Macfarlane Share Discussion Threads

[trader2] 22/11/2016 16:08

AU - means that it went into auction.

[nakedsteve] 22/11/2016 09:29

What does AU mean Trader2? Just noticed the 550,000 shares buy. I think this is a company to buy and hold on to for a period of years; it has to he one of the companies that will do very well post-Brexit vote, especially with the current exchange rates!

[trader2] 22/11/2016 09:23

Big boys buy on the trades list after the mid-session AU.

[nakedsteve] 22/11/2016 09:15

Great update, I think this company is very much under the radar at present and will flourish as a result of Brexit and the booming online shopping sector combined with increasing population.

[hastings] 22/11/2016 09:03

Yes, happy with that update.

[effortless cool] 22/11/2016 08:17

A very encouraging update. I have added another 23,000 shares to my holding this morning.

[b3842517] 18/11/2016 11:26

That is really helpful, thank you.

[effortless cool] 18/11/2016 10:49

A fair question, b3.

I start with my modelled profit figure for the 6-18 month period (£6.601m). I then:
- normalise for corporation tax (-£0.029m);
- add back amortisation of intangible assets (+£1.001m);
- add back pension fund deficit repayments (+£2.956m); and
- add back finance costs (+£1.031m).
This produces an adjusted profit figure of £11.559m. Applying a PE ratio of 12 to this gives a valuation of 100.9p per share (on a diluted basis).

I then adjust this per share valuation for the following, as at the 18 month point:
- excess cash over a £1m minimum requirement (+4.1p);
- closure of the pension deficit (-6.5p);
- repayment of bank loans (-12.1p);
- repayment of finance leases (-0.6p);
- deferred tax (+0.9p);
- cash from exercise of options (0.0p); and
- future payments for acquisitions (-0.8p).
This gives a final value of 85.9p per share.

[b3842517] 18/11/2016 10:25

Just looking at this for the first time and agree it looks a solid company.

EC - thanks for all your analysis, very useful, though I can't see how you go from an EPS of 4.84p and PE of 12 to a valuation of 85.9p. Would you be able to elaborate please?

Many thanks.

[effortless cool] 18/9/2016 16:30

Hi Cellars,

It's an interesting challenge as to what point in time my valuation represents. I guess what I am trying to get to is the fair valuation now based on immediate future prospects, i.e. (in this case), adjusted earnings for the 2017 full year and balance sheet values at the end of 2017. My selected forward PE ratio is the lever by which I adjust this valuation to reflect uncertainty, longer term prospects, etc. The methodology is based on the concept of an immediate acquisitor placing a value on the business.

I don't have a view as to how the valuation might progress over the short to medium term. I am simply looking for situations where there is a large gap between the (lower) current market price and my (higher) valuation on the basis that, if my valuation is right (or less wrong), that gap will close in due course.

Good to know our forecasts are still in line. Please keep the board informed as your views develop.

[cellars] 18/9/2016 14:28

EC

Thank you for your regular heading updates and your post #127; interesting and helpful.

Is your 85.9p TP fair value today or in 18 months (reference your point (2) "Base the valuation on the period 6-18 months ahead") ?

Our forecasts of company trading are in line; indeed my FY-17 eps is 4.85p!

However, my TP is for 65~70P post publication of FY-16 results, rising to 72~77P post FY-17. I think the differences between our TP's lies in our assessments of the appropriate P/E's or risk discounts to apply. This I find the most fascinating but difficult part of investing!!

The bottom line is that I share your faith in this company. The increase in my TP during FY-17 is down to my expectation of rising earnings and a reduction of forward risk to FY-18ff.

Another way of looking at it is that I expect a rising P/E over time on the back of a good performance and as risks are further resolved.

[effortless cool] 02/9/2016 22:37

I have further amended my target price. In arriving at this, one of the things I normalise for is acquisitions. However, I had omitted to adjust for amortisation costs, which relate entirely to historical acquisitions. Adding these back into the normalised profits increases the target price to 85.9p.

By way of summary, my methodology is as follows:

(1) Project forward all financial statements to at least three periods ahead.

(2) Base the valuation on the period 6-18 months ahead. I picked this with the view that the current period (0-6 months) is already reasonably well understood and "in the price", whilst projections more than 18 months ahead are too uncertain to rely upon.

(3) Normalise for tax (adjust to "normal tax rate), acquisitions (add back amortisation costs), pensions (add back pension fund contributions in excess of the normal funding rate) and debt (add back finance costs).

(4) Pick a target PE ratio (12, in this case).

(5) Multiply the target PE ratio by the normalised profit to get an initial target market capitalisation.

(6) Identify a minimum cash requirement level (£1m for MACF) and adjust the target market capitalisation upwards for any cash held in excess of this minimum.

(7) Further adjust the target market capitalisation by: deducting the amount of the pension deficit, deducting the amount of bank borrowings, deducting the amount of finance leases, deducting future payments (beyond 18 months) due on acquisitions, and adding the net deferred tax asset.

(8) Adjust for in-the-money options, etc, by adding any cash receivable to the market capitalisation to get a final target market capitalisation and then dividing by the number of shares, adjusted up for any in-the-money options, etc, to get a final target price.

Hopefully that makes sense. Any feedback or comment welcome.

[petes5] 31/8/2016 14:14

Looks like directors buying.

[effortless cool] 30/8/2016 21:46

I have amended my latest forecasts in the header by reducing the administrative cost ratio slightly. The valuation is extremely sensitive to this assumption and jumps back up to 77.2p (from 69.0p). still plenty to go for here, I think.

Thanks to hastings for his help with this.

[effortless cool] 30/8/2016 06:46

hastings - you have mail.

[hastings] 29/8/2016 22:32

email me EC, [e-mail]

[effortless cool] 29/8/2016 21:22

Header updated to reflect interims. Extract below, in case anyone can help.

"Management expects its full year expectations to be met. I'm not sure what these are, but I am having trouble making sense of the broker forecasts, which are for revenue of £174m in 2016 and £178m in 2017, with EPS of 5.5p and 5.8p, respectively. I cannot see any way that the revenue forecasts are not too low and the EPS forecasts are not too high. If anyone has access to the broker report, I would be very interested to see it".

[expletive deleted] 28/7/2016 13:30

Wins73,Since your post starts with the erroneous claim that this latest acquisition is debt-funded, it is hard to take the rest of it seriously; however, I will give you the benefit of the doubt.First, the latest acquisition is simply a continuation of the accretive "buy and build" strategy that MACF have been following for some time now. It looks like they are paying a sensible price and it is expected to be earnings enhancing, so what is not to like?Second, I believe that your thinking on the pension fund is totally wrong-headed. We want MACF to be run for its shareholders, not for its pensioners. From that perspective, the pension debt is just a large liability, but not one that threatens solvency or causes cash flow pressures. The company has decades to manage the liability away and is opportunistically derisking it when conditions are supportive. That is the correct approach - maximising returns for shareholders whilst managing the pension deficit. To prioritise repayment of the pension deficit would be detrimental to shareholders interests.

[wins73] 28/7/2016 08:49

Have to say I am uncomfortable with management taking on more debt via acquisitions with an underlying pensions deficit issue. Also with Brexit local UK revenue will be slow and possibly drop. So I've taken my small profit and sold out as there is a chance share price can go either way. These are not odds I'm willing to take on anymore in lieu of the pensions issue which also makes it an unlikely takeover target so I'm out!

[hvs] 12/7/2016 16:53

Very nice move today.

[d4v1db] 28/6/2016 08:57

Did no one tell them there's a relief rally today? :-(

[hvs] 23/6/2016 15:53

Very nice move today. ENJOY.

MUch more to come.

[effortless cool] 22/5/2016 21:31

Header updated to reflect 10 may AGM statement. Only a small change in target price to 81p. Still a STRONG BUY for me.

[lewel] 17/5/2016 18:54

Any reason for the drop today? Thanks

[shauney2] 12/5/2016 12:31

Ex dividend today so not too far off the top now.Stop losses can go either way.