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Fishing Republic- the maggots are only just starting to emerge - a retail zero in waiting

By Tom Winnifrith | Monday 13 November 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


When Fishing Republic (FISH) joined the AIM Casino at 15p in June 2015 it published an admission document bulging with red flags which I pointed out in numerous articles HERE. But brokers Northland pumped the stock shamelessly up to well over 40p to get away more placings. But today the shit hit the fan with a shock (lack of) profits warning but the maggots are only now starting to emerge. At 22.5p this is a zero in waiting.

In my initial analysis I flagged up a number of major issues including wilful breaches of planning rules, related party deals with the boss which will see store rental costs ramp up over time and above all the massive stock levels that this company always seems to carry. That made the headline EPS numbers Northland pushed onto mug punters utterly meaningless.

On 25 September Fishing announced half calendar year results and boasted that the "Group remains very well-positioned for further growth, with acquisitions under active consideration.. Excellent progress with growth strategy to build out 'destination' store format and online presence."

Whatever.... I guess that seven weeks is a long time in the world of spinners, maggots and hooks.

Today we were told that

"Since the Company last updated the market in September, the Group has seen a significant deterioration in trading. This reflects a substantial increase in price competition as major competitors and independent stores have aggressively sought to maintain their market share, particularly at the end of the main fishing season. As a consequence of this change in market conditions, for the first time this year, monthly like-for-like store sales reduced, with a decline of 13% in October. This is in contrast to like-for-like sales growth of 16% experienced in the nine months up to the end of September.

Our online business has been similarly affected and, whilst sales via our own website are up 116% and overall online sales are up 24% in the year-to-date, the transition from third party sites to our own website is behind our expectations.

Although there are still two important trading months to come, the Board believes that, unless market conditions change, the trading performance for the year to 31 December 2017 will not meet market expectations and will result in an overall loss. The business remains cash positive and there will be a continuing focus on driving down stock levels."

Hmmmmm... well who could have seen that coming? It is hard to see how the macro picture will get any prettier any time soon. So how fecked is Fishing?

Well lets start with that "continuing focus on driving down stock levels.". Inventory at 30th June was £5.29 million up from £4.26 million as at 31 December. Put another way sales were £4.1 million in the first half with £3.17 million coming from physical stores and the rest online. So as at June 30th the company held just under eight months worth of sales as inventory. That seems to be remarkably high but that has been a long term feature of this business.

My assumption is that to attract anglers to your stores you have to offer a wide range of rods, reels, spinners, etc etc etc. If you have a narrow range of rods, etc you can't compete in what is clearly a crowded workplace. So with an an additional 2 new stores opened in August I wish Fishing good luck on cutting its inventory but I don't expect it to get far.

So in what sense is it "cash positive". At the half year cash was £681,409 and trade receivables were £453,361 but trade payables were £1.599 million and other payables/deferred tax was another £100,000. So in other words cash might have been positive but that is only because trade payables were er..not being paid. Net current assets excluding those inventories which just keep on going up and up and up were MINUS £667,000.

It gets better. The operational cashburn in H1 was £486.000 and on top of that there was another £883,163 spent on opening up new stores and maintaining existing ones. I assume there will be no more store openings in H2 but still, on a pro rata basis, the capex bill in H2 will be at least £400,000 and with trading falling off a cliff since the interims it is hard to see how the operational cash spunk will not be at least £486,000 even if there is some panic discounting to cut inventory. In other words net current liabilities will be c£1.6 million at the year end unless there is a real slashing of those hard to clear inventories.

I put it to you that the statement "the business remains cash positive" is not exactly a full and fair assessment of how completely fecked this business is.

The company has demoted its founder and CEO Steve Gross. He stays on board but will report to new CEO Chris Griffin. Good luck Mr Griffin, how about you start by fessing up to just how utterly fecked the balance sheet is. I put it to you that without a material placing soon, Fishing Republic is going bust.

Sell.


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