Molins Share Discussion Threads

[bigdazzler] 22/10/2013 17:06

A good finish to the day as well. I wondered if the large trade today was a trade between funds, which wouldn't be a bad thing as recent RNS was a fund selling and if another fund buys, it stops any potential overhang.lets hope onwards and upwards.

[azalea] 22/10/2013 11:34

A 250k buy @ 173p this morning might be the start of an upward movement.

[ajb29] 22/10/2013 09:33

Highest volumes in three years by a long way...some major repositioning ahead of US decision? Anybody have anything more specific?

[azalea] 17/10/2013 09:40

Starting to gain traction ahead of anticipated moves in December for the U.S. tobacco industry to outsource its current inhouse lab testing of its products; in the event MlIN will be a major beneficiary.

[pyemckay] 09/10/2013 18:29

lol, too many company reports to read. looks like i got my answer anyway. exceptional profits so pe ratio irrelevant

[castleford tiger] 09/10/2013 16:56

Excellent post.
I thought I was the only one who started with the notes!!
Tiger

[thorpematt] 08/10/2013 22:20

Q.why is this on a pe of 4 ish? There must be something bringing the price to these levels.

A. Beacause earnings as recorded in the headline is very different from the operation underlying ones.

As Ben Graham used to say: Read the annual report backwards and pay attention to the notes.

You will find the pension was covered in depth on the thread recently and it is this which accrued exceptional gains - which are not indicative of the underlying business. You will find the contributions on the thread most useful i believe.

Valuing the underlying business is the key (as always) BUT as others have intimated the pension fund is going in the right direction anyway - so the exceptional gains may well prove...well, not the exception.

I would concur that the stock is cheap but NOT on a PE ratio - rather than a NAV basis.


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Of course if we are going to talk about value we would have to go back to Graham - but best not to start me off on that :-)

[pyemckay] 08/10/2013 18:15

why is this on a pe of 4 ish? There must be something bringing the price to these levels.

interested.

[jakedog2] 18/9/2013 07:43

XD (2.5p) today...

[zastas] 12/9/2013 15:08

Miton Income Opportunities Trust continuing to sell out, but with the price moved up ,now at about 176. Credit Suisse seems to have the job, but hard to tell from L2 sometimes who exactly is the RSP providing the supply. Still some time to go.

[azalea] 12/9/2013 11:02

A mere 20.3m shares in issue, with Schroeder Inv Man holding 26%. One of the few Simon Thompson's 'Buy'reccs left somewhat behind. However, given his update on 3/9, and his being happy to await its contents to come to fruition, I am happy to follow suit and in the meantime pick up the div. Judging by this morning buys, others could be of a similar mind.

[zastas] 11/9/2013 11:32

Well, MLIN is now doing what we had expected weeks ago, after the AR. Good.

That new fund manager must now have sold out or at least stopped selling at that price; it's gone faster than I expected. Observing L2, I could see that selling was at just below 167 (165-169 spread), hence all buys would look sells on my other screen.

I hope this costly exercise will not cost the fund investors too much money or the manager too much of his/her bonus at their expense.

[c1d] 09/9/2013 16:28

Thorpematt,
Thanks for your comments.
The 2012 Annual report (last available information I can find showing split) shows the following for the pension scheme assets:

Equities £201.0m
Bonds - index linked gilts £54.2m
Bonds - other £8m
Properties - £18.9m
Alternative investments £50.0m
Other £5.1m

Total £337.2m

you are correct that the proportion of the pension fund is not directly proportional to bond rates but I never meant to imply that it is. Actuaries estimate the present value of the pension scheme liabilities using the corporate bond rate at the relevant date whereas the value of the assets is the market value at the relevant date i.e. 31 December for the year end valuation.

However, in my experience the corporate bond rate has a big impact on the surplus/deficit because of the impact of discounting on annual expenditures forecast to last far into the future.

I agree that if equities drop in value that will have an impact as it will affect the value of the pension scheme assets, but I am hopeful that over time the overall trend in equities will be upwards - otherwise I will be looking to sell my equity holdings!

As growth picks up interest rates should revert to more normal levels so I think it is possible for equities and interest rates to both rise but in any period they may well move in opposite directions. I based my post on what I expect the situation to be over an extended period of time, say years rather than months.

Regards

[thorpematt] 09/9/2013 15:44

Logic sounds fine to me.

Essentially as discussed the pension fund is so much larger than the EV of the business, such that a 10% rise in its value gives a much larger gain than even a really strong trading performance.

The business itself looks steady and on present ratios for PE and yield is rather cheap. The outlook is fine so as you says not much to dislike.

The caveat for me is that the pension surplus / deficit is of course related to whichever investments are held by its fund managers. Assuming that these are ALL corporate AA rated bonds is probably not an accurate reflection of events. In other words the performance of the pension is not DIRECTLY proportional to bond rates.

ALso, bond rates rising may in turn be bad for equity prices which in turn may be a headwind for MLINs shareprice apreciation and possibly any equities held within its pension pot.

[c1d] 09/9/2013 09:03

I feel v bullish about Molins following the interim figures and, in particular, the impact of the improved pension position on the net asset value per share.
It seems to me that the interest rates cycle has turned a corner, and the overall direction of travel will be upwards for the foreseeable future.
Although pension accounting means that the majority of any gains in the pension scheme accounting position (due to higher interest rates resulting in a lower NPV of liabilities and hopefully higher asset values if markets continue to rise) will not go through the P&L, it will be fully reflected in the balance sheet and therefore net assets per share.
Given the relative value of the gross assets/liabilities of the pension scheme of circa £400m to the market cap of circa £35m the impact on net assets of any improvement is likely to be massive.
Combine this with a steady and consistent trading performance plus the added boost from a new US testing regime as and when it finally happens, and personally I can't see anything not to like.
I took the opportunity to significantly increase my holding following the interims so am hoping my analysis is correct!
Anybody see any major flaws in my logic?

[brummy_git] 07/9/2013 10:45

FYI - There is a good update on the pension scheme in this ED note

hxxp://www.equitydevelopment.co.uk/doc/1115.pdf

[zastas] 07/9/2013 10:28

Excellent reply Tiger, much better than mine. Many thanks.

[castleford tiger] 07/9/2013 10:14

PENSION
Pension schemes

The Group is responsible for defined benefit schemes in the UK and the USA, in which there are no active members, which it accounts for in accordance with IAS 19 Employee benefits. Changes to IAS 19 have taken effect for 2013 reporting, with the prior year comparative figures being restated. Financing income/expense is now calculated by applying the discount rate used for valuing the schemes' liabilities to the value of the net pension asset/liability at the beginning of the year, rather than calculating financing income by applying the expected return on assets to the value of the schemes' assets at the beginning of the year and financing expense by applying the discount rate to the value of the schemes' liabilities at the beginning of the year. As the discount rate is lower than the expected return on assets, financing income/expense is lower than would have been reported under IAS 19 before its requirements changed. Additionally for 2013 reporting, the expense of administering the pension schemes can no longer be accounted for as a reduction in the expected return on schemes' assets and is instead charged separately to operating profit within the income statement.

The IAS 19 valuation of the UK scheme at 30 June 2013 shows a surplus of GBP0.8m (GBP0.5m net of deferred tax), compared with a deficit of GBP13.9m (GBP10.7m net of deferred tax) at the beginning of the period. The value of the scheme's assets at 30 June 2013 was GBP333.8m (31 December 2012: GBP322.5m), and the value of the scheme's liabilities was GBP333.0m (31 December 2012: GBP336.4m). The net valuation of the USA pension schemes at 30 June 2013, with total assets of GBP15.2m, showed a deficit of GBP4.4m (GBP2.7m net of deferred tax), compared with a deficit of GBP5.3m (GBP3.2m net of deferred tax) at the beginning of the period. The aggregate expense of administering the pension schemes was GBP0.4m (2012: GBP0.4m). The net financing expense on pension scheme balances was GBP0.4m (2012: GBP0.1m).

The UK scheme was subject to a formal actuarial valuation as at 30 June 2012. This valuation is close to completion and is expected to show a deficit as at that date of approximately GBP53m. The level of deficit funding required is expected to increase from GBP1.2m per annum to GBP1.7m per annum (increasing by inflation) from July 2013, which is expected to equate to a deficit recovery period of 17 years.

so we have a situation where we have a surplus but will be paying more.
At some point this will come back as an excp credit.
Tiger

[al101uk] 06/9/2013 22:52

richjp,

THe pension fund is well worth considering in your investment decision, it totals £350 million, 10x the market cap, the pension in assessed every three years and the actuaries decide if additional funds need to be paid to fund any perceived shortfall.

The company currently pay £1.2 million and the shortfall was to be paid off in 9 years (from memory), they expect that to change and to have to pay circa £1.5 million and take 16 years to pay it off (again from memory).

From the companies point of view any small change in the pensions deficit has a magnified effect on the companies profits just by virtue of it's size.

Having said that the company had a surplus in 2008, they have managed the pension and the company through one of the worst financial crisis we've ever seen and bond yields are at an historic low with only one direction of travel left... up.

I believe the company is so cheap mainly on concerns over the pension plan, I think as bond yields and interest rates rise we'll see Mollins share price improve and I think in another three years time Mollins will once again have a healthy surplus.

As a result I'm a holder.

[zastas] 06/9/2013 19:19

You are right , Rich

AFAIR they are closing and funding that modest gap with extra contributions. But you are onto the important aspect of the yield rises on USA and GB government debt; it is going to have a dramatic effect on all pension funds. The 10-year yield in the USA and here has gone from almost 1.5% to just over 3% with gilts, all in just 5 months.

The seller is that fund listed above; if it is selling out, it would have to sell another 600 or 700k shares or so; that could take some time unless keen block buyers materialise. So we will have to be patient till that 200-220 target comes. The FDA's decision could be transforming.

[richjp] 06/9/2013 17:38

I thought I had missed the boat on this one but now I am having a rethink especially as the price has come back a bit.

The IC article mentions that the FDA approval re testing had been deferred but if that does happen in December this year as expected that can only be good. The news alone assuming it is positive, should give the share price a boost in anticipation of the revenue to follow.

I think I am correct in saying that they have a long standing problem with an under funded pension fund. Does anyone know if that is still the case?

I mention that, because in today's City AM there is an article saying that because of the recent increase in gilt yields, companies that have pension funds under funded, will benefit from those increased yields. I noticed a couple of stocks that do have pension fund issues, have moved up today.

Together with a useful yield, I am certainly tempted.

[zastas] 06/9/2013 14:26

Yes, our suspicions of a large seller confirmed now. Explains it all.

[zoolook] 06/9/2013 13:11

Back in today though its recorded as a sell.

FWIW seen a tweet saying it is a "buy" in Investors Chronicle today