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Regenersis: Holding reduced!

Wednesday, Jan 30 2013 by
2

Regenersis (LON:RGS)  (176p and 2% of JIC portfolio). During January I met the management of a number of interesting small and mid cap companies, some of which I will comment on in the next week or so. I am starting with Regenersis as I have bought a holding in the company this morning. I was impressed with the management and with the strategy, which if executed successfully should lead to further substantial profit growth in the next few years.

Regenersis mends electronic items such as set top boxes, mobile phones, tablet computers and cash machines. Its clients include Apple, Orange, Virgin Media, Nokia and Samsung. Growth in the business is being driven by geographic expansion, increasing the range of items they repair and by innovation. An example of innovation is its new "infield testing service" which is being rolled out with Virgin Media and an unnamed US company. It is a portable set top box testing unit that hugely increases the number of repairs that are achieved on site thus saving the considerable cost of sending the box back to a central repair facility whilst also improving the customer service experience. It has moved into new territories with acquisitions of Anovo, the Swedish market leader in mobile repair and HDM, the Spanish market leader with facilities in Argentina, and Mexico. In the last two years it has also opened repair facilities in S.Africa, Turkey and Tampa, Florida. Outside the UK it already has operations in Germany, Poland, Romania and Russia. Margins tend to be quite a lot higher in the newer markets than those achieved in the UK, Germany and US. In many of the new territories it has scope to mirror its UK offering by expanding the range of services it provides from what in most cases is currently just mobile repair.

I was impressed by the management team, led by Executive Chairman, Matthew Peacock, who is a turnaround specialist and whose vehicle Hanover Investments LLP has a 22.49% stake in the Company.

Conclusion

In the year to June 2012 the Company grew turnover by 13% and earnings per share by 17%. On the back of these good figures the shares have performed extremely well, virtually doubling since September. It would be easy to think one has missed the boat and dismiss it but I think it is still has good growth opportunities and that the shares do not reflect this. Consensus earnings forecasts for June 2013 are for 40% growth in earnings to 15.75p, followed by 20% growth to 18.95p to June 2014. The shares are valued at 11.2x June 2013 falling to just 9.2x June 2014 and in my view upgrades to these figures are likely. The balance sheet is strong with little debt and in the last financial year, under Matthew Peacock it improved its cash generation and the return on capital employed rose to 68% from 56%. Whilst this is a business that is unlikely to command high margins the current market cap to sales ratio of 0.45 also looks attractive given the improving profitability of the business.

I have bought a 2% holding which I have funded by realising some profits in Quindell (holding reduced to 5%) and Igas (reduced to 1%). I have also cut the holding in Findel to 1.5% as it has hit my stop loss level. I have not sold it all as I suspect that the sell-off since last week's trading statement may be over done, so will observe over the next week. (see Transactions)

www.JohnsInvestmentChronicle.com


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On 1st January 2012 I set up the JIC portfolio with £151,110 cash.Under "Transactions" you can see how it has been invested, "Portfolio" shows the current portfolio and my approach to investing is described under "About Me". A history of all my postings can be found under "Company Blogs". Most… ...read more or visit website »


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"The investments and any other products mentioned in the johnsinvestmentchronicle website should not in any way be considered advice to buy or sell anything. Any information on the website is given in general terms and does not constitute personal advice to any individual. Readers are responsible for developing and applying their own strategies based on their personal circumstances and furthermore readers should obtain independent financial advice from an FSA regulated intermediary before investing money. Information or views in older blogs may become outdated and should not be relied upon unless confirmed by recent comment." "johnsinvestmentchronicle takes every care to ensure that the factual information on its website is accurate but cannot guarantee this."


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Regenersis plc is an outsourcing partner to the global consumer technology companies. The Company specializes in a range of after-sales services, which include product repair enabling its clients to deliver service to their customers. Its depot services consist of same day warranty, non warranty repair and refurbishment, together with returns management and warranty claim management. Its associated services include information technology (IT)/ systems integration, supply chain management, reporting and analysis and warranty provider compliance. Its aftermarket services consist of screening, diagnostic, automated testing, contact centre services, vendor management and insured device servicing. It operates in three segments: Emerging Markets, Western Europe and Advanced Solutions. The Company is a repairer of electronic consumer products in Poland, Romania, Russia, South Africa, Turkey, the United Kingdom and Germany. In August 2012, it acquired HDM Group of Companies. more »

Share Price (AIM)
340p
Change
21.0  6.6%
P/E (fwd)
16.3
Yield (fwd)
1.5
Mkt Cap (£m)
252.1



  Is Regenersis fundamentally strong or weak? Find out More »


12 Comments on this Article show/hide all

topwatcher 31st Jan '13 1 of 12
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While this stock has shown an excellent return in the past year, caution should exercised when evaluating future prospects.

Much of the financial improvement has come from two areas which require further investigation: (1) by loading cost into exceptional items; (2) by acquisition.

Exceptional costs have been driven largely by a restructuring of UK operations, which has left a business that looks weak compared to competitors. The UK operation is losing business to the likes of Anovo and SBE, and the relationship with DHL has never shown signs of achieving the momentum that was once promised. There appears to be no strategy for growth in the UK, which is a sophisticated market and this suggests a lack of innovation.

Acquisition strategy appears to be mixed. The acquisition and restructuring of Anovo Sweden always looked questionable and seems to have been plagued with operational issues, which there may well be no recovery from. Other acquisitions have grown the company's contract and financial base, but as yet there are few signs of improved synergies across the group.

Expansion into green-field territories does not appear to have been wholly successful either. The operation in South Africa has been riddled with issues - deep client dissatisfaction, coupled with very worrying financial performance.

On the plus side, the investment in automated testing of set top boxes shows promise, and if the technology is properly executed could be a key driver in squeezing further profit growth.

In summary, strategically and operationally there are many concerns about Regenersis. Market communications are significantly better since Hanover's involvement, but a deeper analysis shows that caution should be exercised. One to watch carefully.

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johnrosier 5th Feb '13 2 of 12
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I think you make some valid points on restructuring of UK operations etc but I think that was to be expected from the new management under Peacock. The strategy of building the business in emerging markets where margins are higher (at present), seems to make sense but I guess time will tell. Whilst you say that caution should be exercised I take some comfort from the valuation which does not seem overly stretched, although I agree, I would not want to see any earnings slippage. John

Website: JohnsInvestmentChronicle
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johnrosier 4th Mar '13 3 of 12
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Regenersis ( 182p and 3% of the JIC portfolio); Results for the 6 months to the 31st December 2012 are due next week on Thursday 14th March. I bought a 2% holding on 30th January; my reasons for doing so can be read under the Company Blogs tab above. I have added to the holding this morning, taking the position to 3% in expectation that the Company will produce a good set of results and provide a positive update. (See transactions)

Website: JohnsInvestmentChronicle
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johnrosier 14th Mar '13 4 of 12
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Regenersis (192.5p and 3.4% of JIC portfolio) issued a strong set of interim results for the 6 months to 31st December 2012. Revenue was up 29% at £90.2m, operating profits up 21% at £4.6m, earnings up 18% to 7.96p and an interim dividend of 0.67p was declared. Cash flow improved to £3.8m v £2.7m in the prior year. The Company highlighted the strength in its Advanced Solutions division which saw revenues rise 73% and operating profits more than double.

Its In-Field Tester units, which I mentioned in my 30th January posting were rolled out to Virgin Media with royalty payments commencing in December. Recurring royalty revenues are expected from the US during the second half. In order to capitalise on the growth opportunities in North America it has centred its sales and marketing operations in the US and has hired a new Group Sales and Marketing Director who also has a remit to seek out suitable acquisitions.


Conclusion: The outlook statement is positive with the Company clearly stating that shareholders should not have to wait long for news on acquisitions and new contracts. I think the management team, under Executive Chairman Matthew Peacock is strong both operationally and strategically. On 12.2x consensus earnings forecasts to June 2013 for 20% growth and 10.1x to June 2014 for a further 20% growth, allied with a strong balance sheet, the shares in my view are still good value. I would also expect to see earnings upgrades as 2013 progresses. Very Happy Holder!

Website: JohnsInvestmentChronicle
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johnrosier 19th Apr '13 5 of 12
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Regenersis (192p and 3% of JIC portfolio) has acquired South African set top box repairer Landela Electronics for £1.5m cash. Landela's key customers have 90% of the South African satellite TV market as well as operating in 11 other African countries. There should be good growth opportunities as market penetration of satellite services in South Africa is only 28% but is growing in excess of 10% per annum. Regenersis expects the acquisition to be accretive to earnings in the year to June 2014 and by introducing its proprietary in-field Tester units should create efficiencies and financial savings for its clients. Regenersis also expects this acquisition to provide a platform for growth throughout the continent.


Conclusion: This acquisition fits in nicely with the Company's strategy of growing the business in new markets , where not only is there faster growth but enhanced margins. The shares have been a little quiet for the last couple of months, tracking sideways since the middle of February. The shares look good value to me given the growth forecast over the next few years, a sensible strategy and excellent management. On consensus forecast the shares are valued at 12.2x June 2013 (40% growth), 10.3x June 2014 (18% growth) and 7.5x June 2015 (38% growth). Happy Holder! May add!

Website: JohnsInvestmentChronicle
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johnrosier 10th Jul '13 6 of 12
1

Regenersis (210p and 2.0% of JIC) has issued a trading statement for the year ended 30th June which is encouraging. whilst t says that results will be in line with expectations it also says that cash flow management has been good to the extent that net debt at 30th June was considerably better than market estimates. It also makes the point that it has achieved in-line trading results despite considerable foreign exchange headwinds that impacted the translation of overseas earnings. The best performing areas vindicate the management's strategy of focussing on higher margin emerging markets and value added areas such as In Field Testing.

The Executive Chairman's outlook statement is upbeat; "Our ongoing strategic development, investment in senior people and continuing good results underpin the Board's expectation for further double digit growth next financial year and beyond."

Conclusion; The shares have been a little lack lustre in the last month or so slipping back about 8%x% from a high of 228 in May to the current 210p at which it is valued at 1.4x June 2014 forecasts for18% growth and 8.2x June 2015 for 38% growth. Given these growth rates and the current valuation, I think the shares have potential to make further good gains in the year ahead. Very Happy Holder!

www.JohnsInvestmentChronicle.com

Website: JohnsInvestmentChronicle
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johnrosier 2nd Sep '13 7 of 12
1

Doubled holding to 4.0%

Regenersis (200p and 4.0% of JIC Portfolio). Regenersis will issue its results for the year  ending 30th June 2013 on 23rd of this month. I have re-read  the 10th July trading statement  and what I wrote on the day and have decided to double my holding back up to 4.0% of the portfolio. Consensus forecasts are for 15.7p of earnings for the year just finished putting the shares on a PE ratio of 12.8x. This falls to 10.8x earnings for the year ending next June with earnings growth of 18%. On a PEG ratio of just 0.6 to June 2014 and with a strong balance sheet the shares represent, in my view, excellent value. The share price has moved sideways for the last six months (see chart); hopefully the results will act as a catalyst to get them moving on up. (See transactions)

For more information on Regenersis see the "Company Blogs" at www.JohnsInvestmentChronicle.com

Website: JohnsInvestmentChronicle
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johnrosier 24th Sep '13 8 of 12

Regenersis (242p and 4.6% of JIC Portfolio); Results for the year ended 30th June 2013 show good progress across the business. Turnover was slightly shy of forecasts at 179.7m, up 28% on the prior year, earnings per share were ahead of forecasts at 16.8p and the dividend was increased by 127% to 2.5p against forecasts of 2.0p. Operating cash flow more than doubled to £9.9m and net debt was reduced to £1.9m, helped by the placing which raised £6.9m in March.


Its strategy of focusing on emerging markets and its higher margin added Advanced Solutions division seems to be working, contributing 81% of operating profits. The strategy update essentially re-affirms the existing strategy; “Overall the Group is focussing on three 'game changers' for the next 2-3 years, which underpin the growth strategy in Emerging Markets and Advanced Solutions. These are: quality of our people, globalisation of our business on a matrix of countries and services and M&A.”


In an optimistic outlook statement it says that having achieved its target of achieving double digit revenue and profits growth over the last two years it now believes that it can repeat this for the foreseeable future.


Conclusion: The management team at Regenersis has executed its strategy well and been rewarded with a strong set of results. Under Matthew Peacock, the Executive Chairman, I feel confident that it will continue to successfully deliver its strategy and substantially grow profits, cash flow and earnings over the next few years. On consensus forecasts the shares are valued at 13.2x June 2014 earnings for growth of 19% growth and 9.5x June 2015 for 40% earnings growth. This seems far too cheap to me. Glad I doubled the holding a few weeks ago. Very happy Holder!

Website: JohnsInvestmentChronicle
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johnrosier 2nd Dec '13 9 of 12
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2nd December 2013


Regenersis (353p and 6.5% of JIC) I met the management at a lunch on Friday. Before the lunch I was thinking of taking some profits and perhaps selling around 20% of my holding. Following the lunch I resolved to hold off reducing the holding for the time being. In short, I came away with a much better understanding of the opportunity Regenersis has to build its business and the ambition of the management. Most importantly I have greater confidence in management’s ability to deliver.


The company describes its strategy succinctly as “Emerging Markets, Beyond Repair”. The first part describes its strategy of building its business both organically, and through acquisition, in “high growth, less competition” emerging markets, where there are greater growth opportunities and higher margins. For instance it recently acquired an Indian company, Digicom, which gives it a foot hold in the sub-continent. There are currently around 30m smartphones in India but this is expected to grow to around 170m by 2017, (the same size as the US market); working on the basis that roughly 10% of smartphones need repairing, that is a lot of mobile phones to repair and Regenersis reckons the margins would be 4-5x those of the UK!


Beyond Repair describes the second strand of its strategy. This is about adding services which save its client’s money as well as improving the service that its clients provide to their customers. An example is the new in field diagnostics kit which it provides to clients such as Virgin Media. It enables engineers to diagnose the fault in a set top box on site and in many cases repair it immediately rather than it being sent back to the repair depot. Everyone is happy; Virgin Media, its customer and Regenersis who make a higher margin! Management outlined the huge opportunity for mobile network operators to improve service to its customers, thus retaining more of them when they come off contract, and to profit from selling re-conditioned smartphones into emerging markets. Lastly, Regenersis recently bought a stake in a US company, Xcaliber Technologies, which provides a service, SmartChk, enabling smartphones to be diagnosed and problems resolved digitally rather than being sent away. In the US there is no point in competing in depot repair as margins are so tight so Regenersis has found a neat way around it. Again, a value added service to both the network operator and its customers. In all three examples the growth and margin opportunity is at multiples to Regenersis’ existing base business of depot repair!


Since Matthew Peacock became Executive Chairman in March 2011, following his vehicle Hanover Investments acquisition of a substantial stake in the business, Peacock who is a turnaround specialist, has, with the Chief Financial Officer Jog Dhody, done a superb job at stabilising the business and putting in place a strategy for growth. Part of this process has included investing in operational management and sales with two important hiring’s made in the last few months; Simon Harper has been appointed Chief Operating Officer from HTC, where he had global responsibility for multi-channel customer contact, service and support for all HTC devices and services and, Pritpal Matharu was appointed Managing Director of the Group’s new division, Renew. Pritpal joined from Carphone Warehouse where he held the position of Sales and Operations Director and will have global responsibility for Renew, which brings together the Group's Recommerce, Refurbishment and Digital Care activities.


Conclusion; I think, following the investment in management infrastructure and a sensible strategy, the building blocks are in place for an acceleration in the rate of sales growth and for margins to widen in the coming years. Senior management have plenty of “skin in the game” not just in the form share options which pay out if successful but don’t hurt if not, but in real money invested in the company. Following recent purchases Hanover now holds a 21.8 % stake in the business and Jog Dhody recently spent £100,000 increasing his holding to 355,000 shares or 0.7% of the company. The shares have been strong and consensus forecasts put them on 19.2x June 2014 earnings for 25% growth, 17.1x June 2015 (12% growth) and 12.9x June 2016 for 33% growth. I have been tempted to take some profits but now have a better understanding of the opportunity and suspect that earnings estimates will be subject to upgrades in the coming year. Very Happy Holder!

Website: JohnsInvestmentChronicle
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topwatcher 3rd Dec '13 10 of 12
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I believe that Regenersis have started to take some steps to address their woeful UK performance.

Having lost the O2 returns processing work, operations at the Normanton site will cease. This is on top of the closure of the Glasgow site, the loss of HTC work from the Huntingdon site, and the loss of the Orange recycle contract. The rapid shrinking of the UK business under the current management team was a major issue, but the introduction of a new COO and jettisoning of the previous MD responsible for the UK will be a major step.

If the company can start to compete in the UK in addition to the acquisitive growth in foreign markets, they can put together a sustainable and organic strategy. The value increase to date has been from growth and acquisition, rather than from innovation and strength in existing business. Finally they appear to have recognised this, and it makes me more comfortable that the value of the company will continue to increase.

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johnrosier 14th Jan 11 of 12
1

Regenersis (306p and 5.3% of JIC Portfolio) has issued a comprehensive trading statement covering its first half, finishing 31st December 2013. Trading is expected to be in line with expectations with both its emerging markets and Advanced Solutions division delivering “good” earnings growth. Progress at Advanced Solutions is described as “notable and most encouraging”. It goes on to list some of the major contracts wins during the period and emphasis the shift in its business to higher value added operations and the change in its customer base from OEMs (original equipment manufacturers) to multinational operators, which provides greater opportunities to sell higher margin Advanced Solution services. Digicomp, which it acquired last year seems to have bedded in well and won its first new contract since acquisition, which the company says demonstrates its competitive advantage now that it is part of Regenersis. The Company says it continues to progress a number of exciting M&A opportunities.


Conclusion; The shares have drifted off from the lofty heights of 360p achieved at the end of November so it is good to see it reassure on first half trading and express an air of confidence about its prospects for the second half and beyond. Since I wrote my New Year review on 2nd January, (when I said “in the short term the figures do not jump out at me as being a bargain and in all honesty if I was coming at this afresh I would probably struggle to buy the shares”) it has fallen 7% so is now on 16.6x June 2014 consensus forecasts, falling to 15.2x June 2015 for 9% growth and 11.2x June 2016 for 36% growth. Hopefully this trading statement and its more attractive valuation will provide some support for the shares. Happy Holder!

Website: JohnsInvestmentChronicle
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johnrosier 28th Jan 12 of 12
1

Regenersis (280p and 3.0% of JIC Portfolio); although it pains me to do this, I have this morning reduced the holding to 3.0%. Regular readers will know I am a big fan of the management and the strategy, however I should have taken more notice of my words written in my new Year review of the stock on 2nd January, “in the short term the figures do not jump out at me as being a bargain and in all honesty if I was coming at this afresh I would probably struggle to buy the shares”. The share price chart below shows that since the Directors placed over 10% of the Company on the 15th January, it has dropped though the 21 day trading low and a flirtation with the 200 day moving average at around 255p is looking possible. As a precautionary move I have reduced the holding to 3.0% this morning. (See Transactions)

Website: JohnsInvestmentChronicle
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About johnrosier

Johnrosier

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In September 1984, I left university with a degree in Zoology and started work in the City of London. Over the next twenty five years most of my time was spent managing UK equity portfolios with Fleming Investment Management and Henderson Global Investors, for company and local authority pension schemes as well as the reserve fund for a well known charity. During 2009 I left full time employment and decided to take time out to consider the next stage of my career. In the meantime I have been putting my years of experience to good use investing the family savings. I have thoroughly enjoyed the freedom of investing from home and despite some tricky periods during 2011 it has been a rewarding experience. In January 2012 I set up www.johnsinvestmentchronicle.com in which I record my trades and the reasoning behind them. more »



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