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I agree both. Do I think multiples in PE have compressed? Yes and no. I think for poor assets or over hyped areas but high recurring revenues in compliance I think they haven’t. Also a buy and build platform remains attractive to PE
But I’d take 15x for the lot and cash out so maybe I’m biased
If the shares get weaker from here I’ll add. Was annoying to not be able to ask questions. I really want to know the crack with those debtors
Good analysis. I thought it was telling that several times Alex talked about the strength of the GRC business in it's own right. Pointing towards what's to come potentially. If that happens there will be a significant shift up in the SP from here
Thanks; yes, the broad consensus (brokers and press) seems to be that business is moving in the right direction. Berenberg cutting the price target on the basis of lower multiples has made me ponder that 14x for Tic may be a bit rich at the moment? On the other hand, getting the numbers to work for a 22% roic division must still be attractive even with interest rates at 5% or higher.
One thing from the presentation today was clear, in that (like you regularly highlight) the working capital requirements and restructuring costs are heavy in tic, and selling this would leave us with high growth high margin businesses and refreshed capital structure with a clear angle for international growth in the future.
I’ve said before, the CEO is a serial m and a person and selling tic will enable him to crack on with all the software deals he will be engaging with, without having to wait potentially ages for the markets to recover /ability to raise equity.
Timescale wise, I think I was a little aggressive previously: Marlowe say that it takes4-6 weeks from heads of terms agreed to completion, for a small bolt on. So if Rothschild were handed the mandate in end of May ish we won’t even be at HOT stage yet, so therefore a couple of months off completion / announcement?
Either way, worth holding to see this play out….
Https://www.investorschronicle.co.uk/news/2023/06/29/marlowe-boosts-cash-conversion-rate/
Tipped as a buy
I’m glad to be wrong! Ha
But I certainly think they are sailing close to the wind. We had a 50bps jump at last rate meeting and markets are headed where Marlowe say there is danger. The CFO should want to redeem himself (he’s the one who put us on Sonia rates) to get out ahead of this
Collect those debtors while he’s at it! £33m over 120 days old. That’s a joke
Seems the market doesn't agree with your prognosis. Stock is up. Too much value creation here and Marlowe is clearly still undervalued on a SOTP basis
Exactly as I expected when I researched this a few months ago. They are addicted to acquisitions, it's utter nonsense to spend £15.4m in the current environment when you've already stated the priority was reducing debt! Back to the £4-5 range IMO.
The increase to consideration for acquisitions seems odd. Is there an issue with staff retention?
The debtors point I flagged has got bigger. I’ll try and ask this on the call (if I can)
No mention of any spin off
Lots of deals and money spent post year end (£15m). Going concern note saying interest rates 2% higher would be an issue! Well given we are at 5% and the market is saying 6.25% shouldn’t we be stamping on it now? The FD doesn’t seem to have much foresight
Very good organic growth though shows the underlying business is good. Just need to get some cash in the door (though net debt was lower showing we can generate cash)
I’m thinking a sell off today. Sentiment hasn’t been with us and this RNS scream “more M&A” vs “pay down debt” which I think is what the market will want
Let's keep the chat to Marlowe on this board please
Not a stock I know well but a 10% shareholder halving their holding today following a huge acquisition doesn’t fill me with confidence
Also operations in darker corners of the world is also a bit of a concern
Saying that seems like good cash flows and they do deals very cheaply
It’s just difficult to see value in total when it’s actually a pile of seperate businesses
I’d watch it and see if you can snag shares cheaper than atm. As I say I think markets will fall and all stocks will sell off with sentiment. A good example is JTC. Seems to always trade well but every few months the shares get hammered 15-20% on sentiment
Brooks Macdonald I also like but sold today. Again will fall if the market comes off
Just my views but great to share ideas. I appreciate and respect your insights
Likewise - not my thing either. Yes, let’s see what tomorrow brings.
I am currently looking at Volex - any thoughts on that business?
Thanks. Not really my thing trading on margin
See you here at 7am tomorrow!
Ok, thanks. I have an IG account, which if you search up Marlowe, they have a ‘client sentiment’ section so you can see by the hour, day, week or month the cfd activity and whether these are buy or sells. Cfd trades are usually round numbers of shares (as opposed to retail punters investing via say HL a set £ value) so you can then reconcile that activity to the trades going through (under the trade section on LSE for example).
Fair enough re your sentiment - I hope and expect there will be a sale, although whether this is tomorrow is anyone’s guess.
How do you see that type of info?
Nothing from my side. Must admit I’m nervous for tomorrow. Restructuring costs and interest will hammer profits. Luckily as there have only been two deals since management can guide to strong cashflow for next year and hammer the message that debt repayment is now no 1 priority. I’d also support a raise of c.10% equity (so £55m) to wipe out debt quicker
All the above is superseded if we have a sale of TIC. I’m still holding for a sale of whole group at a good multiple. I think we are headed to difficult times and I’m already 60% cash
What else do you hold or are looking at?
Doesn’t look like the share price drop is necessarily indicating no deal; more likely low volume cfd trades (i.e 7 of the 10 trades today so far are 1k, 2k or 4k cfds) purchased since the Sky article, that are now being sold due to margin calls.
We will find out shortly, either way.
Any more info on your industry insight?
Either way, we will find out tomorrow
Ok, thanks, that is interesting to hear. However, I am surprised, with 2 days to go to the results, that the market still appears to be assuming low probability of a deal; or maybe it’s just that a deal is some way off? If I was Marlowe, I would be dovetailing it alongside the results….
Clearly something happening. I’ve had two calls this week from network panels asking for experts in fire safety to do industry calls
I’m not saying it’s Marlowe related but shows PE still very interested in this space
Ah, ok, good point. Bank’s loan loss provisions are a fair proxy for this kind of thing and at the moment they are low but definitely worth keeping an eye on in Q2 reporting season in another month or so
The old auditors used to put a rather lazy disclosure in to say that there was a rather large balance of lots of small balances which they weren’t auditing. These debts were old but deemed to be trading
What was the point you were interested in re the debtors?
I think debtor provisions should still be manageable - the credit environment is still fairly benign although will surely be tougher in their H2 given the interest rate hikes.
From a share price point of view, I would imagine this is all going to be driven by the TIC disposal in the short term.
Hopefully!
And assume you’re right re auditors. I’m very curious to know what the new auditors will disclose under trade debtors. The last auditors allowed a disclosure that I always thought a bit odd
Hopefully no issues with bad debts from SMEs
Results being published this Thursday which is a day later than previously scheduled - increasing the chances of a sale of TIC at the same time? I see the numbers will be unaudited - this ties in with a new auditor (announced last July) so probably their work needing a few more days to complete.
0.4% / 400k shares of borrowed stock returned to Capital as per the RNS last night - confirms further short closure
I agree in parts this is worth more. My only thought for selling the whole group is that as you say getting 16x atm would be challenging for the TIC business (although what it deserves - citation and PTSG were at those levels)
I think selling as a whole gets us there and let PE have the GRC gain (management roll also)
If we get £12 a share it’s wins all round and the investors at the £10 placing have done well
Re timings, you could be right. These auctions can move quickly and TIC is a sector well known to PE so many will be comfortable with the sector and growth (Cinven own JLA and tried to go into fire safety and lost steam, this would bail that business out for example)
Just mulling timings over - Do you think the timetable for bids / an announcement is alongside the results next week? The Sky report made it sound like discussions had been ongoing for a good few weeks - Marlowe would probably want to tie things in with results announcement, especially now that a leak has occurred?