Spectris Share Discussion Threads

[campbed] 03/6/2003 16:55

mattharrop -- pain for you shorters yesterday as SXS' price spiked over 400p,
supposedly on research note from non house broker which I still have to look at
(now done so but it said nothing new).

No position on SXS. Mkt strong, looking for good news & SXS pitching their story
so is a high risk short. Accept they'll do better on adjusted profits reported this
year than many in electronics sector but IMO is very fully priced on cash
generation.

More generally on shorting, this market is starting to show some excess valuation
blindspots. For example internet merchandising stocks are back in fashion and
are rising like a phoenix. For example, look at Last minute.com LMC at
140p/share which is now valued at £400m. Why anybody should think a loss-
making agent for primary suppliers' distressed travel offerings is worth £400m (with
only something like £25m net cash and minimal tangible net assets) totally
escapes me. In the US mainstream full-price travel distributors are attracting even
crazier valuations and so their acquisition of LMC could be enterprise value
enhancing to them -- aka the greater fool theory. However LMC cannot grow its
mainstream travel offering without losing its USP of selling excess stock at
distress prices. That USP puts a cap on its share of the travel market as primary
suppliers don't want too much stock going thru electronic bucket shops. Hence
move to red letter day "experiences" and car hire but low barriers to entry on
those. Just because LMC and other low margin internet peddlers survived the
internet crash as a result of how much cash they raised at flotation and more
recently seems to the the rationale to justify current valuations for these.

PS 4 June: LMC enjoyed another 10p rise today - so I've retired hurt on that short
for the moment & closed it. Rather like SXS in April 02, the valuation of LMC will
come back to a sane level IMO later on but its in fashion now. Talking of which
mass market fashion retailers have had a horrible time since Easter and so I am
shorting a couple of stocks in that sector e.g. see Next (NXT) board for why it is a
popular short currently.

[mattharrop] 13/5/2003 15:04

Opened a new short on this today. I'm not a technician (or i'd probably wait for £4) but just feel it has come too far in too short a space of time.
Massively overvalued on a b/s basis, but it's earnings that seem to count until you disappoint, otherwise BSY and IMT would also be worthless.

[dolphinspirit] 13/5/2003 14:31

Campbed, I was mainly addressing to your good self, but I am open
to any one else that is prepared to answer.

Thanks
D.

[campbed] 13/5/2003 10:11

Roger Stephens: Oh dear, my fault that you've misunderstood the allegory
about "popping in as non holder" to avoid any reference on a public board to
specific sources though I have reviewed what I wrote & is all available from SXS's
own releases to the market and house brokers' notes.

Dolphinspirit: If your question at #20 is addressed to Roger Stephens I don't think
he can as Company Secretary comment publicly. If addressed to me then my
opinion is given in penultimate para of #15. The unknown is always corporate finance activity. Until SXS bought Spectris AG in 2000 and Phillips Analytical in 2002, most of its operating companies look to have been in US. SXS P/E rating is still low by US standards if not by UK/European standards. It would readily make an earnings enhancing acquistion for a number of US companies who may be looking outside the US for diversification -- not starting any rumour just stating the obvious though equally obviously the need for an all cash offer, weak $ and SXS's debt levels would be deterrents. If addressed to others then look forward to seeing other views.

[dolphinspirit] 13/5/2003 08:05

how high do you think this present run is going to go?
Is £4.00 a suitable target, or do you think it could go further?
I would be interested to here your opinion

D.

[roger stephens] 12/5/2003 15:13

Campbed,
I was sorry to have missed the opportunity of meeting you at
the Spectris AGM. However, as a) non-shareholders are not admitted
and b) there were no attendees, shareholders or otherwise, I was
very surprised to see that you apparently "popped in". Are you perhaps
a member of our board of directors (highly unlikely) or the
Invisible Man (more likely, but still improbable)?
Or could it be that, as was recently said about Peter Mandelson, for you
the truth is like a second home: you don't live there all the time?
Campbed (or should it be comic character Compo?), I think this needs
to be clarified for the benefit of your correspondents, who take your
statements at face value, and of course our AGM records.

Roger Stephens
Company Secretary
Spectris plc

[dolphinspirit] 07/5/2003 15:50

Thanks Campbed

[campbed] 07/5/2003 14:48

Duplicate -- sorry

[campbed] 07/5/2003 14:48

Duplicate -- double sorry

[campbed] 07/5/2003 14:47

Popped into AGM this morning though not a holder. Their directors' mood is better
but not yet positive. Not deserving of a 50% increase in share price in last 8
months from 240p to current 360p. Q1 2002 was very bad for them and it is little
wonder Q1 2003 saw some improvement.

Market guidance for adjusted PBT in 2003 on core businesses before exceptionals
and goodwill amortisation is about £50m (I calculate £43.3m in 2002). The
increase is entirely from having PANanalytical (acquired 25 Aug 2002) for a full
year with the remaining businesses forecasted for only slight improvement.


SXS market capitalisation = 124m shares *£3.6/share = £445m

Average net debt = £185m

Enterprise Value = £630m

Expected sales = £600m mostly from EUR and so helped by relative currency strength


Forecasted adjusted EPS of 30.6p in 2003. Hence P/E is 360/30.6 = 11.7

Institutional sentiment remains positive but IMO there are many shares that offer
better value. SXS is a quasi-conglomerate with IMO a problematic group balance sheet as a result of acquisitive growth and aggresive earnings accounting. Their ability to realise prices of one times sales on forced disposal of their collection of relatively small businesses is doubtful. Still to re-finance £60m+ current bank debt taken on to partly finance PAN analytical acquisition. Adjusted PBT in 2003 still
benefiting from the utilisation of prior year acquisition provisions.

At 360p, IMO the shares are at least 15% overvalued in today's market but would want to see price climb by another 10% to 400p before shorting. However sentiment over debt repayment can change very quickly and will keep on my watch list.

Dolphinspirit - the rise is not likely to be due to the shares going ex dividend on 16 May. SXS management try to sell the company as high growth/high quality earnings to institutions with Caz & Merrills -- notifiable (3%+) material interest holdings by institutions are only about 22% of total shares and directors hold under 0.5%, so many institutions hold non-notifiable holdings which are relatively liquid if sentiment changes. Also Evil Knieval was shorting this share quite publicly but rumour has it that he is no longer and he's had to cover in a bear squeeze.

[dolphinspirit] 07/5/2003 10:49

Do you think that the dividend being due next week might
have something to do with the prices going up this week?

[yas0] 07/5/2003 09:49

positive agm statemeent in my view.........the ntav (or lack of ) argument cannot make an impact if these guys keep delivering

[felix99] 24/4/2003 20:28

Short now - got no idea why the rise . directors cashed in some at 265p think it was after results so I don;t think they know why its up here either!

[dolphinspirit] 24/4/2003 10:55

Any idear to what is pushing the price up at the moment?
18p rise in half a day were will it end, am I going to get my money
back??????????

D

[yas0] 23/4/2003 23:40

Campbed,

Out of curiosoty do you have a view on Corus. Do you think it will get the new credit facility to ensure its survival or do you feel a d4e is inevitable.


cheers

yas

[yas0] 23/4/2003 23:38

campbed,

thanks for your comments.

i aim to revisit this with a view to shorting it when it gets to about 360 or slightly higher. uNTIL THEN I FEEL IT IS BEST TO STAY AWAY, SINCE THIS SHARE SPIKES HIGHER very QUICKLY on little vol.

[campbed] 14/4/2003 10:36

Spectris' report & audited accounts were issued on 8th. Have just had a look at them but do not see any big surprises this year and my feelings remain much the same as in first post on this thread. Will keep on watch list for signs of change of sentiment on ability to repay debt from cash flow .

[campbed] 01/4/2003 20:35

ldrcvem I don't follow Moni as its price is too subject to bank/restructuring news which always leaks to market well ahead of any RNS. There was a piece in Tempus in Times today going through the arithmetic and he recommends a sell:





SXS price seems to be holding up around 300p following post results institutional presentations. Have not yet looked at the statutory accounts -- has anyone else?

[ldrcvem] 19/3/2003 22:33

campbed
thank you for your enlightenment on that. as you seem to be a fellow who makes a great deal of sense, i would greatly value your opinion on my marconi short idea. as you may know the details of the reconstruction are now out. i have made a few comments on the moni "warrants a closer look thread" today and yesterday and any thoughts you might have would be welcome on that thread.

[campbed] 13/3/2003 11:18

ldrcvem -- spending set against prior year provisions can only become clearer
from the publication of full accounts. You're comparing the movement in total
provisions for liabilities/charges in the balance sheet (incl for example deferred tax
and fair value provisions for PANalytical) net of exchange movements with the
movement in note 5 that only affects cash flow from operating activities prior to
exchange movement. My £13m figure was from simply taking the £14.6m
reduction per note 5 and taking off the £1.3m non-cash release of excess fair value
provisions per note 2.

[ldrcvem] 12/3/2003 23:35

campbed

you write "there was some £13m spending against prior year provisions in 2002"


where do you see that in the accounts?
balance sheet shows provisions going from 40.3mn (a restatement of the interims restatement of 39.3) to 32.3mn

yet note 5 shows reduction in provisions of 14.6mn

I am confused can you help?

[campbed] 12/3/2003 17:25

ldrcvem

1) Like you I cannot explain how in the interims to 30/6/02, the opening
shareholders funds at 31/12/00 can be shown as £108.3 in respect of 12 months
ending 31/12/01 but only £100.0m in respect of 6 months ending 30/6/01.

I presume it is because the effect of deferred tax restatement is deemed to occur
in H2 of 2001.

2) The terms of the new debt should be disclosed in footnotes in the forthcoming
annual accounts.

[ldrcvem] 12/3/2003 11:41

thanks for yr analysis campbed i think you are spot on. Could you very kindly answer a minor query i have on sxs. In the 2002 interims under "Reconciliation of movement in shareholders' funds" it shows Opening shareholders funds in the half year to 30th june 2001 as £100.0 mn. It also shows Opening shareholders funds in the year to December 2001 as 108.3 mn. Question: how can these numbers possibly be different?

Also where do you find the terms of the new £60mn debt

Keep up the good work.

[campbed] 11/3/2003 20:30

JeremyL -- Your operating company (Malvern Instruments) was said to have
had "an excellent year, substantially due to differentiated new products" and so
you were right to be optimistic. No other operating company received such an
accolade in CEO's report.

[campbed] 11/3/2003 20:15

SXS profits for 2002 were in line with expectations at headline level at £43m
adjusted PBT and 28p adjusted EPS. These numbers plus upbeat outlook
commentary support the current 280p price and market sentiment including buy
recs from Cazenove (HB) and Merrills.

However, it's below the headline P&L that I remain wary because of the high levels
of debt and goodwill and the size of previous “fair value” provisions. SXS appear to
have borrowed £60m short term to fund part of the PANanalytical acquisition
completed in September 2002. Looks like they will have to refinance that
borrowing this year. Goodwill at 31/12/02 has increased to £214m and total net
debt to £178m as result of that acquisition. Negative net tangible assets of £16m
before FRS 17 pension liability of £9m. Current Mkt Cap is £345m. Hence EV is
over £520m which is ca. 1 times annual sales. The “fair value” provisions
previously charged on acquisitions serve to flatter 2002 profits -- there was some
£13m spending against prior year provisions in 2002. Free cash flow before
interest is only £32m and so after paying 2002 dividends of £15.3m and annualised
interest of £10m there will be very little left to repay debt. Huge non-operating
exceptional losses of £13m in relation to the disposal of three businesses
(mainly Luxtron) that produced sales of only £22m in 2001 indicate low current
realisation prices for the type of small technical businesses making up SXS group -
- management are only buyers at distress prices.

If banks start to become nervous about overall debt levels and about re-financing
the short term debt this year then there will be big problems. Hence continue to be
much more inclined to short than to buy at current share price despite better
trading outlook but the market sentiment to short is not there yet.