Eurodis Elect. Share Discussion Threads

[the stinger] 17/7/2005 18:37

offroad & nonlottie

Sorry both wrong...why.. ELH is still running, it's not in receivership yet and there's a chance it wont go there. That means support is needed from shareholders!. That means a deal will be made.

[shirishg] 17/7/2005 16:59

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[shirishg] 17/7/2005 16:53

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[nonlottie] 17/7/2005 16:25

I am not sure but just in case thought I should explain that the administrators are almost definitely not sell the shares of Eurodis PLC.

When adninistrators talk of selling a business in its entirety they do not mean a sale of the existing legal entity.

First of all this failed and we can therefore safely assume that the directors would have sold it for almost anything rather than let it go into administration.

The fact that it's in administration devalues it immediately and therefore although it's technically possible to sell the company the prefs, creditors etc would have to take a bath to allow the price to reduce.

All this is far too complex and it is therefore usual to sell the business and the assets ( this is still the business in its entirety) and then the administrator deal with how the money is divi'd up.

On this basis I cannot see how there can be abything for shareholders except their capital loss

[chiansaw] 17/7/2005 14:52

Thought Gromleys posts may be of interest to all concerned....hope you don't mind Gromley!


Hi PlayerTwo,

It's the number of parties bit here which confuses me somewhat. Are the administrators likely to be looking for a single complete sale or factoring the company?

A good question, we won't really know until more news come out. But FWIW my reading of the statement was that they are in discussion with "a number" of parties who are interested in buying the business in it's entirity, but I would absolutely accept that the statement could be interpreted differently.

As MonsterMonk says the administrators are oblidged to get the best deal they can and it seems to me that the individual parts are worth much less than the business as a whole. I attempted a potted view of the valuation a few days ago here :

and I personally think that broadly that is still applicable.

One of the key "assets" (not on the balance sheet) is the tax losses and I'm not sure that these could easily be preserved in a breakup. Also, before they leak away, the franchises, customers and market share have value beyond the break up value (it would be interestin in this respect to hear what Eurodis are saying to their customers - anyone know?)

On paper it would still be possible to conclude that the business is worth more in a whole entity sale than its value at suspension.

However as you rightly point out - if this is the path the administrators are taking then they are seeking to do what the management failed to do - only now from a weaker bargaining position.

It's my personal suspicion that there is some information not in the public domain which proved a barrier to the original deal being done (seemingly at any price) and in the absence of information it's very much safest to conclude that this will be the case for the new interested parties.

So whilst there remains a remote chance of some return for shareholders here it's my belief that it should be treated as a total write off, unless information arises to the contrary.

Of course theres not much you can do as a shareholder at this stage in any case so it's a bit of an arbitrary "decision".

Interesting still though to see how this progresses and whether any further information comes out about the failed talks.

regards,

gromley

Previous post, as highlighted above:

At the risk of offending some folk at "another place" it strikes me that there's some right old cr4p being written about the possible take out valuation for Eurodis.


The thing that most seems to be throwing people is the idea that Eurodis' NAV is c. 2p share. – True but highly misleading imho when you consider that of the NAV of £18.6m (ie c. 2p / share) £15.2m belongs to the holders of preference shares, the amount actually 'belonging' to shareholders is actually only £3.4m and if you take off the intangibles (£2.3m) shareholders only actually "own" £1.1m and given that we are nearly 3 months into the "third half year" it's a fairly safe bet that this has been eroded and that the NTAV "belonging" to shareholders is less than zero (ah the joys of limited liability – it's okay we won't be asked to pay up.) Actually it was always on the cards that during the recovery phase shareholders funds would drop to zero, so this ought to be no surprise to anyone.

It's also a mistake to reason that "the directors bought at price X, therefore they won't accept any less than that" – the board will seek the highest price that they can get – but this could be as low as ZERO (to the shareholders) – it matters less what the company is "worth" than what the relative bargaining positions are.

Anyway this prompts me to have a look at the potential takeout price (hopefully not adding to the aforementioned cr4p)

The lowest price a buyer could pay ("to the shareholders") for the business would be ZERO (NADA, NOTHING for the avoidance of doubt).
On this basis they would still be making a fairly hefty financial commitment, they would be covering the net debt c. £37m and the liability to preference shareholders £15m. (That's not to say they would necessarily have to stump up this cash immediately, but generally speaking I think a buyer would consider this as part of the 'price').
So if the shareholders get nothing the buyer will in effect be paying c. £52m (it strikes me they could pay less if they negotiate with the preference shareholders to pay less than par). So at this less what would the buyer be getting?

Well basically they would be buying a TNAV of c. £52m (zero shareholders funds + £15m prefs – paid for + £37m net debt - paid off).
As noted elsewhere they would also be buying ELH's tax losses of c. £122m (£135m has been quoted elsewhere but I'll stick with £122 being the deficit on the P&L account) – assuming a 30% tax rate, these are worth £36m. Given one assumes the buyer to be profitable it's reasonable to include the value of these tax losses in the buyers TNAV.

So at a share price of ZERO the buyer gets c. £88m of TNAV for c. £52m. I think that this is a reasonable starting point to consider.

Effectively they also get the following "intangibles" :
Ø £200m pa of turnover – representing perhaps 5% market share in Europe. (with associated gross margin of c. £35m)
Ø A potential list of franchises (if they can retain them and don't already have them)
Ø The future potential of the ATeG and WPG deals.
Ø An under-utilised logistics centre and more importantly "processes" – the value of this to someone in the business is almost certainly greater than the book asset value of the bricks and mortar.
Ø The liability for ELH's ongoing losses (probably c. £5m pa once the interest payments are taken out).

So how much (above zero) would the buyer be prepared to for these intangibles and the excess book value noted above?

AS LITTLE AS POSSIBLE I SHOULD THINK

You can't completely rule out a take out price of zero. If no other buyer comes forward and if Eurodis are incapable of financing themselves long enough to return to profitability.
It's not apparent that either of those two are definitely the case, but were I a buyer wanting to play hard ball, I'd be looking for Eurodis to PROVE IT.

So, we have a minimum possible return to shareholders of zero (and I would imagine some of the sellers see this as a risk), on the other hand if Eurodis do have some bargaining power what's the upside? Well one, possible benchmark comes to mind

NTAV (as above, including the deferred tax asset) = c. £88m, say a 20% (number plucked out of the air) discount to this = £70m. (This implies a 35% EV : Turnover ratio.) Taking away the amount that covers the debt and prefs leaves c. £18m for shareholders or c. 1.9p / share.
Obviously the market seems to think that this is pretty optimistic, but it's not hard to think that a buyer might consider themselves to have got a relative bargain here.

It is also quite possible to conceive of a much more bullish case if two (or more) buyers surface who :
1. Perceive Eurodis' reach to be an important piece of the jigsaw to becoming a truly global or regional player (which seems to be agreed as a perquisite for ongoing success)
2. See value in the intangibles noted above.
3. See synergies / economies of scale in a merger, sufficient to wipe out Eurodis' operating losses.
4. Are keen to buy Eurodis' market share and equally keen to ensure that the other guy doesn't get it.

It's not inconceivable (imho) that in such a circumstance and EV:Sales ratio of 50% might still be consider cheap – That's c. £100 less £52 = £48m of c. 5p / share.

Higher? – Well steady on it's all ENTIRELY speculation.

Truth is that I don't think any of us have enough information yet to judge the outcome.
The potential buyer will pay as little as possible, factors that can force this up are :
> If the ELH board have the ability to say NO. (zero to the shareholders is still better than liquidation as the board also have responsibilities to the creditors)
> If there is another bidder prepared to pay more, or if they wish to preclude any other bid by pitching sufficiently high first time aroumd.

Financial interests aside, I'm fascinated as to how this may play out.

Any thoughts?

Regards,

gromley

[trotting10] 17/7/2005 10:55

i once had 600k shares in elh,sold them all the day after the madrid train bomb,for a very small profit,,,im sorry for you guys,wish you well in the future,i got totally stuffed with twt,it aint a nice feeling.

[quraishim] 17/7/2005 10:26

Chainsaw.....Sorry about your loss, it was risky but who knew it will come to this...with all fairness pi were expecting a merger or t/o value between 3p-5 thats between the rights issue and directors buying price. My opinion was based on the turnover and the tax credit, though the margin on sales were low but positiveness on this thread was the expectation of consolidation in this sector......
Its all hindsight...but the reality was grim and I am very sorry for u and Ed.
This year I lost fair amount in cipher.........which went down the chute..High risk and high reward......but in ELH case its the end.

[chiansaw] 17/7/2005 09:59

Morning all.

Had a quick thread scour - don't think there's a lot to add except wait and see what happens.

Was wondering if bits of the company are sold will the losses ELH made be able to be bought too - any ideas.

As regards getting anything out, yes there is a chance, but very slim, and mentally i've written it off.

I agree with nonlottie to an extent - the thread was bullish, but since the bulk of the posters had bought shares, then I can see why that would be true.

Bearish posters were not seen off unless a la Haystack and KP who didnt have agreat deal to say - although Haystack did occassionally give reasons which in hindisght were right - as were Pippin and Kiwihope.

Can't really see any issues with 'I think the price will go up or down because' comments as wrong - thats is what the BB is for. I think its fair to say that there was not a lot of 'its going to be a tenbagger in 10 weeks time' thread either. Been a very nice BB in all fairness with some very pleasent posters.

Anyway, thought Id drop in - just a waiting game now. Whilst I am gutted, be interesting to see how the disposal works out.

[penrynner] 17/7/2005 09:50

jarvis, pressac, l.gardner, eurodis, sfi, po na na...poor trading and heavily indebted...the list goes on...avoid this kind of stock in future...

[nonlottie] 17/7/2005 09:28

Very Quick


I am sorry to say your post is so naive and ridiculously optimistic. Sorry Momentos but this is a fairly good example of what I meant earlier and I'm not being patronising.

Very Quick........ Just think of your capital loss and move on because.........

What you say is theoretically possible but in practice it virtually never never happens. As for plan B putting a company into Administration is not an option that generally springs to mind as a way for directors to enhance shareholder value.

Back in the real world, the board couldn't sell Eurodis for 1p a share. It was presumably because the buyer thought it was worth less than 1p and possibly a lot less...........that means minus and nothing for shareholders.

Once an administrator is appointed the value plummets as the business begins to disappear to competitors......the best employees leave or are poached..... franchises are terminated suppliers want their goods back........ etc.........basically the longer it goes on the less there is to buy, and that usually means vey poor returns for everyone except the administrators and secured creditors .

[very quick] 17/7/2005 08:48

Guys can we all give it a rest here, it does not matter who's fault its is, the matter of the fact is" that administrators have been appointed to run the company untill further notice" and they are in talks with several possible buyers, this can only be good as there is no talk of selling off just the best bits for creditors.
I still believe that we may get back more then we think here, i could be wrong but my guess is that the administrators are in talks so very quickly after the termination of merger talks, with possible buyers lined up and my guess is that this was ELH plan B all along.

[shirishg] 16/7/2005 23:24

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[nonlottie] 16/7/2005 20:41

Momentos

You're still shouting people down.........when you don't like their observations.......and making optimistic noises to people like Stinger who are innocently so wide of the mark..........if Stinger had made a bearish comment you'd have been shouting him down and perhaps with obscenities.

Like most bullies you don't like it when it comes your way...........where are your naive followers to back you up now???????????

They're nowhere because they have to their cost realised you were so wide of the mark.....nothing wrong with that but you're so full of it even when it's now so obvious that this was a bag of rubbish, the rights issue was good money after bad and the turnaround couldn't have made much progress at all if they couldn't even give it away.

You could follow your own advice that if its too bruising for you then go forth and multiply.

[fusebox] 16/7/2005 20:13

Havent you got better things to do either rather than rake up the past. ELH has had it finished capoot!

Time to move on and acknowledge a very bad mistake.

Let it be a lesson avoid companies with unsustainable debt levels.

[1destiny1] 16/7/2005 20:10

fusebox - your the don, the master of this game etc happy??? you have made your point. no need to repeat yourself, havent you got better things to do???

[momentos] 16/7/2005 20:08

Its OK Ferdinand De B., I believe you.

And I will leave you the last word as you seem determined to have it.

[fusebox] 16/7/2005 20:04

Yes but look how many investors i have saved from idiots like you! The same happened with Ultraframe...a lot of potential investors thanked me.

The same on Toad with a broker downgrade.

The same with TFC you see i warned of Martell selling out...i did in fact get out before he did.

TFC share price has never recovered!

You are out of your league momentus and should be in the circus!

[fusebox] 16/7/2005 19:49

The language you are using shows what you are made of!

I feel sorry for ED he has treated me with respect but you are a loser through and through.

You deserve to lose your money and need psychriatic help.

[fusebox] 16/7/2005 19:01

You are right the bears of this stock did get shouted down time and time again. Its likely you are right again..."Some of them naively probably believed the weight of optimism was heavier than it actually was."

What is annoying the bulls are carrying on making excuse upon excuse and continuing to slag off posters that warned of the dangers here.

[nonlottie] 16/7/2005 18:51

Stinger.............The only return here is a capital loss to set against any future profits...........

There's virtually no chance of shareholders getting anything and the large shareholders are powerless.............RIP.......RIP

This was a worse outcome than Olivers where DR was involved ..........at least there when they found a buyer shareholders got 50% of net assets.

This time started with £48m raised £39m and then 16 months later .......zero.........what was that about the track record.