Northern Recruitment Share Discussion Threads

[deswalker] 12/9/2008 15:19

There have been a couple of indicators for quite some time. I did't mention either as I'm a holder and didn't want to rain on my own parade by panicking people into selling.

Firstly, Digital Look has been forecasting a total divi for this year of 4.8p for several months now implying a 2.3p final divi instead of 5p last year. Clearly the analysts had been given a steer that the 5p final divi was to be cut. I didn't mention it months ago as I'm a happy holder at the lower divi level and so didn't feel like panicking people who were expecting 5p but it was there for all to see.

Secondly, the share price. With the consensus 2.3p divi there for all to see, anyone thinking that the market is so inefficient as to sit at 40p whilst a better-than-expected 5p divi rolls off was always going to be mistaken, especially after they spent 800k on buybacks. If the market had gotten wind that they were going to hold the 5p divi (instead of reducing it to 2.3p) then the share would have priced itself back up at least at twelve times this level (60p) instead of languishing as it did right up to today. The chart is often more accurate than people like to think.

Yes the total divi cut was a bit of a surprise to me but not a major one as I was only expecting a maximum of 2.3p anyway. Now with hindsight, I look back on events over the summer and realise I'm happy with what they've done with the cash instead. I also hope they line up more large chunks of stock to be bought back rather than returning a couple of pence here and there. I need this back over a quid to get my money back and they won't achieve it by running the business down for cash IMO :-)

Anyway, I'm not looking to fall out with anyone but I did think all the talk in the last couple of weeks of a 5p divi and 18.75% yield coming was ill-informed garbage and so it has proved to be.

Des (long NRG but not for the divi)

[harrogate] 12/9/2008 14:37

I didn't see anyone saying that was going to happen before it actually happened if it was so obvious.
I don't hold so i understand the view that I am talking it down. I am interested in this stock because it looked cheap - It seems to me that you can do all the calculations you want but we have company here where management have a lot to answer for :
1) Sales are now the same as 2002 levels - That is shocking given the increase in the business levels in the industry in the last 6 years
2) The old "been around for 30 years" is no good now - look at the margin reduction - temp agencies are just commmodities now - they need volume to replace the margin erosion which has been sustained over the last 3 years - they don't seem capable - I think they have been very lazy -maybe they are too old
3) They have messed about and spent a fortune on this NRG Connect/Pro rubbish - They need to stop it
4) The communicatuion is poor - I don't accept the logical thing to do with the dividend was waht they have done unless they are actually now losing money - if so they should have told us - does anyone have any updated broker forecasts.
As I do not have a position I guess I should shut up now - Just thought a trading perspective from someone in the industry ( not in NE) would be useful

[momentos] 12/9/2008 14:02

Sorry, but why not both?

And presumably this year Mrs Moran doesn't need the 400k she usually gets ?!?

[deswalker] 12/9/2008 13:51

Oh come on, it's clear what happened. One or more institutions wanted out following the IMS. Management jumped at the chance to buy back near on 10% of the stock at a very good level. They decided that this would have to be an alternative to the final divi this year as the total return would be comparable. This seems eminently sensible to me, it was either that or pay the divi and have a massive overhang over the stock.

The problem people have is that they mistake small caps like this for High Yield stocks and assume a relentless increase in divis. Small caps don't work like that. They pay up in good times and batten down the hatches in bad times. The only yield that makes sense here is SteMiS' (and mine) fully taxed EBITD/EV. On this basis it's miles too cheap but the market focuses on the divi and sells. This provides a buying op for those that actually look at the internal operating yield of the company versus cash. Here it's about six times better.

[momentos] 12/9/2008 13:13

IMS: "In considering the full year dividend the Board will take account of not only the anticipated level of earnings but also the strength of the Group's balance sheet."

So this was a total bum steer unless something changed. Either ultra cautious to protect the business or something else.

[harrogate] 12/9/2008 13:08

I cannot understand why they have not paid a final dividend - It doesn't make sense to me unless current trading is very bad - even loss making - As mementos said it would only cost a fraction of the cash. Maybe they are going to do an MBO at a low ball price - It is cheap on the calculations but only if the value ends up with all the shareholders.

[stemis] 12/9/2008 12:49

Actually you need to compare market capitalisation (£5.70m) less cash (£3.88m) against taxed EBIT (£907k less tax of 30%). That gives a multiple of 2.9

All very cheap but it doesn't get away from the appalling news management by NRG of the dividend cut which is now driving the share price.

[momentos] 12/9/2008 10:56

This drop is based on less tha £10,000 activity in terms of share trades, so its a bit overdone IMO.

Once the early Christmas for MMs has ended I'm sure we'll move back up.

[deswalker] 12/9/2008 10:32

Looking at my spreadhseet which breaks down the P&L and Balance Sheet for the last six half-year periods (three years) it really is noticeable that trading hasn't actually deteriorated anywhere near as badly as the share price suggests. For instance the last H2 was actually better than the last H1 and Net Fee Income was actually higher in the last H2 than the H2 two years ago (when the share price was much higher). It is now trading at about TBV and NCA

As momentos says this is a very clean set of accounts for a company that has real capacity to grow from when the recruitment environment improves. I'll be looking to buy more once funds are freed up elsewhere. I still like the Recruitment and HR outsourcing sectors for the long term.

IMO, DYOR.

[momentos] 12/9/2008 10:19

As I've said before and will say again, it's not just the cash.

The balance sheet is as clean as clean can get. Do you really believe that a 30 year established franchise is worth 1.8m (current mcap 5.7m - 3.9m cash). They are established in the North East, hardly the most buoyant labour market to start with, and survived for 30+ years.

If they had a more "commercial" balance sheet with goodwill of £5m on the topline,then people would be crawling all over this. The NAV would sit at 11m vs an MCAP of half that.

Me, I'm holding and buying if it falls any further!

[pictureframe] 12/9/2008 10:10

Now the dividend has gone you are only really buying this for capital appreciation. Bearing in mind the real downturn in employment has yet to hit imo, cant see the point in buying. If anything I see this heading down short term.

[momentos] 12/9/2008 09:58

It is quite a key statement in explanation of why they have reversed their previous policy of distributing the free cash to shareholders.

Why do they need to maintain 3.9m cash on the balance sheet? To open a new Manchester office? Unlikely. Because the business will suddenly need as huge working capital increase? Unlikely. A further 10% buyback requires 600k at these levels.

It does not chime with their trading statement ( divi based on balance sheet as well as trading), hence the suspicion there may be something else here.

[deswalker] 12/9/2008 08:40

momentos - you're looking for things that don't exist IMO.

My reading is simple:
- they know trading is tough
- they believe the current share price already more than reflects this
- they are digging in, conserving divi cash and looking for cheap buybacks in decent volume.

I don't see any corporate action, just a tightening of the business and an intention to pick up any loose stock. That's about it and that will do for me on an EBITDA/EV of 44%. I'd be actively p*ssed off if they started blowing the cash on anything but divis and/or buybacks.

[momentos] 12/9/2008 08:26

"The Board's first priority for the Company's free cash flow is to finance the development of the business."

interesting comment going into harder times... A bit of a "watch this space" comment.

[momentos] 12/9/2008 08:08

The results look OK, the concerns are the lack of final divi and the outlook, I agree.

But they remain fundamentally sound with 3.9m cash and continuing positive cashflow. It will probably be near 4.5m at next interims. There must be something in the offing not to return this to shareholders.

The AR and proposals in it should be interesting.

[harrogate] 12/9/2008 07:58

If you follow my posts elsewhere you will know I never talk anything up or down. I am commenting on the results as I see them and I can assure you I would be saying the same thing if I did hold. The results are not good. The only reason I do not already hold is that i didn't have the cash a few weeks ago. I hope you are right about action since they need to do something

[momentos] 12/9/2008 07:55

Keep talking it down, you may get 35p..!

Doubt it though, I expect some imsider action.

[harrogate] 12/9/2008 07:52

They said that the dividned decision would be based on trading and the strength of the balance sheet only a few weeks ago - I am surprised at the complete axing of the final dividend. I ma not sure what signal it gives about current trading which they have given no indication on at all - I think that is disappointing.

[momentos] 12/9/2008 07:49

I am surprised at the lack of divi given that cashpile (24p per share) , to say the least.

It perhaps suggests "Other plans".

[harrogate] 12/9/2008 07:43

I am waiting to get in so would be an opportunity - they are not performing well - That NRG pro or whatever they now call it is a disaster - they need to get it shut. Sales down 15% year on year and Debtor days look huge - This could mean that cashflow will be good this year if it is a one off and it reverses.

[deswalker] 12/9/2008 07:42

It's a very cheap share especially when one adjusts for the correct number of shares in issue. EBITDA/EV is north of 44%.

It can't come as too much of a surprise that the divi has been cancelled especially following the large buybacks but it's hard to disagree that the market may well not like it.

Any volume below at least 60p ought to be bought back by the company though. I'd have thought they could afford at least another £1.5 mill. Maybe this year we should expect buybacks instead of divis.

[momentos] 12/9/2008 07:39

Really, I'll buy some more then!

[harrogate] 12/9/2008 07:11

Mmmm... No final dividend - Not sure the market is going to like these. They seem to have done the buybacks instead of the dividend.Margin on temp business down by over 4% year on year is pretty brutal and not sure they are giving much indication on current trading - I think we could get cheaper here

[jhan66] 11/9/2008 08:28

could still arrive today but not a good sign. I've yet to see good results delayed or bad results rushed out early.