Member Info for massimoJ

How come?

Could we get a price on Bush disposal tomorrow? Been 6 weeks since the update stating strong interest from a wide variety of potential bidders. Must be at least £40m (i.e. 85p/share)

No it's definitely from their own pocket - neither the Chairman or NEDs have options. And the announcements include the purchase prices, which are at market

Interesting and reassuring interim results this morning.

They are progressing well with their strategy of building up a book of WIP (work in progress) within their law firm and are balancing investment in cases with cash flow sensibly. Once the book reaches maturity (FY24), it should generate £2-3m per year in profits, which when added to the c. £3-4m+ profits from their other main division (provides Critical Care assessment and expert witness services), the group should be earning in excess of £5m per year. That's against a market cap of c.15m (EV of £29m). I hold.

The stock is wine, at cost. If they have to sell to wholesale then they’ll possibly take a small haircut, but it’s crazy to say it’s 20p in the £. Naked’s gross margin is better than many other producers, so I’d expect them to get 90p+ for any stock they have to sell wholesale. The wine market is pretty efficient and shelf life isn’t particularly short. The valuation here is insane in that context.

I think he means so that Punch Card can trade, not Pratham. Still that implication goes both ways, buy or sell.
The resignation is weird. It makes me think either there was a big disagreement on strategy (unlikely given how long Punch Card have been involved) or some form of sale of the company that means Punch Card can’t be inside. If it was that, you’d expect at least some comment though.
As I say, odd.

But they did make it happen in Q1? They beat their guide for adj EBITDA. Now legit issues can be raised with Adj EBITDA as the primary profit metric, but it is what they guide to.

Ok, well to be semi serious- he purchased an additional £1m of shares recently so clearly he likes the idea of increasing ownership at the right price. It’s his family legacy and cost of capital is important to a business like saga, so he may decide that legacy and his investment are better served by the company being private. I doubt it, but it’s possible. It won’t be Pe however after last time…

Bid could be from Sir Rog...

I was also thinking that - odd that there have been no director buys at all - even at under £1. My hunch is that it's going to be some form of re-cap or take private, rather than a buyout by a competitor or PE.

Anyone who's looked at the balance sheet and read about disposals cannot possibly actually think there is a risk of insolvency here. What you've actually got is a sticky business with good long term secular trends behind it at less than 8x forward PE. Carillion it is not.

Yes, I didn't know about that first thibg. I then spent a lot of today looking into it and I think you have to give him the benefit of the doubt and not jump to instinctive conclusions. Charges were dropped, he cooperated fully and is now suing for defamation. There seems to have been more to the accusation than meets the eye. His experience is excellent and I think he will guide the group back on track.

Great news that new CEO appointed with exactly the right experience

Interim dividend will be c. 3p. they are due to make around 19p profit this year and new dividend policy is 2x cover, meaning 9p total dividend. They pay out 1/3 at interim, hence 3p. That allows them to invest to grow without substantially increasing net debt over time (although this year it will increase).

I didn't forget the debt, I was just illustrating how even at a absurdly low multiples, the group as a whole (including Tuffnells) is ridiculously undervalued. The debt is perectly servicebale at the moment given the group's cash performance. Further, the debt will be targeted for dramatic reduction under the revised capital allocation strategy. Smiths News throws off £40m+ of cash per year, meaning that the net debt figure can and will come down very quickly.

So Menzies Distribution (the second place by some way news distributor) is worth £75m... Smiths News earns twice as much as Menzies and is the market leader, even applying the same multiple (which given it is Endless, a PE house who historically get very cheap deals), that gives Smiths News an estimated valuation of £150m. That is twice the current market cap of the whole group, and you get DMD and Tuffnells along with it. This represents outstanding value IMHO.

Trying to guess the motivation of others is a tricky game. They're going through a slight down year during which they are investing in an ABS model which will allow them to continue to participate in a wide variety of claims going forward and also take advantage of a consolidation in the marketplace. Regulation helps companies like this, And it is available at 6x a bad year's earnings. There are very few (arguably no) cheaper companies with this level of margin of safety available in the UK today

The reaction to yesterday is inexplicable. This business will make c.19p per share this year and its earnings will grow from there over the next 3 years. It earns excellent returns on capital and has a management team that are adept at dealing with exactly the sort of regulatory challenges they are faced with. Further, it now has until 2020 to get its ABS line of business up to steam before its existing model even begins to be affected by reforms. It's worth 200p a share as an absolute minimum and I honestly think it's worth much more than that.

Sage - if you're holding with a cost basis in the mid 30s, I think the upside to downside ratio is tilted very much in your favour when you consider what is being priced in at c.35p, which is after all what you're after in a probabilistic activity like investing.

Hi Sage - my view is that over the next 3-5 years this is a business that is easily capable of earning an average PAT of £8-9m, and I think there's a 30%+ chance they can really get it growing and earn much more than that. It won't always be smooth due to the nature of their offering and there'll be years like they're having at the moment along the way. Full disclosure - I run a small fund and we have a significant position in UPGS, which we initiated at c.65p, believing that to be good value for a business of this calibre/type. Since then we have averaged down significantly and this is our largest holding on a cost basis. My/our view is that the recent price action is the result of this being sold as a growth story, priced to match, and then bitterly disappointing anyone who bought that story. Every growth fund that bought in will struggle to justify continuing to hold and it's removal from the FTSE all share will have exacerbated the situation. Our internal view on valuation is that the business is currently worth 80-90p based on a reversion to more normalised trading (£8-9m adjusted PBT) over the next couple of years.