Watermark Share Discussion Threads

[spaceparallax] 24/4/2006 11:29

Cheers guys, share price seems to be on the move a little today. Clearly, a few key players have been keenly accumulating shares over the recent lull.

On the matter of buy-out, I wouldn't moan if the price is right, but my preference would be to resist and let what seems a very sound outfit have their chance to succeed - they appear to offer good product that is likely to excel even in difficult market conditions. In fact, if they can survive whilst others fold, then things should relent.

[rivaldo] 22/4/2006 15:26

From Charles Stanley's web site - the JAL deal is adjudged a winner:

"Watermark Group Share Price: 123.5p Market Cap: £54.8m (WMK.L) We last wrote on WMK on 10 April when we gave a no recommendation opinion at 124.5p, because we considered that there was unquantifiable upside if a bid materialised and downside if it did not. Following the announcement of the acquisition of the catering business from JAL, we consider that the downside risk has been significantly reduced and the possibility of a bid at a reasonable premium to the current share price has increased. We have therefore changed our recommendation to Hold. Although our opinion is Hold, speculative trading clients might consider purchasing the shares.

Acquisition
WMK's subsidiary Air Fayre (AF) has acquired ICL the in-flight catering subsidiary of Japan Airlines International (JAL) for a consideration of only £1! As part of the agreement, WMK has, in addition, paid the proceeds of a sales an lease back of the freehold property less some adjustments to JAL, which we understand accounted for most of net assets. This will leave the Group with some net assets from the transaction which will be accounted as negative goodwill. ICL has some 11 customers of which JAL, Singapore Airlines and Thai Airways were the largest. ICL reported a small loss for the year to December 2005 on sales of £19m.

The business model is likely to be changed to that of AF. AF is in reality a logistics operation. It has a substantial facility including cold storage at Heston, close to Heathrow. It outsources food preparation to major supermarket suppliers. This is then delivered to its facility for distribution to the aircraft of its clients. By using this model (against owning its own kitchens), it can cut costs to its clients and make a decent return on sales. AF has considerable spare capacity at Heston and it is possible, but not yet decided, that the ICL business could be moved there.

We expect considerable reorganisation to take place and therefore there may be further exceptional costs this year. However there should be a substantial contribution in 2007. If we assume that AF can earn a net PBT margin of 8%, then the new business would add £1.5m to 2007 profits, equivalent to fully taxed and diluted EPS of marginally over 2p per share. That, assuming no change in other underlying profits, would raise clean 2007 EPS to around 13.5p per share.

It is for that reason, that we consider the downside risk, if the putative bid were not to arise, has been reduced. We also consider that the possibility of a bid above the current share price has increased as potential private equity buyers will have now seen that at least one major airline has been willing to enter into this type of transaction.

In our last comment, we gave various target prices based on EBITDA multiples. If we assume that this contract will add £1.5m to profits and that an EBITDA multiple of 5 is applied then the increase in the equity value would be £7.5m or over 15p per share. We have used 5 compared with previous multiples of 7, 8 and 9 as the additional profit applies to next year and should be discounted. The adjusted share value on multiples of 7, 8 and 9 could now be 125p, 143p and 161p respectively. But there is no guarantee that a bid will arise, or at what level. Those numbers are given for illustrative purposes only."

[vassily] 22/4/2006 03:32

SP:
The IC isn't that hot, you're right. One classic example is UKCoal. They tip the share right before the dividend is chopped by a whopping percentage. Their inside knowledge isn't always great. I think with WMK they just looked at airline industry and oil prices and made a decision that 'sell' was appropriate.
V

[spaceparallax] 21/4/2006 21:24

Don't forget that Growth Company Investor retained a positive stance on Watermark - whilst I subscribe to both, I would rate GCI significantly higher.

[stemis] 21/4/2006 16:56

They're probably in league with the Investors Chronicle. The IC spook all the PI's into selling their shares and SVG/Strategic Equity hoover them up without having to raise the price.

[rivaldo] 21/4/2006 15:41

LOL! SVG and Strategic Equity are competing with each other to buy shares...SVG have now added another 655,500 shares themselves - that's 1.25m between them in today's RNS's:


"Watermark Group plc was notified on 21 April 2006, that SVG Capital plc and SVG Investment Managers Limited together have a notiable interest of 3,878,000
ordinary 1p shares in the Company, which now represents 8.7% of the issued share capital of the Company. The shares are held in the name of HSBC Bank plc."

[vassily] 21/4/2006 14:35

Rivaldo:
Thanks for the insight on the shareholders' percentages. Interesting.
V

[spaceparallax] 21/4/2006 13:15

Hi Riv,

I was very pleased to see the RNS - what a vote of confidence.

With the recent acquisition, everything looks rosy to me - a gateway opened to the more lucrative o/seas market and the whiff of a buyout/takeover. Presumably, the acquisition will strengthen the Company's hand in negotiating a decent premium, should that situation arise.

[rivaldo] 21/4/2006 11:03

Strategic Equity now have 7.93% and have increased by 600,000 shares! And AXA have top-sliced by 33,000:



Strategic Equity and SVG now own 15.43, so they obviously think there's value here one way or another.

Amazing really - the 10 shareholders with holdings over 3% plus directors own over 80% of WMK between them. It's not surprising the price is quite volatile with such a small free float, but it's also hardly likely that WMK will be let go for a song given the institutional holdings imo.

[vassily] 20/4/2006 15:40

The oil price does not seem to be weighing so heavy on this stock.
Where is Made1066? Will we see 1 pound in May?

[loparmel] 20/4/2006 15:34

So what causes a stock to quickly appreciate in value? Fundamentals? News? Management? Well yes, to a degree. But what REALLY moves a stock price northward that you just purchased?
Answer: A Huge volume of buyers having been directed to the emergence of that stock by a qualified service which has a reputation for doing so. THIS service does:

[vassily] 20/4/2006 15:25

Any ideas on if or when an offer for company will come?

[vassily] 18/4/2006 14:11

johndoew:
Thanks for the above. This looks postive. The big money is still showing interest.
V

[simon14] 13/4/2006 18:59

The deal to buy ICL would not have been done without cast iron guarantees and unbreakable contracts,and has clearly been done for the benefits of scale. There have in the past been many comments along the line of ``any further catering contracts will feed straight to the bottom line``.

[jaypea] 13/4/2006 16:53

jd

maybe, I think the 100k is more likely to be a buy...I could have bought at that today though not that size! Fact is EPT notices have been flying(sic) all over this stock with sale notes since the results & the share price has moved what 5%..?
This isn't a traders share, its been forgotten by the market but will be re-discovered & that's when the long termers reap the reward. I can be patient when the Company fundies are sound with good strategy & management...and they are..!!! well thats my 2p.

Have a good Easter break all

[johndoew] 13/4/2006 16:08

That's 3 major sales today - 2x 118k plus a dodgy looking 100k sale. Someone is offloading big time, but thankfully the share price has not reflected this. I wonder if MO needs to fund another holiday?

[rivaldo] 13/4/2006 14:56

Not any more - starting to tick up now. Jaypea is right, this was a deal which had to be done, takeover or not, as it was too good to miss out on.

Interesting to see if broker verdicts and targets are changed by this. There should be clear earnings enhancement next year as per the RNS, and also some upside this year.

[johndoew] 13/4/2006 14:43

For those who bought in at 155p when the cash was raised for the Airfayre purchase, there would seem to be a long wait. Each time JC comes round the City the price goes up on his bullish outlook, and then when he's out running his company the price just drifts.

[jaypea] 13/4/2006 14:39

possibly because they didn't know it was coming!

mind you, neither that sale or announcement seem to have caused even a ripple in the sp!!

I'm pleased with this aquisition,earnings enhancing this year..? thats good going by aquisitional standards, sure ur right SteMis, JC will have some clear synergies planned.

I'm getting a feeling their expansion plans aren't waiting for PE money....until the deal that needs it of course. Hopefully the share price will have moved on a bit by then.

[vassily] 13/4/2006 14:32

JohnDoew:

Uhmmm. Who knows why 118K share were sold at that point. Mr. Market seems unmoved by any of the news, as you point out. Not keen on the further dilution of share value, but hey, this was probably already in the current price and then some.
It's funny. If you go back a few years, (positive) news like today's announcement would have driven WMK up 20p or so. How times change.

Edit: the addition of Singapore Airlines and Thai Airways is good news. These companies are widely respected and well run. Having just met a Singapore Airlines pilot the other day I can say with some authority that SA are VERY keen on cutting down costs. They may, therefore, find WMK a good fit and who knows where that might lead.

V

[johndoew] 13/4/2006 14:21

Obviously not seen as a good acquisition by the city

[johndoew] 13/4/2006 13:47

And why would someone sell 118k shares just before the announcement?

[stemis] 13/4/2006 13:01

Looks like a good acquisition which adds substantial scale to the exiting Air Fayre operation and takes Watermark into new clients. I would imagine there is substantial cost savings to be made from merging the two operations.

[rivaldo] 13/4/2006 12:57

Well, that's a turn-up :o))

If I read it correctly, for £6.9m cash WMK get:

- £16.2m of assets
- £19m of annual sales
- 11 new clients
- loads of cross-selling etc

Bargain.