Fayrewood Share Discussion Threads

[scburbs] 30/8/2007 13:17

Should be nearly results time.

In fact if you believe the financial calender on the website, results must be due tomorrow.

"Date Details

August 2007
Announcement of results for six months ended 30 June 2007 – date to be announced"

[colonel a] 25/7/2007 12:34

Gents,

Thanks again.
I can't fully reconcile the balance sheet and the cash flow {net funds} but am hoping that the reduced working capital requirements will leave free funds which are a significant % of the current market cap.

Also, to put it crudely, if UMD was worth anything like 50 million euros then what's left is "worth" more, IMO.

Perhaps I'm being naive but the return of funds would/should have done on a conservative valuation of the company.
Given that we're now trading at more than a 10% discount to that figure the risk/reward should be favourable.

And finally, in the current climate I would not be completely bowled over if the rump that remains became a takeover target.

[scburbs] 25/7/2007 11:19

Gengulphus,

I agree, but I think the raw cash is also interesting if you assume that the business can maintain a level of operational debt. The number that is really interesting is raw cash less any debt in excess of that which the remaining business can sustain.

This is because the excess raw cash could be returned to shareholders which would massively improve shareholders IRR from the investment (effectively realising part of the discount to TNAV). However, it is not clear whether FWY board's is aggressive enough to follow this value generating plan which every PE investor would do.

Perhaps some of the institutional investors will give them a nudge as I don't think acquisitions are realistic and to run a non-acquisitive business with net cash/no debt is not very efficient albeit it does make the investment very secure.

[gengulphus] 25/7/2007 11:02

Colonel A,

Are you looking at the raw amount of cash on the balance sheet or at net cash - i.e. cash minus debt? It makes quite a difference - last year's results show cash of £55.7m on the balance sheet, but net cash (called "net funds" in the reconciliation below the cashflow statement) of £19.1m. Put another way, the company had both £55.7m cash and £36.6m debt at the time.

A very rough calculation is that they've added 24.7m euros from the Computerlinks sale and (hopefully) 5m euros from the UMD sale since then, for about 30m euros or £20m, and returned £35m to shareholders. So ignoring earnings in the last 6 months and the costs of the return of cash, the cash balance will have dropped by about £15m, taking them to around £40m raw cash and a few million net cash.

But they will almost certainly have paid off some debt - it makes little sense to keep both large amounts of cash earning a low rate of interest and large amounts of debt costing a higher rate of interest unless you have to. You want to keep enough cash to remain flexible, but £40m is clearly a lot more than Fayrewood needs for that purpose - especially as most of their debt is in the form of trade receivables financing, which is a fairly flexible arrangement anyway (i.e. if they pay it down, they should be able to borrow it again if they need to, as long as they have the trade receivables as security for the loan).

Of course, at the end of last year, Fayrewood did have both a lot of cash and a lot of debt. But that was just a few days after the UMD sale had completed, and we know that getting the cash back to this country without tax consequences was not a trivial task - so in effect, they had to be in that situation at that time. But we also know that they have got the cash back by now - so they'll almost certainly have paid off quite a bit of debt by now. Paying off debt will of course reduce the raw cash on the balance sheet, but leave net cash unchanged.

In general, the possibility of taking out further loans (which increases both raw cash and debt) and of repaying them (which reduces both) means that a company's raw cash figure isn't very interesting, as long as it has enough to keep operating. So while Fayrewood's raw cash would be well in excess of its market cap if it hasn't paid off any debt, that's both unlikely to be the case and not very interesting even if it is.

The significant figure is the net cash, because that's not easily changed by taking out loans or repaying them. But that looks likely to be just a few million, well under the company's market cap.

Gengulphus

[colonel a] 25/7/2007 10:05

Thanks,
My rough calcs still show quite a lot of free cash even allowing for a pro rata return to 2005 working capital levels.
Wait and see time I guess.

[dangersimpson2] 25/7/2007 08:58

The extra cash has almost certainly been subsumed into working capital. Not necessarily a bad thing since the remaining company is still increasing turnover and hopefully profits.

The working capital flows can be reversed with more agressive policies but this would undoubtedly adversely affect profitability in the short term, however trading below NTAV does provide downside protection in my book, since these flows can be reversed relatively easily.

Hopefully the interim results will make everything clear. In the short term I'm hoping for the £3m to be used for a share buyback up to NTAV, on a £23m market cap company this should have a noticable effect.

HTH,

Danger

[colonel a] 25/7/2007 08:43

If I take a simplistic look at the last accounts.

Add in the cash from the ComputerLinks sale and deduct the return to holders it looks as if the company should actually have more cash than the current market cap.

I've bought in on the basis that they look comfortably undervalued but wonder if the next accounts {assuming the residual companies trade as previously} will show that they are seriously undervalued.
Even assuming that they don't get the additional £3 million from the sale of UMD and allowing ?? for the cost of the return of capital.

What significant factors am I missing ?

[betman] 02/7/2007 13:27

Whats the concensus view on the net asset value of FWY now and the forward PE ?

[nigelpm] 02/7/2007 11:19

Well I've gone mad and bought back the lot. This is nuts once again! ;-)

[randomwalker] 02/7/2007 11:08

just bought a few more. I do not mind buying back the whole lot if we get down to £1. I suspect this is just people who got fed up/bored of this stock and are looking for more exciting things. FWY could get pretty exciting if someone wanted to buy the UK or French businesses.

[fullbreakfast] 29/6/2007 16:08

Just bought back a bit of my old holding at 108 after tendering the lot at 120. May well have jumped the gun, but I'll be happy to add if they get significantly cheaper.

[randomwalker] 29/6/2007 14:35

cash arrived.....and I have bought some back

thanks for the help to all. This seems a good board; getting rid of trolls must be the trick ;-)

[randomwalker] 29/6/2007 12:29

still no sign of any cash here ;-(

pity, as I would strongly think about buying back about 30% of what I sold now that it is 10p cheaper.

[balcony] 29/6/2007 09:34

My money was in my account yesterday thats with td waterhouse..

[nigelpm] 28/6/2007 17:57

Good point danger. I hope the board are listening ;-)

[dangersimpson2] 28/6/2007 15:24

Yeah, I would expect a £3m buyback on the reduced share capital to set the share price back in the right direction!

[scburbs] 28/6/2007 14:00

Selling to be expected. I suspect you may be right RandomWalker that a buying oppo may well be about to present itself as PI's clamour for the door.

On a news front it would be good to see confirmation that the €5m from Esprinet has been received.

[randomwalker] 28/6/2007 12:14

still no sign of any shares/cash yet, but there seems to be some selling going on. Is that people who have received their returned shares just getting out completely?
Might it not be worth buying back a few if it gets any cheaper?

[nigelpm] 25/6/2007 10:22

RW - no, according to RNS :

It is anticipated that crediting of CREST accounts and consideration for the
tendered Ordinary Shares purchased under the Tender Offers will be sent to
Shareholders by 27 June 2007. In addition, it is anticipated that CREST accounts
will be credited, balance certificates will be issued and share certificates for
unsuccessfully tendered Ordinary Shares will be sent by 27 June 2007.

[nil desperandum] 25/6/2007 10:22

due on 27th

[randomwalker] 25/6/2007 10:15

anyone got their cheques/new shares yet?

[simso] 20/6/2007 14:41

Agree with Paul. Two years ago this looked a copper bottomed investment...with big upside potential if UMD had continued to power ahead, but no real downside because of the "Break Up Value" if trading worsened. As it happened, the latter scenario panned out and the copper bottom was needed. However, if one made a career out of taking on situations where there was upside potential and a copper bottom, then I am sure you would retire as a rich man.

[paulypilot] 20/6/2007 12:24

Hi,

An excellent result overall. As expected the strike price was 120p, and those of us who tendered all our shares will get cashed-out for almost 80% of our holdings, at a favourable price.

A round of applause to Mr Kleeman is in order. Very pleased.

Regards, Paul.

[deswalker] 20/6/2007 10:56

By looking at the Director's tenders one can calculate that the exact percentage is 79.02%. All Directors are exactly in line with this except for Stephan Link who is quite a long way off so I don't get what's gone on there. But 79.02% looks to be the precise number to me.

I tendered 54% at 120p so I'll end up selling 42.67% at 120p and retaining 57.33% of my original holding. More or less exactly what I wanted to happen.

[dcomd99] 20/6/2007 09:31

I don't imagine those small shareholders will be able to sell for about a week. They will need confirmation of what their exact new holding is. Therefore, I expect the share to reach a minimum in about 7-14 days.