Stock in Focus: Can Lakehouse Deliver On IPO Promise?

Wednesday, Dec 23 2015 by
Stock in Focus Can Lakehouse Deliver On IPO Promise

Shares in building services contractor Lakehouse are now trading in-line with the firm’s IPO price in March. Is this an opportunity to follow smart investors like Mark Slater into a profitable buy, or is the market right to treat this recent flotation with caution?

The well-used argument against investing in IPOs is that if a firm’s owners want to sell, they are likely to be getting a decent price. This could be at the buyer’s expense. A number of recent IPOs have disappointed investors shortly after their listing, but is it fair to tar all floats with the same brush?

In my view, the real risk for private investors is that the sellers know much more about the business than the buyers. The sellers may also have stripped the business of assets or cash to fund dividends for which the future owners will have to pay.

In this article I’ll ask whether these considerations, or other risks, apply to Lakehouse.

The Lakehouse attraction

Lakehouse was founded in 1988 and now employs 2,400 people through a group of specialist subsidiaries. These include heating, electrical and building firms. The group’s work is a mixture of public sector, commercial and social housing. It’s also an installer for five of the big six energy utilities.

Lakehouse floated at 89p per share in March, before hitting a high of 105p in June. The shares have slipped back since then and currently trade at around 90p.

Based on the firm’s latest figures, this stock appears cheap. Stockopedia’s computers certainly like it, with a StockRank of 92 and rising ranks in all categories.

Lakehouse’s post-IPO ownership profile is also quite encouraging. This isn’t simply a case of private equity owners dumping their stock onto an unsuspecting market and walking away.

Eight of the fourteen individuals with stakes of more than 3% in Lakehouse before its IPO remained 3% shareholders after the flotation. This includes several key directors.

Executive chairman Stuart Black is a former chief executive of Mears Group and has considerable experience in this sector. Lakehouse also boasts an impressive list of institutional shareholders, topped by Mark Slater with a 6% stake:


Mark Slater went public with his admiration for Lakehouse at the UK Investor Show back in April.…

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Sureserve Group PLC, formerly Lakehouse plc, is an asset and energy support services company. The Company is engaged in the construction, improvement, maintenance and provision of services to homes, schools, and public and commercial buildings. Its segments include Compliance, Energy Services, Property Services and Construction. Its Compliance segment delivers a range of services to local authority and housing association customers, and it is focused on gas, fire, electrics, and lift compliance activities. Its Energy Services segment, via its subsidiary Everwarm Ltd., provides domestic insulation, energy products and advice for social housing landlords and the Scottish Government. Its Property Services segment provides planned refurbishment, repair and maintenance, and responsive maintenance for social housing providers. Its Construction segment delivers extension, refurbishment, rationalization and new build works in the education market, particularly schools. more »

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13 Comments on this Article show/hide all

herbie47 23rd Dec '15 1 of 13

Thanks for this report, I do hold some shares long in this company, so its of interest to me. Yes I did follow Mark Slaters lead. A few points I don't think that your point about IPOs is generally correct, yes many have gone wrong and have had much publicity but if you look at this post:
You can see overall they have performed quite well recently.
I think the contract which they refer was the Hackney council contract which did go wrong and it was a large contract but the figures are still reasonable. Maybe more contracts will go wrong, who knows and yes the margins do look quite low. I was tempted to top up when the share price fell but Paul's review did make me more cautious, so I just have a small holding. I think a lot will depend on the recent acquisitions, will have to watch this one closely.

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Roland Head 23rd Dec '15 2 of 13

In reply to post #115614


You may be right that disastrous IPOs tend to stick in the memory more than successful ones, but I do think it's worth being extra careful -- if only because visibility of past performance is so much poorer than with an existing plc.



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herbie47 23rd Dec '15 3 of 13

In reply to post #115635

Yes I quite agree, some are over valued, like Boohoo.Com (LON:BOO), and some go wrong within a year like Entu (UK) (LON:ENTU). But like Ed's article about high ranked Stockopedia profit warnings, think with the bad news people notice more than the ones that do well and have no publicity. Yes I take your point about history but I think with Lakehouse the management seem good, time will tell. I do know Mears but have never held any shares although I was looking the other day at them.

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Paul Scott 24th Dec '15 4 of 13

IPOs - give it 2 years (at least) for all the crap to come out of the system.

If you're buying from a former owner, who knows the business better than you do (default). You're the patsy!

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Boros10 30th Dec '15 5 of 13

Roland thank you for this excellent article which summarises the key consideration extremely well. I have yet to buy any stock but I am tempted to include it as one of my five selections in the annual Stock Challenge competition ( as it has the potential to re-rate although I was slightly troubled by Peel Hunt's note which seems to hint at some headwinds in 2016. Given the problems historically in this sector with income recognition (e.g Connaught) I think it is particularly important to get comfortable with management. I am trying to fix up a meeting in the New Year with the Company and will wait for this before making a decision on whether to buy.

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Cisk 30th Dec '15 6 of 13

Personally I'm staying well clear of the sector, firms like Connaught, ROK (not strictly comparable I know), GSH and Silverdell (again similar but different company) all shafted investors.

Way to easy to manipulate accounts and it only takes one or two bad contracts and you can kiss goodbye to most of your cash.

On the other hand Mears did very well (sold out way too early on that one), but even companies like Mitie now have lost their sparkle.

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Boros10 30th Dec '15 7 of 13

The obvious difference to Silverdell is that Lakehouse generated strong positive free cashflow in its most recent accounts. Silverdell had been FCF negative for 3 consecutive years prior to its demise.

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Roland Head 1st Feb '16 8 of 13

I'll say it to save anyone else pointing it out! Lakehouse has now joined the post-IPO profit warning club:

Shares are down 40% to c.50p as I write. Shocking stuff. As Paul Scott pointed out in a previous comment, the only prudent approach to IPOs at the moment appears to be to avoid them...


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Ramridge 1st Feb '16 9 of 13

It will interesting to understand in hindsight how and why this stock was A-listed by Mark Slater and possibly by Boros10 (not clear if he did invest in the end). Were the signs there and missed?
Regards, Ram

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paraic84 7th Feb '16 10 of 13

So Peel Hunt now say the adjusted EPS is 9.9p for the year. I don't have access to this note but I'd love to know how this is adjusted. As Roland rightly points out they include a lot of things in 'exceptionals' that shouldn't be there.

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Ramridge 8th Feb '16 11 of 13

Good write-up by SCSW over the weekend. Stock up 10% this a.m. Every little helps...

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paraic84 8th Feb '16 12 of 13

In reply to post #120695

What is SCSW?

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Ramridge 8th Feb '16 13 of 13

In reply to post #120710

Small Company Share Watch - a monthly tipsheet

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »


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