Hml Share Discussion Threads

[cockerhoop] 30/11/2018 16:51

Paying 6-8 times profitability for tiny owner run businesses struggling with regulation is way over fair value imo. JDG's pay 4-5 times for superior niche scientific businesses of under £1m profitability. SDI have bought similar on 3-5 times multiples including a business with >40% op margins.

HML formula of 1-1.5 times revenue of barely profitable business creates a headwind when it's rated on such a lowly multiple itself.

They appear to only disclose the profitability of selected acquisitions, I suspect that's because revealing all the information would not flatter their deal making skills.

It would be in a better position today if instead of the acquisitions it had spent the money buying back its own shares.

I file it under value trap.

[davidosh] 30/11/2018 16:01

If it was working there would have been huge savings from the millions spent on the ten plus of deals done over last five years....We must have paid out about £9m to end up with a market cap that is lower than three years ago !!

[stemis] 30/11/2018 14:02

Yes, the theory is good. Consolidate a lot of little owner run players, struggling under increasing regulation. Pay a modest multiple (say 6-8 times). Strip out owner/central costs. Top line also benefits from better support from central functions. End up with profit that maybe cost 2-4 times resulting run rate.

Problem is it doesn't seem to be working (yet anyway)...and market has lost faith

[rivaldo] 30/11/2018 12:29

Cheers SteMis. At least this should be earnings-enhancing then, given I'd assume at least some savings on say accounting and other day to day stuff as well as consolidating the client processing operations/putting systems on this central database platform which has taken so long to implement.

I do like the idea of what HMLH are doing. It seems perfectly logical to me. It's just taken so bleedin' long to come to fruition.

The interims this week did seem a small step forward imo - let's hope the next year or so brings a re-rating.

[horndean eagle] 30/11/2018 12:24

Shocking that over the last 5 years or so they have generated profits equating to over half the market cap and for that we have pretty much nothing to show. Give it another 5 years and they will have probably have generated almost the entire market cap from 5 years ago and still with nothing to show. Shocking and scandalous they have got away with it for so long. Surprised Mills hasn't pushed for anything yet.

[stemis] 30/11/2018 11:49

I'm afraid Companies House isn't much use. They file exemption accounts. All they show is net tangible assets of £192k at 31.3.18. Retained profits fell by £33k in the year although hard to know if that is a result of a dividend or losses. There is corporation tax payable at 31.3.18 of £21,149. If that all relates to the year then it suggests profits of £115k or so, so PAT of £95k give or take. For which they've paid up to £669k. No sure what synergies there'll be as all employees (inc owner) are staying with business.

[horndean eagle] 30/11/2018 11:14

Oh dear. Another acquisition. No financials provided. No doubt another dilutive deal. There goes our hopes for a better dividend and any form of share rise.

[davidosh] 29/11/2018 02:28

With no shares traded and such a wide spread the management need to stop this failed business strategy of buying up smaller companies on big multiples of profit and with the basis of 1.25x revenues.

Investors are clearly not interested in this failed strategy so they need to start building the dividend and paying back the cash thrown off in the way of dividends and occasional buyback to deliver a better return and boost the capital value of the company.

If the share price does not at least return to the levels of two years ago then Mills or an external group will simply offer to take this future cash flow away from current shareholders. For that reason I am putting HMLH on my bid alert watchlist.

I would like to meet management again to ask what their plans are to protect shareholders from losing the company at too low a takeout price and one which would deliver a dire return on investment over the last five years of acquisitive growth where revenues have more than doubled ?

[briangeeee] 28/11/2018 23:28

Graham, I hope management are alive, and indeed full of energy.

Just not so full of energy that they do any more similar quality acquisitions and integrations!

[graham1ty] 28/11/2018 17:10

Not a share traded yesterday or today. It is now so illiquid that the spread 28-33p is nearly 20%,enough to put off most.

There was nothing in the results to excite. So, presumably this will be dead in the water for quite a while. Everyone just dying of boredom

[stemis] 28/11/2018 10:26

Software purchases any cost of which is excluded from their 'adjusted' EPS

[rivaldo] 28/11/2018 09:08

WH Ireland retain their 53p target price, with 4.3p EPS forecast for this year.

A P/E of 7 is just too cheap imho:

Extracts:

"Good interim results

The group has reported a good set of interim results reflecting record half-year
earnings despite an uncertain UK property market. We retain our 2019 full-year
forecast and our 53p target price."

"The revenue growth was primarily organic in the absence of any material acquisitions since April 2017 and reflected a particularly strong improvement in health and safety inspections fee income. Adjusted fully diluted EPS increased by 11% to 2.1p from 1.9p."

"Strong cash flow performance. The group generated £0.51m of net cash to reduce
net debt from £1.47m to £0.96m. This was driven by £1.5m cash generated from
operations and despite £0.45m capital expenditure, £0.12m software purchases and
£0.48m payment of deferred consideration."

[stemis] 27/11/2018 13:20

As I've said before, I think the adjusted EPS is misleading as it adds back amortisation of their computer systems, which (unlike intangibles) is an ongoing cost. This must be about £100k which would make the adjusted EPS about 1.9p

[graham1ty] 27/11/2018 11:40

Mills has got something to show.....at 28p, a 25% loss on the 37p Placing price. And I cannot remember exactly, but did he not take some off LTC at higher prices ?

[horndean eagle] 27/11/2018 11:32

Its a poor show as has been flagged. Talk about cashflow is a bit misleading when they need to spend so much on capex, software and deferred consideration. Generated less than 500k after they had to pay for that lot. Saving grace is we haven't had any acquisitions for a while. The company should really be run for cash and healthy dividends paid out. That is what is going to give the shares a re-rating. Not sure whether Mills is looking at orchestrating a low ball MBO given shareholders have virtually given up on the company or whether he will push them to change tack. Can't be happy having stumped in the placing and got virtually nothing to show for it.

[graham1ty] 27/11/2018 10:57

The spin in the RNS is of positive progress. But what has actually been achieved ? For no particular reason, I am comparing with two years ago.

Revenue is up from £10.2m to £13.6m over that two year period, or 33%. BUT, during that period they bought Gordon ( revenue £1.1m);Faraday (rev £1.9m) and Anderton ( not disclosed, but c£200k). So those three added c£3.2m revenue.....showing that almost none of the £3.4m increase in revenue was organic growth. It was all acquired growth at the top line.

So profit ? For the addition of £3.4m of revenue, operating profit is up from £679,000 to £782,000, a gain of 15% or almost exactly £100,000. At the pretax level, again it is up £99,000 to £756,000 also 15%. So, £3.4m of revenue increase, almost all bought in with acquisitions, has produced just £100k of extra profit, a notional 3% conversion rate......

At what cost ? Well, we do not know what earnouts have actually been paid, but the three acquisitions above cost Gordon £1m + £0.4m deferred; Faraday £2.3m + £0.6m; Anderton £317k. That totals between £3.6m and £4.6m, depending on what targets were hit. Again, acquisitions of say £4m, to add just £100,000 of profit, or a 2.5% return on investment......

And let us look at profits that should have been added. All three acquisitions said they would enhance profits once integrated. Faraday had £1.9m of revenue and, according to the RNS at acquisition, £0.4m of normalised pretax. Gordon had revenue of £1.1m, but no profit number was disclosed, but let us assume it was just profitable, making say £100,000. Anderson was too small to make much contribution. So, the three acquisitions, as well as adding c£3.2m in revenue, SHOULD have added c£500,000 in profit. Yet, as above, pretax rose by £100,000 only. Does this mean there was a drastic deterioration in trading in the acquisitions ( unlikely) or do they disguise a dramatic fall in underlying profits for the core business ?

One last thought. The acquisitions appear scatter gun, and too many of the businesses were left on their own, with their own systems, premises and working practices. Eventually HMLH bit the bullet and started combining back office functions in the new Croydon office. But today we read that they have not started yet migrating all businesses onto one IT platform. More cost. And what could possibly go wrong ?

The acquisition spree has been going on for over ten years, but really accelerated again in 2013. And over five years later, they are now trying to get them properly integrated.

The only saving grace is the free cash flow. They generated 1.6m of free cash flow in 1H. That is over 10% of the market cap. This has always thrown off cash. BUT, they have always used that cash flow for acquisitions, and while they have “bought” increases in revenue, this has not generated the commensurate increase in profits

[graham1ty] 27/11/2018 09:55

Looks like not a share traded by 10am. Not enough to get any buyers. Spread too wide to interest any sellers.

Dead in the water

[graham1ty] 27/11/2018 08:13

Rivaldo, adjusted diluted eps were 2p two years ago, so not exactly monster growth.

Basic, diluted statutory earnings were 1.4p two years ago, so today’s 1.3p shows a FALL in statutory profit over two years.

Yes, revenue up a bit, and cash generation strong, but what a lot of effort for so little progress. HMLH has c500 staff ( 507 last year end) so today’s pretax of £756k is about £1500 profit per employee......what a struggle

[rivaldo] 27/11/2018 07:22

2.2p EPS in H1, up 16% on last year, revenues up 11% on almost entirely organic growth - whisper it, but these look pretty good at first glance :o))



This despite a stale property market as evidenced by the small fall in enquiry fees (which are a tiny % of income anyway). So a very satisfactory performance.

And the outlook is confident too:

"We continue to enjoy steady and improving volumes of new business with a marginal shift towards tendering for larger blocks and housing estates. Competition particularly from the smaller unregulated players who price keenly in the smaller block market remains strong. The growing awareness of the impending regulation of agents, now more frequently reviewed in the property press, continues to bring sellers to the market. HML remains confident in its ability to carefully select and integrate those businesses that are compatible with our service strategy. From a steady foundation in the first half of the year, we look forward to being able to update you on further improvements in the second half of the year."

[rp19] 19/11/2018 12:58

Yep, could be that. I've not signed up so I can't see a great deal but they seem to get good reviews by staff on Glassdoor.co.uk but admittedly is a small sample size.

[b3842517] 19/11/2018 12:43

Or a sign that they have high staff turnover...

[rp19] 19/11/2018 12:42

I've noted fairly regular job adverts on their website (which in itself has improved) of late. Hopefully this is a sign of increased activity but not holding my breath.

[graham1ty] 19/11/2018 10:15

Interest builds ahead of the interims. Just over 2000 shares traded in the last week, or £400 worth !!!

Until HMLH can show real progress in integrating acquisitions, and then rebuilding operating margin and profitability, these will continue to be written off. The share price is 15% below where it was 5 years ago today and the company is worth less than they have spent on acquisitions. Until they can be shown to have been worthwhile and that they will add to profitability, the Board is not really going to be believed.

So, let us hope the interims are good and there are no further costs ( which seem to crop up every period) that are used to explain why life is tough out there.

[igoe104] 02/11/2018 08:21

id be happy if they could be taken over, so I can move on. the company seems stuck in first gear at the moment.

i'm sure most holders would take 45p, especially from this position.

I would.

[graham1ty] 02/11/2018 08:01

HMLH are just round the corner from where he lives. Despite getting to know them quite well, he did not have faith that they could deliver. At the current share price......he was right.

Until they show some margin benefit from all the acquisitions, and that they can bolt together such a diverse bunch, all on the same systems, until they can do that it remains a mess and gross margin and operating margin will continue to fall.

Who wants to be invested in a business when, our time, it gets more and more costly to run the show ?