Hansard Global Share Discussion Threads

[nellie1973] 03/12/2010 14:58

Broker upgrade today

[wilmdav] 29/9/2010 14:34

Thank you SteMiS, much appreciated as usual.

The 2008 AR puts it quite well.

The Group's own positive operating cash flows are not easily determined from the cash flow statement set out on page 38 as, under IFRS reporting, cash flows relating to the investment contracts are aggregated with those of the Group's operational activities.

As you say, HSD helpfully provides abridged versions of the Group's own cash flows and balance sheet. Appropriate amendments have been made to my spreadsheets and resultant charts.

Thanks also for clarification of the 'not a life assurance company' comment.

[stemis] 29/9/2010 08:29

Wimdav,

The answer to your question is yes. In 2008 Hansard adopted IFRS. The disclosure in the 2008 accounts says:-

The Group has implemented International Financial Reporting Standards as adopted by the European Union ('IFRS'), in respect of the year ended 30 June 2008. Prior to this, the consolidated financial statements of the Group were prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP'). There are no differences between profits and retained earnings as at 30 June 2007 calculated on the basis of IFRS and those calculated on the basis of UK GAAP in the published Report & Accounts for that financial year.

The adoption of IFRS has, however, resulted in the reclassification of certain assets disclosed under UK GAAP as financial investments, and in a different presentation of the Group's cashflows.

As a result in 2008 they restated the 2007 comparatives in the cashflow statement. Helpfully HSD continue to disclose the pre IFRS cashflow statement and balance sheet.

Unfortunately adopting IFRS makes HSD look like a life assurer when it is really not. Although HSD provides investments within a life assurer wrapper, it is for tax purposes and the risk remains with the policyholder.

[westcountryboy] 28/9/2010 23:11

I can't answer your question, but to me the key point is simply that £26.5m of the cash has been deposited long term with credit institutions. Over the years it's certainly been correct that there has been inconsistency in the treatment of the larger investment sums that the company handles. For example if you look at note 15 on cash in last year's accounts it included £170.6m of investment contract holder cash, which has been removed this year. In previous years they also lumped the investment sums in the main results presentations. I'm afraid I have just accepted the abridged versions that they now provide!

[hieronymous1] 28/9/2010 22:40

Cannot someone with a better grasp of accounting than myself just ask the company? Or would it be illegal for them to answer without all the palaver of an RNS and clearance from auditors and such?

[wilmdav] 28/9/2010 21:46

OK. I'm foxed.

2010 prelim report - Financial Review
Sub-heading Cash Flows
Operating cash flows in the year were strongly positive, allowing the Group to fund new business from its own resources and pay dividends of £17.6m.
The following summarises the Group's own cash flows in the year:
Net cash inflow from operating activities (£m) 23.1
Foreign exchange differences (0.2)
Interest on investment 1.3
Cash inflow 24.2

Purchase of plant & equipment (0.4)
Corporation tax paid (0.3)
Dividends paid (17.6)
Cash outflow (18.3)

Net cash flow 5.9

The above bears little relationship to the cash flow statement which suggests that it incorporates movements of investors' funds as well as shareholders'. However the 2006 and 2007 cash flow statements carry the following note under their cash flow statements:

"In accordance with Financial Reporting Standard No.1 the cash flow statement excludes cash flows relating to the long term assurance business of the Group."

The note disappears thereafter.

Is the 2010 cash flow statement meaningless to shareholders?

[wilmdav] 28/9/2010 14:47

WCB,

I concur with your comments about the increase in shareholders' cash since the start of 2006. You have clearly looked further than just the balance sheets because these have been restated in 2010 and seemingly in 2007. Some balance sheets show only shareholders' cash and some include investors' cash.

I have translated my findings as is my wont to the bar charts accessible from the link below:



The 2010 cash flow chart (and statement) is confusing. It looks awful. But note the £36m net increase in financial investment. I am not yet sure what this consists of but think it probably includes £26.5m long term deposits in credit institutions on behalf of shareholders (see Note 15), which is included in £81.8m shareholders cash and cash equivalents shown in the 'shareholders cash' chart. You will have noted that the balance sheet only shows cash & cash equivalents of £55.3m.

I tend to be simplistic about valuations of income stocks but do need to form an opinion on how sustainable the dividend looks. I then compare the yield to that of 10 year gilts and make a decision as to whether the risk premium is too big or too small. In the case of HSD I see it as too big and agree that 6.3% would seem a more appropriate yield.

SteMiS

Can you throw any light on the nature/meaning of the £36m net increase in financial investment? [Ed: i.e. the difference between £168.0m increase in financial investments and £131.9m increase in financial liabilities, the two entries in the cash flow statement immediately above "Cash flow from operations".]

[stemis] 28/9/2010 14:05

Hansard isn't a life assurance company (although they do publish EEV data).

[wilmdav] 28/9/2010 09:40

WCB,

Just a preliminary word to say that I too struggle to make sufficient valuation sense out of the accounts of life assurance companies. I am hoping to take a closer look today at what you have done and will report back.

[westcountryboy] 26/9/2010 11:15

I just got round to a detailed analysis of the last four years' statements, to sort out in my own mind the varying relevance of all the figures they provide :-)

I have decided to focus on the cashflow situation as it suits my simple brain more than trying to judge between IFRS and EEV.

On cashflow, I hadn't quite grasped before that the cash has actually doubled since flotation. It was £40.8m in 2006. Most of the increase came in the early years before they started having to pay the large divis - it was already £70.8m at FY 2007. Even so the picture is very encouraging since cash inflows have more or less risen every year. So even with plunging interest rates (the main reason for the fall in IFRS profit) the cash inflow is still comfortably exceeding the dividend payout. And since tax and capex is virtually nil, that's very reassuring.

EEV NAVps also keeps nudging up despite the large divi payouts, but I'm wondering what is the best valuation measure of the stock. Clearly not IFRS eps, which seems uncorrelated to it. Perhaps EEV is better, and the Numis note in March talks of a historic P/EEV ratio of 1.24, which would suggest an upside to about 220p fair value. This would also mean a yield of 6.3% assuming a divi of 13.8p in the current year. Seems about right to me. Do others agree?

Incidentally one pleasing feature of the results was that the divi was increased despite the fall in IFRS eps. At one point the company was talking about a policy of setting the divi at 70% of eps. Fortunately that has been abandoned :-)

I am not sure why they keep a listing, in fact.

[robsy2] 25/9/2010 10:51

yep thin market , not many sellers so we should be ok.

[harrodsfree] 24/9/2010 15:46

Safe with a great divi. Directors buying. In fact a massive amount of the share capital owned by the directors. No wonder this is jumping up today. Lovely.

[robsy2] 23/9/2010 09:03

Yes, results look good. Dividend is 13.2p. 7.8% , eev at 180p, Reasonable business prospects, pretty good organisation.Not a massive amount of upside here but a reasonably secure prospect that could give 10% + returns a year. Good enough.
R2

[stemis] 23/9/2010 08:59

Steady as she goes I think. Not much change in the balance sheet from the interim. Profits lower than I expected but offsetting this the dividend is in line and outlook is more positive. Yield is 7.8% and growing so a decent income stock to hold.

[glasshalfull] 23/9/2010 07:44

Looks good to me with results and D/V as intimated & current trading showing growth......and as you said SteMiS.....cash balance looks particularly strong.

" Cash - Bank balances and significant movements on balances are reported weekly. The Group's liquid funds at the balance sheet date were £81.8m, an increase of £5.9m or 7.8% from the balances at 30 June 2009, after the payment of £17.6m in dividends during the year."

and

"Current trading

New business momentum has continued into the current financial year. The new business flows for the 11 weeks to 17 September 2010, at £50m PVNBP, are greater than the £48.3m received in the quarter ended 30 June 2010. This represents a fourth consecutive quarter of growth. We are cautiously optimistic that new business growth will continue throughout the financial year."


Regards,
GHF

[stemis] 20/9/2010 17:30

The key thing as well is that they sit on around 60p/share of cash, equivalent to around 4-5 years of dividends and about 35% of market cap.

[glasshalfull] 20/9/2010 17:03

Stemis - I was recently reminded of your TMF post of 2 years ago. Been on my watchlist since and today took the plunge.

Certainly performed well during the market turbulence of the last few years and certainly due a re-rating. I particularly like the fact that they are picking up business from the emerging economies.

"Leonard Polonsky, Chief Executive of Hansard Global plc, commented:

"The performance of the Group remains encouraging despite the volatile markets and uncertain economic outlook. New business momentum has continued and we have achieved increased new business flows from Latin America and the Far East which have underpinned the level of Assets under Administration.

In the absence of adverse economic developments, we are confident that the outlook for sustained growth in new business and profitability remains positive for the Group. Hansard's focus on margins, cashflow, cost control and a continued investment in distribution and systems leaves us well placed for the future."

Oh, and a nailed on yield c. 8% if they announce a 13p dividend.

Many thanks,
GHF

[harrodsfree] 17/9/2010 12:23

8%. Just do it.

I've been here for ages.

[simon gordon] 16/9/2010 16:27

SteMis,

Yeah, you need to take this guy's job at Execution :-)

Goldman Sachs have a buy out on them as well.

Maybe the Prelims will spark some upside.

[stemis] 16/9/2010 16:08

Interesting if it reflects a change of sentiment in the market and is therefore a precursor to a long overdue rating.

An an observation over what has happened to HSD its complete pap. They are 2 years late calling the bottom and their comment that it has lost 40% of its value is true only if you take it from the very peak. Over 3 years it's lost about 18% of its value and its earnings have barely moved.

[simon gordon] 16/9/2010 14:25

Execution - 24/8/10:

We have been bearish on Hansard for the past three years due to weakness in the global economy and competition from peers. The group has lost c.40% of its market cap during this period driven by a 40% depletion in sales and reduction in new business margins. With the investment markets showing signs of improvement and reduced pressure from competitors, the group's sales and margins have now shown signs of recovery in the last two quarters however this is yet to be recognized in the share price. Given our expectations of further momentum in sales we upgrade our stance on Hansard from Hold to Buy and increase our fair value from 199p to 211p. The stock offers an attractive 8% dividend yield which is fully covered by cash generated from operation.

[ridicule] 29/7/2010 07:47

A good 'New Business statement this morning in that it is 'steady as she goes'. Oddly vague on divi however. Why not state an amount rather than - " in line with market expectations"?

[stemis] 14/5/2010 12:27

EEV at that date was GBP257.7m. This is an increase of GBP21.1m or 8.9% since 30 June 2009.

Yes, although EEV was £252.4m at 31 December in the interims.

Don't forget of course that HSD has cash of 59.4p a share to cover annual dividend payment of 13.2p a share.

[robsy2] 14/5/2010 12:12

"Following the payment of an increased interim dividend of 5.5p per share on 31
March 2010, EEV at that date was GBP257.7m. This is an increase of GBP21.1m or
8.9% since 30 June 2009."
So EEV is 187p/share, no debt, new business is profitable and strong,cash flow is strong and the divi is around 8%..This looks very reasonable value.

[robsy2] 14/5/2010 10:28

Good update.
I have dealings with the company and the update confirms that they are having a good year.