Connect Share Discussion Threads

[colonel a] 01/5/2018 07:40

Think the key will be whether, in the "meeting for analysts", they manage to convince bigger investors that they are on top of their problems.

The shares are ridiculously cheap and they still have a huge income stream.

Ho hum.

[wllmherk] 01/5/2018 07:33

Interim dividend held, but, they signal a future cut, which would be sensible. Pass my Parcel has not delivered and overall it felt a somewhat downbeat update. I suspect the market reaction will be negative which is kind of my luck this year.

wllm

[grahamburn] 30/4/2018 17:58

As well as the policies or plans regarding the underperforming activities (ie remedial measures or closure).

[podgyted] 30/4/2018 17:03

Good summary.

Think its the results/propects/outlook thats the key - at least more than the dividend.

Good Luck

[kenmitch] 30/4/2018 12:43

True, and a cut is likely. Guessing about 50% cut. Share price reaction to that depends on results news and especially the outlook. If results OK and Outlook more promising the share price could well go up even with a halving of the dividend.

But better still would be good results, good prospects and a maintained dividend. Share would rocket (16% dividend!)if that happened. Tomorrow is going to be very interesting.

EDIT. Missed out worst case! Poor results, bleak outlook and dividend cut or even cancelled. Will be cutting a loss if that happens!

[podgyted] 30/4/2018 12:22

They have the FCF and cover to pay the dividend. But why do it? The market is essentially telling them to halve it.
Would not view this as negative.

[colonel a] 30/4/2018 09:09

Interims tomorrow.
They have trimmed the interim div in the past.
A modest drop {2.9p as per 2015 say} would show confidence without being stubborn.
Who knows???

[dg4538] 25/4/2018 21:29

Thanks a lot for the detailed notes on pensions. UK pensions are not something I am familiar with but it sounds like there potentially is a little bit of upside from this surplus?!

I also agree that management would really need to fail badly to "put the company on the rack". However, I think it's important to acknowledge that managing the integration between Smith and Tufnells is certainly not easy and many things can go wrong. Before the envisaged integration, achieving cost savings in ED seemed more straightforward and I would put a higher risk on this now. Obv the potential savings are also higher. The last trading update certainly wasn't reassuring on this development.

As kazoom I'm more positive on PMP and think it's rather unlikely that it will destroy (much) value. The last trading update again didn't sound very good on profitability but the opportunity seems large and their moat should be good enough to not lose money with something I would view as a viable service and business model.

Could see them cut divis although I agree that they will be rather reluctant to do so. With a huge headroom on their bank facilities I don't see a need in the short-term unless they think that things will really worsen considerably in the future. Thus, I would view a divi cut as a clear negative.

[kazoom] 25/4/2018 20:43

To mirror discussions I have had elsewhere (SIXH) that the pension surplus is an asset that is realisable for the benefit of shareholders in the long term.

Equally there may be ways to realise a smaller amount in the short term (but losing out on the rest of the potential benefit). Hunting PLC did just that, essentially the bought all of the pensioners and potential pensioners annuities and were therefore able to recoup the remaining cash.

Annuities of course are MUCH more expensive than the assumed value of liabilities in the balance sheet, but with the pension fund surplus equalling 30% of the liabilities here, it's not inconceivable that this could be done. Personally though with the pension surplus set to continue increasing in the short and medium term I think it would be a bad idea to do this as things stand.

I absolutely agree with your thoughts though that it would take extraordinary incompetence to as you say put "the company on the rack" anytime soon.

Personally not that I much care for dividends I think it unlikely they will cut, they have set a reputation as a dividend payer and indeed in January's profits warning they clearly said "current dividend expectations underpinned by a continued good cash performance."

I actually think Pass My Parcel will come good, but they will probably have to renegotiate the pricing.

I think (joining the dots, so I accept I could be well off target) they plain and simple made an error :

"forecasted margins and costs have been adversely impacted because the primary driver of growth has been a rapid increase in lower margin customer returns through parcel shops, with further acceleration over the Christmas peak."

Return rates for Amazon I think are relatively low, but in fashion they are c. 40% - they will have known this, but it is actually far far worse for the network carrier. If a customer buys 5 items and returns 2 as far as the retailer is concerned that is a 40% return rate, for the carrier it is 100% (one consignment delivered to customer , one consignment returned). If CNCT are providing a good service then I think customers (retailers) would potentially accept revised terms at renewal rather than see CNCT walk away.

I bought back into CNCT at about 70p so clearly have called this wrong in the short term, but I personally expect next weeks interims to be reassuring. (But the smart play I now think was to have waited to see that happen.)


Roll on Tuesday!

[edmundshaw] 25/4/2018 18:34

The pension surplus is sadly untouchable nowadays. Which seems unfair on companies that have put in good contributions to make the pensions safe - but of course we know why the rules are thus...

Yes, cheap. There are problems with drivers and vehicle types, Tufnells has not been altogether successful, and Pass My Parcel has never filled me with confidence as a strategy. But in spite of all this, Connect still generates a great deal of cash, it would take some miserably incompetent management to put the company on the rack.

Yield of 15% sustainable? Well a yield like that is generally a bit of a temptation for directors to cut, even if it isn't necessary; but even halved it would be pretty decent, and eminently sustainable for many years barring catastrophes.

[dg4538] 25/4/2018 17:36

Shares do look very cheap after the recent decline indeed. Does anyone have a view on the following two topics?
Is there any value in the IAS 19 pension surplus (150m) for CNCT?
DX Group recently announced a new strategy (within their current turnaround plans) with a focus on price increases in DX Freight. I suspect this should benefit Tufnells since I understand that it's the main competitor and Tufnells has suffered from fierce price competition?

[aleman] 12/4/2018 10:17

20-day and 50-day averages turning up. Such a pattern often leads to the share price jumping back to the 200-day average.

[rcturner2] 09/4/2018 09:24

TRADING UPDATE (22 JAN 2018)

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.

[speedsgh] 04/4/2018 10:07

Agree LG. The question is one of strategy. The problem is the current management are not proving successful in achieving profit with their diversification strategy which is being subsidised by the still-profitable legacy news distribution business. So, what to do? Either bring in new management that will make a better fist of the diversification strategy, or concentrate on running the declining core news distribution business whilst returning earnings/capital to shareholders until the business is eventully wound up.

[lord gnome] 03/4/2018 18:27

Buying the bit of news distribution that it doesn't own would make a lot of sense for Connect, but I just doubt that they would be allowed to do it. News distribution is a dying business, long term, so it would not solve the problem of where they go next to invest the cash flow. They would still need a growth opportunity. If they have screwed up Tuffnalls as has been indicated on here, then everything they have tried so far has turned to dust.

[speedsgh] 03/4/2018 18:13

Maybe CNCT should revisit its diversification strategy, sell off/pull out of Click & Collect/Mixed Freight, acquire Menzies newspaper business, concentrate on what it knows best & operate the news distribution business in run-off gradually returning earnings to shareholders. But probably too many 'interested parties' within the business protecting their own personal interests for such a shareholder-friendly approach to be adopted.

[scobak] 03/4/2018 18:02

There is some truth in that, however it is a business that is understood by connect and would continue to be a profitable revenue stream. The beauty though is that there are few other companies that could take over the Menzies business hence i can't see cnct having to pay a full price. There don't have to be synergies - they know and can run the business and it is profitable.

[fahads] 03/4/2018 14:20

My understanding is that Menzies and Connect Group dont have much overlap in the regions they cater to. From that perspective, not sure if an acquisition makes sense in terms of realizing cost synergies....

[riverman77] 31/3/2018 11:27

Menzies wants to divest the newspaper business to concentrate on aviation. However, I don't know if a merger with Connect would be allowed due to a potential monopoly situation. Would be interested to hear from anyone who has more knowledge in the matter.

[wllmherk] 30/3/2018 19:28

How much would Menzies NDB sell for, would CNCT need to raise funds to buy ?

wllm

[scobak] 30/3/2018 12:22

Looks like Menzies is talking about getting rid of its newspaper distribution business. Regulatory hurdles would likely prevent CNCT being able to take over more than a fraction of the business ( menzies and connect are the main UK magazine and paper distributer ) but newspapers are the core business and competency here.

[riverman77] 29/3/2018 17:34

Yes it could easily just close down the loss making pass my parcel division if it doesn't work out. The core newspaper division seems to be doing ok, and given that few companies would have the logistical infrastructure to run this sort of operation they must have a degree of pricing power which could offset some of the long-term decline.

[gfrae] 29/3/2018 17:09

Could it dump pass my parcel ? how much would it cost to jettison I wonder ? Or is it worth something ?

[danieldruff2] 29/3/2018 16:49

Shares are in an eternal popularity contest and this one served up a bucket of sick in the last update which has put it in the doghouse. I still think if pass my parcel is a success, this could do 150p. But as I think it won't succeed, maybe 100p if confidence returns.