Laird – my major blunder
Laird announced its Q3 trading update today, sending its price down 48% to 161p. Highlights from its announcement:
After a disappointing first half … we have experienced increased margin pressure … Management are taking actions to stabilise and improve the financial performance of the PM division with a considerable focus on managing costs and cash across the Group. We expect year end net debt to EBITDA to be within covenant limits of 3.5x
In other words, the wheels are coming off the wagon. The combination of deteriorating trading and and worrying debt levels seems to have really spooked the market. I assume that the dividend is now under threat.
The company appears on 2 Stockopedia shorting screens, which is not a good sign. In the latest set of accounts, pre-tax profits were less than 3 times debt, another sign that it is too indebted. Admittedly, there was a hefty exceptional charge. However, going back a year further, pretax profit was still less than 3 times debt.
According to Stockopedia, the average ROCE for LRD over 5 years was 4.8%. LRD is not a quality company.
I bought some LRD in Jan 2016 at 355p, which turned out to be a costly mistake. I did it because it passed the Stockopedia “Winning Income and Growth”, and I wanted to invest mechanically. The upshot of this is that I am having the worst relative performance to the index since my records began.
I am going to need to switch to a Plan B.
My intention is to jettison LRD at my earliest convenience. I figure that the shares are oversold at the moment. I realise that this is a highly dangerous argument, of course. When I see that argument brought out on bulletin boards, I tend to take it as a sign that everyone should head for the exit.
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3 comments
The idiot Lockwood has now got another ceo job. He will no doubt be able to wreck that company and then retire, Think he has gone to that basket case Cobham.This Quinlan chap has been handed a poison chalice.
Good post, I dodged a bullet with Laird (LON:LRD) as for a long while it was my largest holding, what I liked was the increasingly high tech nature of its businesses coupled with "old economy" dividend yield. I had also bought into the restructuring that David Lockwood as the new CEO was undertaking and thought it'd create a less cyclical business with more pricing power and thus finally acceptable levels of ROCE. Each results presentation I watched and listened and for a while it all seemed to be going to plan until in analysts presentation where I got the sense that events were not unfolding quite as planned. David Lockwood said in unscripted remarks the deeply worrying words "don't worry it's not the same old Laird" whilst trying to explain more restructuring costs. A big bell went off in my head as this was precisely my concern , & tellingly it was very close to the surface of David's subconscious. I immediately spoke to my broker and placed all my shares at 3.80 , if I hadn't listened to so many of those presentations and more importantly the unscripted Q&A's I might well have not had the alarm go off in quite such a clear way. I don't know whether you follow the Advfn LRD board but there was a discussion or three around that time that touched on the issues and might have caused you to reassess the case for holding Laird.
The danger here is now Covenant breaches and a rescue rights issue being required, I also do not know how stable the mgt structure is post David Lockwood's departure as all the key hires he brought in now have near worthless share option packages. If I were still holding I'd be trying to talk to Tony Quinlan to understand just how they see them navigating around the upcoming covenant test as to me it looks like they'll struggle.
On the positive side If it comes good it'll double in record time!
Good Luck!
Thx Mark. It's very brave to talk about failures. We all primarily remember our best investments but try to forget the worst (don't talk to me about SFI or The Car Group, both of which went bust)