Hml Share Discussion Threads

[rivaldo] 02/6/2016 11:54

The slow-burn rise into the results later this month, which we already know will be nicely in line, continues.

Finncap have retained their 45p target price.

[igoe104] 20/5/2016 14:01

Good sensible post David.

Don`t understand why PI`s aren`t more interested into buying solid companies like(HMLH), just seems like they are only interested in casino stocks from the oil or mining industry.

[cockerhoop] 20/5/2016 13:53

Just returned from a couple of hours on the tennis courts - many thanks for your replies.

Graham - JDG still manage to buy complementary business on substantially cheaper multiplies than it's own which provide it with lovely shareprice tailwinds. The opposite is happening at HMHL. Maybe if they did initiate a share buy back whilst the company is cheaper than any available acquisitions the anomaly would be corrected by the market.

Just seems to me that the vendors are getting the benefit of HMLH integration skills. Saying that if HMHL are able to kick on with margin improvement to say 9-10% with their cash generation a 1 to 1.25x rev multiple for themselves is probably justified imo.

[davidosh] 20/5/2016 12:51

At current growth rate they should be turning over £30m by the 2018 figures being released and showing the economies of real scale by then. If they only have a measly multiple of 1.25x revenues in line with the acquisitions then that would be a market cap of three times where we are now.....what needs to be considered is the value to a property sector player looking for reliable steady income flows and direct contact with 100,000 owners. HMLH are not estate agents but there has to be a crossover benefit at some point.

[cockerhoop] 20/5/2016 09:50

Thanks Graham - really interesting stuff.

It does though IMO reinforce my feeling that they overpay for their acquisitions in that on purchase the acquired companies have lower margins (because of brokerage fees) and are struggling with increased regulation etc.

Are you aware of the metrics they use to value the companies acquired?

[graham1ty] 20/5/2016 09:27

One comment on acquisition cost, and insurance. They are tied together.

HMLH have their own inhouse insurance broker. A non group block will have insurance and will pay a broker a handsome premium to arrange it. An acquisition is moved to that insurance broker. HMLHs broker, because of its buying power can go to the client block and offer a LOWER overall cost for their insurance. The client block likes it and thinks what a great job the new managers are doing. But, the brokimg premium ( and this is all disclosed) now stays in house and is not paid away to a third party broker. Win, win all round.

So, the pre acquisition revenue may not be relevant is HMLH can immediately add a hugely profitable ( but still, for the client cheaper) insurance revenue stream to each acquisition. The uplift is not disclosed but I suspect immediately changes the apparent economics of each deal.

So, the worries about insurance. Does HMLH have a conflict of interest, or is it ripping off the clients or doing something illegal ? No. First all this is disclosed to the clients. Under all the ARMA codes there is way more disclosure from HMLH than rival, dodgy, "bloke over the corner shop" managers. Second, the client will end up paying LESS for their total insurance package than before. The difference being that the arranger is HMLH using its scale and buying power to get the deals ( and keep the fee). Third, might there be a regulatory nightmare where insurance and management are split ? This is the Armagedon scenario. Well, no, not at the moment. This has been raised before in the various Inquiries, White Papers, etc with regard to managing agents. And each time it is dismissed as not an issue. There are bigger fish to fry in this pool: primarily the conflict of interest in owner managers, providing overinflated services effectively to themselves; second the unregulated bandits. So HMLH has been at the forefront of ARMA ( Association of Residential Management Agents) calling for MORE regulation. HMLH used to sit on the Board of ARMA, have made submissions to Parliamentay Committees etc. They want disclosure, client decision making, no conflicts of interest. All,of which put the worries about insurance into context. HMLH are not doing anything dodgy. They are just lucky to,own their own insurance broker.

Lastly, acquisitions, organic growth and profits. HMLH had got themselves in a good place c2012-2014. Every acquisition, small forecast upgrade ( and just as an aside HMLH have done almost all,of this out of free cashflow. HMLH throws off cash). So for two years there were always creeping upgrades. HMLH were always going to beat forecasts and the end eps was 25% above where it had been at the beginning of the year. I
Like that in an investment. But 2015 was time to "grow up" and put in place systems, IT, costs more suited to a larger company. They recruited regional managers, set up a proper HR department ( gulp, pre 2014 HR was,done on the back of an envelope), jazz up the IT. And these costs hit operating costs, operating profits and margins. Not badly, but just interrupting the nice smooth line of growth they had managed for years.

Is it the end of growth ? A change in business model ? No, not in my opinion. It cost a bit more than they expected to get ready for the next period of growth. They have been quite open about this.

I think also the management team six months ago was getting a little bored/bothered by short term demand for profit growth and explaining the investment they have made. So, I think they have withdrawn into the business with a " just let us get on with it and the numbers will speak for themselves attitude". There had been a lot of investor contact for a couple of years, and as soon as the share price drifted down below 40p, everyone was on their back. I hope Rob and the team have just let that background noise go away, and justmfocused on getting HMLH back to where it was: a growing,cash generative, forecast beating growth Comapny.

Let us see when the results come out

[chinahere] 19/5/2016 16:54

They're doing the right thing, focussing outwards.

Whether or not they are undervalued compared to their cash acquisition doesn't really matter.

Financial engineering is always a poor second to good business.

[cockerhoop] 19/5/2016 16:52

That's a fair point but operating margins have been pretty static since 2013. Maybe that's the recent investments in systems you allude to and they'll kick on in the future.

[davidosh] 19/5/2016 16:38

Do not forget that as in the acquired business yesterday there are often opportunities to knit together area operations and save office and some admin costs. Long term the savings and economies should come through.

[cockerhoop] 19/5/2016 15:55

David,

In the 4 years of your comparison they spent £4.7m on acquisitions. If your 50/50 split is correct they have gained £3.95m in Rev.

I'm certainly not saying HMLH aren't a good investment (I hold a few myself) but I struggle to see why they're paying premiums to their own valuation for single office private businesses especially if they subsequently add value to the acquired companies.

[davidosh] 19/5/2016 15:21

This is a fairly straight forward investing case. Growth has been about 50% by acquisition and 50% organic compounded by the acquired companies growing their books too.

If you can then keep the central overheads and admin costs reasonable and provide all the latest updates and systems available for the units around the UK you then have profits growing at a much faster rate than revenue.

Revenues to March 2011 were £9.3m & admin/central costs £973k with PBT just £314k.
Revenues to March 2015 were £17.2m, Admin/central costs £1.65m and PBT now £1.14m

They spent quite a bit last year on systems upgrades and a couple of key hires in the HQ so it should get even better in percentage terms from here too. I can see PBT being 40% higher in 2018.

[chinahere] 19/5/2016 15:11

Tail-swallowing of shares may be good for shareholders short-term but if the business is run well there will be bigger returns gained from well priced acquisitions.

[chinahere] 19/5/2016 15:08

They're not issuing shares though are they? I thought the last one was cash?

[rivaldo] 19/5/2016 14:06

Moving up again on small volumes - looks like any overhang is cleared.

With 3.5p EPS forecast for the current year, and further acquisitions likely, HMLH remains very cheap imho.

[cockerhoop] 19/5/2016 07:44

Chinahere,

I think you're missing my point, in comparison to their own financial metrics the acquisitions are expensive. It should be the other way round (see JDG for a great example of acquisitions adding value) If they had reduced the shares in issue with the money spent buying other companies EPS would have increased much more dramatically.

[chinahere] 18/5/2016 23:24

No, HMLH are doing the right thing with acquisitions I think.

Share buybacks are for companies with no ideas of where to spend their money.

[cockerhoop] 18/5/2016 21:41

Or maybe they're paying too much for their acquisitions! There's no way the tiny businesses they pick up should be more highly rated than a listed company. Clearly they'd be much better off just buying their own shares for cancellation.

What they're doing creates a constant headwind!

[britishb] 18/5/2016 17:59

HMLH have increased revenue and profits for 10 years in a row. There's only a tiny handful of companies that have done that. And yet it's still on a forward P/E under 10. Pretty shameful that there's no interest from smallcap fund managers. Just too small I guess?

There's always a danger than the insurance side isn't so successful going forward but even so, it looks desperately overlooked at this valuation. IMVHO!

[shanklin] 18/5/2016 15:53

Davidosh

I certainly think they need to identify adjusted P/L and EPS in their results RNSes, as I have now suggested to the CFO.

Cheers, Martin

EDIT: At least they are using cash rather than shares for these acquisitions!!

[davidosh] 18/5/2016 15:40

If HML were selling themselves at just the same multiple of revenue that they buy companies at then they would be paying just under £25m to acquire themselves but the current market cap is only £12.5m !!

So they do all the work knitting together tens of smaller companies around the UK, provide all the systems and network so that you can achieve a half price valuation as a listed company. Maybe they are not marketing themselves well to the City or should buy back in their half price stock !!

[rivaldo] 18/5/2016 14:04

Finncap reiterate their 45p target today - upside of almost 40%:



Good to see some respected contributors buying in above!

[mcfly79] 18/5/2016 10:21

I've bought in recently.

I've been waiting for an entry point for the past few years after having missed the opportunity to buy in before the large share price rise in late 2013. I believe the recent pull back to the low 30s presents good value.

I attended the AGM back in Sep 2014 as a visitor and hope to attend again this year as a shareholder.

Thanks to Graham1TY, rivaldo and others for their contribution to the board. I hope to be a more regular contributor now I am a shareholder.