In light of recent comment on credit insurance cover, HMV Group wishes to clarify that, following the peak trading period, credit insurers are reviewing the level of cover they provide on the Group. Whilst this has resulted in the reduction in the availability of credit insurance to certain of the Company’s suppliers, our business remains a core channel to market for them. We continue to maintain excellent relations with our suppliers and have had no difficulty in obtaining stock.
But hang on a moment it’s January. After Christmas trading, HMV doesn’t need that much stock. It’s not a busy time of the year. So this statement is slightly misleading.
And having a problem with credit insurance for suppliers is a big problem for a retailer, just ask Woolworths or Zavvi.
Most retailers benefits from generous terms from their suppliers. They sell and bank the proceeds weeks before they have to pay for them. It is known as positive working capital.
Still, at least credit insurance wasn’t pulled for HMV in the run-up to Christmas notes Nick Bubb at Arden Partners.
The only good news is that it has not happened before Xmas, ie this is not a busy time of year, and that suppliers still need HMV. But it is unhelpful to have a potential working capital squeeze ahead of the covenant test in April and any lingering hopes that HMV would pay a final divi have gone out the window. It also increases the pressure on management to make disposals and/or to break the group up, but we have our 25p target under review and unless Mr Mamut adds to his 6% stake it is hard to be optimistic about the outlook….
Indeed.
Although Kate Calvert, retail analyst at Seymour Pierce, reckons HMV will stagger on at least until autumn, when it has to start building up stock again for Christmas.
That’s because many of HMV’s suppliers have to stick with this retailing corpse.
Or as the retail team at Espirito Santo puts it:
The other thing to bear in mind is that, for many suppliers, HMV is now the only scale outlet on the high street and a meaningful part of their business, so it is not as simple as these suppliers just going elsewhere – they will need to share the working capital strain until HMV [has] dealt with its potential covenant breach. However, until this issue is resolved, the shares are, in our view, uninvestable.
At pixel time shares in HMV were 2.75p lower at 23.75p.
Related links:
HMV: it gets worse – Robert Peston / BBC
HMV suppliers face tighter credit terms – FT