that I got impatient and closed a bit early before the afternoon express straight to the low 2.40's arrived.

They really should have cancelled the dividend.

I think this to myself so often. Personally, I am in the firm belief that companies should be far more focused on optimising their capital structure and use of funds rather than focusing on sticking to one path (the dividend consistency path at any cost) in order to please a subset of investors who are in it for a return of capital. I guess it's heavily to do with the franking credit system we have in place..

Sub $2 soon by the looks on the chart now that the old $2.50/$2.60 support is well and truely smashed.
May be PMV can take it over and fund its expansion. Sol, you reading this?!

I didn't want to hold the short overnight for this reason. DJS got snapped up so I would think that the possibility is certainly there...and ORL could fit nicely into PMV's portfolio.

ORL - OrotonGroup Limited

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