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Rylidan, Good point. Doh! Taking the average of the opening and the closing NAVs then the average NAV would be in excess of 107.5p for FY24.
MrHorse, I think you'll find that when the new dividend policy was introduced they said that they would pay 0.5p extra for every 7.5p over and above 100p i.e. they'd pay 7.0p if the average NAV was between 100p and 107.5p, 7.5p if the average NAV was between 107.5p and 115p and so on.
Based on the average NAV for FY24 being slightly less than 107.5p, I believe that the dividend for FY25 will now be 7.0p (the dividend was to be increased in 0.5p increments for every 7.5p increase in NAV over and above 100p subject to a minimum of 7.0p pa).
I thought that the whole point of the Raspberry PI was that it was "cheap and cheerful", using readily available, off the shelf components i.e. little or no IP.
I don't begrudge the share price rise (as a long term investor) but Simon Thompson is talking utter tosh about the latest interim results:
- Adjusted operating margin of c11% (excluding investment income), down from c19% at H1 FY23;
- Return on cash of less than 3% (as a ROCE that's atrocious);
- Admin expenses up over £2m YoY (part of it will be due to increased depreciation/impairment)*;
- R&D expenses falling (despite an increase in amortisation/impairment costs)*; and
- Still no potential new acquisitions identified
I'm sorry but that was a very poor set of interim results (all about jam tomorrow and no explanation of what's happening in the here and now e.g. what's been impaired and why, why the increase in admin expenses etc. etc.).
* It's normal accounting practise to capitalise R&D expenditure and amortise it over a pre-defined period and, as such, I'd expect this amortisation to be charged to R&D expenses rather than admin expenses. Occasionally, R&D projects will not bear fruit and a company will make a strategic decision to stop further investment and write off (impair) any remaining unamortised expenditure.
It was a bit difficult to see the wood for the trees today but if you'd cast an eye across the market you'd have noted that all of the life insurers were in the red today. There was clearly still some after effect from yesterday (MMs feasting on investors fears) but not all.
PIs like LGEN for its solid dividend and I don't think that's going to change. Comments about the 2%pa rise from 2025 onwards being below the rate of inflation overlook the fact that annual inlfation has already fallen to 2.3% and is likely to fall further.
In one respect Simões is right. LGEN has been raising its dividend payout year on year and yet its share price has been in the doldrums; QED just continuing to raise its dividend at the same rate as it has previously is/was unlikely to mollify the wider market. Reducing the rate of DPS growth and buying back shares in the market is worth trying (will impove EPS, P/E and hopefully reduce the "free float").
I think yesterday's sell-off had more to do with the markets hoping that Simões would use all, or most, of the money from the sale of its non-core assets to return capital rather than reinvest it back into the business (short term gain over long term growth). There's nothing fundamentally wrong with LGEN's business it's just not "racey" and the current market mantra is "... if it ain't racey, it's either dead or going the way of the dinosaur ..."; illogical and misinformed in my view but hey-ho.
Mist, EBITDA (earnings before interest, tax, depreciation and amortisation) is not profit before tax (PBT). PAY have indicated that they are expecting EBITDA to be in excess of £80m. I'm currently expecting PBT, before any adjusting items, to be in the range of £60m-£65m given that amortisation and finance costs have broadly doubled since the acquisition of the Appreciate Group. I'm also expecting diluted earnings per share (excluding adjusting items) to be in the region of 80p.
The only real fly in the ointment, as far as I can see, is that net debt is only expected to be below £70m (it was c£72m at the end of FY23). Certainly less than it was at the H1 stage (c£83m) but, given all the cash they tend to generate, still higher than I would like.
The point I was trying to make is that it's not sufficient to just have a list of words; you need to understand that context in which they are used to be able to determine which word/pronunciation is appropriate. Take the word "lead"; that could be a cable, to follow or an element in the periodic table.
English is a terrible language in many respects. E.g. we are taught the mnemonic "i" before "e" except after "c" and then promptly given a list of all (or most) of the exceptions! Such as deceive, eight, their etc. etc. etc. And don't get me started on the silent letters ;-)
You just have to watch the real time sub-titles on tv to realise that translation and interpretation isn't straightforward and even when you have rules there are, more often than not, lists of exceptions!
Allesandro, Today's RNS wasn't materaially different from the trading statement in April. Personally, I think that there's been a lot of scaremongering about AI and believe that RWS's recent problems have been more about specific issues in some of the markets they operate in e.g. there's been a big downturn in activity in the worldwide bio-technology and life science industries due to problems surrounding raising new financing over the last 12-24 months (I believe this is a cyclical problem and demand will return).
Language AI is essentially all about individual pieces of data (literally billions, if not trillions, of pieces of data) and how those pieces of data interact with each other in different contexts to enable you to build a language lexicon. Over the years RWS has accumulated a mass of proprietary data (knowhow) that it would be extremely difficult for a competitor to easily replicate.
Consider the written or verbal phrase "I can't bear a bear with bare claws" and think how you might construct a lexicon to be able to translate that phrase correctly into a foreign language and then repeat that thousands/millions of times to take account of each language's own little idiosyncrasies (it's just a pity that Eskimo isn't a mainstream language; imagine the complexity of trying to translate the different nuances just for the word "snow"). It's not straighforward.
... may have been caught out by the share price movement this morning and are, perhaps, now scrambling to cover their short position.
Today's share price movement is fairly bizarre considering. The interim results weren't bad but all they've essentially done is to reiterate that they still expect to meet current market expectations for FY24 (which are less than FY23) based on their H2 performance to date. That would not normally be grounds for c19% share price increase. I'm certainly not complaining but one must suspect that Hound Partners LLC
Zac, I never said that increasing the EPS would (automatically) increase the DPS. What I said was that buying back shares and cancelling them would increase the EPS and reduce the P/E, all other factors being equal.
Increasing EPS, reducing P/E plus a reducing PEG, on top of an already healthy dividend yield, would (normally) make the shares (even more) appealing to potential purchasers and should therefore lead to an increase in the share price. That at least is the investment theory and, in times past, that's how markets tended to react. These days it's anybody's guess.
If you are suggesting that it's just gimmicky (smoke and mirrors), then I wouldn't necessarily disagree (essentially the BoD can generate the illusion of business improvement without actually increasing profits).
That said, although profits might prove illusive to LGEN from time to time due to the requirements of IFRS accounting, it still remains highly cash generative. IFRS accounting doesn't really favour the likes of LGEN and other long term investors. IFRS forces them to take a long term view of their liabilities and a short term view of their assets regardless of whether or not the assets are being held for the long term. There's a fundamental mismatch and they're constantly being required to "kitchen sink" their balance sheet. As a result, investors too often take fright at the short term P&L movements and ignore the cash generation. You can always tell when an accounting standard is failing when companies are forced to resort to alternative performance measures to try and explain their results. Previous accounting standards weren't perfect but IFRS is a disaster.
Zac, They buy and cancel the shares. In principle, that then gives them the opportunity to increase the DPS without actually having to increase the size of the dividend pot i.e. increasing the amount paid to remaining shareholders without having to increase the amount actually paid. Not only that, the share buy backs should increase the EPS and reduce the P/E, all other factors remaining equal. UK investors think of this as just "smoke and mirrors" but US investors have been lapping it up for decades!
Just face it, the Brits are just a bunch of "half empty" naysayers. One minute we moan about the UK market lagging the US market, then when a UK company starts to (partially) embrace US financial mechanics to try and rejuvenate its moribund share price we shoot it down! We get what we deserve ;-)
They're not talking about increasing the dividend pot at 2%pa. Dividend per share (DPS) means just that.
I'm not saying that Simões proposal is necessarly right but LGEN is already trading at a very attractive yield and yet its share price still languishes. There's no point in simply continuing to increase the DPS if it just results in further share price decline (in effect you just end up cannibalising your capital investment into income). In diverting funds into share buy backs that might otherwise have been used to increase the DPS still further, Simões is attempting to improve the overall return and if he succeeds both he (through his LTIPs) and shareholders should benefit.
I'm not sure what the market was really expecting today. Much of this had already been flagged in recent press articles and one would have thought that the market would have applauded LGEN selling off non-core assets (like Cala Homes). Perhaps the market was expecting LGEN to use the proceeds to fund a capital reduction (like Aviva did after they sold their non-core overseas businesses). Regardless, the reaction does look a tad overdone.
Driftkings, You fundamentally misunderstand the UK and US markets. Traditionally the US market has favoured share buy backs over dividends because of the far more favourable tax treatment of capital vs revenue. So you can't simply compare the level of dividends paid by US companies with the dividends paid by UK companies. You have to compare distributions; which include both dividends and share buy backs. The level of share buy backs in the US has historically been significantly higher than in the UK. It should be noted that relatively recent changes to UK tax rates and bands (the higher rate of tax on dividends is now 33.75% compared to 20% on capital gains) means that we are now starting to see an increasing level of share buy backs in the UK too. In principle, once the level of free float has been sufficiently reduced, share buy backs should start to result in a rising share prices (the UK has lagged the US in share buy backs for decades and, thus far, buy backs have looked to be ineffective in raising share prices but once "excess" capital has been removed share prices should start to rise once they pass the "bite point").
Zac, The decline in DPS growth from 5%pa to 2%pa is merely a reflection of additional resources being channeled into share buy backs instead. The "financial engineering" principle is clear; as the number of shares in circulation reduces the share price ought to start rising. UK investors have always tended to be skeptical about this but the theory is essentially sound; the key is to first reduce the free float and UK companies have a lot of ground to make up on that account. At the end of the day arbitrage will win out (otherwise the global financial system is well and truly broken).
Chelsea, I agree that it could have been worse if they'd simply sqaundered the cash. My concern is that the longer it goes on without them identifying an acquisition worthy of their consideration the greater the pressure becomes to do a deal at any cost. I'm sure we've both seen that scenario before. Equally, even if the company is able to remain disciplined and not make a panicked acquisition, holding onto the surplus cash for a paltry c2.7% annual return is almost as bad (it's akin to digging a hole and hiding the money; the Parable of the Talents). It's the sign of a good CEO to recognise the risk and to act decisively. A good CEO will rarely if ever fail to raise money for the right acquisition. As I say, they've had two years. It would not be a failure to say "we've looked but can't find a suitable business that meets our investment criteria". Likewise, they should not be tempted to simply assemble a jumble of smaller businesses in ancilliary markets (so instead of owning one Yotta they just end up with several smaller nascent Yotta's). One reason they sold Yotta was because that it had become a distraction from Vicon, utilising management time and financial resouces that could be better spent developing Vicon, and it could be argued that they've already bought one nascent Yotta in IVS which not only operates in a niche market but also offers few, if any, opportunities for economies of scale (it's not apparent that IVS's existing technology offers any benefits to Vicon or vice versa). One nascent Yotta is enough.
Chelsea, I accept that they don't appear to have made any rash decisions yet. My concern is that the longer they have c£55m sitting on their balance sheet the greater the pressure there is to do something with the money (acquisition wsie). They're currently generating a c2.7% return on the cash. I can get a better return than that in an easy access account!
Financially and economically it's not a sound business strategy. They've had two years to find acquisitions and they haven't found any, other than IVS. Time's up. They need to distribute the surplus cash now. No foul, no blame. The BOD thoroughly deserved today's market response. They look rudderless; basically they're telling the market that there's no fireworks here and nothing much is going to happen here until the end of FY26 (it's just steady as she goes; they've set themselves a target of raising revenues to £70m by the end of FY26 with a PBT margin of 15%). I'd add that the 15% margin is (and always was) a tad underwhelming when you condsider that they were achieving over 20% in FY21.
The economy is what it is and OMG can't change that but they've got to get their heads out of the sand and just focus on organic growth and efficiencies. E.g. what is going on with admin expenses? Admin expenses are c£2.2m higher than H1 FY23! I'm assuming that increased depreciation, amortisation and impairment costs of c£1.3m are in part to blame but they've made no attempt to explain the increase in the RNS (likewise in the FY23 results); that's really poor. Markerless could be a game changer (and hopef;ully that will be a major growth factor in FY25 and beyond).
They're just not selling themselves and, at the moment, they're beginning to look financially incompetent. They need to be more decisive; make an acquisition or distribute the surplus cash. Two years is long enough.
Also, strip out the finance income and they've only generated c9.3% PBT margin as opposed to c16.3% in FY23 without any real explanation! The RNS focuses on the top line highlights but ignores the bottom line. It's not good enough. They should have gotten ahead of the game rather than left investors to try and draw their own conclusions. They're treating investors like schmucks; giving us the soft flannel. I'm going to listen to their investor presentation next week with interest. I certainly hope that they can show themselves to be more financially competent than this RNS would appear. Moorhouse and Deacon have dropped the ball on this. Strike one!
Underwhelming RNS to say the least. Everything is mañana. The market is the market. Life sciences are in the doldrums at the moment (the continuing inability of life science and biotech companies to raise fresh capiatal in the markets means that they are managing their cash very carefully and lead times are slipping) and there's not much OMG can do about that.
But it's sitting on c£55m of net cash (and c£1.2m of its H1 PBT relates to interest earned on its cash pile) and still appears to have no clear strategy what to do with the cash that's excess to its working capital requirements. They sold Yotta two years ago and have only made one bolt-on acquistion since. Excess cash makes companies/directors complacent and/or prone to making rash investment decisions (cash waiting to be invested canhave that effect). If they can't find a suitable acquisition in the current market at the right price then It's time that they returned the excess cash by way of a special dividend and, if they then subsequently find a suitable acquisition, they then should return to shareholders to raise the cash they require; the investment will then have to stand on its own merits. Also, its about time that they introduced an interim dividend to start smoothing out their cash flows. One has to hope that the new CFO starts earning her crust.
Doh!
The RNS was issued last night after the market closed. Check it out.
Hi Nudgesta, I'm not a shareholder (just been keeping a watching brief recently) and haven't read the RNS in any detail but thought that TooGood2Die's response was unnecessarily rude; we've all got to start somewhere (even TG2D was a newbie once before his head became to big for his shoulders).
You've got a Subscription and an Open Offer here. The Open Offer by itself would not necessarily be dilutive. Every existing shareholder is being offered the opportunity to buy one new share for every existing 19 shares that they currently own and so, if everybody took up their entitlement, they'd more or less be in the same postion as they were before percentagewise (not everbody's existing shareholding is going to be exactly divisible by 19). However, the Subscription is being offered to a select few new/existing institutional shareholders; so, yes, in principle the Subscription will be dilutive.
However, there are arguably tangible benefits that offest the dilution; AGL is getting money that it might not otherwise have been able to raise that might be sufficient to take it through to operational cash breakeven (or at least closer to that target), a wider institutional shareholder base which might help to support the current share price etc. etc. The hope is that the new investment will eventually benefit everyone. Without the cash AGL might become insolvent, so a smaller piece of the pie is still better than no piece at all (or so the theory goes).
Obviously nothing is ever guaranteed, AGL is currently haemorrhaging cash and, at the current rate of cash burn (c£16m per annum), the new money being raised might only be sufficient to last AGL for another 12-15 months, assuming that AGL's cash balance has reduced by a further c£8m in H1 and the cash burn continues at the same rate without any significant increase in sales over the next 12-15 months.
Caveat emptor as always.