Matalan - staying long

All,

The call was strong. Matalan have strengthened their managerial team and have given us a lot of detail we have yet to work through. 

Matalan have come in on target as the thesis is playing out. As per analysis, the company is by no means defying gravity, but is benefiting from two cyclical drivers: high street anti cyclicality (as uncertainty descends over Britain - every 7 years?, the sensible housewife goes back to Matalan - see early 2000s and 2009) and refurbishments (apparently only ever launched when the going gets tough, only to let performance drizzle for long periods thereafter) offsetting a one-off impact: the roll-off of favourable 2016 FX hedges (company calls this a headwind - see FX roll in model) that allowed it to refinance when performance was in fact still poor (the actual gravity defiance). While the last summer 16 hedges have rolled off now, the two cyclical effects will continue - subject to Brexit.

We remain long the SSNs with 4% and may increase allocation.

Wolfgang