Conduit Share Discussion Threads

[markt] 20/6/2012 12:21

slightly changing the subject....

evaluating any share and taking future profits as 100% g'teed (positive CRE posts) is a risky approach imo; a risk factor should be used imo to reduce those possible profits if want to bring forward to being money today. Such as DCF analysis.
The lay off costs of CRE show that unexpected things can happen, especially when European economy is struggling (coughing up blood !) and there is a risk of X for future UK economy; the low P/E ratings for the marketing sector shows that the market is concerned.

Will the exec. dirs. still be at CRE in 3 years time, we don't know.

CRE was predicted to produce 13p EPS I think, and perhaps even 15-16p if go more months backwards. And it actually produced 8p when include the lay off costs. In the past the same thing has happened at CRE, Insight one off costs. And loss of selling a subsidiary. Part of normal business imo, not one offs.

What will this year actually produce ? No idea at all ! Q4 is very close to Q1 !, could business turndown continue with problems from Q4 to Q1 ?, ...imo the PIs, us !, don't know.
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High volume today, around 3.6M...so maybe the Institut. that went below 3% has maybe sold all of its 1.8M; shares .(2X 1.8M)

[markt] 20/6/2012 12:03

GHF
"Disagree entirely with your view on a non-debt position. I estimate that they'll produce c.£10m positive cashflow over the next few years "

We can agree to disagree.....but I still think that some posters are getting mixed up, including GHF. ...posting about future profits and future possible cash position and future debt position....
I have been talking about the "debt now" ! as per the accounts, not future debt.
As I posted yesterday....imho you can not take future possible profits and bring that money back to today and alter the accounts for today. You can estimate future debt situation, but it does not change the issued accounts, 7M total debt, note 12; which we agree is expected to be "partly" paid off by profits from acquisitions. Actual deferred payment, have to wait for the future to know actual amount.

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GHF mentioned concerns about some divisions and about very high exec. dir. pay.
(the news from the divisions is not good imo, I posted before)
We agree on that. (I previously set up a separate thread on the subject of exec. dir. pay).

(one related concern I have is that another director David Marshall non-exec. is perhaps in same situation, excessive benefits and stk mkt. rule bending imho. More than a coincidence ?! That worries me.
The return to the Marshalls from their investment in LFI has been imo 14%/year when you include the salary paid to a son as director of subsidiary, and kept secret from PLC shareholders for number of years. And it was D.Marshall that signed up D.E. to take over the cash shell that CRE was, in 2000.
Is there a friendly situation, DM-DE, that allows the high exec. dir. pay ?!. (DM is on the renum. committ, maybe the chairman)
Hopefully no mutual backscratching.
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Some instituts. were bailing around 95p on the way up....and maybe an instut. is selling now. Be better sign if they were buying.

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Is CRE a good buy or not at this price ?
Imo all depends on the news that CRE produces over the rest of this year.
Q4 produced noticeable fall in business versus Q1, Q2 and Q3. So the mkt is a bit nervous at present, so low P/E imo. Understandable.

[madengland] 19/6/2012 23:53

QS9 - LG unloaded a lot of shares from 8/6 (or possibly before) so decision made prior to any results. Equally there would appear to have been quite a bit of stock out on loan frombefore that. So I do not think the share price performance of late is quite as it may seem, imo. Did someone know or anticipate LG unloading? You know with this stock it will hit hard. A sizeable drop in May. Related? Maybe/not
Personally I am in the camp that these are good value, in fact very good value. There are certainly areas concern and the BOD renumeration is certainly one of mine also, and yes the share price performance over the last few years has not been good, but many of this size in the sector have been subdued. GL

[qs9] 19/6/2012 19:14

I think fact that share price has not moved up itself supports markt posts rather than "what great value" posts.....IMO! Am not but have been holder. If board took a big pay cut ( still would be v well paid IMO) they could boost profits nicely, then I might buy!

[madengland] 19/6/2012 19:06

On a slightly different note, what does everyone make of todays trades which again look interesting. I reckon the two big ones reported late were actually sells. Are L&G unloading their entire holding? Hopefully if thatthe case they must be close to having done so, so overhang gone maybe.

[markt] 19/6/2012 17:51

GHF
Well, we can agree to disagree.

Note 12 of results say that the total debt is 7M pnds. (whether it is 7M or 6M or 4M or....doesn't affect the logic of the subject; and the amount will change from year to year until actually becomes due to be paid.

The logic from the posters with opposing view to me (everyone !) seem to think that debt that is reduced or cancelled by future profits is in fact not debt !; and I completely disagree. You would not use the same argument to argue that bank debt did not in fact exist now because future profit will (or could !) pay it all off. (or maybe you would !). But you do use the argument for deferred liabilities which are deferred payments for acquisitions. (bank debt is a deferred liability as well !).

One has to assume that the future deferred payment will be fair, (or the "minimum" that the seller would agree to in order for CRE to buy their company !). If acquisition co. profits fall to zero then almost no future payments will be needed, but in that case the CRE share price would suffer since the acquisitions would have proven themselves to have been duds. So it would not be a benefit to CRE I think.
The acquisition price has already been reduced, see recent accounts, by around 5M I believe.

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The 7M is not a large amount relative to the current CRE profitability.
(but it is noticeable relative to CRE cap. value). (the 7M is not a determining factor for the CRE sp, but it is something to input to any evaluation, in my view; but not in yours).

Although there is not so much cash left after pay the large divi cost and deferred payment costs.
So, the cash in CRE accounts may not increase by much in future years......
whereas if CRE was in fact debt free, as you/Riv/Mag/CRE ! claim then it would build up a cash pile which would benefit shareholders
...the operating cashflow has benefitted this year by one off factors in order to help generate cash to pay this year's deferred payments, ref. past post. (reducing bills not received relative to payments to make; ie. debtors were pushed to pay up and/or CRE was reticent to pay its bills, to free up 2M of cash; if that reverses next year then CRE will see 2M reduction in free cashflow generation)

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...I'm only trying to have open/correct discussion and evaluation of the recent results. And maybe someone else could make some other comment about the results !.

Conclusion
that I seem to be the only person that thinks that the total debt from note 12 , of 7M , actually exists. Everyone else seems to think that it does not exist ! We agree to differ, no problem.

[markt] 19/6/2012 13:28

I see your point ...but I disagree with your evaluation

"because at present no further consideration is actually payable"
The accounts state that further consideration "is" payable, 7M. Note 12 of the accounts.

And surely if no further consideration was payable it would indicate shock bad performance of new acquisitions in USA, and RNS has said that USA perf. is OK/good.
And future payment is I think X times profit, so the amount could fall or rise but if it went to zero (as you said) it would be pretty bad , and would not help the CRE share price imo !
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Any deferred liability will be paid hopefully from profits. Any bank debt will/would be paid hopefully from profits.

The 2 items are very similar, both are real liabilities.

And note, the deferred payment will be bigger than the profit from the acquired entities. One of the ratios is I think, 5 X profit. It is not for free.

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Is the CRE CEO good at acquisitions/disposals ?. Record over 12 years imo is not good. Will recent USA acquisitions be better, we have to wait to see.

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CRE is paying a notably higher P/E for USA acquisitions than the P/E of itself. If CRE in 2012 replaces UK turnover by acquired more expensive turnover in USA (as in recently reported accounts), it could have -ve affect on CRE numbers/ratios. (high P/E ratio cos. buying low P/E cos. makes sense; the opposite can negatively impact co. valuation, ratios)

[rivaldo] 19/6/2012 13:00

Sigh :o))

Markt, no, any deferred consideration is only payable if the acquired companies meet their earn-out targets.

I will be delighted if CRE pay the deferred consideration as it will mean their acquisitions have performed superbly. If they do not perform, the consideration will not be payable. So it's a win-win for CRE.

In the meantime, CRE is almost debt-free in most people's eyes because at present no further consideration is actually payable - though the accounting rules sensibly make provisions for such eventualities.

[markt] 19/6/2012 11:19

not a holder....

How do you work that out ?!

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...no one willing to discuss this point ?!

"...is almost debt-free net of cash. It's very simple to understand"


note 12 in accounts say that total debt is 7M pnds

[madengland] 18/6/2012 20:55

Markt - I would love to understand your motivation, you are not a buyer or holder and don't see value. So why do you expend so much energy on the bb? I respect you have a view, but am intrigued.....

[rivaldo] 18/6/2012 12:23

CRE is almost debt-free net of cash. It's very simple to understand. And group revenue (i.e turnover) increased 11% overall.

The excellent article rightly concentrates on the core business, omitting one-offs which will benefit the group via reduced costs this year.

On a P/E of 4, and with such a healthy (and increasing) 6%+ divi yield, the risk is in the price with nothing for the potential.

[markt] 18/6/2012 12:11

"and the modest debt is more-or-less offset by cash in the bank".

...imo still got around 7M debt from deferred payments....which is not offset imo...it's a nett debt......although everyone seems to keep posting that CRE is debt free....

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the 'fool' write up omits various things imo..so it is not balanced imo..like omitting the fall in turnover in some divisions and resulting layoff costs in Q4

[rivaldo] 18/6/2012 11:57

Good summary here:



"A Rising 6.3% Yield With A P/E Of 4
By Kevin Godbold
Published in Company Comment on 14 June 2012

Dividend up, share price down: this FTSE Small Cap is worth a closer look.

When I ran a share screen in March, FTSE Small Cap company Creston (LSE: CRE) popped up. Since then, the share price has eased back a little, but the recent full-year results have prompted a closer look.

This practically debt-free, high-yielding business in the media has just posted a 17% dividend hike on the back of an 11% increase in revenue and a stable underlying profitability performance. It's now yielding around 6.3% on this year's payment.

Low debt, well-covered dividend

The share screen looks for companies with a decent, well-covered dividend and low debt. If it finds those things cheaply enough, there's a good chance that other desirable characteristics might be present, too.

Right now, at the share price near 55p (market cap. £34m), Creston is trading on a forward earnings multiple of just over four for 2013 based on underlying earnings per share, so it certainly hits the spot for cheapness.

Steady performance

The company provides marketing and communications services to blue chip and other clients in three divisions it calls Communications, Health and Insight. Business has been steady, as the figures show:

(see the article - my formatting doesn't work!)

There's been revenue growth and debt reduction, all reflected in the company's progressive dividend policy.

Creston has a number of operating businesses and has a busy history of acquisitions and divestments. I think a flexible strategy can be a good idea, but it leads to one-off charges and gains on the accounts. Recognising that, the company also presents underlying profit figures, which show a broadly flat profit performance in 2012, rather than the increase in earnings per share shown from the income statement.

It's also worth noting that 2010's net cash performance was flattered up 23% from operations that didn't continue into 2011.

Outlook

Although cautious of general economic conditions, the directors believe they have a viable strategy for profitable growth and cite strong cash flow and conservative financing as reasons for confidence.

Indeed, free cash flow covers the dividend payment around two-and-a-half times, and the modest debt is more-or-less offset by cash in the bank.

Share price weakness could be down to investors worrying about the cyclical nature of the company's operations. That's understandable, after all, the shares bottomed at about 20p in 2008. Then again, they were at 120p just last year.

Given the outlook, I think Creston is a cautious buy at the current level."

[markt] 15/6/2012 12:38

well anyone that paid 96p in 2000 ...or around 130p in new shares issues.....
would definitely agree with you ;-)


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maybe the next 12 years will be better....have to wait to see.

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true EPS number.
Any agree or disagree with me saying that the actual EPS was around 8p ?
(including the 2M cost of layoffs)

(while company Headline 2-5x EPS was 12p and reported EPS was 15p (ha ha !, uh, no !))

(broken down thru support at 55p so mkt doesn't seem to believe 15p EPS !)

(I'm gonna call my EPS number the markt 'taxman EPS'......I always wanted to come up with a new financial term or expression, hopefully I've now done it !
; taxman EPS is the EPS calculated from the tax paid, from what the taxman thinks is the achieved profit. (paid arounds 1.7M tax, if say that real tax rate is around 25% then you can work back from that to calculate PAT and hence the 'taxman EPS'. The taxman is very skilled at determining what it the true profit !!, you can try almost any accounting trick and it won't get past the taxman imo !)

[madengland] 15/6/2012 08:53

Markt ~ let me save you some time. Don't invest would be my suggestion

[markt] 14/6/2012 17:49

If generated 5M real cash after tax in 2012 if then use 2.2M for divi and 2M for lay off costs, leaves only 0.8M

(the divi is a large % of the real cash really generated after tax, 44% imo, high %, perhaps to stop the big shareholders voting against the renumeration of the CEO)

(in part they have paid part of cost of acquisitions by changes in the payables/receivables generating 2M of cash, 4M-2M; otherwise they would have had to increase bank debt by 2M......and imo they can't keep squeezing 2M cash each year out of changes to payables/receivables)

which highlights the renumeration of the CEO at 1-2M (including shares etc)
as too high imo.

(at 1M pnds renumeration, the CEO gets 20% of the real PAT of 5M , at 2M pnds renumeration (including shares, if meets perf. condition X, Y, Z or XZ or YZ or YZ/X !!) the CEO gets almost half of the real cash generated after tax by about 800 workers !.
And the same amount as "all" of the shareholders and the co. has cost 100M, inferring the CEO is worth 100M, which I don't agree !. 1 person gets the same as all the shareholders ?, looks wrong imo

While the CEO has over 12 years taken the share price from 96p to 57p. Does not look right to me, although I only have a limited view and have never met any of the BOD.

[markt] 14/6/2012 17:35

"Markie7 14 Jun'12 - 16:51 - 3354 of 3356

"profitable growth" - can be achieved by standing still, as Corkery will be in for the full year next year. It is hardly a bullish statement."

apologies for posting again....but....I agree....and ..too much spin in the wording of these results....
eg. closing offices and moving staff together (due to less business and lay offs) is 'spun' as a benefit !!

and putting the adjustment of the valuation of the acquistions into the numbers for reported profit and cashflow.....personally I don't like it (nor the taxman, who does not view it as a profit since he has not taxed it)
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The real situation inside CRE ?, I don't think the accounts or the BOD tell us !

[markt] 14/6/2012 17:30

darlocst
"Results compared to earlier expectations are disappointing. Management credibility & track record are poor at Creston & management remuneration is too high. Outlook, especially given the macro environment is unclear".

100% agree with you. And I think you summed it up nicely....

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debt
"Also some is deferred until 2015 so will easily be covered by profits generated."

irrelevant in many ways imo....
if it was a bank debt of 7M it also would not be immediately payable. and bank debts are also paid off using profits.

....the important point imo....is that any profits arriving in next 2 years will in a large part be used to pay off the deferred payment/debt/liability of 7M....and dividend costs...and hence will NOT be increasing the cash/share for shareholders (if the true debt was 0 then it would)...or building up cash pile to allow other acquisitions (or returning cash to shareholders !) or make the accounts more solid in uncertain times (2M in layoff costs this year which were not planned at the start of the year, will anything similar happen in 2012 or 2013, we don't know....Eurozone is a shambles/farce, what will impact on UK Plc be over time ?)
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Paying 2M lay off costs is not good when need also to make deferred payments....using real cash.

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Dividend
Investing for dividends is a fools game imho. And there are many out there.
look at Thomas Cook for example. Some of us spotted that as about to fall and stop its divi long before it did ;-).
Hopefully CRE will overcome its hiccup this year...but the cost of the divi relative to the nett "real" cash generated by the business has degraded very badly, in part due to 1 bad quarter, cost 2M. If it has 2 bad Qs in 2012 or 2013 then the divi could in theory be affected if it has to pay 7M deferred payment. Perhaps the divi increase is to give the BOD some peace in a year of missing the expected performance....and to avoid any criticism of excessive management renumeration; if so, never a good sign.

(some institutions seem to think that nothing matters as long as they get a good divi, completely wrong imo, ref. Thomas Cook et al !)
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If generated 5M real cash after tax in 2012 if then use 2.2M for divi and 2M for lay off costs, leaves 0.8M....then paying deferred 7M payments looks difficult from profits. And if no lay off costs in 2012/2013 then looks imo like all free cash being generated is being used to pay the deferred payments...and no cash is being built up.
(and makes the renumeration of management including shares etc, as excessively high)

and if using a lot of the cash being generated to make acquisitions....then the underlying EPS needs to increase as a result of spending that cash.....can not continue to report that headline EPS has stayed the same or marginally fallen...

the acquistions were a lot of cash...so how the headline EPS excluding lay off costs has not increased, beats me !

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Will CRE markt headline EPS ('markt EPS'= including any lay off costs) increase this year ?, will profit % fall again by 2% or was 2012 a one off and it will bounce back ?
...we will have to wait to see......

[darlocst] 14/6/2012 16:56

markt - I agree treating deferred consideration is debt is the safest way to go, if not technically correct. However you do need to note that its dependent on the future performance of the business so may not be £6.9m. Also some is deferred until 2015 so will easily be covered by profits generated.

Results compared to earlier expectations are disappointing. Management credibility & track record are poor at Creston & management remuneration is too high. Outlook, especially given the macro environment is unclear.

However the valuation is very cheap and there is a good dividend yield.

[markie7] 14/6/2012 16:51

"profitable growth" - can be achieved by standing still, as Corkery will be in for the full year next year. It is hardly a bullish statement.

[markt] 14/6/2012 16:39

Well I make it that it has a nett debt.

Note 12 says that net debt is 92k and total debt is 7M.

For me, net debt is 7M. the deferred consideration is a real debt imo, it has to get paid. For example, if CRE could not pay it it would take on a bank loan of 7M in order to pay it. Whether you call it deferred consideration or debt.....it is a debt imo.

but 7M is not a big debt relative to the CRE PBT.

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Personally I find the CRE results dissapointing....headline EPS (excludes lay off costs) is marginally down despite turnover being up 11%.
Profit margin down from 16% to 14%.
And -ve news from a number of the company sectors/divisions....and 4th quarter showed a fall in business....hence I assume the low P/E.

(while on plus side turnover is up and international turnover is up)

...and this being despite acquistion in 2010 and another one in 2011.
and valuations of acquisitions has fallen a lot which infers to me that their performance is much lower than expected....although recent RNS said they were performing well (?!)...which makes me worry a little about acquisition skills of CRE

How can CRE make largish costly acquisitions using cash and then report a marginal fall in headline EPS ?! (when the lay off costs are not included in the headline EPS numbers )

...OK, the numbers are not everything.....has business improved in Q1 after bad Q4 ?...we don't know.