Member Info for Hexam

Hi Wednesday,

Yes, companies often have chunky amounts of goodwill on their balance sheet, usually when they invest in something that produces value over time so that they don’t take a hit of that initial investment on the bottom line - such as the acquisition of a another business.

CPI still have a lot of other assets (£1.8bn) besides goodwill but over £2bn of liabilities. To me that is a concern but as I said only a slight one. A bigger one is the worsening in net debt position and other backward steps in the latest update.

Such concerns will melt away though if they can start delivering sustainable profits that are more than the one-off hits that keep occurring. I’m very hopeful they can - just not quite as hopeful as I was!

"What exactly are these "goodwill" payments? A loss is a loss."

There are no goodwill 'payments' as such (and never can be with goodwill). It's a write down in the value of goodwill included in the assets. It looks like the goodwill in this case relates to the value of future profits expected on parts of the business (or cash-generating units as they call them) and the inclusion of such goodwill is typical especially when businesses are acquired. The company has reassessed the level of future profits included in the goodwill number and concluded they are too high hence the writedowns.

It is a real loss in the sense that previous profits were inflated by the goodwill and the impairment now is simply a reversal of this. Hopefully it should be a one-off but there was an even bigger write-off last year and there is still over half a billion of goodwill sitting on the balance sheet so very possible that there could be more write-downs in the future.

It is also slightly concerning that, without this goodwill, total assets are currently less than total liabilities.

"Clearly saying that the insurance cover will take care of all associated costs."

No, it is not 'clearly' saying that at all.

Crow, I just felt your opening sentence stating GoCPI had 'lost sight of what is what' was a bit harsh but otherwise I agree with what you said and was not suggesting you were being 'mean' at all just 'so critical' simply in the sense of disagreeing with him so much.

It's the 'core profitability' that I am questioning as they keep changing what they class as 'core' in ways that make comparisons to previous years look better - which is disingenuous at best. So with that in mind, and the seeming regularity of one-off hits, I'm not quite as confident as you as to their true underlying profitability.

"You have been a one stock holder for so long (CPI) that you have lost sight of what is what here."

Or maybe he has finally seen the light and rather that it is you (and me) that is blind as to what is going on? I'm somewhat between the two of you actually. I agree with GoCPI that the results were very disappointing and that the business has regressed this half-year. In addition I don't like that they keep changing the way they present numbers, in particular what they do and don't include in 'adjustments', which means they change the adjusted profits they previously posted and enables them to post better looking growth in them (twice they've done that recently). Or, more generally, how they over-complicate their reporting to make it harder to see (and easier to disguise) what is really going on with the business.

However I agree with you Crow that the mcap does look light despite those results and like you am thinking that 28-35p is not a stretch at all. I have lost confidence though that there is much more value than this so, again like you, I'll be looking to make an exit in that sort of range.

A difference between is though is that I wouldn't be so critical of GoCPI as we could easily be the ones that end up having egg on our faces!

The other problem is that exceptional costs that happen every year aren't really exceptional anymore. We've had pension costs, restructuring costs, goodwill write-downs, business exit impact (though some have been positive), data hacks etc. What will be next?

"Yes your right Hex....If you think this is bad try holding VOD"

I do :-(

"Fortune favours the brave if you're worried about prices falling i suggest you sell up and put your money in the bank as the market is clearly not the place for you....."

Not worried about prices falling at all. For companies I'm confident in they represent cheaper buying opportunities but confidence in Capita is being sorely tested by that update today.

Would argue that 'fortune favouring the brave' is just yet another hollow phrase. I would say it favours more those who have the courage of their convictions but are not afraid to reassess those convictions if the company isn't delivering - rather than keep blindly following them, making up excuses for failure and chasing losses by averaging down only because it's a gives a lower number rather than genuine belief it offers better value.

Having said that I did average down today as although I think the results are poor I do think the market has overreacted a bit (and by market I mean investors rushing to sell on the back of these results not due to the mythical MM 'tree shake'). However, I think it's last chance saloon for Capita for me and will see what the next six months or bring in terms of performance of the company (not of the sp).

"The results are positive overall but many seem hacked off due to no imminent dividend."

Not sure how you reached the conclusion that these results are 'positive overall'. Sounds more like a case cherry picking the good numbers (some of which are only 'good' because of changes to the old numbers). My disappointment has nothing to do with dividends but simply due to a set of results that have not built on the recent progress and if anything have taken a step backwards. That's only my view of course but the market generally seems to agree and in fact seems to have taken an even dimmer view than me.

"Suthy I just checked the 2022 annual report for qbt and it seems to have had 0 revenue"

Yes, despite all its problems and many mistakes at least ARB delivered something - unlike like QBT (except in theory, and fanciful theory at that, and yet there are still many on the QBT board lapping up every promise of rainbows and pots of gold however ridiculous those promises are). Just proves you can sell absolutely anything to some people.

"34% jump in half-yearly adjusted pre-tax profit?"

The adjusted pre-tax profit they actually reported last year was £37.0m which would mean a just over 10% drop. So apparent rise they are showing is down to a change in how they adjust things so a bit misleading really.

Overall report seemed pretty lacklustre so not surprised at sp drop so far. Mixed bag of financials and more than a touch of jam tomorrow but not too much to get excited about in any of it. Disappointing.

"Beware of falling for this - trolls claiming their targets are trolls."

By trolls here I meant those who just gloat when things are going badly, bash the stock without giving reasons, claiming bad outcomes are certain when they are not or are simply abusive. Negative views that can be backed up are fine and indeed I think are far more useful than positive views as they challenge the perception of investors rather perhaps just re-enforcing them by simply saying what they want to here. I agree though that 'trolls' can also apply to the rampers that are equally as extreme in their views or are as abusive.

As for Poor your description of him is spot on and I've plenty of experience of his MO first hand (like his accusations of lying when it is him that is not telling telling the truth). I've given up engaging with him though as it's pointless and I just feel sorry for him now.

"You should be hanging your head in shame."

And he (and Poor) are not the only ones. There have been plenty of manic rampers over the last months and years who wouldn't accept any negative views or doubts expressed by holders and non-holders alike. Instead their replies were often smug, pompous, patronising or just plain abusive (sometimes all four). I can't blame them though for holding onto too many of my own CINE shares for too long despite my doubts. That's entirely on me. I just hope others weren't sucked into investing or holding by these clowns or other blindly optimistic LTHs (latpulldown, RS2002 etc.), trading chancers who showed up after CINE went into Ch 11 (FTH, magmanus, sharebel etc.) or those who simply didn't have a clue (maidit, IanHarding, Dean etc.).

There have been plenty of repellant trolls too - but at least they were right in the end.

To all the sensible LTHs though who have lost out good luck with any other investments you have now or in the future and hope you can recover at least some of the losses you suffered here.

You were positive AFTER the placing as that's when you were advising what a good opportunity it was and quoting a possible £1 target. So clearly the placing didn't dampen your enthusiasm immediately so what changed?

...now to be found furiously averaging down on IOG, another company struggling with its debt.

Seriously Chaiwala get your story straight. You posted your 'golden time to top-up, could be £1 by the end of the year' comment the day AFTER the placing results were announced.

You either dial it up to eleven ramping a stock or go into full on troll mode. There is no in between, just you screaming your own book depending on whether you want in or are already in. You're just like Sharebel - only you use fewer words.

Actually it was exactly my interpretation of what Gaz was saying - but clearly it wasn’t yours. Oh well.

No, I didn’t say don’t have ‘any impact at all’. As I did say though I think they are more a symptom than a cause. Company performance and outlook are the main drivers in my view (or at least the sentiment towards these). The rest I believe is just reaction to this or just background noise.

If Boo start delivering or exceeding their forecasts, or there is even just a general confidence that they will, then I feel this will be more than enough to drive the sp up and the shorters away.

Rep - it's all going to and coming from the new company once all the assets have been transferred across to it though it may be a little messier than that until this actually happens (but I think it should only be days, if that, as it's one of the first tasks of the administrator I think and everything has been lined up to take place 'promptly'). In fact it could all be seamless in practice?

I just believe that shorts are much more of a symptom than a cause. When companies are underperforming and/or sentiment on outlook is weak this leads to fewer buyers and more shorters. I think the tide is now turning for Boo so would expect to see buying pressure increase and shorting reduce (and the sp to rise).