There's been some worry about accounting treatment for development costs (capitalised) in old comments on this stock. Management would be better to drop it for the simplification it provides but it is not obscuring the economic earnings and is not a reason to get worked up on the stock. Its EBITDA impact is modest and if cash-flow is looked at the impact is very slight too and approx 10% reduction for 2015 FY. Sometimes this sort of accounting treatment gets in the way of economic assessment but I don't see why that is the case here...but I am very interested in someone explaining why I am getting it wrong.
It would be interesting to consider this company as a run-off. The company needs to disclose more information about its back book to do this well. They could also present this info in the discussion part of annual report. From available reported information my guess is that Quarto would appear attractive and generate enough cash to pay down debt and go at least most of the way to covering the current market cap (probably more).
Quarto is an annoying company. I think management whilst "honest" are fluffy and too cautious for their own good. Leaver appears not to like the balance sheet position of the company and its debt pile but is not brave enough in seeking a solution so leaves himself hostage to fortune. By not dealing with it more aggressively he leaves himself vulnerable should earnings be seen to take a dip. A rights issues aimed at getting net debt down to target level would be better than trying to walk the tightrope more...and then people getting anxious if debt reduction not delivered. Of course, there would be a wobbly response short term but, if the business is a good one, it would be short lived and closed out by value investors who no longer needed to worry about a messy balance sheet. The EV/EBITDA is low enough for this to make sense.
They are also annoying as they insist on having analyst meetings that regular shareholders can't attend. I suspect this is just stupidity and bad advice to them rather than they have something to hide. It is remarkable that this is permitted by FCA as obviously an element of non public information is generated (perception is information when dealing with…
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Mojomogoz
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