Empresaria Share Discussion Threads

[chrisis33] 24/12/2013 15:33

Thanks for the info daneswooddynamo. I wasn't aware of that service, but have signed up. All the best.

[daneswooddynamo] 24/12/2013 15:23

Steve moore on onefreesharetip.com

[chrisis33] 24/12/2013 15:22

Where was it tipped?

[daneswooddynamo] 24/12/2013 15:20

I see this was tipped today hence the pa buying and upward movement. Lets hope we are celebrating next xmas as well

[chrisis33] 24/12/2013 11:46

There are some cheap-looking shares out there at the moment, and this is one of them IMO. Agree that 60p would seem within reach based on the fundamentals

[daneswooddynamo] 24/12/2013 11:44

Good to see a bit of christmas cheer here. Positive momentum in jan trading statement and miserly rating could see emr regain the 60p plus level it was trading at before german problems struck

[daneswooddynamo] 16/12/2013 16:26

delighted to see the Chairman tuck another million quid's worth away; he knows its cheap.

Problem is that he seems to be the only party interested in buying!

[jeff h] 10/12/2013 08:49

Anthony Martin made his purchase via Ennismore selling its holding .

[chrisis33] 10/12/2013 08:35

It's the debt that puts most off IMO. But But looks pretty comfortably covered to me.

[stegrego] 10/12/2013 08:15

It's very cheap here, pe of 5.
Spread of near 10 percent probably puts most off.

[chrisis33] 10/12/2013 08:14

Bought a few ...

[daneswooddynamo] 10/12/2013 08:13

He was buying quite a few 18 months ago. Problem is no-one else seems to be joining him!

[stegrego] 10/12/2013 07:55

Chairman buys a million quids worth and goes to 29 percent....

That's got to mean something.....

[daneswooddynamo] 10/12/2013 07:15

probably trading ok then!

[daneswooddynamo] 03/12/2013 18:37

No marketability and too small for anyone to care

[puku] 03/12/2013 16:51

silent board ! Edison projects 6.1p eps for p/e of only 4.3. Company is confident of such an outturn, so why so cheap ?/

[steve243] 06/9/2013 10:00

Interview with Spencer Wreford, Group Finance Director along with the results presentation -

[this_is_me] 06/9/2013 08:49

I don't see the company as being risky. Revenue remained fairly consistent throughout the downturn and earnings remained positive and are increasing making debt more affordable.

[jeff h] 05/9/2013 21:36

As Hardman point out, they've spent £9.1 million in the last 5 years buying in minority stakes.

Now that Headway is 100% EMR owned I'm hoping that in future minority acquisitions are at a much lower level and hence debt falls.

[paulypilot] 05/9/2013 20:05

Hi Boros10,

To a certain extent I agree with you. I took a very cautious look at Empresaria this morning, but if there ever was a time to be looking at riskier, highly geared companies, then this is it - if you factor in an operationally geared in crease in profits at this company, say they grow EPS to 10p in the next year or two, then the debt will fall back a fair bit, and people will look at the PER of 3.5 and say wow, it's far too cheap. So in that sort of scenario, you could see the shares heading to double or even triple the current price.

It's just that you would also be carrying the risk that, if something went badly wrong, then the group could potentially go bust if the Bank withdrew the facilities they rely on to operate the business.

Difficult call. I might revisit this one if it drops further, and possibly have a small dabble in the shares, but only ever a very small position size in something this high risk.

cheers, Paul.

[uncle john] 05/9/2013 17:39

Positive up date from Hardman & Co which will be widely circulated.
Ask them and they will probably send a copy
[e-mail]

[boros10] 05/9/2013 17:18

As usual Paul's article is excellent and his focus on balance sheet strength is critical in avoiding potential value traps.

However, if you are prepared to include just one over indebted cyclical play in your portfolio then I reckon Empresaria is worth a bet as along as you believe in the green shoots of recovery.

The Company uses the same model of equity participation pioneered successfully by MITIE plc in the 1990s and 2000s. Many of its subsidiaries are partially owned by local managers who therefore have significant skin in the game. Not only does this result in opportunities for earnings enhancing deals as Empresaria acquires the minority stakes owned by managers on modest multiples (for either cash or shares) it also affords some downside protection for investors. Managers are less likely to bail out when times are difficult and will work hard to improve performance.

The Company survived the credit crunch and the impact of adverse legislative change in Germany and has been able to cut costs in difficult markets. Performance in the Far East has been excellent and some new established subsidiaries are already breaking even.

In many ways the Company has come through the worst of it. For patient investors willing to take a gamble the returns could be spectacular as an improving economy lead to higher sales and profits and lower indebtedness.

[glasshalfull] 05/9/2013 15:40

Good article by Paul Scott on his daily blog.

Next I've been reviewing the interim results for the six months to 30 Jun 2013 from Empresaria (LON:EMR). Surprisingly, it's a stock that hasn't been mentioned in this column before, which might be because it just slipped through the net, or more likely that its high levels of debt scared me off.

Having made a lot of mistakes in the past (and learning from them all), my investing approach these days rests on a starting point of preventing 100% investment losses altogether, by filtering out companies that could possibly go bust. This is done through a rigorous Balance Sheet review, that normally rules out companies with net debt, unless I am satisfied that the level of net debt is modest in relation to the company's ability to generate recurring cashflows, and that the terms of the debt are such that it is highly likely the facilities will remain available for the foreseeable future.

Empresaria is a difficult one, because I can see the upside case, and am really tempted to invest because there could be good potential upside on the current price as economies recover. However, on reflection the Balance Sheet is just not good enough to pass my scrutiny.

On the face of it, Empresaria shares look cheap - see the usual excellent - "Growth & Value" graphic on the right. So this shows a very low PER of 5.48 (which is calculated using a weighted average of the 2013 and 2014 broker consensus forecasts - to make all companies comparable, regardless of year end date).

If you have - Premium, then you can hover over the green bars in the StockReport, and a useful pop-up box gives you more detail - in this case that on a PER basis Empresaria ranks 6th best out of 98 companies in the "Professional & Commercial Services" sector. The sector mean PER is 12.9, so clearly this share appears to be remarkably cheap on this measure at just 5.48.

A PER below 6 usually means that there's something wrong, and/or that the company has a lot of debt. In this case, by my reckoning, the only issue is too much debt.

Empresaria is an "international specialist staffing group", so as usual with employment agencies, their turnover is high as it includes the worker's wages. So turnover for H1 fell 2% to £95.6m, net fee income fell 7% to £20.9m, and adjusted operating profit rose 11% to £2.0m. So that looks OK - good cost control offset the fall in turnover.

The outlook statement seems fine, with the key sentence being (my bolding):

Based on performance to date, we remain confident that earnings for the full year are expected to be in line with market expectations and look forward to delivering further growth with confidence.

- shows the broker forecast consensus as being 5.95p for this year, and 6.6p for next year, so the 2013 PER is 5.6, dropping to 5.0 for 2014, based on this morning's slightly lower share price of 33.25p.

On the face of it, net debt reported at £8.9m at the period end looks high, but not disastrous, in the context of a business that should make about £5-6m operating profit this full year. However, that figure does not show the full picture, since it excludes invoice discounting. I'm not keen on the accounting treatment here, since if you read Note 8 to today's interims, it says they offset non-recourse invoice financing against trade debtors, and hence both debtors and net debt are both understated by £7.2m.

A fundamental accounting concept is the principle of no offsetting of assets & liabilities, so this accounting treatment just looks wrong to me. They would no doubt argue that because it's non-recourse debt, then there is no longer any potential risk to Empresaria. Well that's fine for as long as this invoice financing facility remains in place. But what if it were withdrawn by the finance provider? All of a sudden, Empresaria would face a major cash crisis.

So the true net debt figure is actually much higher, at £16.1m. Bear in mind also that all companies "window dress" their Balance Sheets for the year-end date, by having a push to collect in debtors, and delay paying suppliers a little, so you can safely bet that the average net debt figure throughout the year is probably nearer £20m. That's far too high for a company with a market cap of only £14.8m. So we can now see why the PER is so low. Adjust out all that debt, and it wouldn't be cheap any more.

A very low PER, combined with little or no dividend, is usually a warning sign of excessive debt, and so is the case here, with the yield being only 1%. If I held these shares, I would rather they cancelled the dividend for a few years, and built up their Balance Sheet, paying down debt - especially as invoice financing is expensive, so paying it down gradually would have a corresponding benefit to EPS. It would also greatly reduce risk.

As it is, I'm glad I dug into the debt figures, as this share is a lot more risky that it looks at first. You only have to hit a problem with trading, or some unexpected liabilities, and all of a sudden the Bank Manager is calling the shots, and has the power to make the company insolvent on a whim. Just because Banks have been lenient in the last 5 years, doesn't mean that will automatically remain the case forever. So why take the risk by buying these shares? It's not for me.



----

I concur with much of Paul's analysis but exclude the non-recourse discount financing which is offset against trade receivables.

There has been a slight increase in the reported net-debt due to the purchase of minority stakes as documented...& this is clearly holding the shares back.


Regards,
GHF

[daneswooddynamo] 05/9/2013 08:14

so the recent buyers have fled early doors.

i was expecting a slightly more upbeat statement..not much positive to say yet on germany prospects..

net debt is stubbornly high but of course largely driven by the further acquisition of minorities

so remains very cheap but will have to wait a while longer for appreciable upward movement

[this_is_me] 05/9/2013 07:40

Prospects looking good for my small holding in the long term (usefully in profit)