Conduit Share Discussion Threads

[rivaldo] 18/6/2015 07:25

Interesting article about CRE and their new acquisition:



"'New biz' pitches are of course an essential part of agency life, but are becoming increasingly time-consuming for the bigger accounts, and can be costly if the pitch isn’t successful, which could be a problem for a medium-sized group like Creston. But pitching for a big new account is difficult if you haven’t got the scale, and you can’t get the scale without either significant new biz wins, or costly acquisitions… it’s a classic vicious circle.

One way round this, however, is to buy a stake in another company rather than the whole thing outright – this not only creates scale without excessive leverage, but also buys new clients, expertise and influence, and of course you can always up your stake later. And this is exactly what Creston did last week.

Creston shelled out £1m (of which 50 per cent will be invested in the business) for a 27 per cent minority stake in highly-rated London creative agency 18 Feet & Rising, which has the likes of Skoda, Allianz, Nando’s and House of Fraser on its books. Not only does the deal give Creston more scale, and access to that enviable client book, it also allows all its agencies to make use of 18 Feet’s much-awarded creative team, and its expertise in above-the-line advertising (something the group hasn’t had since it disposed of DLKW five years ago).

And, backed by Creston’s resources, 18 Feet can continue the remarkable growth it has shown since it was set up in 2010 without having to borrow. Late last year the agency lost one of its biggest accounts, Nationwide, to VCCP, so it would have spent the past few months casting for something to replace the lost income; although it should be said that the business looks in pretty good shape: for the financial year ended 31 December 2014, 18 Feet & Rising grew revenue by 24 per cent to £2.7m.

The deal is being marketed as a partnership (Creston is very fond of partnerships – in the last month or so it has announced tie-ups with trends consultancy the Future Foundation; US digital healthcare specialist Propeller; and The Digital Consultancy, the last of which will see the two companies collaborating on pitching opportunities), so 18 Feet will be rebranded as 18 Feet & Rising Unlimited when it is pitching with Creston, or when it is working on shared business like Allianz.

Whilst Creston only holds a minority stake, the fact that it has more than 25 per cent will allow it to block special resolutions – things that govern changes to shareholding, sale, additional investment, etc (unless there has been a specific agreement to the contrary), so effectively Creston does have a degree of ultimate control over certain decisions, which may be uncomfortable for the majority shareholders.

However, this situation can work well for both parties; whilst Creston (may) have effectively locked in 18 Feet as part of the Creston Group as there will be a very limited market for the remaining 73 per cent given the founders may not be able to offer control to another buyer, on the other hand 18 Feet will continue to ‘feel’ like an independent, but have the comfort of a strategic investor whose interests are aligned as equity owners (unlike banks, who are only interested in getting their money back).

Everyone’s a winner? Without knowing the nitty-gritty of the deal we can’t say for sure, but it certainly looks as though both parties will benefit operationally and financially and I would like to think careful planning around this deal has meant both sides’ interests are aligned. "

[rivaldo] 17/6/2015 08:56

New Edison report is out - they go for:

this year : 13.9p EPS, 4.6p dividend
next year : 14.8p EPS, 4.8p dividend



Interesting sections in particular about the incredibly long-term client retention, plus the revitalisation of the business following Elgie's departure with all the new partnerships, acquisitions etc.

Plus there's plenty of Balance Sheet firepower for further acquisitions etc.

[rivaldo] 16/6/2015 15:37

Cheers gb - reads very well and should attract a few fresh investors here.

[red army] 16/6/2015 07:20

Looks like strategy for possible bid - maybe my £2 target will come sooner?

[rivaldo] 16/6/2015 07:13

Wow. The RNS this morning shows DBAY bought WSE's 3m shares - and more. They're now up to 24.5% and 14.36m shares. The way they're going, they may well be buying all the way up to 29.99%:

[rivaldo] 15/6/2015 09:49

The financial websites are now showing the new forecasts for next year. They now show for this year and next year:

N+1 Singer : 14p EPS, 4.7p divi, 15.3p EPS, 5p divi

Sanlam : 14.2p EPS, 4.7p divi, 14.9p EPS, 4.9p divi

[red army] 12/6/2015 12:15

My target is £2 taking from the chart

[rivaldo] 12/6/2015 11:58

Cheers penpont - my target is nearer 165p-180p at present assuming 14p EPS this year and a more dynamic management style than in recent years.

I note from this RNS just out that WSE have finally disposed of their 3m shares at 135p....this is understandable since it's been a very long-term holding of theirs. The more interesting question is who's bought them....

[penpont] 12/6/2015 08:17

Thanks for the info rivaldo. Also reviewed by ST in the IC on 10/6

'On the crest of another run

Shares in small-cap marketing communications company Creston (CRE:135p) have reacted positively to yesterday’s full-year results and have passed through my original target of 135p, a price level that was also achieved at the end of last year after I initiated coverage at 118p in the late autumn (‘Buy the break out’, 4 November 2014).

However, I still feel that a run up to the 150p level is on the cards as I noted when I last updated the investment case (‘On the acquisition trail’, 23 April 2015). If this target is achieved the rating would still only be 10.5 times conservative looking EPS estimates of 14p for the fiscal year to end March 2016 based on forecasts from brokerage N+1 Singer. For the fiscal year just ended, the company delivered 11 per cent EPS growth and diluted earnings of 13p a share beat analyst expectations by around 4 per cent. In turn, this supported an 8 per cent hike in the dividend to 4.2p a share. A further hike to 4.7p is predicted this year to give a prospective dividend yield of 3.5 per cent.

At the end of March the company had an £8.3m cash pile, since when the board have been deploying these funds wisely. In April, the company acquired a 51 per cent stake in How Splendid, a London-based digital design and development consultancy, a deal which I analysed in depth at the time (‘On the acquisition trail’, 23 April 2015), and has just announced another strategic investment alongside yesterday’s results: a 27 per cent stake in 18 Feet & Rising, a London based advertising agency.

Established in 2010, 18 Feet & Rising works with brands including Allianz, Cuprinol, Nando's, House of Fraser and ŠKODA, for which they created the world's first ad campaign to use eye-tracking technology. Half of the £1m cash consideration will be invested in the business to help accelerate its growth. In 2014, 18 Feet & Rising grew revenue by almost a quarter to £2.7m, so the business is being valued on a reasonable 0.7 times’ sales. This means that Creston has now deployed virtually all its net cash after the period end, but with annual operating cashflow of around £8.6m and credit lines of £35m in place, the company is well funded.

The bottom line is that with the company posting organic revenue growth for the first time in four years, and utilising its cash position wisely, then investors are likely to continue to warm to the strong investment case which I outlined when I initiated coverage at the end of last year.

Offering a further 11 per cent share price upside to my new target price of 150p, and underpinned by a 3.1 per cent historic dividend yield, I continue to rate Creston’s shares a buy on a bid-offer spread of 133p to 135p.'

[rivaldo] 12/6/2015 07:11

Liberum have reiterated their Buy and 160p target for CRE:

[rivaldo] 11/6/2015 07:23

The blogger Paul Scott has bought some CRE, and his audio/video update includes a positive summary of CRE's results with which I wholly agree (though I often disagree with his verdicts!) - see from 2 mins 20 secs in:

[rivaldo] 10/6/2015 08:14

Consensus forecasts going forward are now appearing on websites for the first time and emphasise just how cheap CRE is:

This year : 14.1p EPS, 4.7p dividend
Next year : 15.1p EPS, 4.95p dividend

Over the next 15 months shareholders can expect 7.8p of dividends, around a 5.5% annual yield, from a company trading on a single-figure P/E....

[smithie6] 09/6/2015 19:30

( while Im a fan at the mo at this price ...what an absolute disaster this co. has been for investors since it started in 2000. Losing investors money. Hopefully it can now start to perform and make up lost ground.)

While the last MD made around 6M pnds out of it over 10 or so yrs. Ridiculously over rewarded...for which Dave C. Marshall should take a lot of the blame imo....was boss of renumeration comitte if my memory is correct....was a nice gravy train for them both....and current boss also did very well over those yrs..

Apologies for my little gripe !

[smithie6] 09/6/2015 19:27

(Divi
for me the divi is fairly irrelevant...imho its the eps or cash generation which matters....although I guess some ppl are swayed a lot by how much is paid out..)

[smithie6] 09/6/2015 19:25

Nice to see the mkt liked the results...closing on medium term high...

(Looking back...the acqn. in April should give a 1.5p boost to eps....very useful....while one cld argue that past acqns. didnt boost the eps as hoped for imho..
.hopefully this time..)


Could easily get to 145-150p fairly soon imo...then might slow phps if no news ?
--

Another Creston bonus imo is that being cheap and with no debt...it should resist very well any short term mkt fall if Mr Tsipras keeps insisting on blackmailing europe and refuses to do a deal with the Trioka

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@Fulltimeinvest

[rivaldo] 09/6/2015 13:58

I wondered who would spot that - you get the prize speedsgh! Has to be a typo.

The full divi of 4.2p is an excellent yield anyway, but 8p was stretching it a little....perhaps in a year or two :o))

[speedsgh] 09/6/2015 13:03

rivaldo - A rather large error in that N+1 Singer note...

Analyst Johnathan Barrett cites a "better than expected dividend" of 8p unveiled in its full year results...

8p would equate to a c6% yield at the current price. Got me excited for a moment! However the full year dividend has in fact been raised by 8% to 4.20p which offers a 3.1% yield.

From CRE results rns:
"Following the growth in Headline Diluted EPS and the Group's net cash position combined with our outlook, the Board recommends a final dividend of 2.85 pence per share (2014: 2.70 pence per share). This, with the half year dividend of 1.35 pence per share (2014: 1.20 pence per share), gives a proposed full year dividend of 4.20 pence per share (2014: 3.90 pence per share), representing an 8 per cent increase compared to the prior year."

[rivaldo] 09/6/2015 12:15

More detail on Singer's upgrade....

"1022 GMT [Dow Jones]--N+1 Singer lifts its target price on Creston to 171p from 153p. Analyst Johnathan Barrett cites a "better than expected dividend" of 8p unveiled in its full year results. Notes this is the first time Creston has achieved positive organic growth and the groupwide rebrand is "a big positive." Keeps his buy recommendation. Shares up 2.7% at 132p"

[smithie6] 09/6/2015 10:29

Ah...new boss seems to be getting on with it and doing various things....

[smithie6] 09/6/2015 10:27

Website bt a few months back at 128p..before 10p dip...happy to hold..

Poor growth record ...as we know...but too cheap imho..

While noting that cash pile has gone due to recent acq. but increases eps...

Anyone lucky enough to have bt at 80p at low..or 50p before...has been rewarded for their patience...but soooo slow...

I was one of 4 buyers below 50p....sold to buy something that doubled in few months...

Fulltimeinvestors

[rivaldo] 09/6/2015 08:27

Consensus forecasts of 14.2p EPS this year may well be increased, given the 13.1p EPS last year which easily beat forecasts.

Particularly with the boost from the HowSplendid acquisition for cash post year-end.

I can see say 15p+ EPS being achieved now.

Which could see a share price of 180p-200p later this year.

[madengland] 09/6/2015 08:20

Clearly market agrees with you Riv. I think it's cheap because they can't ignite growth, or so far have failed to but the market is what counts

[rivaldo] 09/6/2015 07:13

Excellent results which beat forecasts by some margin:

- 13.07p EPS, compared to 12.5p forecast
- 4.2p dividend, compared to 4.1p forecast
- and another acquisition, announced separately:



Note the fantastic client list which the rest of CRE can now exploit, i.e Allianz, Cuprinol, Kopparberg, Nando's, House of Fraser.

The outlook is extremely positive - and the post year end acquisition for cash of How Splendid will mean that this year's results are strongly boosted.

CRE is just far too cheap imo.