Low & Bonar Share Discussion Threads

[edmundshaw] 21/12/2017 10:40

Have to say I am tempted here, but the high debt puts me off. Much prefer Connect (CNCT) for example for a cheap dividend paying share, where debt is being reduced and is more or less under control - or HVN. Here I feel it is an open question. - the debt risk puts me off - for now.

[ed 123] 21/12/2017 07:50

Baner, reference your post 1116, there is danger that you will mislead readers, imo. Presently your post 1116 conveys emotion but lacks adequate grounding in terms of supporting evidence.

Could you clarify exactly what you are saying. Committed facilities are just that, 'committed'. They come with conditions, which so far the Company has met. If you read the accounts you will see there is good cash inflow. I would expect there to be no more bolt on acquisitions and no new projects during the current year. That way LWB should pay down some debt this current year. There is no suggestion by the Company that it will breach any agreement. If you disagree with any figures given by the Company in its financial statements, then fair enough, but you should state the figures the Company give and why you think your alternative is more realistic. That way we can all be certain as to what you are getting at. Thanks. :-)

[baner] 21/12/2017 06:56

Cc2014

Banking facilities have a tendency of being pulled back when the borrower does not perform as outlined - to assume the £213m is ”availableR21; can be a severe mistake ! I would say £100m is a more realistic level of ”availableR21; facilities for a company performing as L&B currently does - in which case there is no room for a dividend. Not what so ever.

[cc2014] 21/12/2017 00:13

I think that's a really good question Justiceforthemany.

I appear to have collected over the last 18 months a portfolio skewed towards very low P/E stocks most of which are increasing their dividend payouts by 3-20% a year. The common thing about these stocks is that they are all in construction/manufacturing and tend to be recovery stories existing the last recession.

I am sitting here watching month after month watching these sectors recover and on an individual basis profits increasing, debts coming down and yet the share prices aren't moving and the P/E ratio getting lower and lower.

I have also listened to Woodford saying he's seeing some shares at prices he's never seen in his career. He refers to the the property sector and the discount to NAV in particular.

So, I will continue in my old fashioned way to collect stocks with low P/E's especially where they are generating lots of cash and are paying a decent dividend (4%+ but 5%+ preferred) and the dividend payment is less than 30% of profits.


Baner - your statement around patience of the bankers and potential fundraising is inaccurate. If you refer to the interim presentation available on LWB website you will see they have banking facilities of £213m available. They are running at £138m now and it's £9m lower than at half year. There is absolutely no concern around the banking facility. Indeed the cash position is improving and profits and cash have sufficient forward visibility the dividend was increased at half year.

[justiceforthemany] 20/12/2017 22:59

Different sectors sure but companies like SSPG and Just Eat have gone up tenfold in the past few years despite rubbish balance sheets where taking out intangibles/goodwill leaves negative equity of up to -£300M and on top of this they are trading on P/E's of up to 70 (!). The rogue market chooses to ignore such things though - for now. Very selective memory. Should we buy a share trading on a P/E of 70 or one on a P/E of 8??

[rathkum] 20/12/2017 22:31

baner

One has to ask why have Sterling take a 10%+ stake worth £20m+ for which I don't have an answer.

This from the RNS today.

"Whilst market conditions for the Group as a whole have remained stable since the trading update on 16 October 2017, full year outturn will reflect a weaker than expected final quarter in the Coated Technical Textile business unit as a result of an adverse product mix and sales timing.

As a result, the Board expects to report full year adjusted profit before tax (before amortisation and non-recurring items) for the year ended 30 November 2017 of between 30m and 31m and net debt, as at 30 November 2017, of approximately 138m."

A weaker than expected final quarter is all there is to the statement, perhaps chopping £1m off PBT. Is that alarming. I don't think so.

As a result you write-
"there is a clear risk L&B have lost the patience of their bankers and a dilutive fund raising is around the corner".

Agree debt is high but it's a capital intensive business model, as you would expect for a manufacturing company.

Let's wait for the finals on 31st Jan. By the way it's not a Friday RNS, so let's relax until then.

[justiceforthemany] 20/12/2017 22:30

New CEO, well qualified and experienced.
Sterling Hedge Fund increasing their stake.
Will be pushing for a take over I am sure.
Current debt DOWN at H1 actually at £85M
EBITDA still up this year at £31M-£32M vs £26M last year
Revenue up 17%
P/E 8, Dividend 6%
Now trading below book value - every company carries intangible assets/goodwill and you can't just write these all off and attribute a value of zero!

This will be taken over IMO

[ewanwhose] 20/12/2017 20:14

Not buying the quality of the asset backing on this. If things get sticky the £111m intangibles will be of little value, the £113m inventory would have to be marked down heavily to shift and the £156m 'property and equipment' would only be worth what anybody would pay in a fire sale. Suddenly, £204m net assets would look much closer to zero.There is a contrary argument that the upside is good if the above doesn't happen but I think there will be better buying opportunities.

[baner] 20/12/2017 19:28

Rathkum

Why do you think Sterling are the blessing of this falling knife? Clearly they have not managed to evaluate L&B properly so far - and why on earth do you believe they can have any positive impact on the operations at all? Sitting by a desk in the City of London or on Manhattan.........they have not got a clue on how to turn this business around - just telling management to sharpen up really does not help.......While i certainly agree the PE ratio looks rather low, there is a clear risk L&B have lost the patience of their bankers and a dilutive fund raising is around the corner. The increasing net debt may well be the result of production being kept up in order to restrict unit costs, in which case we may see substantial stock provisions in the future. That would be really bad!

[rathkum] 20/12/2017 18:12

Agree with his analysis - over reaction.

Why I’m trying to catch this falling knife after today’s 20% slump

Rupert Hargreaves | Wednesday, 20th December, 2017 | More on: LWB
Image: Public domain

Shares in Low & Bonar (LSE: LBW) are crumbling this morning after the performance materials company announced its CEO Brett Simpson has jumped ship to peer Fenner.

Simpson has been at Low & Bonar since 2014, and during his time performance has been mixed. Indeed, at the time of writing, shares in the group are changing hands at 53p, 44% below the five-year high of 96p recorded at the beginning of 2014.

Simpson will remain an employee until the end of April but will resign from the board immediately. Non-executive director Trudy Schoolenberg has stepped in to take over the CEO role.
All change

According to today’s news release on the matter, Schoolenberg has been non-executive at Low & Bonar for four years and has “extensive executive experience in the chemical, technology and petrochemical sectors with significant engineering and product development expertise from over 20 years’ spent at Royal Dutch Shell.” So it looks like Schoolenberg is an excellent pick for CEO.

Alongside the news of the management reshuffle, Low & Bonar also issued a trading update today in which it noted a “weaker than expected” final quarter due to an adverse product mix and timing of sales. Due to these pressures, the group is expecting pre-tax profit for the year to range £30m and £31m, marginally below City expectations of £32.2m. Net debt is expected to increase to £138m at the end of the period, from £111m.

Although the market dislikes today’s update, I believe the declines are overdone and, as a result, I’m looking to buy into the group’s recovery.
Starting to look interesting

Even though the company now expects to miss City expectations for growth for the year, it’s still on-track to grow pre-tax profit substantially year-on-year. For the fiscal year ending 30 November 2016, the firm reported a pre-tax profit of £26m. So, even if profit comes in at the low end of expectations for 2017 (£30m), it is still set to grow by 15% year-on-year.

And according to my figures, after today’s declines, even with a lower level of profitability, shares in Low & Bonar are trading at a deeply-discounted multiple of around 8.5 times forward earnings. The shares also support a dividend yield of 4.9%, covered twice by earnings per share.

But it’s not just the low valuation that attracting me to the shares. The company has recently gained the attention of an activist hedge fund Sterling Strategic Value Fund SA.

Sterling claims to “work together with management and other shareholders to initiate change in a concentrated number of companies.” At the beginning of December, Sterling hiked its interest in Low & Bonar to 10.9%, from 6.9% previously, which indicates to me that the firm is looking to shake up the materials business to unlock value for shareholders.

This means that as well as an attractive valuation, steady growth, and market-beating dividend yield, there’s a catalyst that could ultimately unlock value for shareholders. That’s why I’m looking to catch this falling knife today.
Not suitable for all

With an activist on board, I think it's only a matter of time before Low & Bonar makes a turnaround. But if this company does not look attractive to you, I highly reccomend that you check out the business is profiled in this free report from the Motley Fool.

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[justiceforthemany] 20/12/2017 18:01

A 20% drop for shaving a couple of mill off final year profits is a tad extreme I would say.....

[bend1pa] 20/12/2017 15:13

Half year results were beautifully presented, impressive and contained a lot of optimism and management-speak. The effort to detail made them look like an honest and transparent company.

BUT the outlook was the interesting part. "No change to Board’s expectations for the full year". "Net debt expected to fall". Really? And by how much? If it's all going so swimmingly why was CEO Simpson looking around for another job and now happy to jump ship as the more ugly reality begins to bite? It makes me wonder how honest that statement was. It will be interesting to see if any directors buy in quantity at this level. I'm guessing NOT.

[value hound] 20/12/2017 14:49

I've bought a few here. A 20% fall looks overdone on the back of the previous price malaise and the news didn't seem quite that bad (though they tried to sneak it out under a "directorate change" title which I didn't like).

Still - now priced at around 1.8 ptbv, fwd P/E of around 6.75, historic P/E 10-11, forward yield >6%, recent yield >5%.

This is a solid business IMO which will always see ups and downs - so it makes sense to buy on bad news.

My worry is that the new CEO will kitchen-sink things, and there are no director-owners on the register to stop him/her (all institutions).

[rathkum] 20/12/2017 14:44

I would not read too much into Brett Simpson's departure. He was obviously headhunted by Fenner which is 4x the size of LWB based on current share price.

Has the market over reacted? I think so. I feel no compelling reason to sell as I see very limited downside if any.

[cc2014] 20/12/2017 14:24

Seems like someone has dumped a huge quantity at 54 as nearly every single trade is going through as a buy just below 54.5

[justiceforthemany] 20/12/2017 10:33

This will be taken over IMO. Now trading well below the book price.

[cc2014] 20/12/2017 10:25

We've now seen a 1m trade go through at 54 which I assume cleared out whoever was selling at down to 53 as we saw quite a lot of volume go through down there.

Maybe there are a few left to shift but the bid has now been steady at 54 for half an hour and the buy trades are slowly going through at a price getting closer to the offer at 55.75.

I bought a second lot once I saw the bid has stabilised.

Thank you for your post on the covenants Ed. That's really useful information and I'm sure partly explains the fall today as the debt isn't going to fall at year end by as much as expected. albeit it will fall £11m from the half year. As stated in some of my earlier posts time will reduce the debt. With EBITDA of £51.5m, the debt pile is going to look quite different in a years time, possibly under £100m.

[ed 123] 20/12/2017 10:08

Quote's moved to 54/55.75p. You may have been right in your assessment, CC2014. Well done!

Debt has rightly been highlighted but they should stay within their covenants, imo. There is no enterprise value covenant, as far as I am aware. There is an interest cover covenant which they meet by a big margin. The tighter one is the net debt to ebitda multiple. Looking back at the interims, the previous year and today's update, my best guessimate for the full year to 30 November 2017 is ebitda of £51.5 million and net debt of £138 million. That gives a ratio of just under 2.7, as compared to a covenant requirement of <3.0. For comparison, the ratio was 2.5 at 31 May 2017 and 2.7 at 31 May 2016. So, if I am right, in terms of covenants, it is a steady-ish picture, albeit staying close to the limit.

As a holder I would like them to take the ratio down a bit from here for safety. There is a dividend which could be cut if things worsened but at the moment that doesn't look necessary. Assuming we have been given the full picture, I'd say there's no need to cut the dividend or to issue more equity.

My hope is that in a day or two we see a holdings rns from Sterling Strategic, saying they have upped their percentage. Sterling will no doubt be disappointed today but if they can engineer a suitor for LWB they can turn a quick profit for themselves.

Lots of uncertainty, so investors need to be cautious but there is potential for capital gain from this level. (No advice intended.)

[time_traveller] 20/12/2017 09:49

I wouldn't bank on that being maintained. In fact, I'd rather it was ditched.

[cc2014] 20/12/2017 09:32

oh and dividend of 3.05p = 5.7% as well.

[cc2014] 20/12/2017 09:22

Market cap now £175m

Net assets £206m at half year plus another £15m say to year end = £221m

Profit before tax and amortisation of £30m a year.

Even if you assert the intangible assets of £111m are worth zero, it's still a bargain down here.


It's a geared play I guess. As long as they keep turning £30m profit before tax and amortisation the debt will come down fast.

It's clear someone has dumped a load pre-market at 53ish and it appears to be one player looking at L2. We just have to wait until all that stock has been shifted. The AT buys keep coming back at 53

[baner] 20/12/2017 09:07

Fenner is a good company so this is not about Brett Simpson being fired - but rather him leaving a sinking ship.........no doubt a fund raising is in the cards - and/or further dismanteling of the group. Could well see the shares at 35-40p before stabilizing.

[time_traveller] 20/12/2017 09:06

Bb - If we deal with the here and now; Weak pound, strong economic growth in their export markets - I can't quite work out how they're pulling defeat from the jaws of victory, but just bought some more in the belief that someone out there should be able to take this forward (or buy it).

[eastbourne1982] 20/12/2017 09:02

Should just do a rights issue, raise 60 million, regroup and move on.