Good morning!


Lakehouse (LON:LAKE)

Share price: 35p
No. shares: 157.5m
Market cap: £55.1m

(at the time of writing, I hold a long position in this share)

Meeting - A friend very kindly arranged for a small group of us to meet the new Chairman and existing FD at Lakehouse (LON:LAKE) last Friday afternoon. They were very generous with their time, and over 2 hours we delved into all aspects of the business.

My feeling is that the very public board room bust-up is now water under the bridge. So I was keen to move the meeting on to talking about the future. The new Chairman, Ric Piper seems an ideal choice for a business that has experienced considerable recent upheaval. His calm, avuncular manner, and methodical approach to the numbers (being a Chartered Accountant), is just what's needed in my view. He seems to have already established an excellent rapport with the FD. A new CEO is being sought, with the role currently vacant. I like the idea of a new CEO coming into a situation where there is a strong Chairman/FD partnership already in place. This should point the new CEO in the right direction from day 1.

I came away reassured that there is no issue with the bank funding. We ran through the bank covenants, and there seems to be plenty of headroom there. So it's not a crisis situation. It's a recovery situation. That was reflected in the 1p interim divi, and guidance of a 2p final divi in due course. So the yield is close to 10% - a very nice catalyst to push up the share price.

My one reservation is that I feel there is a possibility of one last profit warning, from the "contract settlements" issue. I spotted this in the interim results statement, and mentioned it here in my report of 17 May 2016. There is some uncertainty over negotiation of the final account on some big contracts. Management explained it could go either way - a favourable outcome would be great news. An unfavourable outcome could mean another profit warning, with a perhaps 10-25% impact (my estimate) on the share price, in the short term.

The negative cashflow in H1 seems to have been a one-off, due to the unwinding of a favourable working capital profile on a big contract in…

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