The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Excuse the unfinished post
1. UK/US inflation comes down further and a positive sentiment on rates comes in
2. Revenue/Margin growth to simply outscale the debt
The company is being priced in as a zombie company, although this is unjustified. Bad sentiment can really mess up a share price.
On a day when everything is down the toilet on wage growth news. Pretty good bottom sign. Food inflation going down may make tomorrow's inflation reading better than expected which would provide further buoyancy.
JG
The refinancing is (presumably) accounted for in the 75m forecast/2024 82m forecast for interest charges.
The 500m hybrid bond is not treated as a liability or asset; it's equity. They can repay it from 2025 at their own discretion. Payments can also be stopped if the dividend is suspended but that would be bad news.
Hard to see the reasoning for a rights issue. In HY2 we're likely to see 150-200m operating cash flow if maintenance capex stays similar to HY1. More than enough to service debt interest (59m), hybrid bond payment (20m) and have enough FCF leftover to give out even a 6p final divi (36m).
The 500m hybrid bond is probably a factor in this. That was one of the reasons for the Liberum downgrade since it's a form of quasi-debt but listed as equity, not liability.
@JG
As it turns out the consolidated accounts statement breaks down assets segmentally
FY 2022 UK business had 318m in non-current assets; no mention of current assets however. 2023 UK revenue will be around 580 million or more.
How you'd value that in a sale is any man's guess. In 2005 ALSA was bought by MCG for £262m. ALSA had 219m in revenue at the time. These sales will always have a premium over fair value. I suppose it wouldn't be such a bad idea given how bad UK business is right now. It would be very symbolic of our national decline for MCG to fully operationally leave the UK. Although pre-covid the UK operating margin was 14%. Perhaps it can get back up there with (one day) more sane people in government who value the benefits of well funded transport.
@JG
Zero idea; the releases do not show their assets geographically.
In any case I'm more interested in revenue growth, expansion and new contracts, which will lead us to more profit in due time. The bankruptcy/dilution talk is silly. Cash is king and this company has plenty of cash flow.
82.60 on Tuesday
Has been bouncing off low 84s rest of week. Buying today will give you a 5.9% yield from the final divi (5p again assuming)
It may go sideways for some time here barring any news but apologies if I just cursed it to go to 80
Would also like to note the debt is handleable; well covered by operating cash flow. The situation is not that great but hardly in distress. Rate cuts by late 2024 and by 2025-2026 2022 buyers will be in good spirits.
I don't think it's possible to approximate this. Their financial statements do not discriminate between regional segments.
Even if you could count up the tangibles e.g. buses, owned depots, buildings, whatever else, the intangible component is huge. This is why it's also silly to say the business is in negative equity; if everything was to be sold off it wouldn't just be a case of selling the buses to someone to scrap them. Staff expertise, branding, connections etc that's what creates goodwill.
With that in mind it may be useful to compare assets and debt pre-and post pandemic. Since there is so much hassle about debt being (supposedly) huge.
2019 FY
Total Assets: 4408 (1901 Intangible)
Total Liabilities: 3295 (1241 net debt)
Net assets: 1,125
2023 HY
Total Assets: 4,074.8 (1545 intangible)
Total Liabilities: 2848.7 (1168.9 net debt) + 500m Hybrid Bond
Net assets: 1,226
Intangible vs Tangible asset ratio is lower now than 2019.
It's also worth noting the company has an explicit goal of running more asset light contracts moving forwards; revenue to asset ratio will increase.
Debt overall is not really higher except the 500m hybrid bond, which is a funny piece of accounting. I do not fully understand it and it has quite a long document on its terms. Its essentially counted as shareholder equity rather than debt. It runs at a 4.25% coupon (from memory) and the payments can be suspended if the dividend is suspended. Its issued in perpetuity and can be paid off at the group's discretion after some years. With the benefit of hindsight, the fixed rate is pretty good now.
Overall the difference is not so stark. My only real concern is that there is a chance we may be relegated to zombie company status until rates come down.