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Tend to agree with you both. The market hates uncertainty and is trying to price in a lot at the moment. As ever, it will over estimate to the downside in lieu of facts about what’s going on. Hopefully the new CEO knows what he’s about and has also run the rule of the company before taking it on so he knows what he’s up against. As soon as the closed period ends he could buy some shares himself which would help restore confidence in the short term, and then just publish the results! Better to get all the bad news public quickly so as to tie it to your predecessor…
Wow that was clearly on a very different level from what I can mange
FYI, KPMGs resignation letter as auditor in 2022, and the company's response to it is below. Relates to the accounting treatment of the CMA fine, ie the £8m provision made in 2021 accounts, and KPMGs view of the process by which the Board signed off on this treatment. Despite these concerns they still signed off on the 2021 accounts, as Deloitte did on the 2022 accounts. FWIW I don't really care about accounting treatment of the CMA fine, my base case is they eventually have to pay the £8m in full plus some CMA costs of £1-2m. Anything less is upside. Again me saying this doesn't preclude some other issues, technical or otherwise, with the delayed 2023 accounts...
https://www.alliancepharmaceuticals.com/media/gdgnqciv/circular-080822.pdf
For me the main risk is weak trading and more downgrades, but I hope them pointing to Jan trading update as recently as yesterday means this is not the case currently. I don't think the board / Numis Deutsche / Investec (blue chips in small cap world) would let them mislead on this point.
I should say - those EBIT multiples I gave are EV/adj EBIT multiples.
Even if no profit growth for next three years (v unlikely in my view), and if it only rerates to 8x EV/EBIT (v conservative in my view vs peers), I see c.80% upside at least from here simply as the business should reduce net debt to about £30m by 2026 even after paying the fine as interest costs will come down as debt reduces.
£41.5m EBIT x8 = £330m EV, less £30m net debt in 2026 = £300m mcap vs £165m today, ie 80% upside over 2-3 years. Excellent risk vs reward imho.
In reality (assuming nothing more nefarious in the accounts - which is a known risk) I think they will return to growth in 2025, reinstate divi and rerate to something more in line with historic rating of c.10x, so think my target above is pretty conservative in terms of both timing and share price. Also opportunity for further M&A which I think on the balance will lead to upgrades and be positive for the story.
Good post. A few additional points:
+ve. They've repeatedly pointed to their Jan trading update saying everything in it remains valid, ie: 2023 inline with cons ie £183m rev, £45m adj EBITDA, £41.5m adj EBIT, and net debt £92.4m, so leverage 2.05x EBITDA . AND importantly for 2024, revenue growth (ie £185-190m?) and flat profit ie £45m EBITDA and £41.5m EBIT.
-ve. CMA investigation. They've been found guilty (in 2022) and have provided for £8m fine but not paid it as they appealed, which was heard Aug 2023, no decision yet. I've looked at the CMA decision document (CMA website) and seems more likely than not that the appeal will not succeed so they will have to pay the fine. Personally I think this is already 'in the price'.
+ve. Balance sheet looks fine. Net debt £92.4m at y/e, should be lower now. Business is v cash generative, capex c.£2m, interest £9-10m so post tax should generate about £25m FCF (ie 45m EBITDA - 2m capex -10 interest) less 25% tax. Maybe a bit less due to working capital investment for growth (£2-3m?) and a few exceptionals (£2m?), it should generate £20m FCF. Even if they have to pay the fine plus costs (say £10m) net debt should reduce by about £10m this year to £80-85m. Note covenants are 3x leverage vs adj EBITDA (2x currently) and 4x net interest vs adj EBITDA (4.5x to 5.0x currently).
-ve. CEO has left. My take is it was related to the above - he was likely to be disqualified from being a director if the appeal failed. Think its probably on balance positive that the Board (which has been refreshed and looks high quality) is being proactive to have a new CEO in place before the appeal ruling.
??. Accounts delayed. Don't know why, seems many companies have had this happen this year. But delayed 4 times is very poor, especially with no reasons given. We know though that Deliotte was appointed 2022 and signed off 2022 accounts when all the CMA issues already existed and when debt was higher and profit lower. I think uncertainty the delayed results have caused is main reason for SP being where it is.
+ve. DBAY biggest shareholder at 20%. Good track record, and potentially could take it private. I also note Apax were sniffing around with a rumoured 70p bid early last year. No TR1s yet to see if any changes.
Overall I'm bullish at this price, I think this is a decent business that has built up a portfolio of quality global consumer healthcare brands, has demonstrated a consistent / predictable revenue profile and good cash generation. Consumer health businesses should trade on 10-15x EBIT (Reckitt on about 11.5x, Haleon on about 14.5x); Alliance can be had for c.6x EBIT, and after the fine has been paid it will throw off cash, degear rapidly and reinstate divis.
Obvious risk is that something more nefarious is going on with the accounts so understand those who want to sit it out. For me the main risk is weak trading and more downgrades, but I hope them pointing to Jan trading update
Bailey - 'we will cut more than markets are currently pricing in'
* new director who has considerable experience/
* growing revenue last announcement did not have the two newest companies accounted for
* World wide reach
* New releases
* Revenues as expected.
* Some problem with accounting - a little strange for a company that large ?
* A director leaving Is ther some scandal something dirty looming .
ONLY TIME WILL TELL BUT WELL WORTH KEEPING ON ONES RADAR.
Dartron.
You sent a link from 2022... It's 30 months old???
It is part of their job, however previous auditor quit because they had some concerns about governance.There are some issues can be minor or.... . .but we can only comment once results are out.Delaying results three times does not sound good and there has to be a good reason behind it.
Cora head of IR seems very calm and painting a very different picture to the sheer panic on these boards. Blackrock benefiting from their open short....so far.
Alliance Pharma PLC, down 19% at 26.00p, 12-month range 25.18p-73.04p. The distributor of consumer healthcare brands and prescription medicines says CEO Peter Butterfield has decided to leave the company to pursue other business interests. Following a "comprehensive" search process, it appoints Nick Sedgwick as new CEO, starting on Monday next week. Butterfield will remain with Alliance Pharma until June 30 to facilitate a "thorough" handover. Butterfield joined the board in 2010 and became CEO in 2018. Alliance Pharma also notes that its 2023 results will not be published on Tuesday next week as its audit continues. It says that the details of its January trading update remain accurate.
Agree..and I got out first thing
It looks like there are some issues that auditors are concerned about and are refusing to sign off.
Along with the fine Butterfield was facing a possible disqualification
https://www.standard.co.uk/business/alliance-pharma-boss-faces-disqualification-after-cma-probe-b1022629.html
British healthcare company Alliance Pharma suffered a major blow today after it announced boss Peter Butterfield could lose his job as company director following an investigation by the UK competition watchdog.
Butterfield, who has been CEO since 2018, is set to face a Competition Disqualification Order by the Competition and Markets Authority for his involvement in alleged anti-competitive practices in relation to the sale of prescription anti-nausea tablets.
Agreed - doesn't look good at all. This is going to go down for a while yet before it has any chance of going up. I'm going to wait and see what the new CEO has to say. 'Other business interests' for Peter? Pull the other one...
A bit of a whiff here, I would say.
Ceo leaving obviously for good reasons (and maybe more that we don’t know of yet) and further delays in accounts
I would not describe the fine as peanuts, as it is over £7M. But they do already have this money as a provision on their balance sheet. That said, this is selling off like there will be a placing. Recent lesson learnt from AGFX. Expect it will be touted as positive, to buy something or develop the business, just like AGFX. Price action is too obvious and Black rock have hung on at 1%. Cant see any other reason for such dumping and lack of buying from DBay etc.
The fine had already been declared and was peanuts. It's the appeal we are hearing to learn about. Won't make a difference really either way.
Kirkyrip has an absolutely correct interpretation of the situation, IMHO.
I doubt it's a manpower issue. I expect it relates to the elephant in the room, namely the outstanding litigation. That was supposed to have been sorted by the end of 2023 but hasn't and for whatever reason the auditors don't believe they have the full picture. The fact it is ongoing suggests further legal fees etc and maybe more.
I've sold out this morning.
This set of accountants are beyond incompetence! The company should sack the lot at the first available opportunity. How can it take this long?? Put more people on it if needed! Grrr
Certainly not a good sign… hopefully there is no more bad news to come!
Disappointed that results have been put back a couple of weeks. Smacks of weak management. Far more complex businesses can report in this timescale.
Shareholders deserve some good news!!
The trading update has no bearing on the dividend, which was cancelled over 4 months back in the interims. Even if they wanted to pay a dividend, the largest share holder is not in favour of it. The update is ok, but not great in my opinion. I would have liked to see net debt reduced by more than 2M over last 6 months. Not much to look forward to, according to the board. Lets just hope that this gets taken over within the next year, so investors can see some return. Blackrock are slowly closing short position so we may see some upside in the mean time.