Tclarke Share Discussion Threads

[jonwig] 31/8/2011 07:39

Old auditors weren't 'top four' I think. Company's reasons for replacing look acceptable: whatever the grimps we might have about the company it's not worth inventing more.

The situation regarding intangibles is interesting, and is addressed in some detail in the 2010 AR, note 12 p78. It's not 'overpaying' if you buy customer accounts and a trained workforce (themselves intangibles) and then subject these assets to stress tests on potentially lost work. The stated assets look robust enough to me, unless the combined business quite fails to deliver - which would, of course, be the case in a prolonged slump ... but then we're all shafted.

Goodwill relates to the purchase of subsidiary undertakings. The carrying value of goodwill has been compared to its recoverable amount based on the value in use of the cash generating units to which the goodwill has been allocated. Each operating company within the group has been assessed as a seperate cash generating unit, being the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other groups of assets. As a result of the merger of their operations from 1st January 2011, T.Clarke Midlands and Mithcell & Hewitt, which previously have been treated as separate cash generating units, have been combined into a single cash generating unit. Value in use has been calculated using budgets and forecasts approved by management covering the period 2011 to 2013, which take into account secured orders, business plans and management actions. The results of periods subsequent to 2013 have been projected using 2013 forecasts with no growth assumed.

The key assumptions to which the assessment of the recoverable amounts of cash generating units are sensitive are the projected turnover and operating margin to 2013 and beyond, and the discount rate. The group's businesses are expected to continue to face challenging market conditions throughout 2011, but trading conditions are expected to return to more normal levels by 2013 and beyond. A discount rate of 10.8% (2009: 9.4%) has been applied to the extrapolated cash flow projections.
...
The directors believe that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of each cash generating unit. The elements of goodwill most sensitive to a change in the key assumptions are T.Clarke Midlands, T.Clarke East and Waldon Electrical Contractors. The recoverable amounts of these business units exceed their carrying amounts by 72%, 79% and 102% respectively. A fall in projected operating margin of 42%, 55% and 52% respectively would result in the recoverable amount of these businesses being equal to the carrying amounts.

[effortless cool] 30/8/2011 21:29

Innocent, I imagine. If the old auditors could not give the required geographic coverage, they would not have been part of the beauty parade to select the new ones. More elegant to not put themselves forward than to be replaced.

Good point on intangibles. The balance sheet used to be rock solid, but the purchases look to have been mistimed.

[htimsjnalla] 30/8/2011 20:17

Pat Stanbourough the former CEO sold his stake at 260p not long before he retired. Bet you he is grinning like a Cheshire Cat now!

Reference the points on the Balance Sheet. £24.2m of intangibles which is the purchased goodwill for the series of acquisitions completed. Shareholders funds per the interim statement stand at £23.4m. That means that more than the Balance Sheet total is represented by intangible assets. That doesn't seem a good position to be in to me. I would be surprised if they could get a decent banking facility in such a position. They are relying on cashflow from operations in what as some posters on here have stated is not the best. The big test would be a further dip in profitability which would put pressure on cash and no Bank is going to provide borrowing facilities to a business to enable it to pay Dividends when it is losing money.

I still remain concerned at the resignation of the Auditors. I find it strange, while business is hardly booming in any sector, why the previous Auditors would "not put themselves forward for re-election". Why would they do that? Two change of Financial Directors in the last while is also of concern to me.

Might take a punt if it falls any lower.

[pwhite73] 30/8/2011 19:02

100K by at 67p 08:33 this morning. Is that the start of the stake building referred to in earlier posts.

[goliard] 30/8/2011 18:05

That realy is a pathetic director buy. I haven't followed this company as closely as I could have done, but that level of ownership on the board is appalling. I imagine many of the PIs on this board hold more than the MD. The other thing it confirms is that neither he nor any outside party has discussed any takeover with the board. Hard to say how low this will go now.

[masurenguy] 30/8/2011 16:52

"Director buy, though hardly puts the bunting out"

Just over a weeks pay !

[jonwig] 30/8/2011 16:44

Thanks for the comments from people who know the trade.

Director buy, though hardly puts the bunting out:

The Company has received notification that Mr M. Crowder, Managing Director today purchased 8,000 ordinary shares of 10p each in the Company ('Shares') at 59.5 pence per Share.



Following this transaction Mr Crowder is now interested in 12,000 Shares.

This amounts to less than 0.1% of the total issued share capital of the Company.

[hyper10] 30/8/2011 14:41

Further to my last post, it's not fair to blame management. No one can do anything as clients/main builders are now utterly ruthless both at the front end and also on final accounts. Electrical Contracting has been compounded by a desire for combined Mech/Elec bids and even where the is separate bids margins are awful. We were chasing money from a listed Main Contractor today and to settle a june invoice we ended up giving 5%+2.5%, otherwise we'd never see the money. Clarke's are no different in so far as they need cash and final accounts are where you get knocked.

IMO, a takeover of T Clarke is a remote possibility based on the following.

WHO?, unlikely a main builder as it's outside their area of competence
Large M+E Contractor ? The Europeans such as SPIE and Imtech gouged on acquisitions, Hastie of Australia have Rotary. The big US boys all got conned in the 80's so really whilst not impossible, it is improbable.
Jusy my view but hopefully gives some insight

[copyright] 30/8/2011 12:12

There is no reason to hold CTO any more now that the dividend has all but gone.

The current management would appear to be quite inept and completely lacking in forward strategy skills and vision for the company.

Not so long ago we heard that CTO wants to be a first choice single source supplier for all mechanical engineering and electrical and piping business, then we hear that they want get into renewable energy by becoming a solar panel installer and now we hear that want be a big playerin the facility management business.

Have they LOST THE PLOT is what I am asking ????.

Do they have any clue as to how to define STRATEGY for a business.

Their latest plans and objectives smell of grasping at straws and show lack of real leadership and direction by the chairman.

With the benefit of hindsight, it seems to me that last year's acquisitions would appear to be badly timed and overpriced and as far as I can see / read, they wouldn't appear to be performing well or delivering the expected benefits to the bottom line either.

IMHO, big mistake in letting Pat Stanniforth retire and getting rid of Victoria French both of which had had a good handle on the business and a good grip of the purse strings, my only criticism is that they were too conservative and probably not the best combination to take the business forward in a big way.

IMHO, the chairman has failed in replacing them with Mark Lawrence and Martin Walton and this must therefore bring into question the future of Russell Race as chairman.

My only hope now is for a predator to come and takeover this business, go hostile if need be, the real investors in this business being we long suffering and loyal shareholders would surely be receptive to any reasonable approach even if they current board had the lunacy to reject any approach, unfortunately I reckon the best price we could hope for would be 80p to 100p absolute tops which would result in a major loss for nearly all of us.

I have been a long time loyal shareholder in CTO but have now lost all faith and confidence in the ability of the current board of directors to move this business forward and to grow into a medium sized and highly profitable ftse250 company. Quite the reverse, they company is now dropping back to penny share status and back to its 1980's level, yes sorry to say in less than 5 years the company has gone from a 230 million plus turnover and 12 million net profit business and has stepped back some 30 years to return to be a low value low margin and almost unprofitable poorly managed small company lacking in real direction and forward strategy, just as it was when I first invested back in the late 1980's when it was a struggling.

The only future for CTO lies in being part of a much larger and more dynamic business. Just hope I can convince myself to hold on for long enough for this to happen, if it ever will of course !!!.

All comments gratefully appreciated.

[jonwig] 29/8/2011 08:23

Mark - I'm merely floating a boat :-)

But ... Board would be in a weak position. About 25% of the stock is held by institutions as fund managers, I think. It's by no means a universal sign for takeovers to be preceded by stakebuilding. Who would be interested? Well, CTO are now a lot more than electrical contractors, and their business would fit well into facilities managers and construction - let's say BBY?

[mark1000] 28/8/2011 18:47

jonwig - Go on then tell us who is in the frame to take them over? Remember the directors will be hostile as the only investment they have here are their careers not saying a T/O not possible just that there appears to be no evidence of it. Do we have a large shareholder that might make a bid , a hedge fund building a large stake, an ambitious management looking at an MBO or any sign of the directors raising a for sale sign over the company. I suspect its wishful thinking still these things can come out of the blue particularly if the company starts generating positive cashflow.

[jonwig] 27/8/2011 08:41

PWhite's argument (post #846) is persuasive. HMG know they need to promote growth at minimal cost to UK debt. They've already made big noises about cutting red tape (barely started) and planning restrictions, and the possibility of cutting business taxes yet increasing revenue has been floated.

The only feasible way to do infrastructure spending is through PPI/PFI contracts, though these won't be so lax as earlier ones. There's a big appetite from private and institutional investors for these - look at the share prices of infrastructure funds: HICL, 3IN, JLIF, barely moved over the past month.

They have preferred bidder status for 100 Broadgate, and are likely, I think, to win the contract. And contracts will appear soon for the Leadenhall 'Cheesegrater' - again, it's the sort of thing CTO has done many times over.

A recent post called the balance sheet 'weak' ... I wouldn't go that far! No net debt, for example. Trade payables appear to be expanding rapidly vs. receivables, and it would be helpful if they itemised the intangibles.

None of this presents a strong case for buying the shares, but (I said this before) a takeover bid is by no means improbable.

[mark1000] 27/8/2011 00:44

The reason I mentioned GFRD was because it has a wide spread of interests indeed the one big positive from todays reports is that CTO are looking for diversification with new income streams in facilities management this has to be commended.One of these days the cycle will turn at the moment I agree with you topvest I have mainly invested in natural resources stock oil coal copper in the hopes that growth in the BRICS will push commodity prices higher. But construction will have its day and then we will all want to be in construction and I suspect house building in particular will boom as the population continues to grow high birth rate death rate falling and high net immigration contributing while new builds are well below the required rate for a stable long term market.

PWhite - Your post 846 do not agree because quite simply the Government will not throw money at this problem their number one priority is reducing the deficit you are deluding yourself if you think they are going to turn 180 degrees. You can tell me I am wrong if CTO end up with the wiring contracts for a number of new prisons.

[topvest] 26/8/2011 21:36

Maybe best to avoid construction companies in general; by their very nature they all tend to be "price competitive businesses" with no durable competitive advantage.

[pwhite73] 26/8/2011 19:27

Mark1000 - 26 Aug'11 - 17:18 - 845 of 845

"The loss in Public sector work is going to get worse..."

The loss in public sector work is not going to get worse after the recent civil unrest. Just you watch the amount of finance initiatives announced on the public sector. Regeneration programs for inner cities, house building programs, public sector private sector partnerships.

[pictureframe] 26/8/2011 13:07

Balance sheet isnt looking that strong to me.

[goliard] 26/8/2011 12:16

Agreed. It will be interesting to see where this settles, but I suspect there will be chances lower down.

[liam1om] 26/8/2011 11:25

Very brave or mad? I've seen this so many times recently, where a company releases poor news and it drifts for a week or two after. THAT could be the time to top up or buy, but not now in my opinion.

[joan of arc] 26/8/2011 11:18

You are very brave K2. I bought in a 120p and so am feeling the pain as is the case elsewhere. Frankly I think the outlook is so bad for the economy that I am far from convinced that 60p is anywhere near the bottom.

So do I hold or bail out - a really difficult choice.

[kneecaps2] 26/8/2011 10:51

yes i have bought 60000 so far today.The new chairman is being very cautious they are a very sound company worth an awful lot in a takeover battle which i am sure will happen very soon

[goliard] 26/8/2011 10:39

That all sounds a bit 'rose tinted' to me. Interims talk of 'immense pressure' on margin which is pretty strong language. The dividend yield is almost irrelevant now (although 4p for the year sounds hugely optimistic), it is the macro economic situation that will drive the share price. I don't have any problem with the way management are running the company, they just can't control the external factors.

[justthemoney] 26/8/2011 10:19

Yep, todays sell are an opportunity for people with cash. I'm fully invested for the year and sitting pretty on a 35% capital loss. Fortunately all companies are in a good shape, paying decent div. :)

[hvs] 26/8/2011 09:57

Lets hope so.

Todays sell are an oppourtinty.

[justthemoney] 26/8/2011 09:49

I hold shedloads at 97p, and will continue to hold. They are in my ISA so can wait for a couple of years to reap rewards. CTO is a well managed co. with good prospects and still profitable. For me the main thing is that there is no danger of CTO going under and they continue to pay div. I reckon total div will be around 4p for the year.