Good morning, there are quite a few companies making announcements today.

T Clarke (LON:CTO)

  • Share price: 104.5p (-11%) 
  • No. of shares: 43 million
  • Market cap: £45 million

Half-year Report

This sounds fine at first:

  • Revenue +12%
  • Underlying op. margin up to 2.9% (from 2.6%)
  • Dividend increased
  • Full year performance trending in line with expectations

So why are the shares down? A few issues:

Firstly, the Order book (very important for a contractor!) is merely flat.

The CEO comments:

We remain very selective about the quality of the work that we take on and despite some competitive pressures, our order book has been maintained at £370 million

T Clarke helpfully breaks this down, saying that "£182 million is secured for 2020 and £34 million for 2021 and beyond."

I'm not a sector expert, but I do know that revenue visibility in this sector is not great. The revenue forecast for next year is c. £360 million, versus £182 million secured so far. So there is a lot of business which needs to be won over the next six to nine months to help them achieve that. And just as importantly, they need to remain prudent and not bid for low-quality work.

Secondly, net cash has reduced, with the company saying that this reflects "the Group's typical working capital profit and the cycle of our contracts". The company doesn't give us any additional information such as the average or minimum net cash balance. These would be helpful, though it sounds like the company should be fine from a cash point of view (it has £25 million in banking facilities).

Pension scheme deficit increases to £26 million, from £19 million, thanks to lower interest rates.

Outlook - the company very helpfully states what the market expectation are. Good job! Underlying EPS this year is expected to come in at 17.5p.

The Board is "cautiously optimistic". I think we have to price in the increased possibility of a revenue miss for 2020, and that's what the market seems to be…

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