600 Share Discussion Threads

[hastings] 20/7/2018 11:01

Happy enough with the results, like the switch to dollars which makes sense with 70% of revenue being aligned to that. Balance sheet will be significantly better with debt more or less eliminated post the pension deal save for the loan notes. Forward PER of 7 after today's rise is far from expensive.Broker puts 27p fair value on the stock with a nice 4.5% (current price) div now in place.

[kazoom] 20/7/2018 10:33

At first read that looks like a decent result.

They've grown the business without further working capital increases in the second half. So they were cash flow positive over the second half. (Although taking out the Prophotonix sale and issue of shares, they were still negative over the full year by $87k).

I'm surprised therefore by the dividend, given there relatively high level of debt - the dividend will cost them c. $700k. I presume that must be a signal of confidence that they can remain cash flow positive going forwards.

So I good result I'd say, but I'm not really at all tempted at this price.

[wynmck] 20/7/2018 09:03

and a divi at last!

[ntv] 19/7/2018 07:20

as a small company, surely they should to go to shareholders to vote on the sale of a pension fund
it is a significant transaction
though not invested here because there is huge dilution at 20p and director related parties have been creaming off the cash at 7% interest rates from memory
though it was cheap at 10p

[kazoom] 18/7/2018 18:50

Hi gerry - I don't think the pension surplus was particularly down to "longevity" assumptions (I'm not even sure that they were revised down in this case).

It was more embedded with the "surplus assets" set to continue to compound over time - now Pension Insurance Corporation Plc will be the beneficiaries.

However, it is very much a moot point now, it is done deal. The key question now remaining is what is the group worth separated from it's pension scheme.

The current £20m market cap, just seems very optimistic to me. Especially given that IIRC gains on the pension fund represented about 50% of reported profits. Take this together with the balance sheet weakness that I highlighted above and the fact they seem to be leaking cash, it does not look attractive at all to me.

The full year results (Year ending 31-March) are due sometime this month (Hastings suggests tomorrow, but I'm not sure of the source?) and we'll get a better picture then - I'll be happy for holders if my scepticism is dispelled, but for my valuation that 'hope' is already priced in.

[1gerryp] 18/7/2018 08:35

I see this as a smart move taking advantage of the hopefully, temporary fall in the life expectancy of northern workers which occurred in recent years. As I already mentioned on this board, a one year fall in life expectancy equates to a 2/3% fall in liabilities - hence the main reason for the surplus. It would be foolish to expect this social trend to continue. So, I cannot agree with the assertion that the longer they wait the better.

[hastings] 18/7/2018 08:06

Prelims out tomorrow I believe, should be interesting to see the final numbers and the outlook. £2.2m pre-tax pencilled in by the broker with EPS of 2p.

[arthur_lame_stocks] 17/7/2018 20:25

I have to agree, I can't see any reason to invest here either, I've just followed them for quite a long time.

[kazoom] 17/7/2018 20:22

With today's price rise adding c. £1.4m to the market cap, "the market" sees this pension disposal as good news.

It was always on the cards, but I see it as bad news for shareholders. As I drone on about in the past, the more patient they were able to be and the longer that put this off, the bigger the benefit to be realised.

As it stands following completion the company stands to receive between £3-4m, that's paltry compared against the c. £30m that is disappearing from the balance sheet.

Even compared against the much more conservative "technical provisions" valuation surplus of £12.2m (£7.9m after tax) it is not a great return.

They have probably got a decent enough deal under the circumstances, but my concern is that they had to do it now and not for a higher return at some point in the future.

The deal meets the companies TWO (I think there are two missing) key cirteria :

1. to better secure the benefits to be paid to the pensioners
2. to relieve the Company of the disproportionate liability of such a large scheme.

The two criteria that I believe to be missing are :

3. [What should have been an objective] to maximise the return to shareholders.
and
4. [The real reason] to get our hands on some cash ASAP. (Maybe Wonga turned them down?)

In the last year I think the burnt through c. £1m of cash so this deal does give them some headroom, but it is very much last chance saloon - they have no more "family silver" to dispose of so need to become cashflow positive very soon indeed.

Based on the half year results with the pension disposal overlaid I think that TNAV is now £11m made up of :

PPE 3
Working Capital 16
Defered Tax 4
Net Debt -9
==============================
14
==============================

This compares with a market cap of £20m after today's rise.

Underlying PBT for the last two years has been below £1m each year and there is (obviously) no dividend, so in no sense whatever do I think this can now be considered "value".

As a quality British manufacturer I would really like to see them succeed, but I can honestly now see nothing that would make me want to invest here.

In this case, I would love to be wrong, I have no position here other than having been a past investor from time to time.

Anyone got some good news?

CJohn - I know you don't do "hyperbole", but is there something I have missed in this dour assessment?

[arthur_lame_stocks] 17/7/2018 19:35

I guess that's got to be good news, but do they get that cash once the last member has died or do they get it up front on completion of the deal?

[wynmck] 17/7/2018 10:58

bid 18 offer 17.40 ?

[hastings] 17/7/2018 10:22

WH Ireland will issue a note in conjunction with the prelims with 2020 forecasts included for the first time!

[noirua] 17/7/2018 10:18

A bit like the 'long march' but getting there. EK's 20p forecast should be reached eventually and the chart looks superb - maybe by Xmas.

[balcony] 17/7/2018 10:16

Interesting-With cash coming back to the company

[noirua] 06/7/2018 09:57

SIXH are continuing a very gradual increase and most buying during the 12.5p - 14p period can sit comfortably, very comfortably, and patiently, very patiently, waiting for events to unfold.

[danieldanj] 01/7/2018 02:57

600 Group (SIXH) Earnings-Reaction to Keep an Eye

[wynmck] 22/6/2018 13:22

wakey wakey

[cjohn] 18/4/2018 11:11

Yes, buying annuities will be more expensive than the technical provisions basis: this is the premium that SIXH would have to pay. A premium over the technical provisions pay out.

So I doubt whether the SIXH surplus is big enough currently to allow a profitable off-loading of the UK pension scheme. However, the possiblity is there, depending on how the discount rate changes and how assets perform.

[kazoom] 17/4/2018 19:51

Quite right wynmck - sorry I was looking at the wrong thing - July it is so about 2 and half months to wait - much better!

[wynmck] 17/4/2018 18:25

six months? was 4 July last year

[kazoom] 17/4/2018 18:03

And beyond CJohn, and beyond !

In layman's terms if the price stays on or above the line, then it's still going up if it drops below it might go down.

Anyway I'd echo the thanks to rburtn for pointing out the Hunting pension situation.

Looking through it appears they have bought all of the members of the scheme an annuity, thereby allowing them to recover all of the cash that is left over.

That has to be a possibility here, but the sooner the worst for shareholders imho as left alone the surplus should continue to grow.

As it stands on a "technical provisions" basis the surplus is (Oct-17) £12.2m on scheme liabilities of c. £230m. I would have though that annuities would be more expensive even than the technical provisions measure, so could easily eat up most of that surplus imho.

The risk is though that if the company do in fact continue to haemorrhage cash the need for a small amount of cash in the short term could justify sacrificing the bigger gains to be made from more patient management of the surplus.

Still probably 2 1/2 (corrected by wynmck I originally said 6!) months to go before we hear any more news from the company (FY results) unless there is anything material and unexpected to report.

[cjohn] 16/4/2018 13:18

Hi rburtn,

I took a quick read of Hunting's pension arrangements.

Unfortunately, there was some ambiguity about what would happen with the remaining surplus. It wasn't clear that all of this would go back to the company, though some definitely would.


However, I'm happy to accept that my negative position with regards to treating pension surpluses as a company asset was over-stated. Well done, Kazoom and yourself, for putting the opposite argument and persuading me.

Thanks.

all best

CJohn