Good morning! Apologies for any inconvenience caused by my taking an unscheduled duvet day on Friday, the first of the year I might add. As luck would have it, there were hardly any results or trading statements anyway. I had a quick look at results from AGA Rangemaster (LON:AGA) over the weekend, but the ludicrous size of their pension fund (over £800m assets & liabilities) rules that one out. There are too many moving parts with pension funds to just blithely assume that the deficits will disappear once the economy recovers. That might happen (from increased equity markets and normalised interest rates), but nobody can guarantee that. Aga is the worst pension situation I've seen relative to the size and limited profitability of the sponsoring company. The deficit is still set to consume all the company's profits from about 2016 onwards, with overpayments of £ 10m p.a. required, so one could argue that the equity has little to no value.

Also, Aga is the latest company to confirm "Scott's Rule" - which is that if a company states prominently in the CEO or Chairman's narrative to the results that it has a strong Balance Sheet, then it almost certainly will actually have a weak Balance Sheet (once you adjust out intangibles and properly account for the pension deficit).

As Globo (LON:GBO) shareholders are starting to realise, the Balance Sheet is where the bodies are buried at companies which engage in aggressive accounting techniques. Therefore ignore those warning signs at your peril. Whatever the outcome there, following the loss of their new auditor after the year end, I'm happy that by warning my readers about the potential risks, over the last year, I've performed a public service. Although it is worrying how determined bulls can be trying to silence critics. Well they won't get very far with me - if the figures don't look right to me, I'll shout it from the rooftops, so that everyone is made aware of the potential risks. That's my job.





Flybe (LON:FLYB)

I particularly like turnaround situations, as providing you do your homework properly, they can present attractively priced entry points into companies that have disappointed in the past, but are now coming good.


Unlock the rest of this article with a 14 day trial

or Unlock with your email

Already have an account?
Login here