Firstgroup Share Discussion Threads

[robertfaulkner] 16/6/2013 16:33

Dealy, I'll be thinking of your comments on Tue about 4pm(my last chance to buy) when I have to tell my broker to pay the 85p on 29892 RI shares to make them fully paid.

[dealy] 16/6/2013 08:13

Thanks Mathew.

Another striking factor here is that this company operates in two countries that are being almost universally viewed as "returning to growth".

So you get a pure play on the UK/USA economic rebound as well as buying a company on a very low forward PE. Add to that the general improving trend in the use of public transport and it looks pretty much like a no-brainer to me.

[muangsing] 16/6/2013 08:07

pyueck

I agree re your posts 3010 and 3012 100%, in relation to
capital expenditure and depreciation.

One ratio I do use however is, ENTERPRISE VALUE/ UNDERLYING OPERATING PROFIT

where the underlying operating profit is obviously after deducting
depreciation

and I calculate my own underlying operating profit.

Regards

[robertfaulkner] 16/6/2013 07:52

Fovargue, thanks, it's not often you get a perfect answer on the posts. That is exactly the info I needed.

When I first saw the RI offer it meant that if I buy all the RIs my ave price per share, goes from 175p to 121p. This seemed my first choice (but with a £25k extra investment) I though if a really high price of FRGN or the FGP shares was offered in the market, I would have to consider selling all or some.

Unfortunately I have not had that problem, my only thought now is should I not take up the RIs and wait and possible buy the 'new' shares at around 60p in a few weeks time?

Hassani2, I hope you are not right, I did buy the HSBC rights issue a few years ago and that proved to be a very profitable exercise, I appreciate First Group is no HSBC. One last point, the underwriter's must have thought the vast majority would take up the RIs or they wouldn't have underwritten it

.

[hassani2] 15/6/2013 20:09

Rubbish x 0 = 0At least you got rid of the rubbish

[fovargue] 15/6/2013 18:31

C+P from Fool Share dealing Service:

(I don't have to make a decision till 20th)

Lapse - If you decide to take no action your Rights will expire or lapse after the Offer closes.

The Company will arrange for the shares that these Rights entitled you to buy to be offered for sale in the market. Any premium obtained above the Rights Issue price, less expenses, will then be paid to you. The total number of shares you will own will stay the same. However, the proportion of the company you own will reduce as more shares will be in issue.

[robertfaulkner] 15/6/2013 17:35

Does anyone know what happens if I don't sell my Nil-paid shares and don't pay the 85p to convert them to 'new' shares?

I assume there is some payment i.e. the last value on nil-paid before conversion or perhaps the value of the 'new' shares minus 85p.

I know it's not going to be much but I have to email my broker, Selftrade by 5pm Tue 18th June to say if I want to convert them to fully paid.

I assume they will still be listed as FGPN shares in my portfolio for the rest of the week(if I don't tell them to convert by 5pm 18th), I'm waiting for Selftrade to email me with this info.

[nomdeplume] 15/6/2013 14:43

An interesting discussion that has made me think, thank you.

[mathewawood] 15/6/2013 13:18

Pyueck Im surprised at you. Dealy is making the very real argument that FGP at 93p is now in deep value territory. He should have put

Net Debt = 1.7B
Cash = 0.4B

Apart from that EV and EBITDA is as stated. The forward P/E of 7 can be debated but looking at the new analysts 2014 EPS numbers (Been all over the place due to some doing it pre RI and others post RI) The forward P/E is coming out at between 7 and 8.2 with 18% growth expected. Thats deep value.

To call EV a "meaningless metric" is flying in the face of the hundreds of professional analyst that use it as a more accurate representation then compared to Mkt Cap. Its used because companies with cash are unfairly treated with the P/E comparison. So in FGP case EV does not "inflate" its value, quite the oppposite.

Its true EV/EBITDA taken on its own is not much use. Where it comes into its own is as a comparison to its peers, especially when plotted on a graph x=EV/EBITDA ratio v y=growth%. Needless to say FGP EV/EBITDA at 3.6 is well below peers like GO-Ahead, Stagecoach etc. The bid question is will FGP grow its margins (y axes) with the new funding? Depends on management but just to say its much easier to improve margins in a chronically under funded company like FGP then it is in a very well run one like Go-Ahead.

The RI costs of £30M will not hit underlying profits as is a one off exceptional. And finally the "dubious goodwill". I'm sick and tired of seeing posts stateing that its too big. Goodwill will always be big with transport companies. The customer often has no choice but to use them just like a customer is tied into buying Heinz beans. Ones a monopoly the other relies on habit.

Dealy was basically responding to the post 305 just above. So to have a go at his when as you well know this board is full of rubbish (Most people dont even understand the basics of an RI) then that's out of order and you should know better.

[pyueck] 15/6/2013 11:04

Yes I know what net debt is but most of the £1.6bn will be spent in first year, so can't see anything much being in the bank.

I stand by Enterprise value and EBITDA are pretty useless for investors, as it completely depends a) the amount of debt a company has and b) whether the company is capital expenditure intensive. By your rationale I could increase a companies worth by loading it up with as much debt as possible and making huge capital purchases. The ridiculous thing is that using EBITDA you would then be happy to in recognising any operating profits from this capital expenditure, but completely disregard the interest costs on the debt and the depreciation. It basically is the same as saying I am going to buy a house to rent out, and will recognise all the rental income but completely disregard the interest costs and cost of buying the property. Oh and also the investment is worth the equity in the company plus the debt! It's just a ridciculous way to value something or calculate profits. It's only possible use is to work out the profitability of segments of a company if they are to be sold off as independent operating units.

And don't get me even started on one-off's. A complex company like FGP has one offs every year, which seem to grow year on year too, do you think the tooth fairy pays for them? Why should I just disregard them?

[dealy] 15/6/2013 10:40

Net debt is gross debt minus cash. So whether the new cash is used to repay debt or to sit on the balance sheet as cash only changes the interest expense calculation (not the net debt calculation). The cash interest expense saving on 200m of less debt is about 12m per year assuming 6% interest rate.

EV/Ebitda is a commonly used metric to value companies. I have not invented this. Most companies trade on a multiple of 6 versus the 3.6 multiple that First Group trades on. If a multiple of 6 was used then the EV would rise to 3.8 billion so with net debt of 1.3 billion the equity would have to be worth 2.6 billion which is twice the current value of the equity. So based on this I believe the fair value for the shares is about 200p.

Regarding the 30m quid of costs for the rights issue: please deduct it from the 2.6 billion because it is a one-off!

[pyueck] 15/6/2013 09:33

dealy your sums are way out. Did you read the prospectus only £215m will be used to pay down debt. Therefore you are actually looking at net debt of approx £1.7bn. There is no guarantee this will fall in the short term anyway due to this huge £1.6bn spending plan they have.

Enterprise value - Meaningless metric, you can't just strip out the debt and say, oh if somebody wrote off our debt we could be worth x.

Ebitda - Again for company like this pretty meaningless. Interest forms a huge cost for leveraged companies, why exclude it? For a company such as firstgroup to exclude capital expenditure is meaningless, it's a transport group why exclude depreciation?

Enterprise value to Ebitda, know idea what this shows. You have basically taken one number that inflates what the company is worth and divided by a number that vastly inflates what the company makes in profit.

Agree revenue is growing. Profits and dividends haven't been stable or predictable. Money is avaliable for expansion because of huge tap to shareholders!

You think that profit will be the same in 2012/13. I am dreading to see all the costs associated with this rights issue (i believe around £30m), and that has not even started on the costs of new franchises, possible writedown of dubious goodwill and pressure on margins from all sides.

Now don't get me wrong I actually despite the above think that Firstgroup, could in theory improve margins, focus on it's core business, improve customer service and make decent profits. But not based on your analysis.

[hassani2] 15/6/2013 09:22

Why don't u put ur house on it ?

[dealy] 15/6/2013 08:34

Basic metrics now look as follows:

Market cap = 1.12 billion
Net debt = 1.3 billion (after 600m new equity)

Enterprise value = 2.42 billion
Sales = 6.3 billion
Ebitda = 667 million

EV/Ebidta = 2.42/.667 = 3.6

Business is growing, stable, predictable and money is available for expansion / investment.

With the lower interest payments net profit should be about £180m so it's 2013 PE is about 7.

How can anybody not consider this to be a screaming buy?

[ruethewhirl] 15/6/2013 08:12

So glad I took my (rather hefty) losses in April '12.

If I'd held on for the "recovery" I would've lost most of my money.

This stock has been in a long-term downtrend for the past 6 years.

Anyone with a sensible stop loss would've been out long ago.

Anyone buying now is simply a mug punter.

Sorry but that's the truth.

[blackbear] 14/6/2013 15:40

Bought a shed load at 94p hope this helps.

[ajmace] 14/6/2013 15:39

think we've seen the low now ...it was 94p

[slaterlpj] 14/6/2013 14:39

Trades look about even sell/buy. So why the big fall? Friday scares to induce sellers to desert?

[hassani2] 14/6/2013 14:28

L2 not looking good

[neilyb675] 14/6/2013 14:22

thats not helpful to holders one bit Mr Sanks .......hang your head in shame.

70p coming !!

[sanks] 14/6/2013 14:14

...................drip.........................drip...............BANG 9p
Hope this is helping

[colonel a] 14/6/2013 14:11

RF,
Sometimes an RI is not underwritten, this normally implies a confident company with a positive reason to raise funds, and so expectations are higher.
In a case like this if the RI were not underwritten the process would be even more unstable {IMO}.
So I don't think the underwriters cause the instability {fall}, rather they are part of a process where it is likely.
They will probably be insured orr have shared the risk but I don't think that causes a fall per se.
But people are being asked {forced almost} to put additional funds into a company and wondering if they should just cut their losses or hold on for the rise that would come if the business returned to its pre announcement + cash value {about 140}.
I have held FGP in the past but happily {luckily} did not when the proverbial hit.

[davemuray] 14/6/2013 14:08

Going to be a long few weeks......Am sitting on my hands but may not have a decision to make - re rights if it keeps tanking.

[neilyb675] 14/6/2013 13:53

dont look good - on the slide again, RIGHT NOW