The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Look now 😜
Sell to trumpets buy to cannon fire imho
This will grow slow and steady from here for next several years as Adolfo’s plan takes effect
GLA DYOR
Well timed GC.
Nice bump :)
Check out my “Some analysis” thread started on 17 March. I got some stick for highlighting the risks - especially around liquidity ratios - while also being long on the stock.
Despite the issues, I like the business model, the CEO and the strategy. I also know Capita having worked closely in same industry a few moons ago. I believe it can be turned around to become a huge MS and AWS reseller and trusted digitalisation partner for current customers . I also expect a rebrand soonish
Unlike Interserve and Carillion, Capita is not a FM business. It has a less risky commercial model. But since you bring it up, let's take a look at the Interserve cautionary tale.
Why did Interserve go bust?
Interserve, a major UK outsourcing and construction company, went into administration in March 2019. The collapse of the company has been described as one of the biggest failures in the UK's outsourcing sector since Carillion's demise in 2018.
Several factors contributed to Interserve's downfall, including a huge debt pile and failed projects. However, experts believe that the root cause of Interserve's collapse was its aggressive expansion strategy and reliance on government contracts.
Debt Pile
Interserve had a debt pile of over £600 million, which it struggled to manage. The company took on several large projects but failed to generate enough cash flow to cover its debts. This led to a downward spiral of financial troubles, ultimately leading to the company's collapse. The debt pile can be traced back to Interserve's acquisition of construction firm RMD Kwikform in 2008 for £275 million. This decision, coupled with other acquisitions and investments, ultimately added to the company's financial burden and left it vulnerable to market fluctuations.
Failed Projects
Interserve has also faced numerous project failures, resulting in significant losses. One example is the Glasgow School of Art project, where a fire destroyed the building during its renovation by Interserve. This project cost the company millions and caused delays. Other failed projects include the Edinburgh Royal Hospital for Sick Children.
Aggressive Expansion Strategy
Interserve had a history of aggressive expansion, taking on large projects and acquisitions to fuel its growth. This strategy proved successful for a while, but it eventually backfired when the company couldn't keep up with its debt repayments.
Conclusion
In conclusion, Interserve's collapse can be attributed to a combination of factors, including a large debt pile, failed projects, and an unsustainable expansion strategy. The company's reliance on government contracts also played a significant role in its downfall. The collapse of Interserve serves as a cautionary tale for companies that prioritize rapid growth over financial stability and sustainability.
Comparison with Capita
- We have dealt with the debt pile. It's no longer a risk.
- Yes - Capita did have an acquisition-fuelled aggressive growth strategy, and this, along with overbid contracts, was the cause of it's pre-RI debt problem. But no longer an issue.
- Failed projects. This is a big difference. Like Carillion, Interserve tripped up on construction projects. You buy the materials, the project stalls and you're left with the bill. Capita just doesn't have this model.
So is the comparison justified? Perhaps partly with pre-JL Capita, but not today IMHO
Are the slides available?
I liked the message and the man.
Holding. May buy more if it drops further.
Yeah, agreed. But I’d like an ETA on that “optionality”
Well done AH!!
Good man
Imho it will turn around and head up, TF.
I hope my critical post did not upset you. I’m still heavily invested, perhaps like you. We’ll make good on this together in the years ahead imho.
Remember, buy to cannon, sell to trumpets.
Might do, Trisor. Don’t want to reveal my secret identity though 😂
If it drops to 10p I’ll go all in and apply for chairman job. Already have more shares than Mr Lowholding
Indeed. No disagreement there
No doubt you’re correct. You sound very sure of yourself anyway. For me - perhaps being abnormal or clueless - the world is more nuanced.
Since when is it “not right” for a shareholder to express concerns about a balance sheet?
I’ve also expressed concerns about the chairman’s apparent low level of commitment / investment. Is that wrong too?
Raffles, I am invested. But not with my head in the sand. I suppose I’m posting as a concerned owner. Just sharing my analysis with the other longs .
I’m not a complacent ramper…
…. And total cash is only 155m on the balance sheet, down from 396m in 2022 … so no, I don’t see how they have the onerous provisions covered by cash / working capital
I don’t correspond with IR …. they don’t add anything / PR exercise etc
I prefer to do my own highlights as Capita tends to deploy smoke and mirrors. Here are a couple of points to note from the Capitalizer spreadsheet.
- Revenue is actually down 7% from 2,014m to 2,814m (not what was represented in the presentation 'highlights' where it's made to look like an increase from 2602 to 2649) - but we know we're shrinking so not a surprise
- Gross margin is down from 24% to 21% (reduced revenue vs cost of sales still high)
- operating margin has increased from -3% to -2% (leaner operation but still terrible)
- EBITDA destroyed from 61m to -107m .... because of those impairments and the cyber event. This can be fixed we hope, and the reason we're holding?
- Current ratio is a very poor 49% .... this worries me, deteriorated from a still poor 57% previous year (also see note on 'provisions' below)
- gearing at 94% .... WAY too high imho
- ROE is a negative ... -95% .... all our spilt beer
And what I really, really don't like are the onerous 'provisions' tucked away in the balance sheet: 102m against current liabilities and a further 48m in non-current liabilities. That's 150m of effective debt to customers - apparently ... read the notes on 'onerous contract provisions' ... because of rotten long term contracts imho. Up 20% from 125m last year. What will this grow to next year? How will they burn it down?
Aside from any other consideration, I recall on the results presentation in 22 Tim W stating that we'd eaten through all the bad contracts. Apparently not!
If you consider these provisions as debt then it takes the liquidity ratios into frighteningly insolvent territory. Of course, they are not 'debts' as such, just liabilities. But still, I hate them and they raise reasonable questions about how we will manage liquidity over the next couple of years as this gets dealt with. Hence the low SP I suppose. This is the reason IMHO
Common AH, get this mess cleared up!
Alll IMHO ... DYOR ... GLA
Good for you, Kipper
Welcome to the Big Long!
It will need the June update to move the needle again …
In the meantime it may drift lower, which is great because I will keep buying.
But once we hit the half in August there will be no looking back. If you want a bargain, take it before June imho