Hml Share Discussion Threads

[graham1ty] 18/9/2018 07:25

On 26 April 2017, Rob said “With the integrations of the acquisitions well underway we look forward to an exciting 2018.". The price then was 41p.

Was it exciting ? Well gross margin FELL from 14.9% to 13.3% to its lowest level since 2010. Operating margin fell from 6.4% to 5.9%.

Exciting indeed. It will take more than an “inline” statement to wake this up

[graham1ty] 18/9/2018 07:18

Rivaldo, we got our statement. The blandest, dullest, least informative statement you could imagine.

Bit like the Company

[rivaldo] 18/9/2018 07:12

It worked :o)) Well done HMLH....a very satisfactory and succinct AGM statement today:

"The business continues to perform well with a positive start to this year. Management remain confident that trading remains in line with expectations."

Note that expectations are for 4.3p EPS, giving a P/E of 7.8.

[rivaldo] 17/9/2018 15:42

I can't attend davidosh. However, I did get in touch with the FD to request that instead of a bland "resolutions are passed" RNS they should include an H1 trading statement, as they did 2 years ago.

Assuming all is well - which it should be given the last outlook - the this should at least wake up the market a little from its slumbers.

Will you be there?

[davidosh] 14/9/2018 10:04

It is the Agm in East Croydon next Tuesday at 11am. Any of you planning to attend ?

[rivaldo] 27/7/2018 11:31

15k just bought at 34.96p, and an immediate response with a tick up on the spread, which is now a silly 32p-37p.

I'm guessing you can still buy/sell well within that published spread. Plus any more buying would probably have a decent effect again. But it is a ridiculous spread on the face of it.

EDIT - and a further 35,000 buy at 35.8p just reported.

[graham1ty] 02/7/2018 07:27

Igoe, they did a big MELLO presentation in Beckenham about three or four years ago ( when the share price was higher than now, and HMLH was seen as a growth stock).

Since then they have disappointed. Until they can show that the acquisitions add value, and can show economies of scale working through the business, then people are being cautious. From their presentation last week, costs continue to rise faster than revenue. So margins fall.

[psync] 29/6/2018 16:11

My IG sharedealing platform indicates 3.1p spread, that's nearly 10%, which seemed a bit nuts, but the quoted prices are even worse. Quotes for 50k shares, buy is 38.9p and sell is around 32p! Can't even place a market order on IG to try and get a better price. Could see this putting some people off.

[igoe104] 29/6/2018 08:36

This is the type of company which would benefit from a mello presentation, it would put them in the shop window.

[rivaldo] 26/6/2018 22:45

Looks like a 25k buy at 35p reported late was the catalyst for the rise. Imagine what just a little attention here would do for the share price.

[rivaldo] 26/6/2018 15:34

Here we go....:o))

It's been over a year since the last acquisition. The Balance Sheet is sound, and the tome of today's RNS suggests to me that the centralisation and integration process is almost complete. I would like to see another acquisition or two, especially as multiples payable at the moment are probably not very high at all.

[horndean eagle] 26/6/2018 12:29

I think the last thing we want to see are any more acquisitions.

[stemis] 26/6/2018 09:45

That's me out. Good luck to all.

[rivaldo] 26/6/2018 09:03

Yep, encouraging results at first look.

Finncap have introduced a forecast of 4.3p EPS and a 0.4p dividend for this year along with that increased 53p target price.

I particularly like the "27% increase in Health & Safety Inspection fees driven by a raised awareness of fire risk in communal buildings". This should continue to thrive post-Grenfell.

HMLH also "generated £1.3m of positive cash flow despite acquisition spend of £0.3m." Hopefully it's about time for another acquisition or two to further enhance earnings.

[igoe104] 26/6/2018 08:19

Target raised finn cap.

The business model continues to deliver a consistent growth profile and the company remains well placed to benefit from any further tightening of industry legislation. We raise our target price to 53p, implying potential share price upside of 61%

[jeevsje] 18/6/2018 11:53

Some chunky trades going through in the last few weeks. Results next week.

[graham1ty] 30/5/2018 08:45

SteMis, I do not think the net debt position is a worry as HMLH throw off cash. I also think the earnouts are not too onerous. The last balance sheet showed £1.24m of earnouts. Since then they have bought Faraday and there is a potential earnout of £1.1m there, so a total of c£2.3m to pay. That is just one year’s free cash flow.

So, there is a bit of debt, but hardly life threatening.

I think the reason there have been no acquisitions is because someone ( I hope the non Execs) has said “for goodness sake sort out the mess you already have before making any more acquisitions”. They need to sort out the offices, the regional groupings, the IT systems, senior non Board management. Then, when the whole group is on the same system, consider acquisitions again. The original plan seems to have been to make acquisitions, then let them run as semi autonomous units. But this has just led to a mess of different standards, different systems. The bigger the Group has got, the more complicated it has got. Hence, no economies of scale.

In fact, by trying to adhere to the highest standards ( which no one else bothers to do), HMLH has shown significant diseconomies of scale: the bigger it gets, the more difficult, and costly it is to do business, the lower are margins ! Do I want to be invested in a business which gets more and more expensive to run ?

Up to you Rob to sort it out

[stemis] 29/5/2018 20:06

It will be interesting to see what the net debt figure is. At the half year it was £2.21m. Although there's another £1m+ of profit, I expect offsetting it there'll be an adverse movement in working capital (which was historically low at the interims) and further earn out payments. I suspect one of the reasons there's been no acquisitions, is that they just don't have the cash...

[graham1ty] 29/5/2018 19:30

David, at the last meeting there was much sucking in of teeth, and concern about the additional costs of operating to the highest standard. We know a restructuring is taking place, and they flagged data protection costs. Those will be in this reporting period, so another half year that is not “clean”. We will have to wait until 1H 2018/19 which will not be reported until November.....many will have given up the will to live by then.

I hope Christopher Mills is throwing his weight around

[davidosh] 29/5/2018 17:55

I sometimes wonder whether they knew that big central overheads and systems upgrades were coming a few years ago and so decided to go on a big spending spree to help spread the cost across a much larger base and help camouflage the likely drop in annual profits ?

That said it has hopefully all now been invested into the business and good updated systems and key hires all in place so any more additions to the group and any organic growth should be much more profitable from here. Mind you the acquisitions have stopped and nothing announced in the last year so we will see what that acquisitive spree was really worth and whether it has delivered any organic growth on top.

[graham1ty] 29/5/2018 15:10

SteMis, they do have a lot to prove.

I have added up the gross cost* of all acquisitions since listing and it is £15.7m. With the current market cap at c£15.5m, and HMLH IPOing at £2m, the acquisitions have “lost value” under HMLs tenure (* that is gross, assuming all earnouts paid).

The reported gross margin in 1H (12.6%) was at its lowest level since 2012. Margins improved 2010-15, but have collapsed since.

Combine those two paras, and in the last three years, HMLH have spent £7m on acquisitions, adding £4.4m in revenue, but generating less than £100,000 in operating profit ( £616,000 up to £713,000). That means that of additional revenue, only 2.2% has been converted to operating profit, and at a cost of £7m !! As a % of the money spent, 1.3% has been converted to operating profit. Of course this is not a problem just in the acquisitions, but represents a deterioration across the whole group. However, the question does remain: was it worth spending £7m to add just £97,000 to the bottom line ?

Staff numbers have soared, so revenue per employee was £45,200 in 2010 and is now £47,800. This is a real fall when adjusted for RPI. So HMLH cannot run the enlarged group with fewer people. They just keep adding headcount. With the current c500 employers, that is c£2500 pre tax profit per employee. How do you run a business when margins are so tight ?

As they have been so acquisitive, they report an adjusted eps, stripping out amortisation (ie the depreciation charge of all those acquisitions). Then you can get a rising eps number. However, statutory, reported eps......at 1.2p for 1H are the same level as 2013. Despite all those acquisitions, statutory eps are flat.

And all of this is higher cost within the business. They flagged HR, then IT, then Compliance. All additional costs. Now they have warned of GDPR cost and reorganisations costs. So, there are more to come. I cannot see gross margin, or operating margin getting back on track in the near future.

The only plus is that HMLH is so cash generative. It throws off cash ( all used though for these acquisitions). They have produced £1.76m, then £1.9m, then £2.1m of free cash flow in the last three years. However, ask the question again: would Shareholders be in a better place of the last three years of cash flow (c£6m) had been retained on the balance sheet, or even paid out as a special dividend ? Spending £7m has added nothing ( yet).

I hope I am wrong in all of this and they shoot the lights out at the results. The problem is, it is a while since HMLH surprised on the upside.....which is why the share price is down where it is

[jeevsje] 28/5/2018 23:19

Are you buying then? I was waiting for some cash to top-up. Can you wait until I have the money please?

[stemis] 26/5/2018 12:11

Just to put flesh on that. When I bought in Jan 2015 at 34p, H1 2014 profit (before amortisation, options, interest) was £795k. They had net borrowings of £441k and about 37m shares.

Now 2.5 years later, according to the trading statement they will make £1,192k (same basis as above) in H2 2017. Debts are probably about £2.2m and there are 45.5m shares. At 34p that's about a debt free multiple of 9.15

So they've spent all the retained cash profits for the last 2.5 years (c £3.0m), plus £1.75m in extra debt, plus another 8.5m shares (= £2.9m at 34p) on acquisitions. About £7.65m to raise profits by about an annualised £800k (before tax).

If we hadn't have bothered, we'd be making £1.6m profit (assuming zero growth), have around £2.5m cash in the bank and only 37m shares. Even on an 9.15 times taxed multiple we'd be looking at a share price of 39p.