Abacus Share Discussion Threads

[thefod] 04/6/2007 23:42

Down 3p tomorrow ex-div

[2delta] 04/6/2007 19:48

Jimi2

Not sure when ABN issued their new forecasts but i got the figures from today's Inv.Chron. I presume they are sticking with hold. According to the IC CEO Martin Kent had/has plans for more aquisitions but because of the low share price these have been held up and he doesn't want to increase the company's debt significantly so he's organically building a presence in Germany, the largest distribution market in Europe.

IC View- The market's reaction to the UK slowdown was extreme but with uncertainty continuing and little scope for further Euro aquisitions, the shares look fairly priced for now.

As others have previously said it is the uncertainty going forward which is weighing on the share price but personally i take some comfort from the 6% divi and if there is further weakness in the months ahead i will consider this an opp. to top up, lowering my average as further out these sort of levels have proved profitable to buy in the past and it is always difficult to call the bottom. If trading improves over the coming months ths share price could rise rapidly but the other side of the coin is if markets weaken further the share price may drop further.

[jimi2] 04/6/2007 18:26

Hi 2Delta. Do you have any other details - What was the recommendation?

[2delta] 04/6/2007 15:47

ABN forecast '07- 13.5 eps, '08- 15 eps. Equates to fwd p/e 8.4, div 6.2%.

[jimi2] 04/6/2007 13:07

Nice director purchase



Also Henderson global Investors taken their position above 6%.

Perhaps all the selling is done now and things may start to improve for the sp?

[2delta] 01/6/2007 17:11

If share price drifts sub £1 i'll certainly be topping up/average down, 7% div ect and history suggests these levels have been very profitable levels to buy at. History of course is no guide to the future. Has anyone seen a post result broker forecast yet?

[nigelwestm] 01/6/2007 16:24

Posts have dried up. Has everyone has sold out. I'm thinking of getting in at 100p. When do people think ABU will get to this level? July/August? Sooner?

[meadow50] 30/5/2007 17:30

Very negative posts here.The six monthly accounts were very good indeed and if the second half only equals last years figures the full year's accounts will be fine imho.

[bletherer] 30/5/2007 17:25

Well in purely technical terms the failure of the share price to hold even marginal gains into the close suggests the results are not going to reverse the downtrend. It's probably just going to drift around for a while rather than do anything dramatic but having failed to hold at 130 I'd be surprised if it does not test the £1 level at some point in the coming weeks and months, perhaps when there's a broader market sell-off in the summer (as there usually is). Most likely I'll buy back in at that level if it gets there as the value would then give pretty decent compensation for the current risks and uncertainties.

[2delta] 30/5/2007 15:38

Alot of what bletherer says is correct and yes if there is a big slowdown/recession which i hasten to add is currently not been forecast by economists, i would imagine ABU share price might go alot lower but and i stress BUT ABU is making decent profits currently easily covering debt interest payments which i presume are at a low fixed rate. I'm surprised at the slowdown considering the eurozone is growing well. Having said that with hindsight the share price fall over the last week or so was flagged when Goldman Sachs 19 May rated Electrocomponents a sell sighting pricing pressure UK/US. Management seem relatively confident that once trading picks up they are well placed and when/if this is the case i suspect the share price will rise from these levels and very quickly. All depends on favourable trading of course and the market does generally overshoot in both directions. Sentiment can be a big driver in terms of share price direction.

Interesting to see if any directors buy over coming months or not.

[jimi2] 30/5/2007 15:09

bletherer - I agree with what you're saying - If Abacus had no or little debt then the market would undoubtedly not have treated it so harshly recently and certainly I always prefer companies with net cash if possible.

My point really was that things would have to get a hell of a lot worse from here, trading wise, for Abacus to be in any problems with the banks. While no debt would obviously be preferable, the debt Abacus has they are comfortable with.

Although things look grim at the moment looking at how the share price has reacted over the years it can retrace its steps very suddenly.

[gearstick5] 30/5/2007 14:22

If things take a downturn and debt is high its a factor that you cant ignore. Interest rates are rising so the burden gets bigger.

[bletherer] 30/5/2007 14:20

Jimi - of course it's always when profitability comes into doubt that debt levels really matter, but though ABU is okay at the moment it clearly does have a material impact on the share price as the risks of declining revenue for an indebted company are much more serious than for a non-indebted one. A company with a surplus can run down its cash or take out a loan to tide it through temporary trading difficulties, whereas a company already saddled with high debt will have trouble getting much more out of the banks and may have to turn to shareholders instead with a rights issue or in really bad cases a debt-for-equity swap. Even if that's not going to happen today or tomorrow the share price is going to factor in a risk premium because there are possibilities of unpleasantness further down the line which are not there (or are a lot further down the line) for a company with similar trading but with a stronger balance sheet. I must admit it's been a mistake I've made more than once to buy into a company on a low P/E thinking "this is ridiculously cheap" only to discover to my cost that relatively small dips in its profitability can spook the market because of its debt levels. Of course the upside to this is that a highly geared company which emerges out the other side from a period of difficult trading is going to shoot up much faster as the market worries less about debt and warms to the low valuation. But it doesn't sound like ABU is going to be in that sweet spot in the near future.

[jimi2] 30/5/2007 13:15

I don't think the debt levels will be a problem while Abacus is profitable. From the previous results they state they were 'comfortable' with debt at £66m which was well within the group's bank covenants and there were 'total banking facilities of £82m available to the group'.

[nigelwestm] 30/5/2007 12:30

Good point. The gearing is very high, which makes me wonder exactly how cheap this business is in terms of enterprise value. Presumably, if they are not making enough operating profit to cover their debt payments, then the divi would be cut after all.

[bletherer] 30/5/2007 11:47

Nigel - it's a risk if profitability falls through the floor. They did say though that they expect to be cash flow positive in H2 and paying down some debt, and I presume that is on the assumption that they will be retaining the final dividend (they make no mention of any cuts). So on that basis I'm assuming they should be maintaining the final dividend at last year's levels unless trading deteriorates substantially from the way it looks now. Medium term, though, ABU has quite high debt levels (£67m currently) which I'm sure is one reason why the share price has fallen so sharply on a relatively mild profit warning. The debt becomes a big deal if profitability falls away significantly as they could then become dependent on the goodwill of the banks.

[nigelwestm] 30/5/2007 10:48

Could be worth buying for the dividend I suppose. But might not management cut it in the future?

[bletherer] 30/5/2007 08:50

The other complicating factor about ABU is that it's in a very cyclical area so as well as taking a bottom-up view on how the company is managing its acquisitions etc. you really need to take a top-down view on where we are in the business cycle, as if we're about to enter a recession then its earnings are almost bound to suffer. Fortunately its main operations are in Europe not the US and my impression is that the US is the most vulnerable to downturn in the short-term given the dodgy state of its housing market. But we all know the story about what happens when America sneezes...

[bletherer] 30/5/2007 08:36

Clearly the key question was going to be whether the "softness" they noted in Feb/March bookings had continued in April/May: the answer was a bit mixed, as it picked up in April but declined again this month (would have been better the other way round, obviously). It's far from apocalyptic, as they did not use the "substantial" word which is common in profit warnings (as in "...will be substantially below current market expectations", etc) and sounded fairly upbeat about the medium-term. On the other hand there's absolutely no quantification, even approximate, of how much below market expectations the H2 is going to be, and my impression is they're still unsure themselves ("lack of earnings visibility", you might say). The market doesn't like that kind of uncertainty so it's not really an encouragement for buyers to come in. Dividend maintained, relatively light exceptional charges, and promise of at least some reduction in their debt burden over the course of the year are all mild positives. My guess is it will be enough for the share price to at least stabilise, but I'll watch from the sidelines a little longer to see how it goes. My rule of thumb going into today was that we had to see a gap up to near or preferably above 130 to be looking at a sharp, short-term recovery or a gap down to near £1 to be looking at disaster; so far it's around flat, suggesting the range with strong upper and lower limits (100 and 130) could hold it for a while.

[nickcduk] 30/5/2007 08:26

Results not as bad as feared. The sell off ahead of results was over done. Its worth a bounce upto mid 120's at least.

[cyberpost] 30/5/2007 08:15

ECM are in support services. They derive a large portion of their income by provided very high margin services. ABU are a bog standard components shifter...and so sectored in electronic & electrical equipment.

[cyberpost] 30/5/2007 08:13

there might me a relief rally, but abu have cleary stated the 2nd half is not going to show the growth that the market had anticipated. the results today were expected by the market, so no surprise. Its the 2nd half that the market will be jittery about.

[jimi2] 30/5/2007 08:10

So 'challenging' current trading confirmed but no disaster in the results that the share price seems to suggest. Dividend mantained.

However, Electrocomponents(ECM) released their finals today and no mention of challenging market conditions why not? - on first glance they appear to be operating in some of the same markets as Abacus.

[cyberpost] 30/5/2007 08:05

andy i agree, some knew of this statement before hand.

[cyberpost] 30/5/2007 08:04

they have effectively issued a warning.

"Bookings in April showed some recovery but May has again reverted to weaker levels. This has led the Board to conclude that it is unlikely that current trading trends will allow progress to be in line with its previous expectations of growth in the second half."