Tandem Share Discussion Threads

[greengiant] 18/11/2010 12:59

S,

If you look at the Private Equity way of incentivising. No PE company would have paid any bonus based on the performance over the past 4 years. That is because profit has been static once you add back amortisation write off's and exceptionals. For bonuses to be paid you have to surpass the previous year.

So if I was investing in a company, I would have a 3 year strategic plan, that would form the basis of my budget for Y1. The budget would undergo a 3 monthly reforecast to ensure that everything was still on track. If the company achieved its budget then it would pay a basic bonus, then it would heavily incentivise for every £ over budget (20% - 33% paid as additional bonus). That actual achievement then forms the basis of the following years budget (of course growth is assumed).

Is this a fair way of remunerating? It leaves you open to economic factors which are outside your control. However, it also makes you actively manage growth and profit increase. Whether we like it or not, people are extrinsically motivated (yes there is a little bit of intrinsic motivation is all of us), I am happy for big bonuses to be paid and want big bonuses to be paid (cash & shares) but only based on overperformance.

When the initial note came out you will remember my thoughts on whether bonuses should be paid if the company achieved that. I want the company to enter a growth phase and I want directors and employees to be paid well in excess of the market, however, if that is to happen then they need to achieve well in excess of the market. Payment for mediocrity? No thanks.

Personally I want to invest in companies that are moving forward, that's why I want to see the numbers (once an accountant - always an accountant:-)

gg

[grahamty] 18/11/2010 12:25

gg

"challenging but ultimately achievable"

I used to spend a lot of time talking to companies about what steer they should give the market; what legally became a "forecast" (.....lawyers....accountants......cost); and what was appropriate in a public announcement ( RNS or AGM).

First principle, it must be beatable. Companies want a top-end forecast out there: it implies greater growth, suggests a higher multiple and gets a higher shareprice. However, as we all know the downside on missing a forecast by 5% may be a 25% drop ( the upside on beating a forecast may be limited but lots of happy ( and relieved) shareholders. Hence, the only good thing about the last note was that the forecast was always going to be beaten !!

Then there has to be a range of internal forecasts ( dependent on all the sensitivities that the Board will be using in its cashflow analyses). And I always said there are a range:

E: very poor underperformance, no bonus for anyone, genuinely diappointing ( and probably requiring downwards guidance later in the year)
D: the level which should in almost all circumstances be achivable
C: a good year, slightly better than thought, everyone quite happy: in fact the level that the Directors actually think will be achieved
B: A high target which represents better than expected. This is what staff are told is the target, this is the level that Directors get bonuses, this is outperformance, possibly not to be reached, but the target to push for
A: trebles all round, a damn good year

Companies tend to issue forecast A, and remunerate themselves on target D. In my view it is perfectly possible to issue regualr guidance ( "about the same level as last year"..... a slight improvement on last year") which steers the market towards a beatable level, while making sure that staff incentives are set at a higher level. Directors bonuses set one tier above that.

The previous note suggested a level nowhere within the range. re yr "challenging but ultimately achievable". That is for internal incentives: the market has to have something lower ( but realistic) as the downside on missing an "ultimately achievable" forecast is too great.

I want to invest in companies that beat my forecast every time ( compare something like T Clarke which has missed every forecast for ten years and starts analysts at level A before bringing them down to level E by the end of the year)

S

[greengiant] 18/11/2010 10:14

dd,

I actually agree with grahamty, the opportunity was there to produce a cracking note to say - Tandem has matured into a "proper" listed company. The opportunity was there again after the results. But we are now months down the line, with nothing new to show and as an investor I want some tangible numbers to ensure that directors are held accountable (challenging but ultimately achievable).

My argument like yours is cheap and nasty was produced, which was signed off by the company and ridiculously out of date when issued.

Of course these things cost, but if you are not willing to pay it, don't be listed.

gg

[davidosh] 18/11/2010 10:00

gg,

I can see where grahamty is coming from but of course we are both aware of the lengthy process they went through to end up with !$&%?

It sends out the wrong message to current owners and potential investors.

The process probably cost £10000 in director time and effort to interview all the candidates at the remuneration levels within the board so why skimp and pay peanuts and end up with a monkey at the end. It was a one off as I understand it so they have to negotiate for further updates which are now clearly needed. I recommended an analyst has knowledge of the sector and the company and is well respected but would have cost five times more but covered the company for the whole year.

In any event after all these years of zilch coverage the longstanding and minimally informed shareholders do deserve to see decent communication. I am loathe to challenge the directors over this issue as communications are improving but a decent broker note and forecast that is seen as challenging but achievable is paramount for the private investor community to hang their hats on !!

There needs to be a balance and directors cannot use the argument that non execs are expensive at £15k a year or annual PR costs in the same region whilst this company is listed on a public stockmarket. One could argue that without all these things institutions will not take them seriously if they go round the city either but that is for later as the market cap grows.

[greengiant] 18/11/2010 08:56

grahamty,

No I would probably get rid of the person who wrote that report. I would have expected a report far superior to the one that was provided. However, I would argue that seeing that the company spent about 3 months interviewing 5 different companies to get the report, they chose the cheapest (by far and away).

If the company was so concerned about promoting the company, then it would have done everything in its power to ensure that the things you state above (history, strategy, competitor analysis etc) are included. However, when you pay about £1k for a note you get sh*t.

The board knew what service was being provided, and chose the cheapest. If they had wanted better, they could have got it, but it would have cost.

gg

[grahamty] 18/11/2010 08:38

gg

Are you totally reliant on "the openness of the company " ?. You, personally, could write a pretty good assessment of a company, with no cooperation. OK, the final profit forecast would be difficult and, for current trading you would be reliant on the most recent statement, however an analysis of their sector, competitors, strategy, historic successes/mistakes etc etc, you would write a very good note ( is that not what we all do, do analysis for ourselves, just never "signed off" by the company ?).

You do not need the cooperation of the company to look at the cashflows, working capital trends, continuing capex spend, pension provision or even a more simple role such as describing the history of the company, where it came from, name changes, acquisitions etc. All of these have a bearing on why I invest ( in current economic times, often rather more than the actual headline profit number, which can be restated evey five minutes).

So, my question: if you Andrew employed some minion to write you a piece on a company, from scratch, would you expect a more useful piece of paper than the one we are talking about ?

[davidosh] 17/11/2010 19:50

There were more buyers than sellers... at least by volume of shares traded if not individuals so certainly anyone looking to take profit is being replaced by someone that sees good proit from here.

I agree all round with the comments about broker notes and the input required from the company to make it look worthy of out attention and for new investors to understand the company and its potential. Management need to really concentrate on making the next one far more useful especially as it is paid for research and they pride themselves on keeping costs to a minimum. I do not think it cost anywhere near the £25k that grahamty mentioned though btw.

[greengiant] 17/11/2010 19:32

Grahmty,

In the main I agree with you, however, I would say that the amount of depth that a broker report can go into is directly proportional to the openness of the company. The likes of Brokerlink and Edison's can be great and can offer a valuable service, however, it does cut both ways.

After all, ask yourself
1) Who provided the information to Brokerlink
2) Who approved the Note?

I don't blame Brokerlink for the fact that the last report was rubbish, after all it was issued 30th July. The management obviously approved it so they should have realised that it was hopelessly out of date.

David,

I will go over 21% once I reinvest my dividend. Not surprised to see people taking profits at this level, after all people have no idea of what this years results will be (note above) and no idea what next year's forecast will be. There is no doubt that communication has improved, however, it still has a way to go.

gg

[grahamty] 17/11/2010 19:15

re broker's note: I used to be a corporate broker. Research was offered as a free service to clients. Every 2-5 years there would be an acquisition or Right Issue and that paid fees and made the relationship worthwhile ( and anyhow we "collected" brokerships even if unprofitable for a while, just to boost the list). We also made money ( as a firm) from the marketmaking side. I know I am years out of touch......

It does seem absurd, mad, that research costs so much, especially when it is cr*p. There is a real niche for an ex analyst to write independent ( even if paid for by the Company) research that is in depth, actually involves some analysis and is not just a cut and paste out of the Annual Report. Blimey, at £25,000 a shot, you would only need to produce about 6-8 reports a year to make a very nice living. As soon as the reports were seen as good, independent, insightful etc ( and hopefully digging out undervalued stocks) would not there be a market for it ?? For goodness sake, the work I do ( or GG, or David or anyone) is worth more than the rubbish that is the "only available option" to someone like Tandem. There are sites like LCF that add more "flavour" to their research than most brokers.

Enough of a rant. There must be a cheaper, better source of research than paying that last mob again................

[davidosh] 17/11/2010 15:45

A lot of shares are going through at £1.67....there seems to be a very keen buyer if it is not gg (and he says he is giving it a rest for a while!) About £60k worth traded today.

[scott84] 17/11/2010 11:44

What a chart, hard to believe it's a Tandem chart, never did that
when i held them :-))

O/T

GG, check out DCD, it looks a sound investment, might be up your
street.

[greengiant] 17/11/2010 11:40

dd - until sight of fy numbers I would actually sy that this one is fairly valued. This "slow movement" by the board is one issue that I will be bringing up.

gg

[davidosh] 17/11/2010 11:25

The broker note should really have been released as soon as possible after the interims to help update the market and give guidance for the full year. They are probably negotiating a deal for each one though and probably hoped they would only have to do one a year !

Nice big dividend payments next week so a few may recirculate the proceeds back into buying more.

[greengiant] 17/11/2010 11:06

dd - I am staying at 20% for a while. The company will be discussing new broker note at this months Board meeting.

gg

[davidosh] 17/11/2010 11:00

Has there been an updated broker note released or tip somewhere as a steady stream of decent sized buys going through ? Or maybe it is you gg ....nibbling again now you have a bit more time on your hands.

[greengiant] 03/11/2010 11:51

What a week, no more lawyers ever!

Nice to see that you have been taking care of Tandem whilst I am away. Funny 2 trades today, a 5 trade on LSE and a 4 trade 2 hours later. Still no shares available to buy.

Wonder if we are going to have a revised Broker Note. Good movement on $ lately as well.

gg

[greengiant] 25/10/2010 06:17

David,

I know but looking to complete this week, even missing out on the free lunch David Suddens is hosting

:-(

gg

[davidosh] 25/10/2010 05:19

gg..I will watch out for the milestone RNS....20% is worth congratulations enough but 25% !! You also mentioned

Busy year next year, cant even make RNSM's AGM as I will be sat in Lawyers offices reading reams of paper.


Not sure about next year but the RNSM Agm is actually this week on Thursday I think. Kramch will probably be there but as it is half term week and I only bought in a few weeks back with a speculative holding it may be one that I miss.

[greengiant] 24/10/2010 19:53

Or maybe 25%
;-)

Busy year next year, cant even make RNSM's AGM as I will be sat in Lawyers offices reading reams of paper.

gg

[davidosh] 23/10/2010 17:29

Blimey, gg... you do like to flag up your intentions and on the assumption that you are now hitting 20% that means approx 1,120,000 shares and as per the recent divi RNS....

(Further to the announcement today of the interim results of Tandem Group plc for the 6 months ended 31 July 2010, the Board of Tandem confirms that the interim dividend of 1 pence per ordinary share will be paid to shareholders on 26 November 2010. The ex-dividend date is 27 October 2010 and the record date 29 October 2010.)

By my quick calcs...

So...sometime after the last week in November you will be hitting the market with your divi proceeds of circa £11,200. That should give you a relatively easy headache of picking up 7500 shares. Just think of the problem though when they start paying about a third of the profits in dividends....that would have equated to nearly four times as many just for the interims and could be a 50000 shares purchase over a full year.

Nice problem though !?

[greengiant] 23/10/2010 08:35

20% then done - honest guv. The dividend does raise an issue for me tho', I always like to reinvest my dividend in the company and with liquidity so low, does raise the question of how I will be able to do it.

gg

[davidosh] 22/10/2010 15:02

gg...Lol not suggesting anything untoward but until you hit 29.99% I can read you like a book !!!

In fairness to everyone you have been buying whether it is a merry Monday, wet Wednesday or freaky Friday and your thoughts are always honest and direct. You are in a very priviledged and important position though as a dominant shareholder.

[greengiant] 22/10/2010 14:46

Just checked my AGM notes and see that the company had done another deal with Capita to buyback some of its shares (relating to the shareholders who would not sell due to % dealing costs). I have in my notes that this was to expire in July - don't know if this is correct however maybe it was due to start in July and JS stated that the uptake had so far been "good"

No idea why no details of this was provided in the Interims

gg

[greengiant] 22/10/2010 14:30

Hi Guys just got back in from a lovely day out with the family frantically gripping onto the last rays of summer.

Scot84 / Davidosh - I am hurt that you are bringing my character into disrepute!
To suggest that I would talk down the share in order to pick more up! In reality tho' what I said I stand by, the fact I am buying more is just part of my overall plan (wouldn't say master plan, I am not that bright to devise such things).

Neverforget, I believe that the company has the mandate given by shareholders to buyback its shares, which lapses at the next AGM and if memory serves, they did mention at the AGM that they were looking to buy back shares of smaller holders - altho' I thought that ended in July, and with no announcement I guess they were not able to manage to buy any. Will check.

My broker bought a few more for me today but not enough to warrant such a large rise (he managed to pick up a paltry 5k this morning through 2 x 2,500 buys). Anyhow I will wait for this to drop down a bit.

Have a good weekend all.

gg

[davidosh] 22/10/2010 13:31

Scott84...indeed, hence my reference to reading him like a book...lol

Incidentally I wonder if he is looking to launch the eco friendly 'Green Giant' brand as there is already Giant out there selling bikes...LOL