The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Last year 2020 balance sheet net assets were (£81.1m).
2021 net assets were £296.5m.
So the net assets improved £377.6m YoY ie the net realisable value of the net assets.
Then they have +c£200m cash from disposal landing in Q1.
Ignore the manipulation and hold tight imo
'A better reflection of ongoing profitability is from the adjusted profit figure they give which removes all one-offs and this is £93.5m as it not only removes the gains on disposals but excludes the sizable restructuring costs.'
...and £93.5m is a big improvement over 2020 which was £5.4m...
'Macro factors of holding debt could make the price volatile due to high beta.'
Thats interesting and of course unknowable.
Can use the capital asset pricing model, modern portfolio theory etc to calculate something mathematical but in reality 2 stocks with the same high beta can behave differently price movement wise.
Having a certain amount of debt and its tax advantages also reduces the average cost of capital for CPI ie Debt/Equity .
CPI has reduced headline net debt to adjusted ebitda pre IFRS 16 from 2.7x (2020) to 1.7x (2021) and have targeted 1.0x over the medium term.
@aim, yep, interest rates and inflation are a big concern for business that cant pass the increase on through revenue. But CPI model does provide a certain amount of protection:
'66% of client contracts include inflation linked escalators
22% are fixed price with indexation assumptions built into contracts
12% of revenues are transactional so naturally hedged by updated pricing'
A simple cost plus model will probably not win a bid based on price. Given the competition are also low margin, this must drive commercially creative solutions/ lower cost of bums on seats/ scientific improvements and/or industry consolidation.
So while we await an rns for each contract win, and trading updates, we might also see industry consolidation now that cpi is restructured to make that simpler aimo
@Aim, yep, thats why I am not all in here and looking for confirmation.
In particular, an RNS for each of the big contracts they targeted this year, based on:
'£9.4Bn unweighted pipeline in 2022
BBC TV licensing -WON
Utilities sector - H1
Technology business - H1
NHS England - H1
Financial services - H1
Financial services - H2
DWP - H2
NHS Scotland - H2
66% of client contracts include inflation linked escalators
22% are fixed price with indexation assumptions built into contracts
12% of revenues are transactional so naturally hedged by updated pricing'
@no1, no I dont think so. Thats just one item they addressed in the transformation so they can go forward with a clean sheet.
' Transformation is done - platform in place
• Simplified structure of two core divisions established
• Attractive markets, client-centric model and deep sector expertise
• Driving revenue growth in 2022
• New operating model creates efficiencies and productivity benefits
• Continuing disposals to strengthen balance sheet • Positive sustainable free cash flow to be delivered from 2022'
page 30
https://www.capita.com/sites/g/files/nginej291/files/2022-03/FY21-Results-Slides.pdf
@no1, see page 45 for the net debt reduction to £879.8m
https://www.capita.com/sites/g/files/nginej291/files/2022-03/Prelim-Statement-2021.pdf
The RCF info is from the the presentation slide 'strengthening the balance sheet' page 14
https://www.capita.com/sites/g/files/nginej291/files/2022-03/FY21-Results-Slides.pdf
@Aim, the net debt has reduced from £1.1Bn to £880m at year end after disposal proceeds and will reduce again in 2022 with additional disposal proceeds already received in 2022. In H2, operating cashflows may also put a dent in the remaining debt and the pipeline certainly underpins that.
I think the disposal programme included loans secured against disposal assets so needed to be unwound. The RCF facility gives flexibility to use funds across the business not tied down like that, whilst reducing the net debt imo
It looks to me like another £0.2Bn debt reduction around august time. Weller did say the cashflows are lumpy and I am sure he will manage them better when they can be used, revolving over the whole business, not tied to a particular asset/ business combination aimo
'Unless you sell for tax reasons.'
I wonder about tax reasons and still learning so not advice...
An example might be tax relief at your highest marginal rate when you pay into your pension, say 20% or 40% tax relief. You buy CPI and then the SP drops 20%. You might consider you have lost nothing at all, just avoided tax, perhaps increased your investment by net 20% if you are a higher rate tax payer.
Where as you might put money in an ISA. This money may well have been taxed at 20% or 40% from your salary when you received it. Then the SP drops 20%. You might consider you have lost 20%/40% to tax and a paper loss of 20%.
I am buying for my sipp to avoid tax and hedge SP falls. Just my personal perspective and not advice. The irony of investing in public sector service is not lost on me
if you think old CPI is done:
£9.4Bn unweighted pipeline in 2022
BBC TV licensing -WON
Utilities sector - H1
Technology business - H1
NHS England - H1
Financial services - H1
Financial services - H2
DWP - H2
NHS Scotland - H2
66% of client contracts include inflation linked escalators
22% are fixed price with indexation assumptions built into contracts
12% of revenues are transactional so naturally hedged by updated pricing
Transformation is done - platform in place
Simplified structure of two core divisions established
Attractive markets, client-centric model and deep sector expertise
Driving revenue growth in 2022
New operating model creates efficiencies and productivity benefits
Continuing disposals to strengthen balance sheet
Positive sustainable free cash flow to be delivered from 2022
Strengthening Balance Sheet
Existing RCF maturing 31 August 2022 supplemented with £300m RCF maturing 31 August 2023
Disposal proceeds of £95m received to date in 2022 with further proceeds of £115m expected on the Trustmarque
disposal, also announced Speciality Insurance disposal
In early 2022 we exceeded our £700m target proceeds (subject to successful completions), ahead of target
Strong liquidity at 31 December 2021 year-on-year movement reflects debt repayments and RCF reductions following the receipt of disposal proceeds
Private note debt maturities totalling £221m in FY 2022 with £213m repaid in 2021 (all net of swaps)
Includes £78m in respect of exited London HQ but excludes related £73m lease receivable
Useful to remind me the grass needs cutting and stop looking at the SP!
Something to read over the weekend if you havent already
GLA
file:///C:/Users/Mum&DadsPC/Desktop/FY21-Results-Slides.pdf
'How can a company with locked in multi million pound contracts only have an MCAP of £350m.'
Net assets at year end were £296m. Could add disposal proceeds receive after year end and adjust for any longterm drag on profits/ cashflow
Sybex £23m
SSS £72m
Trustmarque £115m (plus £3m on future event)
Speciality Insurance (undisclosed sum?)
Mind you, 2020 the net assets were negative £89m so quite a turnaround
Aim, i agree with you. Also says will grow sustainable cashflow in 2022. My point is the cash driver is disposals in H1 and from revenue less costs (operating profit) in H2. Weller says a saw tooth pattern for cash which I take to mean milestone receipts on long term public sector contracts when they are received (ref march/ april public sector year ends) vs revenue and profits over the periods in which they are earned for accounting recognition.
I think they have c£215m debt maturing this year and they say they got it covered without resorting to new finance
Aim,
I think 'weighted to the second half' relates to operating cashflows. H1 is underpinned by disposal proceeds. Also march/april is expected to have favourable cashflows from public sector year ends according to Weller in the webcast q&a. 'Saw pattern' is what Weller said..
@Hexam, I just had a read of the post balance sheet event note on the preliminary statement and it says..
'The following events occurred after 31 December 2021, and before the approval of these consolidated financial statements, but have NOT resulted in adjustment to the 2021 financial results'
All 3 deals are therefore incremental cash and must be good news? Also, the profit and loss on disposals are likely to be in respect of historic accounting costs ie the cash has already been spent in prior periods so that the gross proceeds increase cash and are available to pay down debt, circa £200m+
Sybex £23m
SSS £72m
Trustmarque £115m (plus £3m on future event)