Shearwater Share Discussion Threads

[watcher13] 09/11/2020 09:36

Interesting thought on the performance of our board and our company.
On 23 April 2020, the day before the placing was announced, the share price was £2.90 with 22.1 million shares - a market value of £64million. The placing raised £3.75m so, assuming the appropriate adjustment to the SP, the market value increased to £67.75m with 23.7m shares in circulation.

Today - 23.7m shares x £1.31 = a market value of £31m. so value destruction of over £35m and a business worth less than half what it was only 7 months ago.

What has the board done over those 7 months? Gained new business? Retained existing business? Cut costs? Added a bolt-on acquisition? Kept shareholders informed and on-board? Overhauled the board or management? Please tick as appropriate!!

[2lb] 04/11/2020 16:34

They are managmeent heavy Rockstar10

Each business they own has a "CEO" or an "MD" and indeed, Xcina has two!

At one point they had the Group CEO over and above this (at a cost of £400k a year!!!) before combining the roles of Group CEO and Brookcourt CEO into one.

This is horribly inefficient - does each business also have comparable roles across the P&Ls? Buy and Build strategies gain most of ther benefit not from cross-selling but from material efficiency gains of centalising operations and support functions.

Carrying this model forwards with further acquistions, that they can't fund in any case, just compounds the problem witrh additional costs.

[rockstar10] 04/11/2020 07:30

Some really interesting points made recently. I would agree that any acquisition of size is a problem with the share price where it is. It would not be a surprise if someone was looking at buying SWG at this price. A great point made on skill sets regarding building a business and building a group by acquisitions. It is totally different and Brookcourt is a big ticket contract company whereas other group companies are contract by contract. Different mindset, margins etc. But management won’t change with Higgins and Stacey owning over 18% of the shares. The big flaw is the argument about gains from cross selling to clients. It just doesn’t happen. Had a look at the consultancy website yesterday, couldn’t really understand the case for two MDs in a business that size tbh. Anyway I expect there will be cost savings coming around the group and wouldn’t be surprised if there are some senior departures as that’s the SWG way.

[igoe104] 03/11/2020 14:09

Management team have been very poor with promoting the company, other companies I own like Kape, volex etc put themselves out there and do loads of presentations. We could do with some fresh management who show some urgency, rather than this bunch who continue watching these hit record low after record low. And doing nothing about it.....

[northwards] 03/11/2020 13:04

It's so frustrating. I've off loaded a few simply because I see much better short term opportunities.

[washbear] 03/11/2020 09:47

Channel...Nicely put ! Its what makes these threads intersting ..Retired folk using their life knowledge.All I can add is other folk compare market conditions...interest in bank. The point is many investments are working for me . So selling up and investing elsewhere is the comparison. And for me so many growth companies are cash rich too.

[channel pirate] 02/11/2020 12:57

My heart is saying to "go on and buy" as we must be somewhere near the bottom, but then my retired Financial Advisor head kicks in telling me to "wait and see where this settles before buying more".

At the moment my retired Financial Advisor head is winning.

[jh59] 02/11/2020 11:10

Nothing to do with current trading conditions then?
Maybe you could explain how the business model is “rotten”?

[watcher13] 02/11/2020 10:47

Tend to agree that the business model, if not rotten, is certainly totally ineffective in what should be a good market sector. The business is clearly not performing and all to often in those circumstances, management try to cover up poor performance with an acquisition, usually overpaying and significantly diluting existing holders. This could go very low.

[2lb] 02/11/2020 10:01

Remember, SWG paid £30.3m for Brookcourt of which £22.95m was in CASH and £7.35 in SWG shares.....they were not stupid to take the cash as part of the deal.

SWG now close to an all time low and a MCAP about the same as what it paid for Brookcourt , then you have to add in all the other acquistion....

Higgins picked up a large chunk of the £22.95m cash.......

Something very rotten with the "business model"......

[channel pirate] 30/10/2020 12:08

Significant Shareholdings :
Secarma: 2,922,925 (12.3%)
Phillip Higgins: 2,303,750 (9.7%)
Schroder Investment Management: 2,113,323 (8.9%)
Dene Stacey: 2.104,366 (8.8%)
David Williams: 1,433,757 (6.0%)
Steve Watts: 892,857 (3.8%)
Columbia Threadneedle: 790,414 (3.3%)


Number of Shares in Issue: 23,801,419

Number of shares not in public hands: 7,328,710 (30.8%)


Director Shareholdings:

Phillip Higgins: 2,303,750 (9.7%)
David Williams: 1.433,757 (6.0%)
Robin Southwell: 155,000 (0.7%)
Stephen Ball: 119,444 (0.5%)
Giles Willits: 67,717 (0.3%)
Paul McFadden: 1,715 (0.0%)

Total: 4,081,383 (17.1%)


This information last Updated 30 September 2020

[watcher13] 30/10/2020 10:24

Like many I invested in SWG as a long term hold, back in the Aurum days when DW took the chair and they switched direction. The problem I have with SWG at present is that they no longer look like a long term secure business, and (as Rockstar pointed out) they may have been hit harder by the current market conditions than they are letting on. The board need to work much harder to reassure long term investors that there really is a future for this business, or the drip selling will drag this down even further.

[2lb] 30/10/2020 10:24

I don't think that's especailly reckless jh59.

At £33m MCAP SWG is proabably now at or around the bottom, the question is really about if / when it might start to appreciate, and if you really are taking a 2-3 year view then you really should at least break even and will likely get a better return than just putting your cash in the bank.

I can't see any value-add M&A activity going on in the short term. The company should really do something abouts its' fixed cost base which is very high, their Xcina consultants for example are paid way above market , this was justified becasue they could be billed out at "London rates" but I don't think that is the case any more.

The motivation of the CEO also needs to be looked at - he got all his cash when Brookcourt was acquired and has overseen somewhat of a capitulation since stepping in to the top job. Founding, growing and selling a business is a specific skill which he clearly executed very very well, but being a listed CEO with a remit to grow via acquistion is totally different skillset that I just don't think he has, add that to him having already cashed out and it's not a great combination

The uncomfortable truth here lies in comparing the SWG Market Cap to the sum of all the prices paid for the companies within the group - its' a very ugly comparison.

In other news, FLX posted awful results today so may be back on the radar.....

[jh59] 30/10/2020 09:37

I agree Washbear, hard decisions may have to be made. I can’t pretend not to be disappointed by the slide in the SP, and now I am suffering a significant paper loss. To mitigate this, I have averaged down to below 2, and will continue adding right down to the bottom. Reckless you might say, but I’m not a short term investor, that investment can stay there for at least 5 years. For me, the old adage rings true; buy when everyone is selling, and sell when everyone is buying! GLA

[washbear] 29/10/2020 11:22

Sometimes in our Share careers we have to take hard decisions.Count our paper losses. And if need be actualise these losses and move on.Some hard decisions might be taken very soon.As many other opportunities await us.BBT..Bloody British tech !( I m not inspired by NCC either)

[2lb] 28/10/2020 17:32

Good analysis Rockstar.

I don't think Shearwater are regarded as an attractive proposition as a potential acquirer as they are now short of cash and nobody will want their paper given the track record of an ever declining value propostion and the likelihood of yet more placings and dilution.

Regarding buying a company making £500k, that is still going to cost more than SWG can fund as the market knows SWG overpays for average businesses so you are looking at a cost of over £6m and then you have to fund a minimum of £500k of "corporate finance" fees irrespecive of the scale of acquisition. Anything that they "picked up for £2.5m" in this industry by default would have little inherent value.

[rockstar10] 28/10/2020 17:05

I think the move in the share price says it all. Little positive news in the half year statement. The drop in revenue is pretty serious. Given much of Brookcourt revenue is repeat or renewal business it either means people aren’t renewing which I doubt right now as changing long term providers at this time is not easy as due diligence needs to be done. Therefore it implies that consulting, pen testing and Secure Envoy revenue has all been whacked compared to last year. Cash numbers are a bit of a re herring because the £3.8m will include working capital of a couple of million I guess. Not a lot left for acquisitions with share price dropping. At a value of £35m versus cost of acquisitions of circa £50m something needs to be done.

[northwards] 28/10/2020 10:01

I think we could still pick up a company that makes £500k for say £2.5m. Half in cash and rest in paper.

[watcher13] 28/10/2020 09:37

Whilst overall market conditions are not helping, the share price performance of SWG, a non-stop downward trend, seems to put at risk any acquisition strategy.
With the current uncertainties no-one would risk using any more than a small proportion of cash/debt capacity on an acquisition, and that would suggest a limit for SWG to say a £2-4m deal, which doesn't move the dial. Alternatively, use shares to acquire (which in the current market is a good approach if you have a relatively strong SP) but SWG don't and they would need to issue a relatively large number of shares to do anything on a scale that would make a material difference to the Group.
Net result - meaningful acquisitions needed (and probably desirable) but lack the strong currency to execute. Fallback is good organic growth which is simply not there = stagnation and share price drift. Maybe even at these lows, time to gradually exit??

[2lb] 28/10/2020 09:25

All time low approaching.Imagine if they weren't in a fast growing market.......

[earwacks] 23/10/2020 10:18

I agree about organic growth.However after a fairly good year for cybersecurity bar SWG, the whole sector is looking a bit sluggish again, which suggests there might be good opportunities for acquisition and just as well they have not made a move yet. Would be good if they get involved with 5g too, I think many companies are pinning their hopes to that mast. The revenue drop is disappointing, but perhaps not surprising. Their position looks promising, paying off loan and maintaining cash balance under these circumstances. So more patience required and it might still pay off handsomely Imo.

[washbear] 22/10/2020 12:26

Thats was a close shave ...I was tempted to fill my boots before to day. I prefer organic growth to acquisations for these youngens. Get out there and promote yourselves.!

[jh59] 22/10/2020 09:31

Let’s hope so Northwards! My buy just gone through at 9:14.

[northwards] 22/10/2020 08:46

Jh - that's my view and perhaps they can pull off a smart acquisition without diluting too much/if at all.