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Investec split the business into TIC, Advisory and Software with respective values of £350m, £417m and £171m (total £938m) less net debt £170m and other £25m = £743m (£7.75/share). Multiples are respectively 14x ebit for Tic, 15x advisory and 4x £43m ARR for software. Wacc 10% growth 2.5% in the model - so conservative.
It’s a 44 page detailed note but the theme re the forecasts is very prudent / probably more realistic short term than the house brokers e.g berenberg, where £10+ target has been maintained. Investec are also very clear that the rating is undemanding given the contracted revenues and demonstration of margin progression from integration etc.
Let’s wait for the results but from the time of the last CMD I am looking for a slight beat of the consensus for fy23 and an outlook that run rate org growth is around the 10% mark i.e accelerating further
770p seems low for a SOTP valuation. Can you provide some insight into that and any other points
I agree a raise isn’t needed but there is more than a £50m drag on the equity due to the debt and rising interest rates therefore a raise will drive a rerate it my view
Yes, the Investec note was an initiation on 8th June. Berenberg issued a reiteration of buy and £11.6 target on 31st May. Apologies i am unable to provide a link to these.
I don’t expect a raise to clear debt at this juncture, as they seem comfortable operating at 2x leverage. Tic bolt ons make sense at 7x multiples but grc / software private valuations are still too high to make sense. Would therefore expect them to keep small tic acquisitions on the table for the near term unless interest rates go materially higher.
All makes sense to me
You refer to an investec note? When was this and do you have a link to a copy?
My thoughts atm are whether we should just do a raise. Say £50m or so. I think the slashing of debt would take away any down side risk and we’d see more than a 10% rise in share price
Had problems with my login, and just realised i posted as Everestingly, which was some historic name. Should be Geologika but now looks like I have a pseudonym so will revert back on next post!
Hi,
My thoughts are along 3 lines:
The volume has been normal / relatively low and there is no evidence yet of shorts reducing. Would shorts have topped up if they were confident of the share price dropping? I view this as positive - there are c3m shares shorted which could create a nice squeeze if some or all of these are bought back following the hopefully positive results ( due last week of June).
The Investec note was very positive (£7.7 sotp valuation). I liked the scenario were they conservatively see ebitda doubling in 5 years based on the current platforms, and using growth rates lower than current trading. Clearly, if equity is raised at any point in this timeframe then this would be accelerated further.
The divi / share buyback piece. I don’t see them using this but provides an option for the future.
Therefore, the rise is probably a blend of a few things but should put a nice floor under the price before the results.
Haven't a clue what might be triggering it.
Historically MRL SP used to move like this when they were in the process of taking over a business, but I'm not sure that is the case this time.
Do we think there is anything to this rise? or just positioning ahead of results?
Citation was acquired for 17x and PTSG a similar multiple. This would be ripe for PE takeover who could clear Marlowe's debt and unlock the FCF
Ok, gotcha. Thanks.
It doesn’t generate any cash at all. It’s just a number on the balance sheet but the cash related to it has already been received and spent
It comes from say Marlowe raises equity at £8 and the nominal value of shares is 5p then the £7.95 goes to share premium and the £8 goes to cash
Thanks for feeding back.
If they could use it to pay down some of the debt, that would be my preference.
It won’t add any liquidity. All it is for is to move the balance within share premium to p&l reserves. Having a higher p&l reserve gives you more room to pay a divi or buy back shares
So it’s possibly positive ie small divi (which I think will be so we can access more investors) or a buy back of shares given price is so low
I’m not a fan of either atm with debt high and interest rates still rising
Is anyone with more knowledge than myself able to explain what MRL is doing regarding the below RNS and the "capital reduction of the Company's share premium account"?
https://www.lse.co.uk/rns/MRL/posting-of-circular-and-notice-of-general-meeting-1iq8cv9j3a9ki83.html
Will it simply to aid liquidity???
Up again!
Its just the way of the market. 2.68% short now, 3 players. I have funds arriving soon, hopefully can buy back my shares.
I bought some FRAN today, they have just made another great acquisition taking their reach far more global etc. The acquisition of Perex (Hydraulic hose repairs) was part funded by a placing at £1.80, I managed to buy at £1.68. Crazy.
Perhaps there is a little similarity as FRAN appears to be another amalgamator. Also taken debt up quite high.
Are back in control
Don’t see what the business can do from here other than head down and generate some cash!
Not a like for like business (if anything it’s poor relative) but bought out for 12x this morning
No where near the level of recurring revenue and margins are poor. I was offered to buy an asset from
Sureserve 3 or so years ago. The whole stream of work was delivered by subcontractors, vs Marlowe where you get in-house experts
12x puts Marlowe at north of £10!
No worries. Well in my mind that info is the key to the next cycle: a period of consolidation from mid 22, getting key individuals appointed (e.g. the Ex Deloitte partner on the software CMD call), streamline the platforms and define the next medium term strategy, in the knowledge that they can meet the existing targets organically. New long term targets likely back end of H2 fy22 - surely something like £750m rev, 25% margin, 20% software rev (which fits the quadrupling mentioned in the 22 audited - say £150m). Needless to say this will need significant equity / new shareholders.
Sounds plausible - and can be cross referenced to recent new targets announced by LTG (similar e learning - am a holder).
The share price may ebb and flow in the coming months but I am holding to see this play out….
I have bought SREI (Schroders 6.04%) and am trying to buy CSH (Civitas 9%). Click this link, (you dont need to be on Twitter) this guy posted a list of the highest non equity returns (he is well respected on Twitter).
https://twitter.com/DonaldPond6/status/1640692092425977856?s=20
I worked my way down the list until I got to CSH. There is also a great article about CSH here I found:
https://quoteddata.com/research/civitas-social-housing-time-buy-qd/
Note, some things in the list are not all they seem. One had already done a placing etc. I like the Schroders SREI (Debt re-negotiated for 16 years at a low interest rate, plus not much offices in pf), listen to Schroders interview here: https://www.youtube.com/watch?v=3pygKsU_AJU&ab_channel=SharesMagazine.
The yield was a bit higher when I bought it. I am trying to buy CSH, but being a compulsive small cap addict, I bought I3E (10% P.A. paid monthly) and CAML (7% in a few days) as soon as funds cleared, LOL! Hopefully next week I can buy my planned CSH purchase. Sorry to hijack thread, hope it helps. Shares magazine Youtube channel has a lot of funds and REITS interviews.
Interesting you both think a placing could be an option. I will keep watching, and reading your both very informed contributions. Thanks.
https://wp-marlowe-2022.s3.eu-west-2.amazonaws.com/media/2022/11/Marlowe-Annual-Report-31-Mar-2022-1.pdf
I must be blind!
It’s the interview with the CTO, last question. Quadrupling of software revenues.
Pg19 is a picture?
I do agree though that any placing will be delayed until the price is reasonable. I wouldn't be oppose to a placing but the issue is that GRC or cyber assets would be dilutive
I'd rather a placing to pay down debt and then let the shares recover from FCF
Page 19, 2022 accounts, last section. Appreciate that was written some months ago but the strategy to significantly grow software by acquisition, in addition to organically like Prosure, will surely have just been delayed until markets recover not stopped altogether. As they said on the CMD call, they are retaining the M&A team as see opportunities.
Sorry where is the GRC quote from? With 100 developers in-house now we don’t need to be doing M&A for software we can build software ourselves (prosure 360 being an example)
I fully agree on your view of easier yields elsewhere. I also agree re this being a takeover is speculative. But these areas are attractive to PE
Which REITs are you buying? I would like to add a few but I also want to try and pick up bargains in small caps (I’m 40% cash atm)
Thanks Dartron - excellent comments. Agreed in particular re liquidity currently for small caps and that they are underpriced.
On the yield front, it is worth adding that the FCF yield here is high - and FCF should be broadly stable. They choose to use this cash for acquisitions and are looking through the cycle on this basis and building their platforms for when the market recovers and bigger, equity financed, deals are possible.
Regards a placing, I wouldn’t expect this until H2, (post October) once they have again proven via interims/trading update that the restructuring is nearly complete - and will need a more favourable market backdrop in any case to raise money. That may mean shorters make money in the mean time, for sure. Markets are certainly more positive, post SVB, and current volatility makes a pull back here more than possible.