Tomkins Plc Share Discussion Threads

[pw] 03/12/2000 21:37

MAIL ON SUNDAY

Buy shares in manufacturing conglomerate Tomkins at 150 1/2p. The scandals of the last few months have obscured the value of the company, and although there is the potential of predators waiting in the wings, the smart move is to buy now.

[bpoole] 17/11/2000 19:04

The price is now down to 145 with assts of £2b how can this be

[bpoole] 11/11/2000 00:57

Anybody any idea why tomk has fallen 5%

[kayak] 10/11/2000 13:18

PW :-)

bpoole, previous support was around 155-160, once it breached 155 it dropped quickly. Virgin earth below :-)

[pw] 10/11/2000 13:15

Looks to be a fairly balanced order book. Anyhow as discussed it's because Pippin said the dreaded words.

[pippin] 02/11/2000 14:43

Looking better - volumes starting to stir and buyers more prevalent than sellers - and without buybacks.

I think it's turned at last.

[pw] 30/10/2000 17:57

Does not show on ADVFN for some reason but my US site has picked up a director purchase of 12000 US ADR's worth over £80k.

[kayak] 26/10/2000 00:24

I didn't say that the market was perfect, merely that it's always right :-) Meaning that you can try and fight the market by trading in opposition to it, but that it's a heck of a lot easier to trade with it. The reason is that you don't have to wait for everyone else to turn around and agree with you.

On the other hand that comment applies much more to trading over short timescales than it does to long term investment, when you have the time to wait for everyone else to change their opinion (assuming you're right, of course).

This is to some extent the controversy on this thread IMO: short term unlikely to do well, long term perhaps it will do.

[pw] 25/10/2000 23:55

People seem to ignore the interest from the Americans on this as well.

Major shareholders
Sanford C Bernstein & Co Inc 5.130247%
Brandes Investment Partners 4.292396%
T Rowe Price Associates Inc 4.090299%
Britel Fund Trustees Limited 4.060443%

Interesting to see Mr Hutchings is no longer on the major shareholder list.

[pw] 25/10/2000 21:38

The market is not perfect by a long shot. As I mentioned earlier the market price of a company is more variable than the cash flow generate from it. There is no disputing this fact therefore there are periods when a company will trade above or below it's intrinsic value. Unfortunately companies and economics are not perfect or 100% predictable either so there is always an element of risk in everything you do. The game I play is to identify enough low risk investments at such a discount.

[yogi] 25/10/2000 20:52

Very interesting thread which has taken me the guts of the last hour to read. I don't hold TOMK but it has raised my interest in the last few weeks. It reminds me very much of Blue Circle which I studied in depth in the first quarter of this year. Several years ago they too had a business that created very good cashflows. They too had their cash mountain and decided to be imaginative and try and spend it. More like wasted it as a result of purchasing cement works all around the world. They were hit by the downturn in the Asian Tiger etc. and N. America was their only real star.

Point is they had cash to spend and they did so carelessly. The ROCE was far less than the companies WACC and theoretically projects should not be invested in unless they create a return above the WACC unless they have strategic longterm value. Even through the subsequent difficult times when shareholders were loosing faith the cash generation was strong. This carried them through and eventually the inevitable hostile takeover arrived from Lafarge which increased the share price considerably.

If Tomkins continue to generate strong cashflows and decent profits then I believe they will pull through in the longer term. As an income generator I'm very tempted at these levels to buy - stick them into an ISA for the longer term and leave alone. The hostile approach will occur eventually and that will give me my growth potential as well as my income from the Divs.

From my understanding, share buybacks although frowned upon also mean that management is not willing to waste money and make investments just for the sake of it. They indicate management who are frugal, unexciting, probably risk adverse but nonetheless good at what they know best. I would rather waste my own cash than have somebody else do it for me.

Tomkins, in calling in the auditors are obviously aware that there have been accounting problems and this needs to be rectified before confidence can return to the company. This may slow share growth in the short to medium term but I would hope that management will maintain the dividends as this is a strength of the company and one where most shareholders see the real value i.e. low risk, low Beta (therefore low volatility) and consistent returns.

Inviting in McKinsey is not necessarily a bad thing either. They have a lot of experience of change management (We at BAE SYSTEMS use them along with other consultants) and the point is you don't have to take their advice. A fresh independent outlook from personnel used to dealing with a variety of large companies can be very beneficial and a strong management team will be strong because they are able to accept feedback and change their ways if this is seen to be the best way forward.

Above all it boils down to the surplus cash being generated by a company in an industry that is less affected by market volatility. Its extremely boring but has the potential to be quite a lot more profitable than a Building Society.

Yogi.

[clem] 25/10/2000 16:25

ChrisG. As I said earlier I actually hold these. In fact I've bought on three seperate occasions in March 99, last Xmas and in September when PW 'ramped' me into another 1000 shares. (Sorry PW cant resist teasing you. :) )

Im only showing about 25% loss, which for a contrarian like myself is nothing to worry about. But I am abolutely on a knife edge about this company.

Some contrarian stocks do blow up in your face. You have to expect that. For every Allied Carpet or UVS there is a TTY or a GEIN.

This has got all the look and feel of another RNK situation and if I get another data point on that trajectory I'm out. At best the upside vanishes.

I agree with PW that in the long term the market is a weighing machine, but a breakup isnt a longterm situation.

As for 'meaningless scare stories with an agenda.' Firstly they are obviously not meaningless and secondly they are concerns not stories. ie Worries not narrative. Sorry to be pedantic.

As for the agenda; the agenda is discussing the pro's and cons of holding this stock, which frankly is now highly controversial even just by association with the recent goings on.

If you were to say they were 'valueless negative sentiments,' than thats fine by me. I disagree, thats OK. Personally I value different opinions as a different perspective. I dont expect to be right all the time. 51% will do just fine.

As for exaggerating possible costs of restructuring a company of this size, if it were to happen, here is a clip from Coats Viyella's (CVY) recent restructuring RNS. It can be found in full in their latest figures here under RNS news, and I based my ball parks on it and other examples.

"The total cost of withdrawal from the Contract Clothing business is estimated to be of the order of #150m (excluding the adverse effect on the
carrying value of the pension pre-payment) and the cash cost is likely to
be about #50m."

So my conjecture is not so outlandish.

Nothing would please me more than to see TOMK, kill the buyback, hold the divi for now, sell some obviously awkward bits off (Smith and Weston perhaps) and go back to conglomerating. They could easily be worth a 10 P/E and with time a 20 P/E. After all GE in the states is a conglomerate and it is the best company in whole US economy for stability, growth and investor value. But you need a Welsh or Weinstock to bring that home. If they can handle the current crisis with aplomb then maybe the 'new' management might be the right stuff.

Hell Im not going to ramble on and on. Enough to say anyone not concerned about this investment must have nerves of steel and crystals balls. Sadly I have neither. :)

[kayak] 25/10/2000 14:51

ChrisG, get a grip. It's a mistake to get emotionally involved in your investments. If the rest of the market agreed with you the share price would not be at an all time low, and the market is always right.

"The Board of Tomkins announces that it has appointed Credit Suisse First
Boston and Cazenove & Co. as joint financial advisers to assist the Board in a
review of strategic options for the group. As part of the review process
McKinsey & Co. have been appointed to advise the Board on business strategy."

It is true that McKinsey are advising on business strategy, but you will find that Credit Suisse and Cazenove are reviewing strategic options for the group, which is normally a City euphemism for sale or break-up (or a money-raising exercise, but that is clearly not an option since they are awash with cash).

[pippin] 25/10/2000 10:21

This company is a hefty cash generator, as PW says. Its earnings per share are also substantial so the P/E is very low. There are plenty of assets remaining and nuggets to be found.

If I were rich enough, I would make an opportunistic grab for this company right now. I would then sell all the bits for considerably more than the cost. Easy money for a smash and grab raider. Where are they?

Failing that, McKinsey might actually be able to help with a new, more dynamic strategy. The company is not in bad shape, despite what the market says, it just needs a new direction. And when it is seen to be moving ahead, guess what the share price will do.

[martinc] 25/10/2000 08:27

It's true that there seems to be no evidence of a forthcoming profit warning. It's also true that I've lost money on several shares in the past where the price fell for no apparent reason, and I kept holding because there was no evidence of anything wrong... and there was immediately a thumping profit warning and the shares plummeted.

There seems to be a chance that the 'excesses' we've seen may be the tip of an iceberg. The chance is unquantifiable, but it makes the risk/rewared ratio worse. Suppose there's a 5 or 10% chance that 'accounting irregularities' will be found by the new management. It makes me feel there are safer bets out there.

I'm holding some at the moment, but something in my brain is jumping up and down saying "sell, sell!" ... which is probably as good a reason as any for doing so, if only so that I feel less worried while I'm eating my cornflakes.

[chrisg] 25/10/2000 08:22

Hmm, interesting, but even he isn't selling, and as at the time I am writing this, there are more buy trades than sell trades today....

[pw] 25/10/2000 07:36

Short term the market is a voting machine, long term a weighing machine. This is the only reason I am in TOMKINS. The cash flow derived from companies is less variable than it's share price, that is beyond question. If you pick enough companies on these criteria you will general get a high return with a low risk. I can't tell you for sure which ones will perform within which time scale but I can point out glaring deficits.

If I had enough money I would buy TOMKINS halt the dividend and the purchase would have paid for itself in no time. I like that logic. If you look at similar cap companies there are none in the UK market that can claim to have cash flow in excess of £300m on this size of cap.

Kayak, I still think your position carries much more risk than mine.

BTW all, Nobody seem to calculate true total return including reinvestment of dividends? Why is that?

[clem] 25/10/2000 03:33

Moribund wouldnt be so bad, Ive made loads on those types. Hated is fine, I like loathing. Its management with a "sail the shareholders down the river" mentality I get nervous of.

When the fundimentals are good and the price is bad in comparison to the market, its a direct reflection on the management.

If anyone watched what Staveley did then you'll get my drift. Lets hope a predator starts circling. That might keep them focused on their current constituency.

On the upside, the sector has a rough median mkt cap of half turnover and TOMKs is 25%, suggesting TOMK is at a 50% discount. But the new management have only proven they can oust and get in consultants, so they will need to prove they can lead the company out of the woods. However needing to pay a shedload of money to get consultants to, at best check your map, (I suspect in reality to lend them an old one is more likely), is not a good omen.

It would please and reward me to be wrong.