Sorry, this article has corrupted somehow. My apologies.
So I have recreated it from backup - here is new version.
Regards, Paul.
I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »
Lakehouse (LON:LAKE) I've just sold mine, having only recently bought them a few weeks ago. I've made a mental note to never again buy the shares of a company which operates in a very competitive market and has wafer thin net profit margins!
Will you have a chance to comment on Zytronic interims which were issued today? The market didn't like them. Flat turnover with increased profit margins. I was expecting increasing turnover as well. The products are very good but is the company overvalued at about 17 time p/e?
I was all ready to jump in at below 30, but I couldn't find the kitchen sink in the results. I also noticed the weaker balance sheet and the apparently good results from the acquisitions. When I could find no indication of how bad they thought things might be, I decided to hold off. Price had risen a bit by then and I had no clue who was buying. I think management needs a major sort out. Board good now but they can't get on top of it all on their own. I think I'll watch for a bit - the kitchen sink might appear next time.
Paul
Thank you for your detailed analysis of today's LAKE's RNS.
Just curious whether you think the newly announced news in today's RNS is something that management may have known about for some time or whether yesterday may have been the date when they pulled all of this information together for the first time... ...for input into today's RNS?
I appreciate "management" has been a moving feast in the last few months but I am really interested in getting a handle on whether the current management team is (a) honest, and/or, (b) competent. From personal experience, I know how conflicting psychologically and difficult it can be to keep shareholders updated on an accurate and timely basis when, internally, the sh1t is hitting the fan in all directions.
I am yet to have held a position in LAKE but its certainly an interesting one to follow... ...if not in a positive sense.
Thank you, Martin
P.S. Greatly enjoyed your hotel reviews of the past week.
Peel Hunt are setting a new target price of 50p. So maybe they are assuming more like 4-5p EPS say?
http://www.sharetrading.news/2016/05/17/lakehouse-plc-lonlake-receives-hold-rating-from-peel-hunt/
I realise that there are a variety of different investment approaches.... but I personally cannot understand why anyone is continuing to hold LAKE at this stage.
Only on 12th April Paul you wrote the following, with the price at 48p falling to a low of 46p shortly after:
Trading update - Encouragingly, the company again reiterates that it's on track to meet full year guidance. It spoils it by then saying that the year will be heavily H2-weighted. As we know, that often actually results in a profit warning in H2, as actual performance fails to live up to hope.
So, at that time, just over a month ago, you correctly forecast a profit warning... but are still holding and now the price is 32! Why aren't people obeying stop losses and/or selling as the company drifts from one piece of bad news to the next? If there's another profit warning, as you are wondering, what will the price be then?? Perhaps there is hope of a dead cat bounce to sell at the top of that.....
Hi Andrea,
It's so easy with hindsight, isn't it?!
Some companies recover well from profit warnings, whilst others go on to report more bad news.
Personally I buy when I think the share is cheap on fundamentals, and if the problems are fixable, then I tolerate further bad news, and often use that as a chance to buy more stock cheaply. Sometimes it works, sometimes it doesn't.
To my mind, previous buy/sell decisions are irrelevant when new information comes out. All that matters is the here & now. Does the share represent good value, and risk:reward is positive right now? In the case of LAKE, I would say yes. Whether I hold the stock already, and what price I paid, is totally irrelevant.
For me, it's a straightforward analysis of what the company's prospects are from today, and whether the share price now offers favourable risk:reward.
Stop losses can save you money on speculative shares, but in my experience very often do the precise opposite of what I should be doing for fundamentally sound companies that have experienced some fixable problems, such as LAKE.
Different approaches work for different people. So if your approach works consistently for you, then keep doing it!
Personally I'm buying more LAKE, as once its current issues are sorted out, then the shares are likely to be worth considerably more than the current share price. I don't care what happens to the share price between then & now, it's irrelevant, as I'm not going to be selling for 1-2 years - but only if the financial position remains sound. If the risk of insolvency arises, then I would drop them immediately.
Regards, Paul.
Hi Paul - re. Lakehouse (LON:LAKE)
I sold my shares shortly after the new management were voted in as I suspected there would be an element of kitchen-sinking.
Yes the results are bad, but I think that the market has over-reacted. It almost seems as if the market is already discounting further bad news down the line.
AS you have stated, the balance sheet has been weakened considerably caused by the acquisitions.
An investment opportunity? It definitely was at the bell when the sp was around 26p!
Regards, Ram
Hi PaulHunt999
I am a holder of Zytronic (LON:ZYT). I was fairly happy with the results. EPS & dividend both up 10% looks alright to me. So far the market seems disappointed and the share price has fallen 7%. But I will continue to hold because the actual H1 10% EPS growth is a lot better than forecast for the full year of 3.26%
Surprised by the reaction to the ZYT update. Profit, margins, EPS and dividend all up, year-on-year. But what do I know?
B2V
Paul, thanks for that. I saw Mark Slater's presentation at the UK Investor Show where he mentioned Lakehouse. I have to say that I thought it was somewhat misleading to say that he wasn't selling as the P/E was too low. That could be true but it appears like spin as in such a small company there wouldn't be the liquidity to sell such a large holding anyway.
I don't have an opinion on Lakehouse but this is clearly a tough business area. I think Connaught went bust doing a similar line of business. There is significant contracting risk, margins are low and companies are dependent on public sector spending. Not really sure if Lakehouse has the size and therefore economies of scale to make it work.
In terms of the current investment case the risk is that customers don't sign up Lakehouse for contracts due to concerns on its financial strength. If this is the case then the company would need a shareholder placing which is likely to be at a large discount.
These recovery stories are very hard to call. Often a time to buy in is after a rights issue/placing as the financial uncertainty has then largely disappeared.
Paul - As an aside I liked your comment about companies that state they have a strong balance sheet typically don't have a strong balance sheet. It is a sales trick I think to put people people off looking into an issue at the outset by having bombastic remarks to deny there is a problem i.e. think recent remarks made by Donald Trump Reminds me of a lecturer who said that countries with Democratic in their name were typically just the opposite.
agreed on buying opportunity : went through the results at 7am and took a few at 28p as I have a few more at 35.5. It's high spec so I use allocation rules to match the risk.
Lakehouse (LON:LAKE) is so illiquid that big sell-off days like these can be advantageous. I noted that while the interim divi is ok, I'd question whether future dividends will be maintained
On a brighter note, Blinkx (LON:BLNX) results were very well received given they are not too hot. That was another spec buy which is is doing ok.
These dalliances add a bit of spice to a portfolio.
Long time listener, first time poster -
Just to say excellent, balanced review of LAKE:LN Lakehouse statement
Thanks
I think the Zytronic (LON:ZYT) share price movement over the past couple of weeks is a classic case of "buy the rumour, sell the fact". The share price moved up quite smartly in the last ten days or so in anticipation of better than expected results and then came back down this morning when the results were pretty much in line with existing market expectations. Coupled with the fact that liquidity in this share is pretty thin at the best of times, a few medium sized sellers can easily push the price down. I've used it as a chance to top up on a quality company.
I would agree with your basic concerns Andrea but it seems that alot of investors (the majority I would guess) believe they can spot trading opportunities to enable them to buy when the price is depressed by a problem and then sell when the company recovers a few months or a year or two later. Lakehouse is certainly a candidate for this type of approach. The perception of companies like this may change quite significantly over quite a short time scale as events unfold so continuing to hold the shares as the price falls may be sensible if you think the fall is not justified by the events (I think Paul was making a similar point). I am unable to use this type of approach with any success as I can't time my purchases/sales profitably. Instead I seek out companies which are of high quality from a financial and qualitative viewpoint (I have a checklist) and I hold them indefinitely through the ups and downs unless my perception of the fundamental quality of the company changes. This normally happens in about 2 to 3% of the companies I hold each year and I have been using this approach for about 8 years. The "trading opportunity" companies are invariably the ones that excite investors whereas the higher quality ones of the type I invest in are often regarded as too highly rated and boring and often they do not get much coverage. As an example, we can see today that Lakehouse has had extensive coverage on this site at the expense of Zytronic. There is of course nothing wrong with this as I am sure most investors will be more interested in Lakehouse. All I would say is that if you are uncomfortable with the "trading opportunity" type approach you could always try my type of approach for a few of your investments using the Stockopedia data such as ROCE and profit margins as well as the more commonly used measures but you will also need to look at more qualitative criteria such as competitive moat, insider holdings etc. to determine the intrinsic quality of the company. Hope this might be useful.
Paul
Thanks for a first class piece of analysis on the Lakehouse results.
Operating on such challenging margins its critical, obviously, that cost efficiencies are maximised to ensure contracts remain profitable.
This statement clearly states were things have also gone badly wrong ........" However, as part of the Group's contract review process, it has become apparent that local organisational and operational structures were not sufficiently robust to cope with this growth, in particular managing inventory, staff and site contractors." ....... this would appear to indicate that there have been severe deficiencies in performance of middle management and senior managements failures to monitor and rectify. A situation that can be quickly remedied now the problem have been recognized, although too late to save some contracts falling into losses.
The appointment of a well respected heavy hitter as CEO will also help in restoring confidence and kick start the new board into getting a proper grip on the business, as they have most definitely taken their eye off the ball here. A situation, I'd suggest, is exactly why Slater and Rawlings decided on making an almost unprecedented move in demanding boardroom changes.
Attractive risk reward on recovery, I'm a holder and increased earlier @ 32. 24p
I have decided now is the time to dip my toe in the water with LAKE. After all living in Windermere I have a great deal of knowledge on LAKE's as there are hundreds around here.
Well actually there is only ONE lake in the Lake District, Bassenthwaite Lake, all the rest are WATER's, MERE's or TARN's. This gem of information will not help our investment in LAKE but hopefully may assist in winning a pub quiz at some time in the future.
Dave.
I must be missing something here because I would in no way be inclined to be so nice to LAKE.
Just over a month ago we got an RNS saying "The Company remains on track to deliver the Board's revised expectations for the current financial year".
Yes it does say "Boards" expectations and we can see from today that they don't like to share these expectations, nonetheless this statement now appears to be little short of a lie.
Whereas, I cannot accuse individuals of lying (and am not doing so in this case) both the Trading Statement (above) and todays Interim Results are signed off by the same CFO. Surely his position is untenable.
As you may have guessed I hold this stock. My investment thesis was based on the fact that I believed management - I even wrote it down: "if you believe management, this is underpriced".
There were several warnings, not least the advice that one shouldn't invest in cos with market capitalisations of less than £100million because (and I quote again!) "the management can't be trusted" - this was from TMFPYAD for anyone interested. Having ignored that advice I was offered a second opportunity to get out at a profit with this ShareSoc blog post, alas ..... I ignored that too.
Unhappy.
