HMV Price Doubles!

<%= article.AuthorDisplayName %>

By

Alan Oscroft

Published in Company Comment on 20 January 2012

A new banking deal gives the struggling music dealer some breathing space.

I certainly didn't expect to be writing this headline today. I know the doubling is only from 2.4p to 4.8p, bringing the market cap up to just £20m from £10m, but it's still better news that I would have hoped for at this point.

But why the jump?

It's all due to a very welcome lifeline the banks have thrown to HMV (LSE: HMV), which was all set to breach its next banking covenant tests later this month. Those tests have now been waived, and the next tests -- due in April and June -- are to be reset with what today's announcement called "significantly enhanced headroom".

This has come as a response to a new arrangement struck between HMV and its suppliers, which saw an agreement to grant them warrants representing 2.5% of HMV's equity. Such a grant, which gives HMV's suppliers an option on taking up shares in the future, is a way to incentivise them to help keep HMV afloat; if HMV pulls back from the brink, the warrant holders could make a tidy sum, but if they pull the plug then they'll get nothing.

Debt reduction targets

HMV still expects to be carrying net debt of around £175m to £180m by its April year-end, and to record a £10m loss for the year, but tells us that the new arrangement should help it achieve its aim to halve its debt over the next three years. And that plan does not include any extra cash that might come from disposals made as a result of reviewing HMV's Live business.

Chief executive Simon Fox told us: "These developments represent a material improvement in our financial position relative to the statement we made at the time of our Interim results."

So what does it mean? Well, HMV now effectively has a good bit more breathing space to try to meet its cash flow and debt reduction targets. If missed, it would almost certainly have led to loans being called in and HMV's days as a viable entity coming to a close -- which is something the firm effectively confirmed when it announced its disappointing Christmas sales figures.

Does HMV have a chance of reaching the end of the tunnel now? Yesterday I'd have said no, but today's news means I'm beginning to see some light ahead -- I just hope it's not an oncoming train.

But what do you think? Do share your thoughts below.

> The Fool's latest report has just been published! Make sure you don't miss '10 Steps to Making a Million' -- it's free!

More from Alan Oscroft:

Share & subscribe

Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

LastChip 20 Jan 2012 , 11:16pm

At the end of the day, the business model is broken.

I wouldn't touch them with a very long bargepole.

The sort of stuff they're selling is available on-line at a reduced price - simple as that.

If they're thinking of switching to a competitive on-line business and closing most of the bricks and motor, then maybe they're in with a very slight chance. But the likes of Amazon, make that a serious uphill struggle.

I simply don't see them as being relevant in today's world. It's a great pity, as I remember with fondness the little dog looking down the gramophone horn on 78 records. However, sentiment has no place is business. You only have to look at Woolworths demise to see that.

Dunbidding 21 Jan 2012 , 1:32pm

Well said LastChip; Succinct and to the point. Was holding a few thou HMV and dumpd them at just over 5p. If they now quadruple to 20p within 12 months, I for one shall not be wailing down the grammy

woodesrogers 21 Jan 2012 , 3:37pm

I disagree with the above post, the banks and suppliers have been persuaded that HMV has a viable future otherwise they could have pulled the plug.
The previous trading statement offered a glimmer of hope for the future and with debt restructuring i now expect HMV to have a better than 50/50 chance of survival.

py2kjr 22 Jan 2012 , 1:44am

Well i wouldn't say better than 50% probably more like 20% But that is still far higher than most people would have given it a few days ago. I would not be surprised to see the price open Monday closer to the 10p per share mark as I think it is now worth a punt for those looking for a risky investment.

ANuvver 22 Jan 2012 , 5:42am

Taxi for Mr Nipper? Going to Battersea?

Property cos are going to have a field day, snapping up the kennels.

ManInTheStreet 27 Jan 2012 , 11:32pm

woodesrogers , what do you think the banks can see that LastChip cannot? The Internet has transformed the retail landscape. Their foray into live music is the only area I can see they have a viable business model so can build on their core business experience and skills.

Live music -- selling concert tickets and merchandise -- is a market that they have some control over. But trying to control the IP of bands and artists is not an area they can control, so should not be included in the business plan.

Other than that I see the Internet as gobbling up their market share.

Tis a new world out there!

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.

Get straightforward advice on what’s really happening with the stock markets, direct to your inbox. Help yourself with The Motley Fool Collective, a FREE email newsletter designed to help you protect and grow your portfolio wealth.

By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. The Motley Fool respects your privacy. Please read our Privacy Statement and Terms & Conditions.

For all queries please email CustomerServices@Fool.co.uk or call The Motley Fool on 020 7462 4300 between 9am – 5pm, Monday – Friday.

More articles in this section

Beta

Tags for this article

Alan Oscroft
HMV
Retail Shares

Login or register to add tags.

Beta

Related content