Tclarke Share Discussion Threads

[from8to800] 26/3/2019 15:42

The rather average volume is a bit disappointing but not unusual these days to see it kick in the following day. Good results nonetheless.

[edmundshaw] 26/3/2019 14:46

If I am going to be bored, that is a good piece of drilling tuscan! :-)

[master rsi] 26/3/2019 12:40

tuscan4

Nice figures but at the moment is hope for them to be realized

I will have to look closer when I get time at how much revenue is at the moment on the technology side, as this is what will bring the margins up, so better profit in total

[cc2014] 26/3/2019 12:33

Hopefully volume will kick in when (if) Simon Thompson at Investors Chronicle does an article this week. this will be easy to do as they've already featured CTO twice so it's just a re-run with even better numbers.

[master rsi] 26/3/2019 12:29

Volume is not great on the trading front but nice to see a delayed buy trade of 25k

10:35:31
111.97p
25,000

[tuscan4] 26/3/2019 12:08

A few thoughts on valuation.
Forecasts for 2019: Technology T/O £50m Margins 6%(my estimate) Pre-Tax £3.0m
All other £300m Margins 2.3% Pre-Tax £6.9m
TOTAL Pre-Tax £9.9m
Current5 Mkt Cap £50.0m LESS Net cash(end year) SAY £15m. Equals £35m NET
VALUATION: Technology £3m less 20% Tax = £2.4m @ 10 Times earnings equals £24m
All other £6.9m less 20% Tax = £5.5m @ 2 Times earnings equals £11m
I.E. The market is effectively valuing CTO's NON-Technology traditional business at TWICE earnings. If this valuation moved to a still lowly 6 times it would give a price of c 180p

At the risk of boring readers move forward to 2020.
Technology say £60m T/O Margins 7% Pre -Tax £4.2m
All Other £ 310m T/O Margins 2.4% Pre-Tax £7.4m
VALUATION: Technology £4.2m net of tax =£3.3m @ 10 times equals £33m
All other £7.4m net of tax =£5.9m @ 6 Times equals £35m
Market Cap in this scenario would therefore be £68m PLUS cash (say) £17m equals £85m or 197p.

IMO these are fairly conservative multiples. STILL MUCH UPSIDE TO COME all other things being equal.

[lasmo] 26/3/2019 11:26

Does anyone have an opinion on the Directors remuneration up 40% on 2017. I appreciate we’ve had some board changes and the executive should share in the fruits of their success but a hike of 800k seems excessive. In raw terms it’s considerably more than the additional cash paid out to shareholders. As said before on this BB directors need the right mix of share options and salary package. My concern is currently CTO doesn’t have that.

[cc2014] 26/3/2019 10:41

Perhaps using corp tax to frig the cash position, such that by paying some early it makes the task of increasing the cash in 2019 much easier?

Or they had already indicated to the market they year end cash position would be around £12m, had more receipts in the last week of December than expected so dumped some cash on HMRC to balance it all up.

[cc2014] 26/3/2019 10:36

Skyship - you make a couple of points about the dividends and directors courting small cap funds.

First my view on the dividend. Regrettably after the events with Carillion, Interserve, the rights issue on Kier and Galliford and any number of other problem construction companies, this results in an environment where clients and suppliers are looking for much stronger balance sheets than they were two years ago. Further, the government legislation that is on the books with regard to the construction industry paying suppliers in 30 days (was due to come in from Nov from memory but I'm sure it will be delayed indefinitely) also places pressure on the industry (although T Clarke will likely be a beneficiary of this as a sub-contractor, but I doubt the city would understand that).

By leaving cash in the company rather than paying it out as dividends, it produces a balance sheet which enables it to win work others cannot quote for. Many of it's large clients have various tests to go on tender lists and financial viability is one of them. I look at it as, if the company has to keep more cash than it needs in order to win work at a higher margin that makes good business sense. It is also my understanding that some of the technology work they are doing (with much higher margins) for big household name Clients are on longer credit terms so this requires more working capital.

There will come a point of course, say when the cash reaches £20m that no more additional strengthening of the balance sheet will be required and higher dividends can be paid. This seems perhaps one more year away. In my estimate if we are at 4p dividend now, the directors can do 4.5p+ next year and then the balance sheet is strong enough the year after to support a much higher dividend. All imho.


With regard to the Directors not being street savvy around courting investment funds, I would suggest it would be helpful for you to talk to the directors at the AGM or Mello about this. Since, MIFID II coverage of all small cap companies has collapsed and the enthusiasm for investment of funds below £100m is significantly worse than 2 years ago. Further, most funds are sitting on their hands due to Brexit. They would rather sit it out and miss the first 10% rise than look foolish. I was speaking to the director of a small cap financial services company about this only a couple of weeks ago and he was incredibly frustrated. Each to their own but this is where I think the small investor can benefit.

Regrettably, you can see this evidenced with Miton who are selling down their shares. At June 2018 they held 17.1% and they have now sold down to 4.9%. It would be nice to think they will stop selling at 4.9% but since they were selling a couple of weeks ago at around 105p, I'm sure they will be selling again today at 110p. It appears most of the shares are going to PI's who can see the value.

[skyship] 26/3/2019 10:28

Yes, half of previous year's + all of 2018 perhaps...

[edmundshaw] 26/3/2019 10:16

Maybe just a difference in when the tax was paid and for which year due?

[master rsi] 26/3/2019 10:08

CC2014

re- £2.4m

Note 9 - Notes to the statement of cash flows

Cash generated by operations £6.2 £7.2

Corporation tax paid £(2.4) £(0.2)

Interest paid £(0.3) £(0.2)

[cc2014] 26/3/2019 09:56

Master RSI. Where do you source the corp tax figures. In note 5 I see:
2018 : £1.6m
2017 : £1.5m

I think (I'm no tax expert so happy to learn more) there was anti-avoidance legislation around buying companies with tax losses? My understanding is that any buyer can only use the losses if buys a similar business and even then it has to evidence that profits will be generated in the acquired business and not in the existing business (although use of charging of management costs and other overheads can facilitate this to some extent).


I note that £5m was drawn on the RCF facility at the end of 2017 and the same at the interims in 2018 and so was in use for more than half the financial year. I assume the interest and cost of the RCF will therefore reduce in 2019 as it is no longer in use and make an additional contribution to the bottom line. We may even get paid a bit of interest!

[master rsi] 26/3/2019 09:51

SKYSHI

re - Tax

Yes that is right £1.6M

My assertion was from today's statement, copy and paste, but can not find it just now

Taxation 5 (1.6)

edit. I found it

Note 9 - Notes to the statement of cash flows
Cash generated by operations 6.2 7.2
Corporation tax paid (2.4) (0.2)
Interest paid (0.3) (0.2)

[skyship] 26/3/2019 09:41

Master RSI - yes, spot on. A better divi than many forecast; but still miserly IMO. If the directors want to put this on a better rating then they need to double the dividend and make CTO an income stock. That said, the directors have no real skin in the game.

The shares are held by Miton and loads of PIs; so the directors haven't been courting any small cap funds it would seem; but looking at the directors' CVs they don't exactly seem to be characters who would speak the City's language!

As to the results - surely tax was £1.6m - not £2.4m?

But why that interest payment? No bank loans and ungeared, so why £300k spent on interest. Strange that...

[master rsi] 26/3/2019 09:17

The Corporation tax paid was very high 2,4M as only 0.8m was paid at the Interim. Need to acquire a company with plenty of loses.
Despite plenty of cash in the bank, paying also Interest.


Year ----------------- 2018 - 2017
Corporation tax paid £(2.4m) £(0.2m)
Interest paid ...... £(0.3m) £(0.2m)

[pl dil] 26/3/2019 09:10

Once again thanks for the heads up on these over on MAM.

Much obliged.

Onwards and upwards.

[master rsi] 26/3/2019 09:04

Those looking forward to the 3.34p final dividend will have to wait a couple of months.

"The Directors are proposing a final dividend of 3.34p per ordinary share .

Subject to approval at the Annual General Meeting, the final dividend will be paid on 24(th) May 2019 to shareholders on the register as at 26(th) April 2019."

[cc2014] 26/3/2019 08:22

The Chairman's statement says "The Group is well placed to meet its financial objective of a sustainable 3% operating margin in 2019".

We can work out:

2018 Actuals:
Revenue : £326.8m
Margin : £2.7%
Underlying Profit : £8.8m

2019 Forecast assuming 5% increase in revenue (which seems very modest)
Revenue : £343.1m
Margin : 3.0%
Underlying Profit : £10.3m

An increase of £1.5m or 17%, which is a pretty strong statement for the company to be making only 3 months through the year set against the current Brexit backdrop.

[master rsi] 26/3/2019 08:09

I am glad I was spot on the dividend fcast, 3,34p final as I was expected a total round number 4p, after the 0.66p Interim.

Excellent results with Technology revenue increasing and made as the core strategic objective of the future.

[edmundshaw] 26/3/2019 08:06

Mr Market has generously marked us up 5%. If I wasn't already heavily overweight I'd be gobbling these up...

[edmundshaw] 26/3/2019 07:59

Excellent results of course. Great to see the forward order book so healthy at +22% too!

[impvesta] 26/3/2019 07:30

Yes, cracking results this morning. As rivaldo has noted the increase in technologies revenue is particularly impressive. I will try not to be surprised if the market reaction disappoints, as so often happens, but am more than happy to keep this one tucked away for continuing growth prospects.

[rivaldo] 26/3/2019 07:24

Fantastic results - and a very confident outlook.

The record £411m order book at the year end is up by another £19m to £430m at the end of February!

Great to see Technologies revenues tripling to £43m from just £14m - perhaps the City will start to wake up to this.

15.4p historic EPS and £12.4m net cash make the present 106p share price and £46m m/cap pretty miserly.