Smc Share Discussion Threads

[njp] 02/6/2007 12:26

madascake

Forget the intangibles. The simple facts are these. The result of the buying spree is the debt, and it's that - not the intangibles - that has to be 'paid back'. The debt is the real problem. There'll no doubt be an insistance on extra equity.

If, once these troubles are over, they can build back to anywhere near the level of profits they were forecasting before these troubles appeared, then they'll be able to support the debt and they won't have paid much too much for those businesses.

There's really quite a good chance there's a good business there once the present problems are negotiated - after all, the sector is booming and a lot of the factors that McColl said he was building the group for - larger and more profitable contracts, strong national coverage, schools programme, Olympics - are perfectly valid. It's just that negotiating through the current rapids to get to calmer water will be a real challenge.

[madascake] 02/6/2007 11:46

Equity £23m, Goodwill £35m, Net Tangible Assets MINUS £12m (minus 26p per share).

Goodwill of £35m canot be supported by 2006 post tax earnings of £0.6m. Since no reason to believe that even with the greatest management intervention 2007 will be much improved, look at a BIG impairment review end of 2007.

Sad truth, man with big ego overpaid for acquisitions and did not understand complexities of management and financial control. Not my opinion, the facts are in the numbers.

I sold after they bought Alsop (people forget that Will Alsop has gone bust in various guises at least twice that I know of, I bet many more times).

IMHO anyone still with shares I would take 40p plus today since as there is no financial basis for these shares to go up, why continue to hold.

Masurenguy, I agree with all of your well considered post (7185) but would see the value as lower than 6 times PE because of the negative tangible assets position which has to be "paid back" at some point. My personal calculation (which I admit gives a kind of worst case) would be your PE calculation plus net tangible assets. In this case that would give only 4p to which you can then add your own opinion as to the real value of the Goodwill.

I think this is very much one to watch, the sector is strong and with stronger management there has to be an opportunity here. For the moment I wouldn't touch until under 20p and only then with fuller statements as to the extent of their problems!

[gary102] 01/6/2007 15:57

Another great post, thanks Masurenguy, food for thought and quite worrying.

Here is my basic analysis of the situation :)

They have acquired too much too fast and have picked up some duffers.

Maximize the best parts of the business, cut costs on the other parts and drop those that are now and for the foreseeable future having a negative effect on the business.

Problem is how long will this take, how much will this cost and how long before they can start hitting the figures that they forecast? this may go lower it may not, depends on how well they handle the situation, they need to restore confidence asap, keep winning contacts, stay focused and they may turn this into a highly profitable business.

[masurenguy] 01/6/2007 14:48

"Masurenguy - 26 May'07 - 17:26 - 6957 of 7184: Yesterdays 3rd profit warning has now countered the following reassuring statements made by Sir Rodney Walker in his April 11th results overview: "I believe the business is now more soundly based for 2007 and beyond which should enable it to meet its targets........In the light of the changes being implemented in accordance with the business review referred to above I have confidence that the Group is now in a good position to achieve future targets"

Yesterdays company RNS stated "The Board believe that initial findings (from the review initiated by Walker 3 months ago) together with the results of trading for the financial year to date may lead to a significantly reduced profit expectation for the six months to June 2007" The period between these two announcement is just over 6 weeks.

Their year end debt figure was £14.9m + £2.2m in deferred consideration paid out after the year end accounting date. Their total banking debt facility was stated as being £19.6m. It would seem that they are pretty close to their existing borrowing limits but of course we don't know the extent of the 'uncovered' financial problems yet (and neither do the Board by the sound of it). However if they have breached their existing facility then they still may be able to extend it further. Nevertheless this cannot be guaranteed - some here will remember what happened with Homebuy last year. The contradictory statements made over a 6 week period and the fact that yesterdays statement included the commentary that the Board had not even fully studied the results of the review, but had still found it necessary to rush out another profits warning before it did, is truly mind boggling !

Apart from any other consideration one must question why they published their results on April 11th, with all of the reassuring Overview and Outlook comments from the Chairman, when the whole Board knew that the review had either not been completed or reported on yet. The company had until June 30th to report their 2006 accounts so why were statements made at that time, that were presumably based on some incomplete initial findings, that have subsequently proven to be without substance. The fact is, by their own admission, they still don't know what the situation is but are sufficiently alarmed, by what they have seen so far, to rush out another profits warning before they have fully studied and discussed it at a Board Meeting.

Coming back to the potential share price calculations that I made on April 10th, I doubt whether they would now warrant a double digit PER after a third warning so soon after their optimistic comments on April 11th. Assuming that they remain solvent, when they've finally figured out where they now stand, I would think that they would be doing well to get a PER of much above 6 in relation to their next 2007 profit forecast. So if this is turns out to be around £3m, just for the sake of argument, then a theoretical PE in the region of 6 on post tax profits would support a share price of circa 30p. This, of course, is just my opinion!"
.......................................................................................................................

Nothing has really changed over the past few days except for the departure of McColl and the statement that the banks would support their 'restructuring' plan. There is still no public domain information about their current financial position, existing debt levels or contingent liabilities !

[awe430save132] 01/6/2007 14:04

looks like it next stop 30p IMHO

[cool_hand] 01/6/2007 14:00

Dead Cat Bounce?

[devere] 01/6/2007 12:06

Also in The Telegraph.

SMC hopes rise after founder departs

Shares in SMC, the troubled Aim-listed architecture group, rose by 8pc yesterday after founder and deputy chairman Stewart McColl left the company and the firm said some of its businesses are continuing to trade well.

SMC has been hit by three profit warnings this year, causing its share price to fall from 193p in January to as low as 41.5p before today's news, valuing the company at around £20m.

Mr McColl, who still holds 20pc of SMC's shares, relinquished his duties as chief executive in February and was appointed deputy chairman following the first profits warning.

SMC's problems came after Mr McColl, in his then capacity as chief executive, embarked on an ambitious series of acquisitions over the last two years, buying up practices including that of Will Alsop, the leading architect behind the award-winning Peckham library.

SMC is one of just a handful of publicly-listed architecture firms and Mr McColl's M&A spree raised eyebrows in an industry where artistic qualities are often valued much more highly than business nous.

But, in a letter to Building Design magazine sent between the first and second profits warnings, Mr Alsop wrote: "The perceived problem related to share price is a market adjustment and has nothing to do with the excellent and buoyant work being undertaken. I would also like to state clearly that Stewart enjoys the full support of everyone within the group."

SMC said that it will cut costs and may close certain offices.

Sir Rodney Walker, the company's chairman, took over the day-to-day running of the business in February from Mr McColl. After a further profits warning in March, Sir Rodney, who is also the chairman of World Snooker, sought to reassure investors in April that: "the business is more soundly based for 2007, and beyond, which should enable it to meet its targets going forward."

These comments sent the shares soaring back up again only for shareholders to be hit again last week by a third profits warning, which left the stock trading at the lowest level since it floated on Aim in 2005.

Once he had taken charge of the company, Sir Rodney launched an "internal business review" to get to the bottom of SMC's difficulties and, after a board meeting yesterday, the company announced this morning that: "Whilst some businesses within the Group continue to trade well, others have overheads which are out of line with revised revenue projections."

SMC added: "The Group's bankers have confirmed they continue to be supportive of the Group in order to facilitate the changes required by the review."

[paulcaine2003a] 01/6/2007 11:58

Extract from the independent

"Architect group SMC's shareholders are back where they started two years ago when the stock floated at 43p, having traded as high as 195p before the profits warnings started in January.

On the plus side, SMC has a healthy order book and many of the individual practices are engaged in a variety of lucrative projects. However, given the challenges facing management to turn things around, there are not enough reasons to risk taking a punt just yet, says the Independent."

[njp] 01/6/2007 10:27

Yeah, LFD. That's one of the most difficult issues IMO. Any new broom is going to have to take the company by the scruff of it's neck and push through a new company-wide modus operandi. But it's not really a company at the moment; it's a collection of architectural practices. You've got a tension here between corporate and professional ways of working, and those professionals - who no doubt worked successfully for years building up successful practices - may well bridle at some of the necessary changes.

It's always been an issue of slight concern for me, even when things were going right, which was why I didn't plan to hold for too long, but the pressure is much more intense now. I'm not saying the tasks impossible; it's another major complication, though.

[lfdkmp] 01/6/2007 10:16

NJP

"if the staff stay put and morale gets going again."

Big "if".

IMO one of the reasons many of the key players were willing to move into the extended SMC fold was the charisma of S McColl (plus initial consideraton and future earn outs). With the intial consideration secreted away (or spent), S McColl no longer around and the earn outs questionable, many of the acquired key players will be thumbing through their little black books.

Notwithstanding the urgent need for some credible figures, at the people level, it's going to take more than Sir Rodney has got to hold them all in line, imo.

Amazing fumbling of the corporate ball in 12-18 months.

[njp] 01/6/2007 09:39

Kneath

I guess at some point this could again be a buy for me, which is why I'll continue to watch it. Market's very strong and with those infrastructure projects around - schools, Olympics - the attraction there was what got me in in the first place.

But, we need some clarity first on the outcome of the current review. Then there's the matter of the management changes. New brooms do a lot of sweeping and there'll be a desire to sweep all the potential bad news and more out as soon as possible - so quite possibly a horrendous set of figures yet to come. And then there's the question of whether the banks will want to see some fresh equity.

Too much scope for nasty morning surprises IMO. But, when all that's past, there ought to be a very healthy business here if the staff stay put and morale gets going again.

[kneath] 01/6/2007 09:27

NJP - Post 7169 - totally agree. Excellent post indeed! I'm out and don't see re-entry in short-term for precisely those reasons as previously stated. I find it incredible that people are speculating on a percieved value on the word 'substantial'. Some say £2m shortfall on profits, others say differently. It is pure speculation and whilst I may be wrong, 3 consecutive times in a row the company have issued statements NOT presenting the worst case. I'm not a guesser but if I were pushed I would say 'substantial' in this case should be the worst case scenario in peoples' interpretations. Given that, buying or topping up right now is merely gambling, unless of course one is overweight in optimism!

[masurenguy] 01/6/2007 09:27

The market is there and SMC have demonstrated that as a Group they can win major projects BUT can they manage their business efficiently AND profitably ?
THAT is the issue that they now have to demonstrate after the management debacle that came to light over the past 6 months !

[paulcaine2003a] 01/6/2007 09:11

yeah tiger that looks like it could be from digital look and thats dated info. But this has value yet. As Gary says, construction is booming until 2012, and potentially further with olympics, pfi, ppp and building schools for the future.

With the requirement for architecturally spectacular buildings, especially with regard to high profie project, such as the Olympics, companies like SMC should benefit.

[gary102] 01/6/2007 08:21

I think because the construction sector is so strong at the moment SMC can be saved and make a strong recovery, at any other time they would have struggled to stay afloat. IMO

[njp] 01/6/2007 08:18

I should imagine that's dated info, tiger. Who can say what the position is until the board make an announcement. All broker opinion will be subject to review based on what's announced.

[tiger20] 01/6/2007 08:09

SMC Group is in the construction & materials sector and is currently trading at 45.50p per share. In the last year SMC Group's share price has ranged from 41.50p to 193.00p and brokers are currently rating this stock as 'strong buy'.

I am still in - hopefully should see a turn round in S P now that the weak management have been flushed out

[gary102] 01/6/2007 07:37

Good post NJP

They might do the same thing as last Friday, release the results at about 8.15. If they do come today hopefully there not too bad.

[njp] 01/6/2007 05:16

Good to see the banks supportive. Had to be said, though it has an ominous ring to it. Let's hope that there are no parallels to the football world and the dreaded 'chairman's support'.

Action, too, on the 'heads must roll' front with the sacking of McColl. That had to happen, if only to distance the company from the immediate past. Urgently required now is an effective and experienced CEO. Will also need skills in making the company work without upsetting key staff. With all those newly flung together businesses and noses out of joint because of the share price collapse, that can't be an easy task. The people are the assets here.

So what's the impact going to be on profits and the share price? Clearly, any valuation has to factor in the debt, so an EV / EBITDA valuation is appropriate. Before the latest warning, we were looking at pre tax profits of £8m (£10.3m EBITDA per Edison). Share price was IMO aspiring to 110p, which should have been reached once the H1 numbers confirmed all was on track. Actual price, whilst we still sought reassurance, settled at around 85p - a 22% discount. At 85p, I calculate that EV would have been £56m (including £17m of debt - again per Edison).

Using the above ratios as a template, what impact would (say) a £2m reduction to EBITDA have? Debt would increase - say by £1.5m. EV, using the ratio applicable at 85p, would be £45m, leaving £26.5m for market cap - 57p per share. Aspiration level 80p.

Knock profits by £3m and we have debt £19m, EV £40m and £21m for market cap - 45p per share. Aspiration level 60p, which is where I think we are now, btw.

I'm not suggesting things will be as simplistic as the above. It's just me trying to get a handle on the consequences and what, for me, would be a fair price.

I'm not a holder any more. Just an interested observer, but unlikely to play the SMC game as the view ahead is, to me, far too opaque and, with the debt, too risky.

I'd also suggest there a high possibility that the banks will require a further injection of equity - though that probably couldn't happen until the way forward is a little clearer than it is now. How much? I'd have though at least £5m.

[phil2003] 31/5/2007 22:33

Totally agree dave, just depends (as ever) on your timeframe, i don't get my short term kicks on shares like this, so looking to & happy to wait.

LOL matrix, has someone taken the cork off your fork?

[matrix6] 31/5/2007 21:50

Hello can i buy some SMC shares please?

[dave7] 31/5/2007 21:28

Well said Phil.The dust will take a while to settle as the gamblers and day traders make/lose money on the ups and downs but I get the feeling that it was a good idea to hold on rather than panic and sell out.Surely all the bad news has been factored into the present low price...I don't see it getting back to my £1 purchase price anytime soon though,but if the management can be brought under proper control then surely SMC has great potential.I think the problem stems from people trying to do things for which they are not perfectly qualified.Gordon Watson is described elsewhere as an 'interior designer' !!?? Just hope Sir Rodney can devote a bit more time to it and get a good team together to turn the thing around.

[phil2003] 31/5/2007 20:18

ah yes - would you like extra ice cream with that Mr McColl ?


I like this decisive move, order been filled today.. to state the obvious, a mid term recovery play. Here's hoping they realise how shredded their reputation is at this moment and rectify it - pronto.

imvho, re: above posts, anyone day trading a share with an 8%+ spread won't be doing it (for long) or for a living ;0)... hold!

[kneath] 31/5/2007 19:30

Masurenguy - yup it would be a good sign provided it is some quantity. Anything insubstantial - get the hell out and move as far as possible away!! Seen it before - small director buys generally demonstrate playing for time.