Have a look at the share price on RGS-LON. The price and volume look like stake-building. That might be good news because this company appears to be horribly run - is there an opportunity here? It should be a relatively attractive business and it certainly looks cheap but the're seem to be some some very good reasons for its dog status over the last three years:

Normalised EBIT has gone nowhere from £5.8m in 2008 for four years and is forecast to stay flat in 2011 at £5.9m.
This is despite the TRS acquisition which diluted shareholders by 37.5% adding less than 10% to the consolidated EBIT this year.
This has led to a shocking EPS decline on Adj EPS of 60% from 16p in 2008 to 10p this year.

The words and the numbers in this business just don't match. We are told, and I believe, the end markets are attractive smartphones are growing by 20% pa, set top boxes by 30%, tablets/netbooks by 50%pa and yet the company broker is showing sales growth at 4% pa for the next two years?!!!

How is that possible?
Well the three guys running the business are accountants. Don't get me wrong the world needs accountants but this little business doesn't need 3 of them (sorry 4 out of 5 of the board!). Hewitt was FD of electrocomponents, Stokes was FD of Atkins and Wilson an FD at DHL (I think David Holland was also an accountant but this may be a bit unfair!). So my guess is that's why there's no sales growth! viz:
I notice one of the other contributors has spotted the potential of set top boxes which falls in their media division. I agree. But sales this year in that division are forecast to decline slightly and profit to barely improve over the next two years.

On the other hand you'd expect a group of accountants to at least be able to manage working capital properly? Nope. The company broker forcasts £8.6m of cash outflow this year and next year on working capital. How's that possible? its almost a £1 of working capital for every £1 of sales! To put it in a context that's c35-40% of the market capitalisation -ugh add that back into your EV value and the multiples don't look so good!!

Unlock the rest of this article with a 14 day trial

Unlock with Email
Unlock with Google

Already have an account?
Login here