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Connect Group operates a diverse portfolio of businesses leading distribution specialists in carefully chosen markets. With a combined revenue of £1.8bn, we employ 4,500 staff and operate in the UK and worldwide.

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The big green parcel machine..

https://www.sharesmagazine.co.uk/news/shares/almost-80m-of-connects-market-value-wiped-off-on-profit-warning
https://www.fool.co.uk/investing/2018/01/22/could-connect-group-plc-be-the-next-carillion/

Price has settled at 75p with dividend now 13%. Is it too good to be true.

I've been through the accounts this morning, read the interim presentation and have come to the conclusion the market is signalling significant attrition in the newspaper business. I can also see rising wages being an issue in the workforce, a competitive market.

It does have great free cash flow to support the dividend though and the debt at £80m would seem manageable based on EBITDA.

The question is how fast will the business decline versus how fast can the management adapt. The latest update suggests the transition is going slower than the management had hoped but is nonetheless not surprising given the scale of it.

I think 75p is a pretty good price but I'm going to give this one a miss for now and wait for a stupidly low price to arrive.

There seem to be a number of companies around like this which are long term cash cows in slow decline valued at what I perceive as at pretty good entry point. In this case rising wages worries me more than the slow attrition and I think it may go lower yet however irrational that may be.

Connect Group PLC is today issuing a Trading Update covering the period to 2 June 2018.

Headlines
· Overall performance since the Group announced its interim results on 1 May 2018 has been extremely disappointing, and the Company has materially reduced its expectations for full year profit before tax

· The Group has decided to close Pass My Parcel and wind down the associated Parcel Shop network

· The Full Year Dividend for FY2018 will be substantially reduced from that paid in FY2017

· As a consequence the Group is announcing senior executive changes

Reduced full year expectations
The Board has materially reduced its expectations for full year Adjusted profit before tax, as a consequence of:

· A material fall in volume and increased cost through Tuffnells peak

· Increased costs in Pass My Parcel

· Disappointing sales of World Cup related products in Smiths News

· Delays in realising planned cost savings across the Group

The details of the bad news here: http://www.moneyam.com/action/news/showArticle?id=6009639

Berenberg comment:
"Connect Group has released a trading update this morning stating that a number of negative headwinds have transpired in the second half, resulting in a significant miss to the company’s earnings guidance for 2018E. The major components of this are a failed recovery in the Mixed Freight (Tuffnells) business, greater-than-expected losses in Pass My Parcel (PMP) and disappointing volumes of World Cup stickers sales. As a result of this announcement, we reduce our 2018-20E EPS forecasts by c30%. With lower earnings and reduced cash generation, the company has decided to substantially reduce its dividend payment. We assume an 80% cut to the dividend going forward resulting in a full year dividend of 4.4p in FY 2018E and 2p in FY 2019/20E. At the same time, management changes have been announced, with CEO Mark Cashmore to leave the business once the board has found a successor and Tony Grace to join the group as interim CFO. With the failure of the company to turnaround repeated poor performance in Tuffnells, as well as the departures of both the CEO and CFO, we believe the outlook and investment case for Connect to be unclear at present. We downgrade to Hold and reduce our price target to 40p."

Smiths News agrees new long term contract with News UK

Connect Group is pleased to announce that, following competitive tender, it has successfully renewed its long term contract with News UK, confirming Smiths News' current distribution territories within the United Kingdom through to July 2024. The contract secures revenues of c£200m p.a. (at current values).

News UK is the United Kingdom's market leading national newspaper publisher with titles including The Sun, The Times and Sunday Times. This long term contract is an endorsement of Smiths News' leading service offer and efficient route to market for both publishers and retailers.

Mark Cashmore, Chief Executive Officer commented:

"We are delighted to confirm this significant publisher agreement for our newspaper and magazine distribution business. Visibility of future revenues underpins the ability of Smiths News to continue to deliver strong profits and cash. The contract is good news for the supply chain as a whole and positions the Group well to secure a similar outcome with our other publisher partners".

Peel Hunt Hold 31.53 - - Reiterates

Trading Update

Overall performance

In summary, trading in the period has seen a continuation of the challenging trends experienced throughout the year; as a result, the Group expects its full year trading performance to be below expectations.

Berenberg Hold 33.45 40.00 35.00 Downgrades