The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
I have sold a while ago and I tell to beware this famous discount to NAV. The company is not generating any cash flow as its 12% investment income that it receives every year is accrued and will only come to fruition when the land builder will have sold all its flats which could be in 10 years. We are just at the first stage of the development. Why does the Hirco family has not made any purchase if the stock is so cheap ?
The amount of free shares awarded is simply outrageous and the company is not totally clean in the way i present its P/L. The CEO was awarded 5% of the capital in december although company perf was poor. The share payment amounted to 2.9M last year !! which should be deducted from the opearting profit which would now only be 5M instead of 8M advertsied. Eps is only 4.7p if you include those regular generous share payments so it is misleading to say that eps was 8.7p.
So far all the results of TMMG peers seem to be in line with forecast which bodes well for the future. like Creston, EBITDA level hold up quite well from last year. As a result I am pretty confident of a 3 M operating profit for H1. Good luck to you all.
We went there quicker than I would have had imagined. Note that 3k of shares sold have put the stock on -13%. Directors are not allowed to buy because the trading update will be issued in 3-4 weeks. You are all welcome to sell and drive the price lower : still have some money to top up and average down, The price of this company is becoming incredibly cheap. It is now the exercise price of warrants held by the bank. Verdict in 3 weeks we will see if I was right. Before that, rise and ups are meaningless. Let also point out that small caps are having liquidity problems like in 2009 March : there are no marginal buyer and people who need to sell have to do it at any price. Now it is operating profit that will tell us how much TMMG is worth. Nothing else. PE is now close to 2-2.5x never seen. For those we want to see how ad spending is going on, you can have a look at Creston results which were published this week. They were quite reassuring for the sector. Good luck to you all and hope your patience will be rewarded.
Just has been announced !! Creston disposes its stake in its offline ad agency business for 28m £ taht represents a hefty multiple of 9x profit before taxe 2010. i also saw acqusition of 20:20 by digital maerketing group at multiples quite similar. There is definitively value for TMMG at current levels. operating profit before exceptionals was 5.5m in 2009 do the calculations and you have an enterprise value of 50M for TMMG. Lets' be be conservative take 20m for TMMG ( not taking into account the proceeds from the recent capital raising) you have a group value of 30m which gives a share value of 43p !!
Before that, no real catalyst for the share which seems completely forgotten. note that since 2 months volumes have been anemic which means that the sellers have already sold their shares. In one month, we will have an update on the operating profit and net debts. if activity stabilises from H2, the stock could be trading on less than 3x PE. See my previous posts for calculations. i also encourage you to do your own models and you will see that the stock will look cheap in the light of H1 results. Personnally, i do not expect any bad surprises otherwise david morgan and co would not have accepted to top up at 13p. In the run up of the trading update, the stock could be very volatile down or up. I have been picking up bits and pieces at 11/12p and have decided to stop buying waiting for 10p. We just need one guy to sell a few thousand share to go to 10p. The stock is definitely much cheaper than its peers ( CRESTON and Digital media) and at current price offers a good risk reward. Happy to hear your comments and critics.
MArtin Towers has again surprised by anouncing the disposal of the gas business. This was the division responsible for the fall in the share price from 80p to 26p. The division lost 6.4 m pounds in 2010 and will now increase the eps per share by roughly 20 % so we should have a 2011 eps of roughly 8p. At current share price, Spice is priced 5x eps but is now focuse on a structurally high growth business so it should be traded more in line with its peers at a 10x multiples. No one was expected such a quick outcome and I have only word Hats off mR towers !! That is the end of the slump for Spic stay tuned as we will be back at 80 p in afew months (lets wait for the H1 results).
The whole point of my comment is to highlight that HRG is not as cheap as it looks. If we do an EV/EBITDA valuation the stock look overstretched as I showed in my previous post. therefore, I do not see any takeover as long as the pension deficit remains that high. Although the results ave quite good, the sp has not done anything is because the pension deficitis now quite big. I agree it is the same level than in 2006 but the market cap of the company was much higher than now. The total debt of the company is 2x + the stock market cap. Given the recent credit crunch, that is really a worry. The only way the pension deficit will go down is an increase in the stock market and an increase of the discount rate ( which depends on the interest rates). What will the banks do if the pension deficit comes to 150m at the next trading update ?? The markets are now much risk averse than three years ago. I encourage everyone to have a look at Uniq a UK company who had so much pension debt that the stock is in free fall although they have lots of cash at the bank and are profitable.
I definitely agree on the fact that the group should be valued on 5x EBITDA which would put an enterprise value of 220m pounds. Fine but enterprise is market cap plus debt. Let's look at the debt it is massive as you have 126m of pension deficit debt +77m of financial debt which makes 200m of debt. So it leaves us with a market cap of 20 m !!! And the pension deficit has been growing steadily over the years. I am afraid that the real market value of the group is not more than 10p. Please note that I am being constructive in my reply and many people are forgetting that the group has a ballooning pension debt which will need the group to put more cash on the table which will impact future profits significantly.
Do not get fooled by the apparent low valuations of the group ( trading less than 5x PE) as 2010 is set to become more challenging than 09. Moreover the group has lots of off the balance sheet liabilities and if we include the pensions charges the group has been heavily loss making in the last two years. I personnaly expect the group to increase its pensions contributions quite soon or proceed to a capital increase to fund its debt libailities. Recent economic problems will put a strain on company spendings and the company might have more difficulties in refinancing itself. The group has built its forecast in a progressive recovery of the economy which might be optimistic given the recent macro economic problems we are facing. More worrying is the huge debt that HRG has to face : 1/ The Group's pension deficits under IAS 19 have increased by £61.1m to £126.4m before tax. The UK scheme deficit increased by £64.6m to £115.9m. that is a doubling and exceeds the group current market cap of 93 m !! I expect the deficit to increase dramatically in 2010 as the value of the stock market plunged 20% since march 2010 ( date which the report was published). Expect further losses on this side and the worst is that these losses are accounted off balance sheet. In 2009-2010, the group lost 66m pounds which went off balance sheet. The year before it was 20 m much more than the profit the group can generate and it continues like this the group will have to recapitalise itself as the debt is growing at a steady pace. 2/ this situation is not sustainable and this reminds me of a company called Uniq which is quite profitable and had quite lots of cash but had a whopping pension deficit. The PE is low but the share is in free fall as the group had to give all their cash flow to the pension trust. => do not be fooled by the low valuation as the group is extremely indebted and is not economically profitable ( when you deduct the comprehensive loss from the pensions scheme). With the economic climate showing signs of subdued growth, the company will have difficulties refinancing itself and the group will have no choice than increase its contributions to the pension scheme which will shrink profits.
Today's correction is really overdone has the poker weakness is nothing new and the stock is already 50% off it peaks. The group must have around 50M of GBP cash which is roughly 15p a share. Above all at this price, it is clearly a target of big players as the market is getting competitive and the neterprise value is below 150M GBP. So we have limited downside. The world cup is clearly a one off and after this the poker rates and casino games will stabilise. And we are still expecting a lift of the gambling abn in the US which will boost revenues. Moreover, the group is already cutting costs so should remain profitable. brokers have reduced their forecasts by 15% to 6p which makes a PE below 10x. When you think about it the group had worse problems in 2008-2009 and at worst the activity will go back to these levels and we will have 5p eps.
A real good set of results as brokers had 3.3 p eps forecast and the eps came significantly higher at 4.05p. When you think about it the group generated a 2.6p profit in H2 which is considerable. We can safely bet on a 5p eps for 2010 which would put the group on a 7.5x PE. And there is still some significant growth potential for the group : ** Some discussions are underway to expand the oil rig platform which "could result in a significant change in the Norwegian operations of the Group as well as providing an additional boost in the prospects for 2010 and beyond." ** On the water treatment front, the group signed two license arrangements in January 2010 that could increase amounts processed by 40 000 tonnes every year. that would increase the group waste voulmes by 60%. ** You have the Oman project which will add 2m pounds of revenue in 2010 (2009 revenue were only 6M!) I think the current group valuation is really cheap given the fantastic growth prospects of the group. Nature Group has been consistently beating its forecasts and is likely to go on like this in 2010. I like the management which has always been realistic in its assumptions. Nature group will not remain unknown long by the financial community if it continues like this. You would be stupid to sell your shares at this level.
I have topped up today following the confirmation of the equity placement. I got my shares at 12.4 p which is below the 13 p the vendors agreed to get in. My overall cost price is now 15p which is good value as I am expecting a for 4-4.5 eps this year. I must admit I was fearing that the terms of the placement would be renegotiated. Vendors could have come in and refuse the agreement on the grounds that the sp was trading below 13p. But they did not and that tells you that the company is already cheap enough. We are now in May and H1 is nearly completed so the vendors ( who are now part of the company mangement) and the company have an idea of how the business is looking at the moment. Would they have accepted the deal is the company was losing business or being expensive ? Definitely not.
Sorry it seems that my last message was too big hence teh second part: To conclude, it is very difficult to forecast the eps in 2011 and beyond as there are highly dependant on local fee increases. If fees were to stay flat for the next 2 years, the company would have a 50M pounds shortfall on its earnings which makes 40M with tax deducted => the company would lose then around 5-10p per share every year which is quite a lot. After you have to see if you believe in their cost cutting programme, if achieved it assess that the SCHE could be breakeven in 2012. Do not even think what will happen if fees were to be reduced as it would mean significant losses for the company. It all depends to your view on local fee increase: if you think that they will be 1% or above in 2011 and 2012 then the stock is probably good value and you can target at least 100 p. Otherwise, the share is not so good value and will struggle to generate a profit in the next few years so you'd better sit on the sides waiting for the cuts to happen. At this stage, it is highly speculative so not really a no brainer investment
I have updated my models on Southern Cross on the back of the conference call held yesterday. The management gave precious info about the reasons of the underperformance as well as on the market outlook. And I must say that I think that the stock remains highly speculative at this stage. The P&L of 2011 and beyond is significantly dependant on how big the cuts will be and on the ability of SCHE to mitigate those cuts by better efficiency. The main key drivers of the company profits are: 1. Local Fee increases An increase of 1% of the fees brings around 8M in revenue company impacting the profits by 6 M pounds (tax deducted) which would translate in a 3.2p eps. That is quite a lot especially considering that current profit expectations for 2010 are around 12p. The company said yesterday that councils were doing massive pressure to keep rate flats or even decrease them. Imagine rates are kept flat ( instead of a 1% increase annually) for 3 years that will impact the company by 18M profits after 3 years which is just the profit forecast for 2010 If they go down by 1% YoY over next 3 years that will be disastrous for SCHE which will be loss making. So we have a P&L which is extremely dependant on how big the fee increase will be. 2. Average ratio occupancy That is the second main drivers for profits. This ratio has been constantly going down as local authorities are the main clients for home cares. They have so much buying power that they generally allocate their clients to places with the biggest ratings. One cause of the bad results is due to the fact that authorities gave less clients to SCHE because of its bad ratings A decrease of 1% in average occupancy cost the company 10M in revenue which is roughly 7.5M => 3.7 p in eps. At the moment there are no signs this rate is stabilising nor improving. I also suspect local councils to reduce the length of stays or patients or favor home care in order to reduce spendings. 3. COSTS The third driver is costs which are somehow indexed to inflation and should go around 2.5% and 3% per year. Employees are paid mostly at the minimum wage is is fixed annually and is a very political decision. With annual cost around 800M you see that every year those cost increase mecanically by 20-25M Pounds. The company aims to rationalise the business and save a further 20M of costs so that could hedge the com pany in 2011 but not beyond. The main problem is that cost cutting will impact the ratings of the homes, the less people you have, the worse the service gets. They might turn out counterproductive and drive down the average occupancy ratios. To conclude, it is very difficult to forecast the eps in 2011 and beyond as there are highly dependant on local fee increases. If fees were to stay flat for the next 2 years, the company would have a 50M pounds shortfall on its earnings which makes 40M with tax deducted => the company would lose then around
I did not understnad all that has been happening recently on SYM as we have seen some heavy buying recently with quasi no news ( the NH hoteles news does not justify the share price move). i have sold a third of my positions by caution. So I am wondering what is happening. There should be a trading update on Q1 pretty soon and the recent capital reorganisation news is also puzzling. There is certainly something going on the stock who would dare to buy so much shares on a day where the stock market is collapsing !!
there are increasing rumours of US legalising poker in h2 which give another reason to hold the stock cf a note from daniel Stewart "We are aware of significant moves being made in the US aimed at introducing Federal legislation for the regulation of online poker. �� It is being rumoured that Senator Harry Reid and his pro-legislation cohorts are preparing a Bill that could be introduced into the Senate (where Las Vegas Democrat Reid is the Senate Majority Leader) within the next three months and ready for approval by the President during H2 2010. Although speculative, this could add material value to the shares of a number of key online operators"
Hi all, I have started a line at 77p as the fall could be overdone IMHO. We are close to the last bottom in summer 2009 and there will be a 2p div coming on may 12th according to bloomberg. that will give me a net cost of 75p which great. 888 remains a target in the industry as competitive pressure on poker and games will push players to merge. Moreover, if Q2 started badly it is just 30 days so the trend could reverse and might not be as bas it started in the end. The cost cutting is proactive initiative. Will look to add more if the stock falls further as it is a solid company with no debt.
Personally, I think that now that the debt has been restructured things should be ok for 2010 and 11. The cash was needed to pay the earn outs which amounted to 6-4 m pounds as far as I understand. As long as the operating stands at this level we should be fine, The first repayment is not before June 2011. When you think about it , after the the group will have a debt of 16 m and has an operating income of 6 million pounds. So if things do not deteriorate, the cash flow generated by the group will be roughly 4-6 million per annum so that is enough to repay the debt -as longa s cash flow remain stable. the group had a problem last year as the cash flow conversion was only 3.3m pounds thats is explained by " The cash conversion was adversely affected by a major international contract which required stringent evidencing of expenditure and which resulted in increased debtors, the bulk of which have been collected post year end." the bulk of this money has been collected at year end so hopefully by now the teh debt could be less than the 20 m disclosed (18m could be a better approximation) + 4m from the raising. Moreover, the company has some leeway to reduce its working capital in H1 : working capital was only 4.2m in 08 and went up to 6.4m 09. I decided to buy into this share for two reasons : 1) low valuation and things seem to be improving as H2 went up from H1 in term of operating profit 2) the previous management was crap from crap they did not manage the acquisition liabilities properly nor did the capital raising when teh share wwas at 30 p !! Their interest were not aligned with shareholders. Now things are different we have real managers on Board like David Morgan who will have a big stake into TMMG after the raising. David Morgan is famous in the industry for havings et up agencies several times business and sold them at a better price. This said the stock is dead before the capital raising (June 2) see what happened to the white Young green or Cosalt. Any panic selling would be a buy otherwise waiyt slowly for June to buy more.
The placement is reserved to the vendor and other investors and current shareholders do not have the rights to participate in it. Now the volume below 13p are really small as the guys looking to buy at 13p wants millions of shares. They will be unable to get this amount of shares on the market. No point topping up now as the capital raising is not complete yet. I would either top up at a price close to 10p or wait that the raising is over to buy at 13p.