VIL - Veritas Investments Limited

[Snow Leopard]

sooo..... announcing a "solid half year result" results in the shareprice dropping 7%. My brain hurts....

...The Better Bar Company...
...BBC operates in a highly regulated industry and the new drink-driving
legislation that came in to force on 1 December 2014 has had an impact on the
business, particularly affecting suburban areas. While a known risk, there
has been a larger than expected adverse effect right across the hospitality
sector and the business is closely monitoring how that settles down over time
and actively working on counter strategies. The industry overall has been
slow to react with low alcohol beer and wine alternatives and these industry
strategies are now being brought forward.

Forecast
The Veritas Board has reviewed the forecast for the full financial year
ending 30 June 2015 and estimates performance at the lower end of the range
as indicated in the pro-forma forecasts at the annual general meeting on 25
November 2014. The key determinants of the full year result will be the speed
at which the Nosh business improves, performance of the Hamilton BBC sites
and the medium term effect of the new drink-driving legislation. The Board
will keep the market appraised later in the year...

Maybe?

Best Wishes
Paper Tiger

[Beagle]

Excellent point. Given the change is quite significant you'd have to figure it will have a material effect on people's spend at bars, clubs and restaurants especially when you take into account the fact that a fairly significant percentage of people already arrive pre-loaded with a couple / few under their belt.

Drink driving limit change effect - As predicted on 23 December 2014. Probably a fundamental change in consumer behaviour rather than something that is ever fixable IMO.

[KiwiGekko]

Drink driving limit change effect - As predicted on 23 December 2014. Probably a fundamental change in consumer behaviour rather than something that is ever fixable IMO.

Yep, according to the report today it seems to be affecting the suburbs more than central bars. I would have thought the opposite given in the suburbs you can always wander home. It will be interesting to see how the sports clubs (which have done well out of bar revenue historically and are regional) fare with the new laws over the upcoming winter season.

I have discussed this with some friends and we summised (after a few beers) that a 10 minute walk or a $10 taxi fare is probably a fair catchment pool for a beer after work now. Outside of that it would have to be a special occasion or have good public transport. I haven't gone as far as modelling the suburbs cos frankly I did enough research to see VIL wasn't something I wanted to invest in at present... Maybe someone else has some other thoughts here?

[Harvey Specter]

I have discussed this with some friends and we summised (after a few beers) that a 10 minute walk or a $10 taxi fare is probably a fair catchment pool for a beer after work now.

But you have to get there as well so does that make it $20 taxi? Was that factored in. Also it means all your friends must be within the same catchment.

That's why I think CBD is less effected than suburbs - large catchment of people already there (dont have to pay to get there and back) plus you are already in the same area as your friends/colleagues, plus the CBD is one of the few areas where public transport works (or if you cant be bothered waiting, an Uber/taxi).

[Beagle]

One of the strategies used in Australia to counter this is to focus on food - witness the advent of the "gastro pub". Big name chefs, fancy fitouts, good food at reasonable prices, it takes the focus off booze and getting drunk as a form of entertainment. It also helps reduce the drunken violence and expensive security required to manage the preloaded idiots. These pubs are very popular, and by all accounts, very profitable. In fact, its getting hard to find an old school pub left in Melbourne that hasnt been turned into one. Sadly, half the pubs in NZ are still nothing but beer barns or ones that look like a RSL club (with crappy food to match).

To a large extent they're already doing that. http://doolanbrothers.co.nz/
Anecdotal evidence. I've been on a serious health kick this summer which has involved an inordinate amount of salads from my local Wendy's at Lynfield which is right adjacent to Doolan Brothers pub and I've noticed it a LOT quieter there in recent months than usual. I've tried the food and beverage at Doolan's a couple of times and its pretty good stuff, not brilliant but definitely good. I honestly think this is going to be far harder to fix than company management imagine, (if its fixable at all). I suspect people are tending to get on the turps more with their mates at home and sleeping it off on the couch.

[KiwiGekko]

But you have to get there as well so does that make it $20 taxi? Was that factored in. Also it means all your friends must be within the same catchment.

That's why I think CBD is less effected than suburbs - large catchment of people already there (dont have to pay to get there and back) plus you are already in the same area as your friends/colleagues, plus the CBD is one of the few areas where public transport works (or if you cant be bothered waiting, an Uber/taxi).

It was factored in, although admittedly I would need to retrace the conversation and beverage consumption to remember the details precisely.

I also think your assessment on why CBD bars are not as badly affected vs suburban bars makes a lot of sense.

Cheers,

[Beagle]

Okay but massive capex to get the fit-out to a much higher level and would it be in sync with the theme of the existing establishment or are they risking asking customers for more money ?

In the absence of Snoopy I've had a quick beagle sniff of the accounts of my own.

According to projections of this "transformational acquisition" https://nzx.com/companies/VIL/announcements/258060 the directors touted a forward guidance range of $6.3 - 7.0m after tax equal to a range of 15 - 16.6 cps.
So how are they going after their "apparent surprise" as to difficulties imposed by the new drink drive regulations.
Earnings are $1.75m after tax after accounting for acquisition costs totalling $775K before tax, (crickey there's some well paid due diligence there !!!!!), so normalised we'd have $2.31m after tax. (annualised $4.62m)
Directors are now talking about the lower end of the guidance range but call me a realist if you like but I struggle to see, (given the above mentioned change is taking them by surprise), how they're going to get there ?
Sure they have plans to turn around this and turn around that but as well all know the best laid plans of mice and men...
So let's be conservative and call this as annual expected earnings after tax of double the normalised first half, so we get annualised earnings of $4.62m on issued shares of 44.3m = normalised EPS of 10.42 cps. Apply an appropriate PE for this small company that recognises its somewhat chequered track record, very high leverage and poor interest cover ratio and very limited share liquidity to get to wherever you see fair value ?

[noodles]

O
According to projections of this "transformational acquisition" https://nzx.com/companies/VIL/announcements/258060 the directors touted a forward guidance range of $6.3 - 7.0m after tax equal to a range of 15 - 16.6 cps.
So how are they going after their "apparent surprise" as to difficulties imposed by the new drink drive regulations.
Earnings are $1.75m after tax after accounting for acquisition costs totalling $775K before tax, (crickey there's some well paid due diligence there !!!!!), so normalised we'd have $2.31m after tax. (annualised $4.62m)
Directors are now talking about the lower end of the guidance range but call me a realist if you like but I struggle to see, (given the above mentioned change is taking them by surprise), how they're going to get there ?
Sure they have plans to turn around this and turn around that but as well all know the best laid plans of mice and men...
So let's be conservative and call this as annual expected earnings after tax of double the normalised first half, so we get annualised earnings of $4.62m on issued shares of 44.3m = normalised EPS of 10.42 cps. Apply an appropriate PE for this small company that recognises its somewhat chequered track record, very high leverage and poor interest cover ratio and very limited share liquidity to get to wherever you see fair value ?

Only one months trading of BBC is included in the result. So it is not really correct to double the normalised first half.
The result also included a 600K gain on purchase of Nosh. That will lower your normalised profit as well

[noodles]

Drink driving limit change effect - As predicted on 23 December 2014. Probably a fundamental change in consumer behaviour rather than something that is ever fixable IMO.

Given the recent company forecast, it appears that the good folk on sharetrader were correct on this one. Thanks Roger and other's for raising it.

[noodles]

There were a few things to be concerned about the result today
1. Guidance lowered
2. Dividends that were promised in the AGM do not appear reasonable for FY15 as they are including acquisition costs in their Dividend calculations
3. Nosh is behind schedule and is costing money
4. The new drink driving laws are having a big impact
5. The newer suburban bars are struggling.
6. Mad Butcher was down on last year