RSM Tenon Share Discussion Threads

[bonio10000] 14/9/2011 10:12

Presumably, once the deffered consideration is paid for, profits should equate to cash over the long term.

[imastu pidgitaswell] 14/9/2011 10:08

Fair point, poor effort to look it up by me.

Make that "'cos they bought the turnover and profits - for some cash (and mainly shares)".

Just pointing out that cash balances are down (actually loans up) despite increases in profits, because those profits were acquired, partly for cash.

What would relaly aid clarity is if they demonstrate, on an ongoing organic basis, what their level of cash generation is, and how much of it is to be consumed in payments for acquisitions and interest payments (note that the cost has risen 110 basis points as a result of their refinancing).

Basically how much cash is being generated for shareholders - there is a lot of potential here if they can get the debt down through working capital mangement, and then the cash generation to flow to shareholders rather than the bank and the acquired businesses' former owners.

[bonio10000] 14/9/2011 09:45

Yes - my reading too. But that has been there since the purchase of the business in 2009.

[crawford] 14/9/2011 09:39

bonio,
I termed that wrong - I'm concerned about the cash flow statement which is negative this year.

So next year, another £7.5m can be expected under the heading:
"Deferred consideration on purchase of subsidiary undertakings and businesses"

Thanks for digging that info up.

[bonio10000] 14/9/2011 09:28

Sounds like they paid £40m via the proceeds from a placing, gave them £17.5m in shares and then also are due to pay £20m in deffered consideration.

So effectively, shares covered the bulk of the price.

"The consideration for the proposed acquisition shall be a maximum of GBP76.3
million which will be satisfied by the payment of initial consideration of
GBP40.0 million in cash and the allotment of new Ordinary Shares up to the value
of GBP17.5 million to the shareholders of RSM Bentley Jennison Limited. Deferred
consideration of up to GBP18.8 million is also payable in cash in equal annual
tranches over three years, subject to the meeting of specific performance
criteria. Up to an additional GBP9.0 million may become payable (satisfied by up
to GBP5.0 million in cash and the allotment of up to GBP4.0 million of new
Ordinary Shares) dependent on the realisation of contingent assets in RSM
Bentley Jennison of at least equal value."

[crawford] 14/9/2011 09:27

Four buy recommendations out this morning:

Date Broker Recommendation Price Old target price New target price Notes
14 Sep Numis Buy 22.38 44.00 33.00 Retains
14 Sep Shore Capital Buy 22.38 - - Retains
14 Sep Brewin Dolphin Buy 22.38 34.00 - Upgrades
14 Sep Altium Securities Buy 22.38 46.00 46.00 Upgrades

[bonio10000] 14/9/2011 09:26

"'cos they bought the turnover and profits - for cash..."


Highlights

* Proposed Acquisition of RSM Bentley Jennison, a UK based professional services
firm, for a consideration of up to GBP76.3 million - an alignment of two highly
successful businesses;


* Fully underwritten Placing of 88,888,889 new Ordinary Shares at 45 pence per
share to raise GBP40.0 million (before expenses) to help fund the proposed
acquisition;

[bonio10000] 14/9/2011 09:24

Most of the acquisition was paid for in shares not cash. There are 3 stage payments of about £7.5m I believe, so two of these are left for 2012 and 2013.

Not sure why you think these payments are anything to do with Exceptionals.

They are a balance sheet item, not a profit and loss cost so will not affect profits or exceptional costs.

The only possible exceptionals I could see might be if they reduce some headcounts, but they should be far less than this year and are hard to forecast, as the depend upon the macro environment.

[crawford] 14/9/2011 09:20

The hard thing for me is working out what are ongoing exceptional costs and what are true one-off costs.

Some of the exceptionals this year will clearly not be repeated but others will - such as the ongoing payments:

"Deferred consideration relates mainly to the acquisition of RSM Bentley Jennison and is payable in cash in variable tranches over three years. The first payment of £7.5m includes earnings related payments and consideration from asset realisations."

[crawford] 14/9/2011 09:17

Two things I'm not sure of:

1. The last aquisition - does it have an ongoing staged payment over the next two years (at ~£7.5m)?

The option and warrants outstanding - how come some of them don't affect this years diluted figures? Are they so much underwater that they won't be an issue?

The EPS figure has barely changed in 5 years, so I think that their acquisitions have been a waste of time, but then, I've purchased at a low price.

I would be peeved if I was a long standing shareholder.

[imastu pidgitaswell] 14/9/2011 08:58

'cos they bought the turnover and profits - for cash...

Interesting proposition, have been watching for a while. Clearly the big issue is the level of debtors (cash owed to them, not not debt that they owe) and how they manage it. They are talking a good story, but they have let it go very wrong - 105 days of debtors is pathetic. At a time when they paying cash out for their acquisitions, it is terrible management.

What would also be useful, and maybe available as I have not looked too far, is a schedule for future acquisition commitments, i.e. staged payments for busiensses they have bought already.

It's a bit of a punt on whether you believe the story of cash management that they are telling. It sounds good - no more acquisitions, working capital mangement, organic growth etc etc, but the actuality is deteriorating (albeit short term halted deterioration) cash collection, significant commitments requiring cash outflows, dividend cuts(often tells the real story of where the cash flow story is heading) and a period of business uncertainty - public (and provate) sector clients are not going to be falling over themselves tp pay consultancy rates to this lot.

Given that the assets (the people, they have no other assets) can leave at any time, it really depends on whether on words speak louder than actions...

[crawford] 14/9/2011 08:35

Aleman,
I see what you mean by cash flows!

The increase in turnover didn't translate into profits, that margin reduction as reduced operating profit by over £4m.

Presentation here:

[aleman] 14/9/2011 08:08

Not sure what to make of the numbers. Receivables didn't improve as much as I would have liked and cutting dividends (from 1/4 to less than 1/10th of earnings!?) while saying things are getting better is always odd. The cashflow picture is quite complex but I'm not convinced I properly understand what is going on here and think there are plenty of bargains elsewhere after recent falls. I've bailed at a small loss. Might look in on next numbers to see if the picture gets clearer as they look cheap if cashflow ever starts to work on that debt. Good luck.

[crawford] 14/9/2011 08:01

Glad to read this:

Having now completed the integration process and built a balanced platform, no further acquisitions will be sought as the enlarged organisation settles and demonstrates its full abilities. We are therefore at the point of the business cycle where we will aspire to reduce our net debt more rapidly and provide clear visibility of our financial performance, freed from the influence of acquisitions and costs of integration.

[bonio10000] 14/9/2011 07:50

There is a presentation up on the Tenon website.

[crawford] 14/9/2011 07:43

envirovision,
you were right, very leaky, not impressed with that.

The company is worth owning at this price though so I'm happy to hold.

[still waiting] 14/9/2011 07:39

if you take off the overinflated goodwill and make a decent provision for non paying debts then there's nothing left...

[its the oxman] 14/9/2011 07:35

difficult times ahead it seems with more exceptional costs to come - little reason to get involved here for a while yet

[still waiting] 14/9/2011 07:04

businesses are packing in and calling it a day left right and centre , can't see the econcomy improving for years..

as margins and customer base erode that debt will become a dead weight...

[envirovision] 14/9/2011 07:02

he's happy to hold......Odd bloke.

[bonio10000] 14/9/2011 06:49

Shame about the dividend, but operationally the results look okay.

However, I would think the reduced dividend and the outlook might hold this back.

Happy to hold though. If the macroenvironment improves, these should get a decent re-rating.

[still waiting] 13/9/2011 16:06

with minimum fixed fees it's hard to grow business levels when every sme is looking to dramatically cut costs just to survive..

pain ahead..