Good morning!


Chime Communications (LON:CHW)

Share price: 273p (down 8% today)
No. shares: 100.7m
Market Cap: £274.9m

Profit warning - today's AGM update from this group of PR companies (with a specialism in sports marketing) is a mild profit warning. The key part of today's update says;

5554775199776Chime.JPG

So the problems seem contained within one division - sports marketing - which made up about 41% of turnover and divisional operating profit in 2014.

Outlook - the rest of today's statement sounds quite positive, in particular this bit;

555478785e947Chime_outlook.JPG

That sounds interesting, and makes me wonder if today's profit warning might be a blip, which is presenting a buying opportunity perhaps?

My opinion - personally, I'm not keen on PR businesses - they're too dependent on individuals, who can leave to set up on their own, or join competitors and take key clients with them. Also, this type of business usually has a weak Balance Sheet stuffed full of goodwill, and bank debt. So when bad times hit, there's nothing much to support the share price. Also, they are highly cyclical - PR and advertising are the first costs to be slashed when the economy turns down.

On the other hand, as I've been saying for a while, this is probably the right point in the economic cycle to be buying cyclical companies like this perhaps.

Balance Sheet - I don't like the Balance Sheet at Chime, but it's not disastrously bad. Net assets are £190.3m, but take off £243.6m goodwill & other intangibles, and the NTAV is negative at -£53.3m. That may sound bad, but in the context of a group that made an adjusted operating profit of £32.2m last year, and so could be heading for about £36m+ this year, it's bearable.

Dividends - this group has a good track record of growing divis by 10% p.a. compound since 2009, and the forecast yield for this year is about 3%, and that will be a bit higher now the shares are down 8% today, so a bit under 3.3% - not bad considering that's growing each year.

Overall - today's profit warning looks mild, and the outlook sounds promising, which combined with a valuation that now looks quite reasonable, means that I might have a closer look at this company over the weekend. As always, reader views are very welcome.

UPDATE (14:35) - I've…

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