Member Info for Raleigh

Part 2

In my view, on the dividend, there is perhaps more to the future prospects giving rise to capital growth, than there is to the progressive dividend itself, which after all will be based on sustainable company growth. It is sensible to put the dividend, whatever it is but progressive, in perspective alongside retained cash to pay down debt, and for growth, because Castleton is in that mode. The CFO's comments are relevant to that growth, and point to targeting expenditure on Managed Services to provide new revenue streams.

"Given the strong cash generation of the business, the Group has the confidence to increasingly invest in customer related capex and infrastructure in the coming year as we seek to win new hosted and managed service deals. The Group will also look to continue the investment in software development."

Castleton has made it's acquisitions, and dealt with the expense of integrating the companies. The cost base has stabilised, and the dividend to come is evidence of that. Dean Dickinson is now fine-tuning the two Divisions, to better promote sales.

In the Software Division, cross-selling of solutions is progressing well, with the aim of each customer taking the full suite, and will continue for the foreseeable future, with new solutions added and development of existing. No change there.

Castleton is now seeking over time, as customers increase their number of solutions purchased, to migrate those 700 or so software customers to the more lucrative Managed Services Division ( with some recent success ) and the company, from cash, intends to target investment into customer facing managed services propositions directly linked to sales, (most of which will likely be capitalised rather than expensed ) aimed at improving it's competitive edge when tendering for contracts. There is a new emphasis here, based I believe on Castleton's comparatively recent referenceability, having stated a previous reticence to tender without the now available evidence of successful implementation and quality of service from pioneer users.

Part 1

This is factual, company RNS sourced, with a little obvious comment. I had actually prepared notes and now this brief summary. I was going to do a little more on it for my own purposes, but that will probably only amount to guessing at figures, which is not helpful to others. It is basic, and only intended as a flavour.

Reading the holdings RNSs, it can be seen that substantial numbers of shares have recently changed hands in bulk transactions at the then existing market prices ( primarily as a result of the founders, Mxc Capital, realising funds to persue new investments ) I see that as current consolidation around this price, though there has been a small pull back from the all-time high. In the interest of balance the CFO's recent sale of shares ( RNS ) from options rates a mention, but bearing in mind this represents only a portion of the options available to him now or later, and undisputable current progress sufficient to justify a dividend, and though nice for him, I do not personally see that as significant to us non option-holders.

As half year end approaches, and shareholders make their minds up on price against progress, it was useful to read back for my own understanding of where the company sees itself at this point. It seems straightforward. I summarise.

Castleton trades in a slow moving market. Potential customers come from a position of having disparate software, from various providers, under contract, and in some cases dated infrastructure. Associations carefully consider their choices and associated costs going forward, as they review their IT with a view to increased efficiency. Castleton has become a major supplier of fully integrated products in that competitive market, to the extent it is able to say of 21st. August contract "that further enforces our strategy of becoming the single service provider capable of delivering innovative software in the cloud with managed services."

That last summarises it, and it is all in the RNSs. I have a few notes pulling some of the RNSs together. I shall make them readable and post. Very basic, straightforward, but so is the company from an operational viewpoint.. Guessing results is not for me, but I am, I believe with reason, optimistic about the future. A pull back following the recent rise is unsurprising,

Fortuitously, I did say so far - now the delayed sell.

A satisfactory day, following on from yesterday's further consolidation primarily as a result of MXCP final exit. Investors appear to have grasped the future benefits of that.
Senior managers will benefit in due course from the LTIP. Dean Dickinson and Heywood Chapman will not, so though unexpected it is hardly surprising that the CFO decided to take some of his substantial incentive options.

With apparently just 2 sells shown ( so far ) no obvious reason for that small drop today, and on what might normally be considered an advantageous RNS at this stage.

Thank you.

It looks very much as though MXCP sold their remaining Castleton holding today, as picked up by Aphrodite on CTP.

One would expect a notification of holdings RNS. Perhaps it is MXCP selling. Whoever is selling and buying,, and knowing how well Castleton is performing ( not lost on the buyer(s) it is yet further good news for us smaller investors.

The effect now is exactly what Dean Dickinson says in his presentations. Castleton now has fully integrated products sufficient for the needs of associations, committed to driving down costs through technology, and that he can evidence that through fairly recently signed existing users. He will quickly bring new products as required to market using the third party Indian developers alongside Castleton's own.
Everything has been costed in, and foresight of earnings - and costs over and above day to day expenditure, probably limited to development spend - will permit the payment of a perhaps small dividend at this stage. There will be more in October about that. Very healthy position to be in, with the company paying down debt and as I have said before, an extra £600000 pa freed up from cash and available for the bottom line once the mobile licensing agreement is fulfilled at the turn of the financial year.
Bank Holiday Weekend always welcome.

The ultimate aim is by cross-selling to sell the complete suite of solutions into the existing somewhere near 700 customers, and migrate them to full managed services. The nature of it's market makes it a slow business, but it is proving to be a steady one, with Castleton at the same time moving to longer contracts. Penetration of the full suite is building but is still very low, and Managed Services has taken a back seat to solutions until now. The company has now reached the stage when there is full referenceability for both sides of the business, and I anticipate they will move forward together. It is very early days in terms of the company benefitting from it's long term strategy.

Some have achieved what they wanted, such as MXCP and are moving to pastures new. Others, such as Nigel WRAY, have added or bought in. It is very healthy for us smaller shareholders.

"The majority of the proceeds ( of £2.25 m ) are intended to be used in order to fund an Employee Benefit Trust (the "EBT") which MXC is in the process of establishing. The purpose of the EBT will be to buy MXC shares in the market to be held to satisfy existing and future share incentivisation awards for the benefit of employees and certain directors. The remainder of the proceeds will be used in line with MXC's stated strategy of investing in technology companies."

It is my view that mxc and the events awaited has not yet sufficiently come to private investors notice. It may only be relatively few who have bought into expectations other than those who have followed the company and its investee companies. Or it might not appeal in view of it's history. I suspect that the next MXLG acquisition(s) will make greater impact than the first, when more comment can be made about the combination with SICL. But in any event, MXCP will be buying perhaps £2m. worth of shares in the market to hold for employees. I prefer to have built my holding now, and wait, rather than compete for shares one morning at a later date

Specifically, a maiden dividend.

It is still very early days from an investing standpoint.
Castleton is consolidating its position in the sector, still has a very long way to go with cross-selling, has yet to fully benefit from full suite sales, and is bringing new products to market. The cost base is stable, and will reduce. This will all flow through into earnings.
The future dividend, whatever that might be, and LTIP terms are of themselves evidence of anticipated continuing strong performance.
As with all investments, one is reliant on management and events - but Dean Dickinson and his team have proved competent, and it is hard to conceive of any identifiable realistic negative occurrence. Companies do not announce dividends if there is any fear that ability to pay in future years may be compromised.
At the moment, the price is consolidating at this level, pending events and announcements.

The mobile licensing agreement, with 365 Agile in April 2016 was essential and is becoming ever more profitable. After final payment, Castleton has it for free from next April, at a saving of £600,000 a year. Castleton continue developing it, and building their solutions onto it for mobile working. That latest from HS Homes is also a reminder of how far behind the curve the housing sector is with modern technology, and therefore the depth of the market in the sector.

I should be clear that I have made that presumption of future co-investment in MXLG, as that is what occurred last time. It is certainly their new model.
In any event, the question of availability of capital for future investment is not an issue.

The MXCP model ( not only the MXLG business ) has changed to one of a principle of co-investment, and to raising funds from the private sector. In the MXLG case LG does not need it, but MXCP wants their own funds matching within their 50%. More capital equals greater opportunity, in MXLG and other investments.

"The Company is continuing to progress a number of promising opportunities, an example of which is our recently announced joint venture with Liberty Global. This transaction marks an important step change in the MXC model, as co-investing in and advising third party funds brings us access to greater opportunities as well as returns"

"This joint venture with Liberty Global marks an important step change for MXC. Investing in and advising third party funds gives us access to a sufficient level of capital to grow a greater number of assets"

"Private equity remains hungry for opportunity in the sector and has the funds to deploy"

Private Investor Ravenscroft will now assist and have a say in that funding from the seat they bought in MxcUk., the transactional business that puts these things together.

I see a fair amount of tidying up over the next say 8months, permitting Castleton to rid itself of contracted outgoings and entering next year with a much improved financial profile.