Tclarke Share Discussion Threads

[rivaldo] 19/3/2024 15:00

FYI here's Cavendish's summary from their new research note, forecasting 24.1p EPS this year, with a 6.5p dividend and £16.6m net cash:

"High quality projects across a range of sectors

TClarke’s FY 2023 results and forward-looking commentary are in line with the November trading statement, and we make no changes to our forecasts. Revenue of £491m in 2023 exceeded the 3-year plan to double revenue from £232m in 2020 and management have confirmed the group is well positioned to achieve growth plans for 2024 and beyond backed by the £943m order book (up +70%). FY 2023 PBT of £7.6m is down from £10.3m in 2022 due to the previously highlighted measures to protect the business from the current, very challenging construction market conditions. These measures included changing some supply-chain partners mid-contract to protect project completion dates, and the early finalisation of project accounts where customer risk had been identified. All projects are expected to be delivered according to their schedules but the one-off costs of these measures restricted the operating margin to 1.9%, below the target 3.0% (2022: 2.7%, 2024E 3.1%).

We reiterate our view that on a 2024E P/E of 5.3x (vs peers 9.1x who are subject to the same market challenges), dividend yield of 5.1% and net cash of £19m the valuation underestimates the company’s long-term growth potential, and market and financial position. The key driver for the share price will be increasing evidence as the year progresses of forecast deliverability.

- Order book up 70%. The strategy of organic growth focused on five core market sectors whilst building market presence in data centres, large projects outside of London, smart buildings and healthcare is delivering. Data centres now account for £346m within the total £943m order book. This total compares to £1.1bn at October 2023 due to the normal seasonally lower win rate at the end of the year being offset by orders completed (H2 revenue was up +37% on H1).

- Net cash £19.3m up from £7.5m. Key movements were: equity raised £10.1m, dividend cost £2.5m, and free cash flow £4.1m. Importantly, given the market conditions, bad debt expense was only £0.3m and in line with the group’s historical average. On the balance sheet contract assets increased by £30m as one of the large, multi-year contracts ramped-up activity, offset by a £30m increase in trade creditors reflecting the strong cash characteristics of this contract.

- Dividend raised 10% as expected. The 2023 dividend was raised to 5.9p from 5.35p reflecting the progressive dividend policy, net cash and growth prospects.

- Medium-term target price 197p, +55% upside. Our medium-term target price is based on a -10% discount to the broad peer group average 2024E P/E. The discount reflects the impact of the larger, highly rated renewals and infrastructure operators within peers. We do not expect construction market conditions to significantly improve in the short term and expect the share price to be driven by increasing confidence in TClarke’s revenue, margin and cash flow forecasts as the year progresses"

[tole] 18/3/2024 20:54

https://masterinvestor.co.uk/equities/small-cap-catch-up-fan-cto-and-stvg/Analysts Andrew Gibb and Guy Hewett at Cavendish Capital Markets estimate that the year to end December 2024 will see £600m revenues, with adjusted pre-tax profits rebounding to £17.1m, hoisting earnings up to 24.1p and amply covering a 6.5p dividend per share.For 2025 they see £650m, £19.1m, 26.9p and 7.1p respectively.Those estimates easily back up the analyst's Medium-Term Price Objective of 197p for the group's shares.At the end of last week, the shares, which hit 159p last June, were fractionally lower at 122.50p – at which level they are a strong hold for existing shareholders and offer a bargain for newcomers.

[elsa7878] 15/3/2024 19:23

I agree. Looked at this several times but the board remuneration is beyond outrageous.

[owenski] 15/3/2024 18:43

Agree with that, the board certainly use the business to pay themselves rather well, CTO isn't exactly a cash machine as it's results testify. It's a low margin business that's now on even lower margin.

[rimau1] 15/3/2024 17:34

Small Caps Live gives a pretty damning verdict (apologies Rivaldo usually posts smallcap live updates so this is likely a duplicate). 3 key points. 1. EPS is on a downward trajectory; 2. executive pay at 6m is excessive in the context of profits of 7m; 3. thin margins and slower trade payables mean they are only a couple of onerous contracts away from being in serious trouble.

[brad_k] 15/3/2024 15:59

Whilst they have doubled revenues since March 2021 they have only increased the share price by < 20%. In fact the share price was 110p back in March 2019.
Perhaps they could express their growth goals in terms of EPS so as to align the boards interests a little more with shareholders.

[owenski] 15/3/2024 13:35

They've been involved with data centres and higher technical engineering delivery for some time. Over two years ago I listened to a webcast of this and they were saying then that this would lead to improved blended margins above 3%.

This doesn't seem to be happening.

[muckshifter] 15/3/2024 11:08

The margins in electrical contracting have always seemed to me to be about the same as those in civil engineering contracting which I worked in for decades.

The reason behind my optimism about Clarke's future performance (and I'm not normally optimistic) might be partly explained by the following:-
Their resilience in extremely tough times was well demonstrated about ten years ago, when several severe industry wide factors, and one unique to Clarke, really tested them.

Changing suppliers and subcontractors in the middle of a job, as explained in the November T/U is a huge step which shows real determination to keep to a deadline. It also shows real expertise in running contracts from the top to the bottom of the organisation. In the same T/U they revealed that they had settled accounts quickly and early on some contracts where presumably they were not confident of their client's solvency, which no doubt reduced their income for the year, but was, imo, a wise move.

Thinking this morning about the contracts I ran, or priced and ran, or did major subcontracts on, a few stood out as exceptionally profitable. The five contracts which first spring to mind as highly and exceptionally profitable fell into two categories. Two were projects where on time completion was of such paramount importance that the client would throw money at you for overcoming programme impediments, such as unexpected ground conditions or major design changes, as they were encountered. The others were projects where as the contractor I understood such matters as the soil conditions far better at time of tender than the multiple design engineers and consultants involved over a prolongued period before issue of tenders.

The worldwide race to build data centres strikes me as fitting the first category, where timely completion no matter what, is likely to be well rewarded, and the "clever building" stuff at which Clarke are clearly very accomplished seems to me to fit the second category. Both these categories of work are burgeoning in Clarke's order book. So my expectation is that the run of the mill work, which is still a substantial but reducing proportion of the workload, will continue to average out at or around the 3% margin, but the margins on the two categories mentioned earlier in this paragraph will considerably exceed the norm and drag up the average to well in excess of 3%.

Hope so anyway!

[rivaldo] 15/3/2024 11:02

I'd also add that the type of work CTO are now more and more involved with - particularly "smart" buildings, perhaps data centres too - surely bring higher margins as these are much more technically demanding and specialist.

[igoe104] 15/3/2024 08:56

Even if they have a bad year and only managed 2% margins, that's still a big jump in profits nearly 28%. Plus 19 million cash, and a very low market cap.

So even a bad year, the figures will look decent. If they have a good year, and surpass that 600 million revenue they could be close to hitting 20 million profits..

[wjccghcc] 15/3/2024 08:17

True igoe, but how confident are you they're going to get to that margin given their history?

[owenski] 15/3/2024 08:17

The cash position includes the 10m fund raise, so not a great compare to juxtapose it with last year's cash position.

Clarke's is a decent enough business, but the problem is it's a low margin business, and low margins can and do evaporate at times, there is no wriggle room as there would be with a business generating >10% GM.

Chasing revenue whilst not having control over margin isn't attractive and I didn't read anything to see how they'd be able to address that, in other words, however good their services are, they don't control the pricing power.

Equally, not a demanding valuation is it.

[igoe104] 15/3/2024 08:10

Even with margins of 3%, compared to the market cap and cash pile, if things go to plan with them revenues CTO will have a bumper year..

3% on 600 million revenue, nearly doubles profits...

[wjccghcc] 15/3/2024 08:05

Agree. They're all about the growth in revenues and order book but there doesn't seem much emphasis on how they're going to improve the margin sustainably beyond the "our target is 3%".

[muckshifter] 15/3/2024 07:46

These results pleased me. The actions that they took to deal with various contract problems, as reported in the trading update late last year, were particularly impressive, imo, and if I was a client or potential client with a major project and very significant cost implications for any missed completion deadline, it would put TClarke at the top of my tender list.

[rivaldo] 15/3/2024 07:34

The market should ideally have already priced in the reduction in PBT.

But the overall health of the company looks terrific, with the order book up 70% to a whopping £943m and a positive forward outlook. The move into data centres has been a huge success and should continue to thrive.

Net cash at £19.3m compares nicely to the £67m m/cap.

Cabendish have left their forecast for 2024 unchanged at 24.1p EPS

They have a 197p price target.

[igoe104] 15/3/2024 07:12

A very mixed bag of results, which we knew about from the trading Update in November, on a positive note, the forward looking statement looks very good especially if the margins move back to 3%..

Dividend increased by 10%, Cash substantiallly up mainly to fund raise...

[mortimer7] 14/3/2024 16:22

Results tomorrow 15th March

[kneecaps2] 09/3/2024 08:10

There was a trade yesterday of 7739 @ 130 at 1635 so 130 was a real price Dr Bio.

[janeann] 09/3/2024 07:34

The offer at 16.26 was 128.5 andbid 127 .......the day before I could have bought at 120

[dr biotech] 08/3/2024 22:47

130 isn’t a real price. Bid is 121, mid is 124.

[janeann] 08/3/2024 19:04

Very strange drop and recovery in the last couple of days.........

[igoe104] 08/3/2024 08:14

Prelims results are any day now. So hopefully a leg up again soon...

[thorpematt] 08/3/2024 08:02

Well the last note I have on EBIT was for adjust EBIT forecast £9m

So that coupled with the order book is not so bad as the chart would have indicated I think?

With the cash position I think YE can be manipulated but neverthelss is good.
(The I in EBIT will help us know the true picture - since this effectvely measures the average cost of debt for the year).