There was an earlier RNS where they disclosed would be 13% ahead of last year on EBITDA basis (https://www.lse.co.uk/rns/ADT/trading-and-coronavirus-update-ridb8laa9df849h.html) so results should be nice.
I think this is cheap at the moment and I have just got in. Key points for me are:
- Nice high margin recurring revenue stream is very attractive
- Good operating cash generation given low levels of capex - this combined with recurring revenue is a winner
- Fishwick's have a large stake and Ian's purchase is a big vote of confidence for me
- Big M&A opportunity in my opinion
Risks though are pretty clear:
- That debt pile needs managing. Its fine at current ratio to earnings but got to keep an eye on that
- Could be a risk of more austerity / government spending cuts given the COVID debt and Adepts increasing wins in public sector
- The convertible bond is potentially worth 7% of the outstanding common shares so that needs to be watched as well depending on what things look like when they convert it from a dilution point of view
I've done a full write up on Adept here - http://crispfinance.com/idea-adept-technology-lon-adt/
I'm a buyer and long term holder at these valuation levels though
I had a look at this as anything aerospace is typically trading very cheaply at the moment. When I looked this had a 30% dividend yield and if you believe all lease payments will be made you will recoup your capital outlay within the next 3 - 4 years.
In the end, I had to pass on it though as it just feels like it is too risky. All the aircraft in this vehicle are wide bodied A380s and emirates ceo himself has declared the A380 to be over (https://www.executivetraveller.com/news/the-a380-is-over-says-emirates-ceo)
Makes me nervous what will happen at the end of the lease period and whether equity holders will be left holding the bag on aircraft that no one wants. I have done a full write up on it here - http://crispfinance.com/ideas-i-passed-on-may-2020-edition/
Was interested in this because it showed up on an EV / FCF screen that I use. EV of £25m and cash generated of £10m. Its trading a 2.5x. Then I saw the growth in the income statement. What a gem! Or so I thought.
Did a bit of digging and a couple of things take the shine right off:
- Of the c. £12m cash generated from operations this year, £5m of it was from working capital. Going back to 2010, in no year has cash generated from working capital exceeded £1m. The key driver in 2019 is a £3m reduction in WIP over 2018. Nothing has changed in the operations so this has to revert to the mean at some point. I think cash is over inflated at year end.
- There is a comment in the latest accounts - "During the year our structural steel businesses, Billington Structures and Shafton Steel Services operated at near full capacity." I'm not sure the business can grow much further without further very significant capex to expand capacity. This business is at the peak of its productive capability.
Looking over the results from the past 10 years, looks like this is possibly at the peak of its cycle. The comments from management in the accounts suggest the market softening which also hints towards this.
Not saying share price wont increase in the short term - it still looks very cheap, but not for me until I could see a way for it to grow beyond its current level. One I will follow though as looks like a good business so will try to get in when its closer to the bottom of the cycle.
Quite interested in establishing a position in this one. Valuation is near levels that appeal to me. Just trying to do a bit of analysis on what the business might make this year to get comfortable its not in any risk of going under (which I don't think it is). Think it is only wise to heavily discount MSF from lettings and nearly completely discount sales MSF and income from financial products for 2020.
Trying to get a feel for what makes up the overhead base to see what, if anything, can be cut. Of the £7.5m o/heads in 2019, £5m plus relates to staff. Belvoir has 113 heads on the payroll - much higher than I was expecting. Particularly when you compare to Property Franchise Group which only has about 50 heads!
Would love to know what are they all doing and if the business will change its cost base post Covid...
After doing some analysis, I established a position in this last week. Looks to me that this is trading at a very attractive valuation, and could be a very nice hold with a strong cash flow yield.
*Positive characteristics*
+ Consistent track record of cash generation which I believe to be sustainable at current levels (apart an inevitable Covid dip)
+ I think there is a competitive moat coming out of the number of retail stores that the business currently services (c. 28k) - can't see how someone else would recreate the scale quickly
+ The EPOS system carries an element of moat with it as the retailers will experience some inertia from changing away (it must surely be a real pain to change something like an EPOS system)
+ I've quantified a potential annual decline in PAYG and ATM revenues and can live with that in the context of the current valuation. I'm assuming these go to nil in my val analysis
+ Don't see this as a high growth business but the parcel business and the long term value of the EPOS data they are now collecting gives me comfort that there is a free option of a growth spike included
*Risks*
- The appointment of a new CEO (when it happens). If they are not the correct calibre or present a wildly different strategy to the current one then I will need to reconsider
- Any sustained degradation of the balance sheet to the point where the business is overly exposed to financial risks. I've looked back over the past 10 years financials and they have always been net cash, but now switching to net debt. Don't want to see high financial leverage on this, particularly given the high operating leverage.
- Substantial adverse change to any of the key competitive advantages (primarily a sustained and material decline in the size of the estate) - I'll be tracking this trend closely
- I'm not bullish on bill payments growing but to me the real risk would be signs of rapidly accelerating declines consistently in excess of the 2% decline rate I assumed in my valuation analysis
If you want to see my full thinking I've written up my thesis here - http://crispfinance.com/idea-paypoint-plc-pay/
I'm viewing this as something that will chuck cash off over an extended period of time rather than a high growth business.
I still think there is a likelihood of multiple re-rating giving some nice capital growth in the short to medium term.