Naked Brand Group (NASDAQ:NAKD) just completed the management buyout of its New Zealand / Australian retail Bendon fashion stores. Now the company has “$270 million in cash and no debt,” according to a statement by the company on April 23. That means NAKD stock is selling close to or even below its cash balance.
The reason for the ambiguity is that it’s a little unclear whether that $270 million is in U.S. or New Zeland dollars. The company reports in New Zealand dollars, but Naked Group’s recent capital raise of $94.898 million was in U.S. dollars (at the price of 83 cents per share, 80.66 cents after expenses).
The company has not yet reported its 2020 annual numbers or its required 20-F filing for 2020, and has not yet indicated what its Q1 numbers were.
If this “$270 million” is in NZ dollars, then the USD cash amount is $191 million at an exchange rate of 71 U.S. cents per NZ dollar. This is close to the company’s apparent USD $257 million market capitalization. That makes NAKD a cheap stock at current prices.
However, it seems highly likely that the amount is in USD. This is because the company’s most recent prospectus (page 8) details four capital raises in U.S. dollars prior to its most recent U.S. $94.9 million. Those seem to add up to $245 million after the repayment of $10.3 million in debt on Feb. 10 (page 9 of the prospectus).
That is not $270 million. Maybe the company had additional cash from further capital raises. But it makes me believe that the $270 million is in US dollars. This means that the cash is apparently close or over the stock’s market capitalization.
Naked Brand Cash vs. Market Capitalization
I say “apparent” market cap since it is also unclear how many shares are actually outstanding right now. For example, $257 million is the market cap number on the Seeking Alpha site as of May 10. However, the company’s most recent prospectus, Form F-3ASR, states on page 13 that there are now 641.48 million shares outstanding.
Today’s NAKD stock price of 53 cents puts the market cap at $339.9 million (i.e., 641.48 million x $0.53 = $339.9 million). Therefore, assuming that the $270 million is in US dollars, the cash balance represents 79.44% of its market valuation. Cash per share now equals 42 cents per share ($270 million / 641.48 million shares).
Therefore if NAKD stock falls to 42 cents per share, the remaining business after the company’s recently closed management buyout (MBO) will be free.
That business is Fredericks of Hollywood (“FOH”). So far, we have no idea how that business is performing. But at today’s price for NAKD stock, this implies that FOH is worth just 11 cents per share (i.e., 53 cents NAKD stock price minus 42 cents per share cash). That works out to $70.56 million (i.e., $0.11 x 641.48 million shares outstanding).
What To Do With NAKD Stock
In the CEO’s statement on April 23, he made it clear that the company is likely to make a number of acquisitions. Why not? Its FOH business can’t justify higher stock prices until NAKD displays the company’s financials. It now has no debt and no loss-making stores (hived off to management in the MBO).
So think of NAKD stock as a huge pile of cash with an energetic CEO who feels that acquisition could make NAKD stock go higher. Here is exactly what CEO Justin Davis-Rice has said about Naked Brand’s future (emphasis added):
“I could not be more excited to execute on our business strategy to ultimately drive revenue growth with positive free cash flow. Our Frederick’s of Hollywood e-commerce business continues to perform, and we are currently evaluating several synergistic acquisition targets that could position Naked as a strong player in intimate apparel.”
Later, on April 30, Davis-Rice said that the company will follow an “asset-light operating model.” He also said that he sees a “very favorable M&A environment in e-commerce businesses around the globe.” Later on in the document, there was a more precise clue as to the kinds of businesses Naked Brand will buy: “the e-commerce platform, body scanning and artificial intelligence.”
So, expect to see a series of acquisitions. Meanwhile, Naked needs to produce its 2020 and Q1 financials. Then we can see what FOH is really worth. Until then I would wait for NAKD stock to fall below 42 cents per share, its cash balance.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.