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Well as some suggested on this message board last September the sp then was undervaluing this company. I cannot see any reason to doubt future success, but i am often wrong !
Good morning. Does anyone have a view here? Looks like a good trading update to me. And good that they've gone from net debt to net cash (I think) and good that they've extended the buyback
Yep was an easy swing trade. The only thing I can't explain is the £51m of funds held on behalf of customers & why this has been included in balance sheet cash rather than restricted cash? The inflow came in FY23 but unhelpfully there is no commentary as to what is it!
Nothing but the expected positive news/results . The recent dip in the sp remains a mystery, as ShearClass was implying 10 days ago.
Half year trading update 19/01/23;
"The same market factors, combined with our normal seasonality, have resulted in cash reserves of $38.6m (H1 FY22: $41.7m), and total Bank Debt of $107.9m (H1 FY22: $114.6m)."
Full year trading update;
"As at 30 June 2023, the Group maintained strong operating cash balances of $46.9m (30 June 2022: $47.2m) and total bank debt of $83m (30 June 2022: $111.6m). This further reduction in the overall levels of bank debt is in response to the current interest rate environment and results in a Net Debt/EBITDA ratio of 0.67x (FY22: 1.24x). "
That's a very impressive reduction in total bank debt, whilst maintaining their cash reserves. Look forward to the results on 5th September to see more detail on the numbers - however the ~15% drop since the day of the trading update is a nonsense & surely a buying opportunity?
What did i miss,in recent update. Did not catch the very bad news to drive the sp down so much ?
Good to hear the CEO speaking so positively. Seems the market was impressed with a boost to the sp.
Looks good. High end of range. End debt has come down a lot and they've extended the buyback.
Anyone got any insight?
Hope so. Company doing a buyback. Did you see the RNS from April 12th:
"The Board firmly believes that the current market price does not reflect the substantial potential of the large addressable market opportunity of the Group, nor the significant operational progress it has made as it has successfully migrated to a cloud-based SaaS model. This migration further positions the Group to deliver on future growth and enhanced shareholder value."
Quite a big rise in the sp this week albeit from an extremely low point. Perhaps a recovery is on the way.
Hi JustThinkItThru,
My understanding is that the tricky thing has been the underperforming professional services (since pandemic). This can create plenty of profit and cash. But they are non-recurring so have an undersized impact on EV. As a reminder, professional services have gone from 15% to 8% of revenues.
EV is driven mainly by annual recurring revenue (ARR), ebitda and the proportion of business in the cloud. All of these are moving in the right direction.
As a cloud based leader in a specialist category (especially one as defensive as healthcare), Craneware could probably attract a Private Equity valuation of around 10xARR, or 20x EBITDA. Thats huge upside on current share price.
Other than lagging professional services, everything else seems to be on track. EPS lags the integration of the deal and the paydown of debt.
In 2018, was highly profitable (Net margin 24%) and efficient (ROIC 28%): Earnings per share were 59p
Four years later having sunk $400 mil. to acquire Sentry, Net margins are down to 6%, ROIC has dropped to 4% and as yet no increase in operating cashflow.
So either the original business has imploded or the acqured business is a dog. At an absolute minimum one would expect a $400m investment to yield a possitive cashflow, but not in this case - at least not yet.
Have Management given us any reason for confidence in the future outlook - Nope, zilch!
However the company's analysts are forecasting earnings per share of 23p (2023), 24p (2024) and 32p (2025).
So if the forecasts hold true then by June 2025 Craneware earnings will still be 46% BELOW THE LEVEL IN 2018.
Now, in 2018 Craneware had an Enterprise value of $355 mil. when the company was way more valuable than today. So, I reckon the current enterprise value of $474 has a long way to fall before the serious money starts to take an interest in this lady.
I would not be surprised to see the share price settle down at 800p (back where it was in 2016).
I own the stock and bought some more today. It's been very painful.
They did an acquisition at the highs of the markets. This seems to have integrated well but new business growth has been disappointing.
Suppose they havent been helped by the week usd and this has been exacerbated by illiquidity.
BUT. It's a great company with a great offering with an exceptional client netowork. Very stable repeat revenues and a fantastic CEO.
I'm hoping its a great holding for the long term. With the added kicker that it could be taken over at a huge premium by a corporate or private equity.
What do you think?
Well less than 2 weeks after CEO buys large chunk of shares the sp takes a massive fall. Seems very strange surely the CEO has good knowledge of how co. is doing ! Big buying opportunity ? The sp has been falling for some time now,why?
https://www.londonstockexchange.com/news-article/CRW/director-share-purchase/15873602
Good news
I understand that Craneware have exposure to Silicon Valley Bank. Probably worth keeping an eye on this situation
Shearclass, I can't disagree with any of your observations. Stated differently, what you're saying is that under current management the value of the company is greatly impaired, as I tried to point out.
Craneware paid circa $210m (incl apportioned goodwill) for "customer lists" but only retain 90%+ of customers. By all rights they should write off 10% of this intangible asset, so $20m instead of the $10m charged to P&L a/c.
In the end iTAN's are all sunk costs and play a minor role in prospective value of the operation.
However, they do represent cash that has been either well invested or poorly invested (as I believe) and this shows up in CRW's very poor Operating cashflow just reported. We have weaken the business model and there's no escaping the fact.
Let's hope a bigger fish will acquire the operation for its market reach and datasets. If they use a DCF calculation to value the operation then don't expect a premium to the current EV.
"The assets of the company are now close to 6 x higher thanks mainly to the addition of £468m intangible assets."
And intangible assets are relevant why??? Gross profit is what matters if you are looking to acquire this business, historic intangibles are of almost zero relevance to future value IMO.
In 2018 they had a market cap of ~£800m with $52m net cash, so an EV of ~£760m. Gross profit came in at $63.6m, so it traded at ~14x gross profit.
Today they have a market cap of £500m with $60m net debt, so an EV of £550m. In the last results to June 22 gross profit came in at $142m, so it's now trading at ~4.5x gross profit.
Essentially, any competitor acquiring CRW could strip out most of the operating expenses and vastly increase FCF. At the present valuation a bid is a real prospect IMO.
Thanks for the analysis i really appreciate it.
I guess a main reason I'm in the stock is that I believe it's a good takeout target for both private equity and also corporates.
But that's not a good enough reason in itself.
I hope the company update is good.
Craneware was a small, high margin / ROI% unit from 2015-2018.
The assets of the company are now close to 6 x higher thanks mainly to the addition of £468m intangible assets.
As yet there has been no improvements in profits or cashflow versus 2018. Sales, as one would expect have risen sharply.
Management have provided little or no guidance re future profitability or cashflows.
The share price has dropped back to where it was at the end of 2017 (when the company was more profitable presently).
Let's hope the coming update provides a roadmap back to 2018 operating performance, if not I guess the shares will head down towards 1200p.
Hi there.
Can't wait for the positive guidance because stock would gap up.
Also. Because of stable earnings and sector. This is a potentially a great takeover target for both corporates and private equity...?
I was about buy Craneware this morning but first had a look at the management updates / outlook.
In Sept'22 one year after acquiring Sentry and COVID out of the way, Management made a point of expressing their confidence. What I read was ...Sales growth outlook - no comment, no figures, Earnings growth outlook - no comment no figures, Prospective cost / operational synergies - no comment no fugures. Just hot air.
So what was a beautiful company generating circa 26% ROI in 2019/2020 acquired $210 of intangible assets, added $226 goodwill for an operation that generated $10m net profit (ROI 3%). You better expect another $80m of impairments on top of the $20m they made in 2022 in the coming years.
Furthermore, at 3% ROI you won't be generating much cash to pay down those loans in a hurry.
Exit now, wait for some real upside guidance from Management and re-enter.
Good news.
Nice. Hopefully the CEO buying more! But either way, the momentum seems to have run out on the downside. And as you say, earnings should be ok, the company already having guided. I also own National Express which seems good risk reward here (might be shakey over earnings but could double over the next year or 2). Lots of staffing issues, but so did the airlines and that has proven to be a massive buying opportunity over the summer... Do you have any other stock recommendations ShearClass please?
Nice 10k / £145k buy just popped up from a couple of hours ago, explains the strengthening bid & ask this morning. A couple more like that would likely see the price back over £15 and marching upwards again :)