TClarke – Worries

PUBLISHED: 22 Apr 2017 @ 11:32 | Comments (0) |

TClarke (LSE:CTO) currently has a low share price relative to its average earnings through the last decade. It shows no signs of financial distress and is built on solid industrial foundations with some reputational and relationship advantages.
However, there are some dangers we need to be aware of.
Building downturn
The company is dependent on the UK market. Quite sensibly the directors do not venture overseas because they realise they have an advantage here in terms of understanding the regulations, ways of working and hold the respect of the principal contractors. They would not have these advantages in another country. However, this UK-dependence ensures that the company’s profits are cyclical.
Inflation.
Margin improvement is being held back in 2017 because the company signed fixed price contracts to deliver materials and labour, but then found costs rising mostly because imported goods prices roses due to the drop in the pound after the Brexit vote. When a company is operating on such tight margins a shock like that can put a severe dent in its plans. It also indicates limited bargaining power over principal contractor clients (otherwise the client can be forced to take the risk of price rises).
The directors
The directors have guided the company through the recession in reasonably good shape, but they like to be rewarded well through cash payments with little interest in holding company shares. Here is what the executives got in 2016:

	Remuneration	Shares held
Mark Lawrence, CEO	£589k	39,607
Mike Crowder, MD	£522k	31,607
Martin Walton, FD	£415k	29,607
Danny Robson (resigned)	£164k	n/a
Non-executives
Iain McCusker	£51k	2,000
Beverley Stewart	£45k	21,000
Tony Giddings	£45k	2,000
Mike Robson	£45k	2,000

The incentive scheme pay outs are enormous for a £33m company:

£’000s	Fixed pay	Performance in line with expectations	Maximum
Mark Lawrence	413	743	1,292
Mike Crowder	372	653	1,122
Martin Walton	284	529	938

The directors play with accounting numbers

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