Connect Share Discussion Threads

[turbocharge] 12/2/2018 13:46

I read somewhere that Connect bank debt has fallen from £153m in Aug 2015, to £82m in Aug 2017. Should fall further if and when the Books division is sold.

[edmundshaw] 12/2/2018 13:38

Focus on reducing debt? Thy have already reduced debt massively by selling the education division. There is still a very strong underlying business, I do not see how 68p is anywhere near fair value.

[zimbtrader] 12/2/2018 13:01

Thanks grahamburn. The article summed up my feelings about this whole shambles very eloquently. I suspect Connect will resort to costly legal action but fear their chances of a meaningful success are virtually zero; they will have to sue a specially formed vehicle / company that has no money and debts to pay to advisers as the article states. Another interesting point was that the books division may "look like damaged goods". No one is going to pay anything like £11 mill for this and that's assuming there may be other interested parties. Plus, Connect still owns books and if December trading really was that bad, that will impact future results for the company as a whole.

I already reduced my holding at 68p and fear the negative sentiment over this shambolic episode will further erode the price regardless of how Connect as a whole does. I really cannot see management maintaining a dividend at previous levels. Indeed, they may see this as an opportunity to reduce the payout and focus on reducing debt and shoring up other loss making areas such as pass my parcel.

It's pretty ugly any way you look at it...

[philanderer] 12/2/2018 12:24

Peel Hunt today downgrades its investment rating on Connect Group PLC (LON:CNCT) to hold (from add) and cut its price target to 67p (from 124p)

StockMarketWire.com

[retsius] 11/2/2018 18:56

Grahamburn
Many thanks for explanation.
Interesting to see how it developes over the next few weeks.
R.

[kenmitch] 11/2/2018 18:18

Even if the books distribution distribution business continues to be loss making it’s a small part of the business. So share price fall looks excessive.

Or doesn’t it?

[aleman] 11/2/2018 18:08

They might as well sell it to management and staff for £1, with contingency payments if they manage to turn it around. I bet it would start making money if all the employees suddenly became shareholders and CNCT might then get a modest payback a few years down the line.

[grahamburn] 11/2/2018 17:15

It is quite common in takeovers such as this, the predatory company forms a "Special Purpose Vehicle" (ie a separate company) to effect the transaction. So, I believe what Luke Johnson is referring to is that Connect could only litigate against that separate company. Though that company will be 100% owned by Aurelius, Connect will not have any comeback on Aurelius itself and the ability to get redress from what is effectively a shell company will be extremely limited.

Johnson says in that final paragraph exactly what you allude to in a property transaction and is surprised that such a re-negotiation did not occur.

[retsius] 11/2/2018 15:51

Grahamburn
Good find.
Don't understand 'only a specially formed purchasing vehicle'...
Not really anything from Luke apart from reporting what we already know. How about :'shocking business practice by Aurelius'

Connect did nothing wrong here. A price was agreed and then pulled at the last minute.All their due diligence should have been done long before the final takeover.
I hope they get due financial compensation for this. Reminds me of the old story of selling property, at the last minute the buyer says he can't afford it. Of course this is just to reduce the price and is the
oldest dodge in the book
R.

[grahamburn] 11/2/2018 14:47

Interesting (worrying?) extract from Luke Johnson's article in The Sunday Times Business News today (about when to walk away from a takeover deal):
____________________________

I always suffer last minute doubts before I buy a business, but I have never failed to complete an acquisition once it has been announced. By contrast, a private equity firm called Aurelius recently did just that when it reneged on an £11.6m deal to buy the books distribution division of quoted Connect Group. The buyer claimed that poor December trading meant it could not finance the deal. The seller asserts that the contract was unconditional.

The fallout from this shambles will be considerable. Aurelius will have racked up enormous abort costs with advisers, and I think it will have significantly damaged its reputation for good faith dealing. Connect now has a big subsidiary, which may appear to any other purchaser like damaged goods, and might be almost unsellable. No doubt litigation will ensue, but possibly Connect will have no redress against Aurelius itself since only a specially formed purchasing vehicle will have signed the agreement.

I have sympathy with both sides. Normally in such circumstances, the buyer attempts to renegotiate, and the seller obliges with a price reduction.
________________________

Does not bode well for either recompense or securing another deal to sell the Books Division.

[edmundshaw] 10/2/2018 16:37

For me, there is a problem with comparing net debt to EBITDA to determine gearing: that "I" in EBITDA. If rates rise and earnings get chewed by interest payments, ignoring that little vowel seems a bit problematic... In the current environment I prefer to look ahead a few years (3? 5?), and consider interest rates payable up near 8% or perhaps higher, and try and guess where debt will be and what impact that will have on the numbers.

In the case of Connect, cashflow is good and leverage at 1.2x is now so low it is not a worry. Which is why I consider Connect a far safer investment (more future-proofed, at least against rate rises) than many larger firms in non-declining industries - like Carillion for example.

[retsius] 09/2/2018 19:55

Have we reached ground zero?
Answers on a postcard........
R.

[nick rubens] 09/2/2018 16:20

Cheers speedsgh and others on the debt issue. It doesn't look too bad then.

[retsius] 09/2/2018 15:50

JK
Yes, you are correct. I realise I was spouting rubbish.
I was looking at Centrica's overall debt levels, not net figures.
R.

[edmundshaw] 09/2/2018 13:26

Thanks speed; just to mention the hike up in debt in 2015 was almost entirely due to the Tuffnells Parcels acquisition, rights issue covered it about 50%.

[speedsgh] 09/2/2018 10:56

Nick Rubens - re your post 821...

NET DEBT
31/8/13 £98.5m
28/2/14 £105.0m
31/8/14 £93.0m
28/2/15 £157.9m
31/8/15 £153.4m
29/2/16 £160.9m
31/8/16 £141.7m
28/2/17 £149.9m
31/8/17 £82.1m

[edmundshaw] 09/2/2018 09:05

Always good to reiterate actual guidance.

[rcturner2] 09/2/2018 08:58

TRADING UPDATE

Connect Group PLC is today issuing its Trading Update covering the 19 week period to 13 January 2018.

Overview

Total Group revenue for continuing operations of GBP564.5m (FY2017: GBP584.9m) has decreased by 3.5% year to date, with the anticipated decline of newspaper and magazine sales more than offsetting revenue growth in Mixed Freight and Pass My Parcel (PMP). While overall revenue performance has been in line with our expectations, a combination of delays to contracts in PMP, weaker margins and market uncertainty in Mixed Freight, and slower than anticipated realisation of cost reductions from the Group's integration strategy in order to preserve current service levels, mean that we now expect full year adjusted profit before tax for the continuing operations to be in the range of GBP42m to GBP45m, with current dividend expectations underpinned by a continued good cash performance.

[colonel a] 09/2/2018 08:37

Certainly somebody has lost faith this morning.

The company is in a relatively minor mess {probably} but their silence is unnerving.
And the longer the decline persists the harder the recovery.

[nick rubens] 09/2/2018 08:23

The market is clearly forecasting the demise of this company. It's been a Yield Trap from the 100p level. I fall for it myself many times, and recently with Centrica.

I see the mention of paying down debt.How much debt do they have?

What do we need to see for a turnaround and eventual profitable growth, rather than a steady decline in profits?

[ls24] 07/2/2018 09:49

Right website, great opportunities with the right team