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£229m includes lease liabilities of c£40m. This isn’t bank debt so the accordion facility may still be available. Either way it’s far too high and they need to stop digging and preferably find a way to reduce it over the short term.
Looks like no buyers for this atm
My calcs have debt at year end of £180m. In the year after this will reduce by another £8m or so (assuming flat EBITDA of £90m). This is after £20m interest, £5m restructuring and £10m deferred
FY26 you’re generating c.£23m of FCF after £20m of interest and again assuming flat EBITDA of £90m
Biggest upside here is a sale of TICC but that obviously hasn’t happened for whatever reason
29/06 RNS for YE 31/03, borrowings £191m
"At the time of approving the financial statements the Group had an undrawn committed borrowing facility of £22.3m and to the extent to which further acquisitions require more than the committed facility they will only be done so following agreement of the lenders to the use of the accordion facility or once additional funding has been obtained."
Todays' RNS states borrowings at 30/09 were £229m
So presumably they've used £16m of the accordion facility?
Yes it’s disappointing that M&A has continued at such a pace when it was obvious last year they should have batted down the hatches
I disagree re organic growth and think that’s a great area for the business. These sectors are highly fragmented and serves by ageing family run businesses. There is a need for a more developed and sophisticated partner
They really do need to pause M&A now. £9m in the half in interest is not ok
As predicted a year ago, far too much debt & an addiction to acquisitions makes this a very unattractive company. In reality, if they stopped their buying spree I suspect top line revenue would fall & it would de-rate even further...
The below is exactly as I expected & a veiled profit warning;
"Adjusted EPS will continue to be impacted by an increase in borrowing costs associated with higher base rates and an increase in the UK corporation tax rate from 19% to 25%."
Fair value maybe 6-8x forecast PE of 44p, given the level of debt... so target price of £3?
Wasn’t last year the same? The RNS reads as though it was?
So results will be on Tuesday- I take the fact that there will be a virtual presentation, rather than a webcast (which is how they usually deliver results) suggests there is something additional going on
Well the only and latest fact we had was that they were happy running leverage at 2x in July per the IMSM announcement. That was months ago so let’s wait and see what the numbers look like at the end of the month when they issue interims and then reconvene.
Either way there can’t be much downside at £5 and heaps of upside if a divestment comes good. The market at the smaller end has been good the last couple of weeks and there is plenty of M&A about, which has to mean we are at or near the bottom, in general terms.
I’m not sure your number are correct?
I’m working on the basis that they said they would be comfortable operating at 2x proforma leverage I.e £190m (ex leases) when they acquired IMSM. Net debt ex leases was £160m at Mar, therefore adding back £20m of Fcf for half a year (£40m fcf for 24 per broker notes), leaves £50m out of the door on the other bits of non fcf and acquisitions to date.
At some point they are going to get a TIC deal away (surely when not if) and be in net cash.
I saw this today on LinkedIn. Although the chap who joined from Marlowe wasn’t head of the M&A function
I’ve just been trying to work out where net debt will be at the next results. I couldn’t get to a good number
My workings were
Say EBITDA of £45
Less capex of £10m
Less tax of £5m
Less interest of £10m
Less leases of £10m
Less acquisition costs of £5m
Less restructuring costs of £5m
So that’s £0m of cash generation!
Then net debt was £191m at Mar-23. Since then we’ve paid £13m for IMSM. £9m for Clymac and £6m for two others. There’s also £8m of contingent consideration to be paid so that puts gross debt at over £225m!
So the acquisitions must have been paid out of cash?
One line that does confuse me is this “. At the time of approving the financial statements the Group had an undrawn committed borrowing facility of £22.3m and to the extent to which further acquisitions require more than the committed facility” so is this saying that in Jun we’d paid off £22m of debt?
I’m going to email IR
I’m probably slow to spot this, as am sure you industry people will know more, but just noticed that Inflexion PE set up a new vehicle, Celnor, to invest in TIC businesses in October. I noticed their exec team includes the M&A director (until Oct 23) for Marlowe.
Looks like Celnor aren’t focussed on Fire and Water but can’t see why they wouldn’t be interested in Marlowe? Also, clearly indicates there is no current/expected Tic M&A by Marlowe?
FYI inflexion own Alcumus (direct competitor of Marlowe in grc).
Any thoughts anyone?
Ah ok, I misunderstood your earlier message, apologies. I thought you were saying that a fall against the rise of the aim market over the last week or 2 was because there was rumour in the last week or 2 that a TIC deal was off. Whereas you are saying it’s just general debt and interest concerns.
I agree re the rate cycle. Markets pricing in the first cut in H2 24 feels too late. I think the data will weaken through to the end of the year sufficiently that markets will price in an earlier cut.
I think it is just the debt and interest costs. Marlowe has a good business but SMEs are being hit hard
I guess the market is waiting to see what impact
The one good point is rates look like they have peaked and a cut would be fantastic. I think a cut will come sooner than people thinks given the impact on housing etc
Interims are due at the end of the month or so. Not sure why the price is drifting at odds to the wider AIM over the last week. Interesting that you are hearing that the TIC deal is off; I remember you saying you had an industry contact.
I would imagine we are not too far off some strategic action and update of targets, given latest run rate numbers. Let’s see once the results are out….
Just keeps dripping
TICC deal is off as far as I’ve heard so I think we are back to worry about FCF
Really need some good news on paying down debt now
Would be nice to get an update or some good news to shout about
Interesting that all 3 shorts are amending their positions this week and a net increase overall / more bearish view for longs like me.
Therefore, we have to assume they view a TIC deal as increasingly unlikely. From a financial and macro view, I understand this. However, I think strategically Marlowe will look for a deal.
In terms of potential impact on share price: By my numbers and assuming 14x for a deal, the shares would rise to £8.66 ( this assumes no upward revision to rating from having a rump business with net cash, software focussed etc). A no deal scenario and tough macro on the downside and the price could fall to £5 (mainly through multiple compression, not poor earnings numbers- I think earnings should hold in line).
So, potential 50% upside vs 20% downside in the next 6 months or so.
Been quiet on here for a while - anyone any views?
GLG short has just increased 80,000 shares to 0.70%.
Anyone know if they are increasing on any other small cap or roll up stories?
So a very high level trading update, with, unusually no detail around run rate info, strategy, cash flow etc. IMSM is the only acquisition made since FY results late June.
Therefore, my working assumption, like I’ve said before, is that a more detailed announcement re next strategy etc will be made following a TIC sale. Surely if a TIC sale wasn’t happening, then this would have been the opportunity to update the market as a bridge between June FY and Dec 23 interims?
Note the YouTube video posted on linkedin this morning re Phil Greenwood overviewing the TIC division. Given the timing of this, would suggest that they are not selling. They are clear to highlight they have big (£30m+ EV) deals to make in future, in addition to bolt ons
Looking forward to this week. Will we or won’t we get a TIC sale alongside an AGM statement…..
Agreed, the volume has increased significantly the last few days, so I suspect we are not too far away. AGM now 8 working days away, so quite possible that if there is strong trading, the price might rise in the 2-3 days before, regardless of the deal announcement.
Will wait and see….
Yep, i think we’re in the last small dip to offer a trading opportunity, prior to a sale.
Hopefully confirmation news in September.
AIMO
Your a glass half full person.
With the price stabilising at £6, have to assume that the expectation of a deal is still being priced in. With run rate ebitda a min of £95m (£93m per June update + IMSM run rate), then the medium term target of £100m is just around the corner.
Have to assume therefore that if a tic deal is announced, a new 3-5 year strat plan will accompany it, potentially with an accompanying software deal (all conditional on the tic deal completing). Just thinking that it wouldn’t make sense to sell half of your business without clearly indicating what your next plans were.
So where does that leave the price probabilities? Well if they’ve been working on all those things I mention above for most of this year, then they will be committed to a deal, by this point. The price upside odds must therefore have shortened and with another positive agm statement in a couple of weeks quite likely, downside is minimised.
Anyone any thoughts?