Work Group Share Discussion Threads

[stemis] 31/10/2009 10:17

I thought this was the WORK board ;-)

However since there is so little to write about WORK.............

I don't think there is one magic formula which can unequivocably differentiate between good and poor value.

I like P/E, Taxed EBIT/EV and EBITDA/EV. TNAV can be interesting but I'm a bit sceptical on the basis that the balance sheet is just that; to balance entries to the P&L not per se a measure of the independent value of assets in the business. I'm also sceptical of cashflow per share. Its very volatile and depends if the company is investing or not. The idea that capex is discretionary is a bit laughable really.

The issue of net cash is an interesting one. As someone whose worked at a senior financial/non financial level in companies for most of my working life, I can tell you that manipulating net cash ain't so hard (in the short term anyway). I do look at other working capital but don't have a specific adjustment for it. The interest figures can be a good give away. At the moment there are some on TMF who are recommending Carillion, noting its low debt - £160m or so. However look at the rest of its working capital.

[wilmdav] 31/10/2009 08:18

Des

I can't do justice to your post number 60 without consideration of its contents against a series of examples. I probably average 2 analyses of new stocks per week, more if post-results updates are included. I will come back to you on the subject in several weeks time via the TMF off-board facility.

[wilmdav] 30/10/2009 12:04

Thanks for that Des. I will have a closer look at it this evening. I'm currently rather cought up with researching a share that wouldn't interest you at all! Also gloating over a 10% leap in my largest holding (LLPC).

I am also gradually discovering the advantages of deeper analysis of company accounts.

As for smell. I reckon that's another name of perceptions that one has not got round to verbalising. You probably could if you set your mind to it but why bother if you trust what you sense?

[deswalker] 30/10/2009 10:29

Yes, I don't use purely (tax adjusted)EBITDA but

a*PBT + b*InterestPaid + c*Depreciation + d*Amortization

where the weightings a,b,c & d are adjusted to handle:

- my feeling of the effective "cash tax rate" in the case of "a"

- my respective feelings as to the importance of the other measures. For instance I like amortization (esp combined with a discount to NTAV) as this is pure cash, but not depreciation so I tend to add back a full whack of the former (d=1) but only a smaller percentage of the latter (c=0.4 at the moment in my models). I don't add back a full whack of the interest either.

I really do believe my version of Net Cash is worthy of adoption. I look at lots of shares where people are peddling them say they are Net Cash but detailed figures do not bare this out.

A good example is GFRD. I sold at a nice profit when it first touched 58p a few months back. At the time it was claiming a big Net Cash balance but the interest paid and my version of Net Cash showed this not to be the case. I was selling when others were buying and it has proved to be a great call. If they had so much Cash why did they need a Rights Issue. It is now trading at an adjusted share price of about 44p when the market has been strong since I sold. I now notice it is getting recs on the Value Shares List board but it only looks like very light value to me even at 44p. People are too seduced by its claims of Net Cash without looking under the surface IMO.

My version of (tax adjusted)EBITDA / EV combined with NTAV forms much of my investment decisions. The rest is smell (Register, Management, Product, Macro).

Des

[wilmdav] 30/10/2009 08:57

Des

I attach less weight to asset values than you. But it can't be denied that cash and debt levels have been crucial factors during the past 18 months or so.

I do check for a deficit between receivables and payables, admittedly present in Vislink's case. There might be an element of seasonality involved as the difference tends to reduce in H2. At least, it has over the past 3 years.

Your own treatment of net cash goes further and strikes me as worthy of adoption.

I pay more attention to EV/EBITA(tax adjusted) than EV/EBITDA on the grounds that it provides a more meaningful comparison to p/e ratio. No doubt the latter has advantages but they have not yet seeped into my conciousness.

With regard to R&D, I think IFRS stipulates that it has to be split between balance sheet and income statement. Presumably the balance sheet takes the bit considered to add long lasting value and the income statement the bit that doesn't. Where's SteMiS?

[deswalker] 29/10/2009 20:33

I don't really blame you for balking at the spread. I managed to get 38k at 10p but I'm not chasing it for any more right now.

Thanks for the comment re SUN. I read your piece on Vislink but have decided to pass for now for three reasons, all linked to the Balance Sheet (which is always my starting point).

1) NTAV is very important to me.

2) I use Net Cash = Cash - (Total Liabs - Trade Payables). For some companies this is close to the quoted Net Cash number but for others is further away due to things such as deferred tax liabs, provisions, pensions etc. For VLK at 30/6/09 we have ...

Net Cash = 9,975 - (23,200 + 12,901 - 21,650) = -4,476 versus a quoted number of 3.1mill when one only includes interest bearing debts.

3) Even on their own measure of Net Cash, the recent IMS indicates a move to 2 mill of Net Debt.

So if I apply a similar adjustment to this figure to the one required on 30/6/09 I should subtract about 7.5 mill leading to my estimate of current net debt (according to my defns) of about 9 - 9.5 mill. This clearly bulks my calculation of EV by more than one might wish.

Maybe my reading of this type of Balance Sheet is too conservative, but that's how I like to do things.

However, the EBITDA side of the equation looks much much better especially if the development costs appearing in the P&L are discretionary (cf SUN), but that hasn't been enough to get me past the three points above. For now that is ...

Do you know why they capitalise some R&D expenses but not all of them ?

Des

[wilmdav] 29/10/2009 17:47

At the time, anyone else had to pay 12p, which I baulked at with a 3p spread. Following the EBT buy we were asked to pay 13p on a 3.5p spread (back to 3p now but still 13p to buy). Funny old game.

Excellent write-up on SUN on TMF by the way.

[deswalker] 29/10/2009 12:06

EBT buys the mill at 10p

[battlebus] 28/10/2009 22:08

Yeah mine too. Market seems to be in retreat for a while. Tried to buy after the rise and nothing doing under 13p even for 500 shares.

[foodcritic] 28/10/2009 20:28

My only one blue today!

[battlebus] 28/10/2009 18:39

Large trades today and a little tick up, all looking good.

[battlebus] 22/9/2009 18:05

Well atleast we are heading in the right direction 12p for only 1000 shares.

[battlebus] 22/9/2009 07:53

Yes pleased to see no nasties, We should see a steady return to business in line with the slow down in the recession. Europe loooks good and to make a small profit in the uk shows the skills of the management team. What will the market make of the results as they are surely undervalued we will see.

[foodcritic] 22/9/2009 07:37

Yes happy with management of this company, sensible and pragmatic approach will payoff in the next year (or 2).

[stemis] 22/9/2009 07:28

Results out.

Breakeven, before exceptionals, with net cash remaining around £1.5 million (compared to market cap of £2.5 million). Key is defending balance sheet and capacity to deliver service during these tough times. Once markets recover upside should be considerable.

[foodcritic] 22/9/2009 06:55

Yes hopeful here also, we will see in 5 mins.

[battlebus] 21/9/2009 21:42

Nearly forgot results tomorrow. Hopeful of signs of improvement.

[battlebus] 15/9/2009 20:24

Yeah lots of these trades are reported historical trades ie date not correct. Some that i have bought didn't show for two days anyway all good if someone is willing to buy at a premium. In 18 months 12.5p will seem very cheap.

[foodcritic] 15/9/2009 20:11

Again today bb, one sell on plus of 14,860 shares this morning for 8.5p and a buy of 24000 after hours reported at 12.5p!

Edit.... the sell was yesterday!

[battlebus] 12/9/2009 00:11

What a difference a couple of hours make. One buy at 9.5p which could have been 20000 shares and reported after close a 14860 buy at 12p. A mere 33% difference.

[battlebus] 11/9/2009 15:44

Well my broker spoke to mm first thing and got a quote of 9.5p for 20000 which i didn't buy expecting this to fall lower. Haven't checked since.

[battlebus] 11/9/2009 15:42

Well my broker spoke to mm first thing and got a quote of 9.5p for 20000 which i didn't buy expecting this to fall lower. Haven't checked since.

[stemis] 11/9/2009 10:53

Well both Morgan Stanley and Brookwell (managed by Progressive AIM realisation - who pick up lots of illiquid shares from insitutions) have been recent sellers and may well have some stock remaining. It's hard to say, both are below 3% now, but I find it hard to believe they've shifted the whole lot.

The shares are pretty tightly held. Moulton owns 17.3%, Octopus 9.4%, management 13.4% and the Employee Trust 9.3%. There's also 3 other institutions who seem to own 17.8%. That's 67.4%.

[deswalker] 11/9/2009 10:15

SteMiS,

There's no seller that I can see. Selftrade just spoke to both mms for me this morning and neither has any stock that they're looking to shift. I could have paid 10.5p for 27k with one of them but passed. The other wasn't interested at anything less than 12p.

I think the results will surprise a little to the downside. Recent outlook statements in the results of other recruiters have been on the disappointing side IMO and I suspect we may see something similar here. But that doesn't mean that the share price won't react in the opposite direction. This bull market seems to be ignoring bad news at the moment IMO.

Having seen SRG get taken over and after selling quite a big slug of HVN on the recent spike this is my only recruiter, and I've only got 38k at that.

Des

[stemis] 11/9/2009 09:35

I guess we know what we are going to get at the interims - a largely breakeven position and £1.4 million in the bank. No particular reason for that to lead to any increase in the share price. There's clearly seller(s) around but with such a bid offer spread you aren't going to get traders coming in for a quick buck.

Market cap is £2.4 million at 8.5p, so £1 million for the business. The business turnover is around £15 million and made the following operating profits:- 2005 2006 2007 2008
EBIT 1.4m 2.5m 3.2m 1.1mDraw your own conclusions.