Frustrations with HMLH

Tuesday, Jul 02 2019 by

HMLH continues to frustrate. The acquisition strategy does not yet seem to be paying off. Margins remain under pressure. In c.2015 there was a major investment in IT, HR and Compliance: all part of “growing up” and becoming a larger company. However, in repeating the mantra that “we have higher standards than anyone and want to do things properly” there have been new costs that been incurred each year. Management does not hide this and flagged at the 2017 Prelims that “we remain confident in our ability to manage and balance the growth in our business with the need to improve the infrastructure necessary to support it” ( my italics). At the 2018 Prelims they referred to extra premises costs associated with the move of some back office functions to Croydon. The interims stated that in 1H they “implemented significant operational change” but flagged that in 2H they would be “streamlining our systems onto one database platform”. These results say “This [centralisation] has inevitably incurred reorganisation costs.” More change, more disruption, more cost.
So, while revenue continues to grow at HMLH, profit and margin growth fall behind. All years quoted are for the March year end of that year
1. Added value. I have made a table of all acquisitions since listing. HMLH has spent £18m on acquisitions in just over a decade. This compares with a market cap today at 33p of £15m. HMLH listed in June 2006 with an initial market value of £2m. This suggests that value has been destroyed. The £18m is the announced total consideration, gross, including deferred contingent consideration ( see 12 below). HMLH appears in the past to have paid most of the contingent consideration due. If no deferred had ever been paid, the total initial consideration paid was still £13.5m.
2. Added value 2. In the four year period March 2015-19, HMLH spent £9.9m on acquisitions (assuming deferred paid in full). This has helped add £10.9m in revenue ( 2014/15 v 2018/19) an increase of 63%. During that time, operating profit has risen from £1,160,000 to £1,736,000 an increase of £576,000. Or, put another way, only 5.3% of additional revenue has been converted to operating profit.
3. Where has the profit gone ? Since 2014, some of the acquisition RNSs gave summaries of the financial position of the acquisitions. For example, the 2018 AR states that Faraday contributed £1.979m…

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HML Holdings plc is engaged in the provision of property management services. The Company's segments include property management, professional services and insurance services. Its property management segment is engaged in residential property management. Its professional services segment is engaged in chartered surveying services. Its insurance services segment is involved in insurance broking intermediary services. Its surveying services include building surveys and inspection, project management, lease extensions and right to manage. Its ancillary services include company secretarial, management of site staff, and health and safety. It works with housebuilders and developers, and provides a range of services, including a review of the plans and specification, preparation of service charge structure and indication of costs and preparation of a management plan or strategy. Its residential property management services include accounts preparation and routine inspections. more »

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4 Posts on this Thread show/hide all

carmensfella 5th Jul 1 of 4

I guess the key question is.....What needs to be done to maximise shareholder returns from here ?

1. Stop buying companies ?

2. Change management ?

3. Increase dividends substantially as cash generation is good ?

4. Find the benefits of scale that have so far not happened ?

5. Sell the company ?

It has gone nowhere for five years and the dividend is minimal so we need something to happen.....What do others think?

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Richard Goodwin 14th Jul 2 of 4

Thank you @SimonT for doing the calculations to demonstrate what I have felt instinctively by been unable to express in recent years. I did speak to James Howgego, the FD about 6 months ago. He told me that trading was going well and agreed that the firm needs to do something to better explain the benefits of the centralization of back offices in Croydon. He didn't really seem to recognise quite how disappointing the business results have been or to have any initiatives in place to demonstrate that management are really doing a great job (if they are).
A good place to start would be for HMLH to tell their story. A PI World video and/ mello appearance would be great, then PIs would be able to make up their own minds.
At least this would provide transparency as to whether HML Holdings (LON:HMLH) is an unrecognised gem which is about to come into its own or whether it is a lost cause, or something inbetween.
I did hear in the ether that hmlh make much of its money from insurance commissions and that these are suffering from increasing regulation. If this is the case then it is frustrating that the RNSs never mention the changes.
@carmensfella do you have influence with management to persuade them to better make their strategic and operational case?

I can think of several possible reasons for the difference between the speed of profit growth and sales growth. It could be that integrating acquisitions of people businesses take several years or that it cost couldn't be taken out until Croydon is up and running? Or it could be that when founders retire the heart goes out of new subsidiaries? How can we know it judge if HMLH doesn't explain?

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Richard Goodwin 14th Jul 3 of 4

I've just dropped a quick email to James Howgego suggesting he look at this thread to better understand PI discontent with HMLH.

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andrea34l 15th Jul 4 of 4

I briefly looked at this company but concluded it is too low growth which is not made up for by a reasonable dividend. So, pretty dull overall.

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