Episode 47: Cettire's Woes, Adore Beauty gets Acquisitive, Adir gets it right on inflation and is Centre Parcs the world's Best Tourism Asset?
The guys discuss the polarising Cettire, Adore Beauty's acquisition, inflation continues to reap havoc and why the RBA was wrong to keep rates low for too long, travel booking tips, and Centre Parcs.
The Contrarians catchup
Adir discusses why he didn’t want to fork out $10K for a black American Express card. “You get this special little area you can sit in but it reminds me of an open range zoo. It’s got a rope and everyone’s looking into the maniacs who pay $10k for a credit card”.
Did you know about Qantas’ poor man’s version of Luxury Escapes? Adir booked a five-star hotel and got three nights for the price of two and had “never known Qantas to actually offer a good deal before”.
With Luxury Escapes Business Traveller, companies can set a budget for employee travel and if the invidiual goes under that number, the company can give the difference back to the employee.
Adir: “If you believe in customer centricity, then what you say is we just want to create the greatest experience possible so that when people interact with us, they feel ‘this is amazing’. And that leads to its own benefits, right? Amazing word of mouth, brand loyalty, etc.”
Is Centre Parcs the world's Best Tourism Asset?
Australians don’t know about it and “anybody who lives in England loves this place” - Centre Parcs is like “if you imagine a Club Med property in an English forest, mixed with Disneyland on 400 acres”.
Everyone rides bikes and you stay in apartments, there are restaurants surrounding a suptropical pool centrepiece, waterslides, rapids - something for everyone. Adam was most interested in the corporate story behind Centre Parcs.
Originally started in 1968 by a Dutch entrepreneur who owned a sporting goods giant, it started in the UK in 1987 under the ownership of Scottish & Newcastle, which was owned by Australian businessman, John Elliott (former president of the Carlton Football Club).
Centre Parcs has seven locations that are each worth AUD $1B and the occupancy rate is an incredible 97.7% through the year, with all bookings coming direct. Adam says “this is as good a tourism asset as I've seen in life”.
Adir gets it right on inflation
When almost every economist, banker, and analyst forecast that the RBA would drop rates by at least a percentage point in 2024, there was one outlet that begged to differ: this very podcast [cue flashback audio with receipts].
Christopher Joye, who previously worked at Goldman Sachs and the RBA and is one of the few who have gotten it right in the AFR, this week said the RBA is “is truly screwed and is once again been humiliated by a predictably protracted and now re-accelerating inflation crisis that refuses to tackle for fear of upsetting its political masters who control negotiations over future monetary policy settings” (direct quotes are Adam’s, not Christopher’s).
Adir: “The governments across Australia, their behavior is largely counteracting a lot of the interest rate rises that the RBA has undertaken. To add to that, there might be a genuine labour shortage in Australia. Unemployment remains extremely low by historical standards, but when we had the conversation in December or January, I found it hard to believe that governments were going to toe the line and do what they needed to do in order to control inflation, because it's difficult to get reelected. It's one of the reasons I'm in favor of fixed four-year terms federally, as well as at state, just to give governments a bit more time between elections”.
Adore Beauty acquires iKOU
The $25M acquisition involves $20M cash upfront and will be funded by $30M existing cash pile, plus a further five miliion in 18 months time. Adore Beauty shares dropped about 6% to close at 88.5c, giving the business a market cap of $83M. Bearing in mind the business relisted during the peak of COVID mania for $6.75 per share, meaning a drop of 86%.
Adir: “The problem with this business is a common problem that I talk about a lot. In the first half of this year, they managed to grow their revenue 7% and passed $100M. So it's not a small business. But the problem is they sell other people's stuff. And so that means that only 33% of their revenue was kept as a gross profit. And the rest of it goes to buy the products at wholesale. And when you're only keeping 33%, it's not easy to make money. And at the end of it all, they end up keeping $2.5M out of $100M of EBITDA. So earnings before interest, tax, depreciation, amortisation. They have $1.2 million of depreciation. So they're running on 1% margins, 2.5% EBITDA margins. And so the problem is that they can grow and grow and grow. But when you're running on those margins, it's very hard to grow into significant profitability”.
Adir’s four Ts of transactions:
Type
Target
Total price
Timing
And read Adir’s article in the Australian Financial Review here: Adore Beauty acquisition is a great deal … for the other company.
Listen in to learn whether Adir thinks Adore Beauty’s acquisition nails the four Ts (the AFR headline might be a giveaway).
Adam gets it right on Cettire
As has been consistently predicted by Adam, “online luxury fashion retail platform”, Cettire, announced an horrific earnings update, forecasting that EBITDA for the June quarter is likely to be a couple million at best. The market was horrified by the news sending set higher share price plummeting 50% in a single day.
Adam: “The challenging thing about this business and, as you know, I've been a huge skeptic on Cettire, but there was no smoking gun. Everybody's been looking for one, this is a very shorted stock. We just knew something was wrong, but nobody could work out what it was”.
Adir: “What you're doing when you give people options is your effectively giving them the right, but not the obligation, to buy shares like a call option at a certain price. And if they take up that right, then that's going to dilute existing shareholders. And if the share price is the same as the current share price, then it doesn't really dilute the value of shareholders. Because if you've got a company that's worth $100M and you give people the right to buy $10M worth of shares at $100M, you're going to dilute when they buy the shares, but the terminal's cash is going to go into the bank, and they're going to have $110M company”.
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