Good morning! It's very quiet for news this morning, so this will be a comparatively brief report. The Futures are indicating the open should see the FTSE 100 Index up 15 points at 6,589.
Tribal (LON:TRB) issues its interim results for the six months to 30 Jun 2013. The market seems to like them, as the shares have opened up 3% at 207p, which values the company at £194m. Tribal provides services to the education sector.
Turnover rose 12% to £62.1m, and adjusted operating profit rose 15% to £5.4m for the six months. Adjusted EPS rose 36% from 3.6p to 4.9p, but was flattered by an unusually low taxation charge this period. The company says that trading will be weighted towards H2, and the outlook statement sounds good, with them confirming "at least in line with our expectations for the full year".
So really it all looks good until we get to valuation. Broker consensus is 11.4p EPS for this year, and 12.4p next year, which look about right, if you normalise the tax charge. So the shares look expensive to me at 207p, which is a PER of just over 18 times this year's earnings. That's too expensive by far to my mind. Tribal has always been fairly cheap when I've looked at it before, and personally I wouldn't pay more than a PER of 12 for what is really a pretty ordinary business, that's been quite accident prone in the past.
The dividend yield is lousy, at only 0.7% forecast yield.
Furthermore, Tribal also has a weak Balance Sheet, with negative working capital (current assets are £36.0m, versus current liabilities of £53.3m), with another £19.4m of long term liabilities too. My internet is about to go down for a little while, as fibre optic man is here to upgrade us, so will continue when I am reconnected ...
... yes I'm back, and apparently 10 times faster!
Going back to Tribal's Balance Sheet, it has £77.6m in Goodwill, and further intangibles of £14.8m. Writing off both of these takes net tangible asset value down to minus £31.4m, which is not a good position at all. It might be fine for the time being, but what happens if they run into trading difficulties, as they have done in the past? There's nothing to cushion the impact.
I just cannot understand why…