Zetar Share Discussion Threads

[cockerhoop] 01/3/2012 18:38

Talking of Easter - there's some massive discounting going on Morrisons doing 178g Cadbury/Kinnerton/Nestle eggs for £1 and Tesco doing 3 for £2.50. Looks like wafer thin margins.

[aleman] 29/2/2012 19:53

They've run up current assets last time (after running receivables down in April 2010) - receivables and stocks are high. The numbers come about from assuming they'll run them back down next time and use the cash generated to pay off debt. It seems simple enough, although one might argue that excess stock and weak sales can turn into a problem but, in the case of ZTR's relatively simple foodstuffs with low unit cost and ample demand, running down stocks may actually be a double bonus if it means reduced production costs for a half year which could temporarily boost profit margins and generate extra cash besides the receivables and stock conversion.

The underying trend for a couple of years has been a slow reduction in debt, obscured by seasonality and the recent rise in current assets to match the underlying organic growth, which Easter may have messed up. I think there is probably nothing to worry about if Easter is a blip and debt looks reasonably manageable considering the cashflow. I do not hold a position in Zetar but it's on my watchlist as it looks to be reasonably good value.

[theglade] 29/2/2012 17:18

Ay up Valhamos - I'm not mixing up anything

I'm simply stating the level of debt as per the finals and the interims, without adjusting, without netting, without guessing, without Edison, without emotion. They are not my figures exaggerated or otherwise, they are the audited figures from Zetar's account.

Here we go again:

Oct 2011 debt £29,000,000
Borrowings and overdrafts 24,946
Borrowings long term 4,084

Apr 2011 debt £20,600,000
Bank overdraft 14,509
Debt due within one year 1,586
Debt due after one year 4,536

Oct 2010 debt £28,000,000
Borrowings and overdrafts 22,592
Borrowings long term 5,327

Apr 2010 debt £15,200,000
Borrowings and overdrafts 12,885
Borrowings long term 2,290

Here are the same figures again less cash at bank

Oct 2011 net debt £24,400,000
Borrowings and overdrafts 24,946
Borrowings long term 4,084
Cash at bank 4,650

Apr 2011 net debt £16,300,000
Bank overdraft 14,509
Debt due within one year 1,586
Debt due after one year 4,536
Cash at bank 4,282

Oct 2010 net debt £25,800,000
Borrowings and overdrafts 22,592
Borrowings long term 5,327
Cash at bank 2,089

Apr 2010 net debt £11,000,000
Bank overdraft 12,885
Borrowings and overdrafts 2,290
Cash at bank 4,257

>>>>>

Worse still, in my previous post I said £19m debt it is actually £20.6m and owed to banks £27m is actually £29m

So Edison are forecasting a drop in net debt from £16.3 to £9.1 some £7.2m - then go on to say next year end debt will be only £6.5m - I don't understand, this year a reduction of £7.2m, next year only £2.6m, does not make sense to me - the fact that Zetar commissioned the Edison report is by the by.

This year the share price has declined from £2.00 to £1.73 - they have too much debt, plain and simple.

I can no more predict the April 2012 debt than I can predict the FTSE, let's all wait and see :)

[valhamos] 28/2/2012 21:33

TheGlade

You are mixing up net debt and gross debt.

If you care to look at the Edison Report (blobby posted the link a few posts previously) the forecast of £9.1m is for net debt (the forecast gross debt is £14m)

Zetar are saying that net debt remains in line with current market expectations. The choice we have to make is whether Edison's £9.1m or your rather exaggerated £27m is closer to the mark in terms of what represents current market expectations. But I'd go for the Edison figure.

[blobby] 28/2/2012 11:18

Hi TheGlade,

The I think net debt must vary throughout the year. For example Edison say "Our forecast for year end debt is £9.1m, reflecting the unwinding of working capital post the Christmas delivery peak.".

If you agree with this where does that put your valuation?

[theglade] 27/2/2012 14:00

"net debt remains in line with current market expectations"

so no reduction then! still £27 million +

knock out the intangibles - they have a net worth of £15 mill ish - market cap is £24 mill -

current share price nudging along a two year low

share price too high for me

[crawford] 27/2/2012 11:49

Slightly disappointing update, but it is a buy for me at these levels.

[theglade] 24/1/2012 21:12

So we can all read from the same hymn sheet - can we at least agree on the level of bank debt at the April finals and October interims without adjustments, without netting?

April 2011
Bank overdraft 12,923
Debt due within one year 1,586
Debt due after one year 4,536

October 2011
Borrowings and overdrafts 24,946
Borrowings long term 4,084

now compare that with Oct 2010
Borrowings and overdrafts 22,592
Borrowings long term 5,327

not a lot of difference 2011 v 2010 - not only too much debt, but it is all short term. - These loans are financing £25 mill of stock, as "yddefr" states "they have no working capital"

Having said that, I think the products have a very promising future, alas the management ....

[ydderf] 24/1/2012 19:39

? Crawford - where does £9m come from:

"Net debt for the Group at the period end was £24.4m, a year-on-year reduction of £1.6m (2010: £26.0m), continuing its good progress in reducing debt levels. Furthermore, the underlying improvement is approximately £2.6m given the fact that over £1m has been invested in relation to the acquisition of Derwent Lynton (including reorganisation costs). The level of debt at the half-year occurs just after the seasonal peak for indebtedness which arises primarily due to stock-build in advance of Christmas. Debt levels unwind during the second half."

...and the business is not viable without these loans?

[crawford] 24/1/2012 18:52

ydderF,
year end debt of £9m is not excessive.

[ydderf] 24/1/2012 18:27

well this is 2012 and increasingly, the question "how will debt be repaid?" is going to be asked of businesses chronically in debt - this company is being run on debt and could not exist without it. Also there is no prospect of the debt being repaid out of earnings and cash-flow.

20 million is a lot of dosh for a 23m market cap food business with hardly any tangibles.

this is why they can't pay a decent divi - the eps are apparently there but because of mainly borrowed working capital the company can't afford to share them with shareholders, so why bother?

[horndean eagle] 24/1/2012 18:13

TheGlade,

I think your debt figures are misleading. Net debt after netting off cash would have been circa £13m had Easter fallen at a more normal time in the calendar. You seem to have your dates mixed up as well. They are reporting interims within 3 months of the reporting period. Not particularly unusual especially when you consider holiday periods in December.

[theglade] 24/1/2012 17:51

Horndean

Not sure I agree, with your working cap low point view.

Last Accounts to April 2011 - show overdrafts at £14.5 mill and £4.5 mill long term borrowings - which is costing them more than £1 mill in finance costs.

Looking at the interim's Oct 2011 (how can it take 4 months to produce un-audited interims? never a good sign) but they plainly state:

"Group revenue for the six month period ended 31 October 2011 of GBP61.8m was 2.4% greater than the prior year (2010: GBP60.3m) - hardly stellar, does not even cover inflation at 4%. (please don't mention their adjustments)

But the part I really find worrying is in the interims, they use the word "Adjusted" 37 times.

On the face of if 13,238,695 shares in issue - share price £1.70 = Market Cap £23 mill - not bad value but with low growth, debt, I'll hang back for the time being.

[blobby] 24/1/2012 16:39

Good write up here:



Confirms my initial reaction of "solid". Very good value at this price.

[horndean eagle] 24/1/2012 15:25

ydderF

Your being a bit harsh. Debt at period end was high but its the high point for working capital whereas at the finals it is the low point. Its manageable. There are plenty of tangible assets. NTAV is circa 17m versus market cap of 25m. Its a solid business that will churn out x million a year in profit.

[cb7] 24/1/2012 14:49

I tried to explain that its cheap eps rateing is illusionary. The goodwill is probably from takeovers above their net asset value.

[ydderf] 24/1/2012 14:25

something wrong here....sure it has a low pe, but the debt is high, there are few tangible assets, the goodwill is presumably brands but who ha sheard of them?

why no interim divi after such a song and dance about resuming divs in the finals?

so what if there are cheap eps if none of the benefits get onto the hands of the shareholders

share price today seems to wonder this too?

any ideas?

[horndean eagle] 24/1/2012 11:56

Would have been happier had the company reduced debt further. Also seems to be far too much spent on capex on a regular basis and am wondering whether it is actually cost effective. Company needs to work much harder on reducing both working capital and inventory. Wonder whether management might fancy a crack at an mbo with the rating as it is.

[cb7] 24/1/2012 11:55

with that amount of debt it will not get to 350p, or anywhere near. If I was to buy the firm for 180p today it would actually cost me around 370p in total, including all that debt. To my mind then, its already valued at around 350 now, which is a p/e of 9....

[crawford] 24/1/2012 11:19

The Glade,
the debt level is manageable and coming down. It would have fallen more only for the restructuring costs needed to bed in last years acquisition.

The other thing about the debt - at the interim stage the debt level is highest as the company ramps up for Christmas - it falls thereafter.

I think they will likely look to rebuild margins in the snacks side which although recovering is historically low.

I think this is a good company doing the right things but consumer sentiment is clearly poor and out of the companies control. I like their expansion strategy into France which is low risk.

Liberum has retained their 350p price target as below today:

Date Broker Recommendation Price Old target price New target price Notes
24 Jan Liberum Capital Buy 177.50 350.00 350.00 Retains

[theglade] 24/1/2012 10:56

Good post Crawford - but what you think about the level of debt? - I came across ZTR as I read that the manager of the Old Mutual Smaller Companies, it is one of his biggest holdings

[blobby] 24/1/2012 09:35

Looks very solid to me. Starting a dividend makes sense and I'm sure this will be recognised by the market eventually.

[crawford] 24/1/2012 09:29

Strange that anyone would sell on the back of these results. Anyway, it's swiftly recovered.

Sure, Easter looks like being slower that previous years and Christmas trading was bizarrely described as 'satisfactory' which isn't really the description I was hoping for!

But at the current price, it does look undervalued IMHO.

[crawford] 24/1/2012 07:23

Outlook



The Group had a good first half and is confident that its major strategic initiatives for profitable growth remain on track. Despite the pronounced fall in consumer confidence during the late Autumn we had a reasonable Christmas but our customers' ongoing caution about consumer demand has so far resulted in Easter orders being confirmed at lower levels than last year.



The Confectionery division will continue to focus on growing sales of everyday products and the Natural Snacks division will refine and extend the distribution of its added value and healthier product range. In January we reinforced the commercial team of the Natural Snacks division with the appointment of a new sales director and two additional national account managers which will enable us to increase the pace at which we rollout the brand and added-value product portfolio.



The Group's portfolio of brands has been extended with the addition of Tango, under licence with Britvic, and we will shortly be launching a range of orange-flavoured chocolate products. Both divisions will benefit from the recent signing of a new licence with Diageo to utilise the Guinness brand for a range of chocolate and savoury snacks.



As we approach next financial year the Group can look forward to some incremental sales in respect of Kinnerton's London Olympic licence for souvenir biscuits and nuts and, through the formation of our French subsidiary, also additional export sales in France and Belgium.



We remain positive of the Group's business model and into next year we anticipate further progress extending our brand portfolio, increasing third party business and implementing targeted cost efficiencies. The Group's debt continues to reduce and its stronger financial position will enable us to capitalise on future growth opportunities.