I Read The News Today Oh Boy! 13-Apr-2018

13th Apr '18 by matylda

11 comments 3670 reads

Morning all!

Early update as have to run an errand this morning, luckily only 2 updates, back sooooon!

Low & Bonar ( Low & Bonar (LON:LWB) ) – 56.3p – £185.7m – PER 8.29

Trading Update For Q1 – Revenue up despite challenging market conditions. Raw material costs have had an impact, price increases should mitigate but not until H2. FY (H2 weighted) expectations unchanged.

Another uninspiring update. With Net Debt well over 50% of current Market Cap this remains on my Avoid list.

Trakm8 Holdings ( Trakm8 Holdings (LON:TRAK) ) – 101.75p – £36.4m – PER 10.2

Trading Update For The 12 Months To End March 2018 – Revenue up 13% to over £30m, obviously not the £32m forecast or they would have said – Wouldn’t they? Some contracts (Revenue) moved to next year. Board is confident of future prospects.

I remain uninspired by this company.

As always, all comment most welcome – Have a great day!

Unlock with Email

Unlock with Google

Already have an account?
Login here

MrContrarian

13th Apr '18

My morning smallcap tweet: Air today, gone tomorrow.

Air Partner (LON:AIR), Trakm8 Holdings (LON:TRAK), Low & Bonar (LON:LWB)

Air Partner (AIR) CFO resigns, will remain available to contribute to the ongoing review.
Trakm8 (TRAK) FY trading: rev up 13%. The core Solutions business rev up 26%. Net debt down £0.5m. Profit, EBITDA etc of no concern to you, shareholder. Outlook 'confident'.
Low & Bonar (LWB) Q1 rev up "Raw material cost increases have had a negative impact in the first quarter and actions have been taken to mitigate these through increased selling prices, although the benefit of this is likely to be realised in the second half." Guides FY in line but with a much greater H2 weighting. Do you feel lucky, punk?

matylda

I wonder is it worth having a standard note to hand to all companies attending Mello...

It matters about Revenue figures and growth, it matters about Profit figures and growth and whether they are in-line, above or below expectations (and what those expectations were). It doesn't matter if you need a couple of more weeks to provide the update - At least it will be an update that is useful to us PI's who don't have much more than what you provide in updates to go by until we see actual interims or finals.

Perhaps we can expand on the above and provide it as a standard hand-out?

Martin C

General question... why do people use net debt as % of market cap as a measure? After all, if all other things being equal Low & Bonar's share price doubled (and hence market cap, PER did too), the net debt as % of market cap would halve - which is good according to the metric, but the actual value you are getting is also halved as you are now buying a company with a bloated valuation. Net debt is of course hugely important so why not measure it against revenue or even better PBT?

jonno

Morning Graham I wonder whether you would find time to circular back and have a look at Ramsdens Holdings (LON:RFX) that issued a brief but reassuring update this week, stating that results would be 'slightly ahead of expectations'.

All the best

Jonno

AlanJenkins2

Net debt as a percentage of market cap does tell you how much leverage you're getting. It doesn't tell you anything about the company's ability to service its debt - that's what the 'z' score is supposed to be for.

Apologies Matylda attached Ramsdens Holdings (LON:RFX) message to wrong discussion stream. Need to pay more attention!

Jonno

ezlifeme

Not a small caps Company release but Sage (LON:SGE) (MKT CAP >£6bn, seemed to upset the market in a similar vein

"lower than management expectations due to inconsistent operational execution"

Down 17.11 as I write - Put a figure and a meaningful reason!

Howard Marx

Net debt/profit gives investors a clue as to the servicability of debt (including the ability to pay it down).

Net debt/market cap gives investors a clue of how able a company is to reduce debt via issuing Equity.

For a company like Capita (LON:CPI) for example, the Net debt is now more than twice the market cap which is a huge red flag. Essentially, the company has only two ways to quickly reduce debt:

a large Equity issue
a major asset disposal

So it's also key to look at price/book value to reveal asset backing : Avation (LON:AVAP) is asset rich, Capita (LON:CPI) is not. Here's a list of UK companies with Net debt more than twice market cap:

Thanks Howard & Alan (above) for the explanation. Makes sense now!

It would be hard to word it so that no CEOs had their nose put out of joint. Not sure what an effective but tactful approach would be.
"When the incentives are wrong, the behaviour will be wrong."

Thanks guys in my absence for covering off the Net Debt with which I largely agree. One other point is that it also affects the "real" (Enterprise) value of the company - I was going to write a little here more to explain but just don't have time (basically it affects the real PER at the end of the day and real EPS, etc.), had a mad day, but I might try over the weekend although that's already been planned out for me. Anyway, I will try.

Re: Ramsdens Holdings (LON:RFX), in my haste this morning I missed it (although I am quite certain it was a case of it, although stamped 07:00, showing up late in my feed) - Thanks jonno. I am a holder and this has not changed my mind.

Great weekend all.

I Read The News Today Oh Boy! 13-Apr-2018

Unlock the rest of this article with a 14 day trial

About the Author

Matylda

11 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...