Small Cap Value Report (10 Mar 2017) - CTR, CINE

10th Mar '17 by Graham Neary

21 comments 11500 reads

Good afternoon folks,

I can't see anything of interest in today's RNS feed, so I'm going to circle back to look at Charles Taylor (LON:CTR), which was requested in the comments yesterday.

Charles Taylor (LON:CTR)

Share price: 243,25p
No. shares: 67.4m
Market cap: £164m

Final Results

The difference between statutory and adjusted PBT is down to amortisation (£3 million worth) and "other adjustments" (£1.3 million).

There are plenty of moving parts within this insurance group; in simple terms the core Professional Services segment saw a small reduction in Operating Profit, while the Owned Life Insurers segment swung into profitability from breakeven (due to an acquisition).

Dividend continues to rise gently and the shares are currently yielding over 4%.

Reading through the various divisional performances, it sounds like a solid if unremarkable period on the whole.

I've read online that 2016 was the worst year for natural catastrophe losses since 2010 - which should have been good news for insurers (those who can afford the payouts, at least). In insurance, you want strong demand for what you're selling, and you want high premiums, and you don't get these when there are no catastrophes.

In relation to its adjusting business, Charles Taylor remarks:

The level of insured claims in the market as a result of catastrophic natural and man-made disasters increased, although the market for larger and more complex insured losses of the type principally handled by Charles Taylor, remained challenging throughout 2016. There are, however, signs that loss activity may be increasing.

So it sounds like there has possibly been a bit of bad luck for CT in relation to the specific types of event they adjust for.

Outlook: performance so far is in line with expectations, and the strategy of organic growth plus acquisitions is unchanged.

My opinion

The adjustments are as you'd expect given the company's overall growth strategy, and relate to various acquisition and set-up costs. So while it's true that statutory PBT fell in 2016, the growth in underlying PBT is certainly worth noting.

I haven't studied this company in-depth before but it looks like it could be a decent share to buy-and-hold. The strategy appears to be working reasonably well, and while I do generally prefer organic vs. acquisitive growth, I could make…

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Ramridge

10th Mar '17

Re Charles Taylor (LON:CTR) I would be cautious about insurance companies in the light of brexit. Big issues such as passporting rights and solvency rules will need to be sorted out. Too foggy at the moment to consider these shares as buy and forget, IMO.

garbetklb

I worked in reinsurance for 25 years in London - and had some very small dealings with Charles Taylor with regard to insurance mutuals. Although I know the area, I don't know Charles Taylor to any degree - and my experience didn't include marine or life, both of which they are involved in.

I looked at them a couple of years ago and decided not to invest :
- their businesses are so diverse and wide ranging that it's very difficult to get a feel for the shape of the overall group. There are too many moving parts.
- it's too much of a people business for me - people who are generally pretty good at arguing that they should be paid a lot more than is reasonable. I saw this repeatedly in insurance from the inside - more so on the broking side, than underwriting.

I'm not saying that this is a good / bad investment proposition - just that I don't know. I would say that it's much more difficult than investing in a more mainstream insurer such as Hiscox.

CliveBorg

Hi Graham,

Would Softcat fall within your analysing remit? I've been finding it difficult to source any other opinions on this company - which I own shares in. Thanks, Clive

shauney2

MCGN,very good figues from them this week.On a high rating now maybe buts a high margin business with net cash.

Profit up 26%. EPS up 34%. Cash conversion up to 138% from 102% from the growing recurring revenue.Net cash of £13.6 million up from £5.4 million.

Thanks for your reports Graham.Have a good weekend.

dfs12

Hi Graham, I know that Paul isn't keen on financial and larger cap stocks. I'm not quite sure what your remit is - but if appropriate I'd be delighted to know your opinion of JRP (LON:JRP) who had results out today. Many thanks.

FREng

Graham
Thanks for going back to Charles Taylor (LON:CTR) - John Lee seems to agree that it's buy and hold.

Rusty2

I hold Softcat (LON:SCT) as well. The results are out on 22 March 2017 so maybe Paul or Graham could review them then?

Don't know much about them only held them a short while, but I know Robbie Burns has quite a few shares.

I used to hold Charles Taylor (LON:CTR), shares has not done much since, now back to the level I sold at. It used to be a company that handled run-offs but there have been quite a few changes recently, they now manage 2 P&I clubs and also seem to have taken over Scottish Widows Intl. I don't think Brexit will have much impact on most of their business. Yes quite difficult to value but I'm tempted to buy back in.

wildshot

Many thanks Graham for covering Cineworld (LON:CINE) which is a fabulous buy and hold stock. I'm close to trebling my investment here and it is a fairly steady, no dramas share to hold. A good one to avoid sleepless nights.

dpo1130

CRT net debt increased 277.7% ......isn't this a worry?!

Pennant International (LON:PEN) reported today. The new CEO seems to have dynamic plans. May be interesting? It's on my watch list but I don't hold.

ganthorpe

I picked up JRP last Autumn at around 100P as they were seeing strong growth after the merger and fund raising and the share price was below the issue price of the new shares.
I sold this morning as I felt that growth was slowing and more than half the revenue was from new business.Rodney Cook (CEO) talks up the business well but I feel that JRP is now fairly valued.
But I far too often sell too soon.

Yes does look interesting, when Stockopedia figures are updated I think this be in the 90s, looks like a big earning surprise unless I'm misreading the report.

Brilliant Leader

12th Mar '17

Out of interest, how often and when do Stockopedia ranks get updated?

JohnEustace

The ranks are updated during the night after each trading day. The next question for Pennant may be when does the data provider update their data to include the latest results, which I don't know.
http://help.stockopedia.com/product-guide/stockranks/faqs/when-are-the-stockranks-updated

Looks like Pennant International (LON:PEN) figures have been updated but the SR has fallen which I find hard to understand. QR is down, VR is up. This is compared to 05 Feb 2017 figures.

13th Mar '17

Maybe it's the passed dividend, with little explanation:

Dividends

The Board fully appreciates the importance of maintaining a progressive dividend. However, notwithstanding the much improved trading performance and outlook, positive cash generation and nil net borrowings, the Directors have concluded that it is in the Company's and shareholders' current best interests to retain cash for working capital and investment. The Board will therefore not be recommending the payment of a final dividend for the year ended 31 December 2016.

Hi FREng, I did not spot that, thanks.

Re Stockopedia figures it seems the downgrade in QR is to do with the Free Cashflow going negative, also the M-Score of -1.22 has dropped dramatically. Altman Z2 score however is 12 up from 6.9

I notice the QR score uses Altman Z1 but the Alman Z2 score is on the Stockreport. Anyone know what the difference is and why is this not displayed on the SR?

I see they have had a contract increased today by over £2m.

19th May '17

I decided to buy some. Then, last Tuesday, LionTrust more than doubled their holding to over 10%.

I assume someone has done reasonable due diligence when that happens.

Yes I did buy some Pennant International (LON:PEN) also despite Stockopedia figures falling.

Small Cap Value Report (10 Mar 2017) - CTR, CINE

Charles Taylor (LON:CTR)

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Graham Neary

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