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Would you mind telling where I could find the accompanying presentation please?

Yes I think it’s great news.

There is a similar situation with Real Estate Investors. However I think this is much better. When working out a fair value on Real Estate Investors, I thought it appropriate to discount 10-20% of the portfolio as potentially unsellable as they may be empty retail units in dead retail parks or city centres.

That’s a contingency we don’t need to account for here. Everything is occupied and residential. It will all sell and you’re being paid a 9m earnings yield from rents (whether paid as dividends or retained and added to NAV) while you wait. Moreover, valuation risks are now weighted to the upside with rates coming down.

I wouldn’t sell mine for a lick below 130m market cap (71p)

I’ve just topped up on this weakness.

If you take today’s 180m market cap and deduct the amount they plan to return to shareholders from land bank and wind farm sales (87m). The price you are really paying today is 93m.

This is all from memory of the presentation so please don’t take this as read. But I think they said they expect the remaining land business to generate 3m PBT from 20m of capital, the services business to produce around 10m, HRMS 10m and DK recycling had just produced 2.5m in H2 so arguably that makes 5m (having been loss making previously due to an unusual situation whereby the market was flooded with cheap Russian competition).

I’m pretty sure they said they had 4m of central costs to manage all these disparate operations.

If all that remains true after the capital returns to shareholders you are, in effect, able to buy 24m PBT for 93m in the market right now.

In reality these numbers could turn out to be way off as there is cyclicality on cyclicality in all those businesses. Should be plenty of margin of safety at today’s price assuming they can execute the land disposals.

Surprised not to see more of a reaction to today’s news. Don’t get me wrong, I understand that 50k of drilling isn’t a game changer in itself.

But the EU literally willing to do some of the drilling for us surely goes some way to legitimising the project in the eyes of the Portuguese government and any potential funding partners out there.

Anyone

Just in case anywhere was worried (as I was) that Nexus may have some exposure to ISG… I checked with investor relations. We do not.

Broker forecasts look almost certain to be missed here, no?

FY24 forecast PBT left unchanged at 5.5m. This implies 6.3m for H2.

We see today that ADF worked on 38 productions in H124 at an average revenue per production of 304k. This resulted in a loss before tax of 0.8m. To give some context, the legacy business was barely able to scrape a profit before tax of 0.6m in FY23. This was from 84 productions at an average revenue per production of 385k. Whilst they will no doubt be helped by an immediately earnings-enhancing acquisition in H2, the gap between forecast and reality seems too wide to make up in such a short time.

Don’t get me wrong. I think the acquisition looks great and the one stop shop proposition could well put them far out in front of the competition as a market leader. All looks good for the long term. Just feels like you might get a better buying opportunity than today if you wait for them to disappoint on the FY24 numbers.

Hi bangrak,

Do you mind if I ask where you found those forecasts please? I have researchtree but they don’t cover them.

Thanks

This aged like milk

lol

Thanks. Looks like the herd has started to arrive but no stampede just yet

Do we have any IC subscribers who can tell us which REIT was covered in today’s Simon Thomson article?

Not that I’m desperately hoping it was this one or anything…….

Three positives really stood out to me:

1. Positive book to bill in the period meaning that there is tangible evidence of the H2 weighting (especially in the US) rather than mere hope.

2. 30m of working capital unwind in the short/medium term. The balance sheet has always had a little too much debt so this will be very welcome indeed.

3. The sheer size of the extra cost savings they believe they can deliver on an annualised basis. 11-12m more than previously anticipated! If even half of that is achievable and drops straight to the bottom line then we could be looking at 40m+ PBT in the not too distant future.

Easy to say these things, much more difficult to implement. Fair play to them for giving us the yardstick by which to measure them going forward.

Liontrust are a major shareholder. They’ve had consistently large outflows for a long while now. They recently exited their stake in surgical innovations which bounced 100% in a matter of days. That’s a nano so the effect was very pronounced. Could be the same thing happening here albeit to a lesser extent.

2.5m net income for the period. So there’s your 11% earnings yield for the period (or near as damn it).

That’s before rate cuts and the full implementation of the shared ownership rental increases. I can’t see how this isn’t 30-50% higher if/when we get confirmation of the asset disposals and subsequent payment of the floating debt.

Finally got round to looking at the results. It all comes down to the employee remuneration doesn’t it? Historically staff costs as a percentage of revenue had been around 60% as Finncap. In the first FY results as Cavendish these were 73%.

If I take the 35m H2 revenue and annualise it to 70m, assume fixed costs of 14m stay the same and have the staff cost ratio returning to 65% then that gives PBT of about 10m.

Can they get that ratio down? We’ll see.

I am perplexed how the broker forecasts for FY24 have been calculated. They estimate AuM to be similar at year end as they are in today's results. Yet they assume a drop in revenue from 190m in H1 to 160m in H2. They also assume an increase in operating costs from 130m to 147m. Obviously the confluence of these factors indicates a huge H1 to H2 drop in PBT from 48m to 23m.

Seeing as the fee margin in this morning's results of 0.65bps is lower than the FY24 guidance then I can't see how all of these things can be accurate at once.

Does anyone know what the brokers are anticipating will cause such margin erosion in H2? Or are these just stale forecasts that need to be updated?

The obvious answer would be the withdrawal of further chrysalis funds but seeing as the forecasts are for similar year end AuM as at the half year, this explanation doesn’t stack up.

If what you are describing were true then we would not have seen two years of consistent fund outflows from active managers with concurrent record customer numbers for the online brokers (apparently with the exception of IG according to this morning’s results!).

I suppose the difference is probably due in part to more self investment and in part increased index fund investment.

As for today’s results. I’m disappointed that the customer numbers for IG aren’t tracking the AJ Bell, HL and CMC numbers we’ve seen recently. Nevertheless, it’s good to see that shareholders will receive an 8-9% return from dividends and buybacks in the next 5 months alone. If, in that time, the self help measures can improve margins, customer numbers start going up again and the FCA don’t come down too hard on interest earnings then we could see a huge leap in EPS over the next year.

Big ifs but good downside protection from the balance sheet if all doesn’t quite go to plan.

That’s a reasonable position to take. Personally I wouldn’t expect it to bounce back all the way. I think a fair value is in the 60-65m range. That’s around a 9x PBT multiple which fairly balances the risk of further boardroom malaise with the possibility that de-stocking does indeed turn out to be short term and profits return quickly. All underpinned by extremely strong balance sheet.

This looks overdone at these levels to me.

They are still making £7m PBT so the price as of now is a 7.5x PBT multiple. Not to mention that the NTAV unpins 70%+ of the current market cap.

Of course the boardroom fallout raises some questions but the downside protection from the balance sheet and the potential for customer de-stocking to reverse in the near term make for a good buying opportunity at today’s price.

Now trading more or less for Luca, cash, gold and the rest of the listed portfolio

Market obviously doesn’t believe there is any value in the put option, Ideon or golden Sun.

Which creates a great opportunity for anyone that disagrees.