Good morning. Today's report is dedicated to Richard Allden, a friend from my local investment club here in Hove, who died in hospital yesterday after bravely battling illness for some time. A real gentleman, who will be missed very much.
Judges Scientific (LON:JDG)
Share price: 1505p
No. shares: 6.0m
Market Cap: £90.3m
Final results - for calendar 2014 are in line with revised expectations. Fully diluted EPS (before exceptionals) was 80.5p (broker consensus 80.2p). With the shares currently 1505p, that means the valuation is hardly a bargain at 18.8 - that looks distinctly toppy to me still, unless people are expecting a sizeable increase in future earnings?
The growth here has come from serial acquisitions, and Judges is unusual in that it doesn't seem to have made any mistakes - the acquisitions have all driven up earnings, and the business model of hoovering up small scientific instruments companies into a group has worked very well.
The trouble is that there doesn't seem to be any organic growth at the moment, so that puts into question whether the shares should be on a premium rating still? If the company can keep pulling off good acquisitions, then it does deserve a premium price perhaps? Although bundling together a lot of businesses that don't have much in the way of synergies, and putting the whole on a higher rating than you would the individual companies, is something I struggle with conceptually.
The company makes excellent margins - I am impressed with the operating profit margin of 17.3%.
Balance sheet - this is surprisingly good. For a highly acquisitive group, there is very little goodwill - only £8.7m, plus £8.7m of other intangible assets. The current ratio is very healthy at 2.22, and long-term creditors in total are reasonable at £11.5m (the largest component being bank debt of £9.7m, with the balance being deferred tax).
Overall then, it easily passes my balance sheet testing. I remember CEO David Cicurel saying that the businesses acquired generate the cash to repay their acquisition cost loans. So a very impressive business model, no doubt about that - I'm warming to this one!
Cashflow statement - I don't see anything untoward in here. The group is generating genuine cashflow, and using that for acquisitions, using a reasonable level of bank loans to initially fund the acquisitions.
Divdends - there's a good track record of paying a rapidly…
