Member Info for Jpl26

Nige,

Tend to agree but that's the 64 million dollar question - can s4 deliver £100m+ of FCF? - if it can then this share is worth double today's price. I have my doubts for next year but the key for me as long as they generate £50m+ next year AND put out a positive outlook for 2025 then I think we will be in good shape and the sp will rerate.

For those that are interested the Morningstar website publishes a list of institutional buyers and sellers (it’s free) - I noted in the past week Barons have fully exited their holding in s4 (8.5m shares) , this is in addition to Fidelity’s full exit which was completed last week having been started several weeks ago. Let’s hope this marks the end of the selling pressure and the sp can stabilise and rise from here.

Agreed and with 50% of the market cap of the business represented by cash and an unchanged PBIT for 2024 of £15-20m I cannot believe how cheap this business has become. If WJ ever gets back to near its 2021 performance of PBT of £51.1m it will seriously multi-bag from here. I have used this week's SP weakness as a good excuse to add to my position. As always DYOR.

Agree, sadly I think we will see this open below £1 today. Talk about destroying shareholder value, these clowns need to be replaced or the business taken over by someone who know how to run the business.

I put today's fall mainly down to the gloomy results & outlook from M&C Saatchi & I also suspect for this reason and the lack of positive news from S4 (re whoopers etc) that next weeks results will not be overly inspiring.

However in the long run I believe S4 are currently laying the groundwork for a business is capable of growing exponentially and eventually this will be reflected in the share price - especially as net debt falls towards the back end of 2024.

Finally, and tactically, with elections looming in 2024 (in the US and UK) not only do I believe that the incumbent regimes will do all they can to manufacture a mini economic boom, I also think digital communication will be the key tool used to communicate to voters. Both should provide good tailwinds for S4.

In the meantime, I'll do my best to ignore the SP.

IMO one of the biggest issues with S4 is that there are no institutional buyers for the stock and liquidity is therefore provided by a multitude of small investors who are prone to sell at times of stress - what we are seeing is relatively low volumes grinding the SP down day after day. One of the main reasons why there are no institutional buyers is the existence of SMS's B shares which give him greater rights than other ordinary shareholders. Because of these B shares, S4 is not listed in the FTSE250 which reduces demand for the shares from tracker funds as well as normal funds who will not buy due to ESG concerns. If SMS converted his B shares into ordinary shares the SP would receive an immediate boost and also in the longer term provide a deeper pool of potential institutional shareholders which would underpin the SP.

In terms of directors buys - they do seem to have plenty of skin in the game already with many of them having taken S4 shares in exchange for their businesses (which must hurt) - the exception to this is Mary Basterfield, the CFO, who is sitting on a laughably small holding of 20,000 - hardly confidence inspiring for the person closest to the numbers.

I will remain a holder of these shares as I believe next years projected performance will be a game changer and result in a re-rating.

GLA

Hi Advertisingman,

I agree with most of what you say, and I am also heavily invested in s4, in future I can see this trading a significant multiple to todays price -but the business does need to deliver at least this years profits to stabilise investor confidence so it could be a long wait, in addition I think one of the issues holding back the share price is ESG concerns related to SMSs additional powers connected to his shareholding which were granted when the business floated - my understanding is that because of these powers S4 is not in the FTSE 250 and as a result is missing out on tracker funds having to buy its shares. If SMS relinquished these powers we could see a material re-rating - I think we saw a similar thing happen at THG recently.

Agree, decent start to year and in line expectations for full year. This should underpin the share price for now. Will be interesting to hear from SMS at 9am webinar. hopefully we will get a positive update on his health, which would provide a boost to SP.

Having held for over 18 months I sold out this morning - while I can still see why some think this could multibag over next few years (and it might) - I think the management have missed a once in a decade opportunity to sort out the pension issue - it looks like they have made almost no progress on this even though the triennial valuation should have been agreed with the trustees 2 years ago. With interest rates back to where they were last summer the window of opportunity to settle the pension favourably has now closed. As a result the business continues to pay £53/54m p.a. into the pension for the next 3 years at least. Given the lower profit expectations and admission today that they are drawing on the revolving credit - unless they improve profitability quickly I can see the dividend being materially reduced as I cannot see the banks agreeing to fund them. Not one for the feint hearted - GLA

Almost hidden at the bottom of todays rns is an inline trading update which is also reassuring

It's less than a week since Morgan Stanley upgraded to overweight with a price target of £4.10 - they commented that they "were confident in Darktrace's product and market positioning" and also a week since Jack Stockdale (CTO) purchased 60,000 shares at 2.429. I give these events significantly more weight than a poorly written report by QCM which by its own admission focuses on alleged events prior to the IPO and largely to do with Autonomy. I for one will use the SP weakness as a good time to top up my holding.

Sadly I agree - there are only two reasonable explanations- 1. forced seller or 2. leaked outlook statement to go with year end announcement- given the historical naivety of the senior team (eg CTO) selling down in November - I fear a leak is more likely, I hope that I am wrong

The reason for the fx issue is that Dark report all revenues in US dollars - so when the dollar was stronger in October they were expecting UK and Euros to be worth less - with the recent strengthening of GBP and Euro against the dollar this will result in higher reported earnings in US dollars - there will be a slight lag effect to the improvement as the Dark policy is to fix the FX rate at the time an invoice is issued.

Cookie, the biggest reason for the low sp is market concerns on the pension deficit. Reach has to pay £50-55m a year into the pension until 2027 - this means over half the expected profits will go into the pension for the next 5 years. The company was supposed to have a agreed a new pension payment schedule with the pension trustees by March 2021 - so far they have not been able to reach agreement. My view is that when the pension is revalued it will show a large surplus and because of this Reach are likely to want to reduce the annual payments - clearly not something trustees are likely to accept - hence the stalemate. The annual report of 2021 states that for every 0.50% rise in interest rates the pension deficit improves by £195m hence my optimism on the deficit. The annual report also says the deficit worsens by £31m for every 0.50% increase in inflation - clearly this is a negative but a much lower number than for interest rate rises. I think the lack of reference to the pension in the recent announcement can only be for good reasons - if it was negative news I would have thought the directors would be forced to mention it. IMO once agreement on the pension deficit is reached the share price should re-rate rapidly.

Reading thru the placing prospectus it looks like the pricing for the new shares will be around £1.00 - based on 89m new shares and gross proceeds of £90m. Given that the placing represents around 20% of the issued shares then the theoretical impact should be not too bad - possibly around 5-8p off today’s close. It also states in the prospectus that the placing will be completed before 7am tomorrow in an accelerated book build.
I think the bigger impact might be the trading update showing current year trading down 22-26%. Hard to know how much of this was in the price already.

Longer term I continue to believe the prospects for GNC are good especially with the latest vaccine news. Like others have said, I will look to top up if we see prices below £1.

GLA