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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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Turned out nice :-)

JP Morgan Cazenove Overweight 107.88 144.00 145.00 Reiterates

Director buys a few.

(Better than selling a lot.)
27/10/2017

b)

Nature of the transaction

Purchase of 20,000 ordinary shares by a custodian on behalf of the administrator of Mr Bauernfeind's SIPP

Trading Update

Overview

Total Group revenue for continuing operations of £564.5m (FY2017: £584.9m) has decreased by 3.5% year to date, with the anticipated decline of newspaper and magazine sales more than offsetting revenue growth in Mixed Freight and Pass My Parcel (PMP). While overall revenue performance has been in line with our expectations, a combination of delays to contracts in PMP, weaker margins and market uncertainty in Mixed Freight, and slower than anticipated realisation of cost reductions from the Group's integration strategy in order to preserve current service levels, mean that we now expect full year adjusted profit before tax for the continuing operations to be in the range of £42m to £45m, with current dividend expectations underpinned by a continued good cash performance.

Early Distribution

Total revenue in News Distribution and Media (comprising Smiths News, PMP and DMD) was £500.4m, a decrease of 4.1% (FY2017: £521.7m), in line with our expectations.

Newspapers and Magazines

The overall sales decline of newspapers and magazines remains within our medium term forecasts, with newspapers continuing to perform more strongly than magazines. We do expect stronger magazine and sticker sales as we approach the FIFA World Cup in June 2018, enhancing margin in the second half of the year. The overall profit and cash from newspaper and magazine sales is performing in line with our expectations.

Pass My Parcel

Volumes in Pass My Parcel of 1.3 million units have grown 347% year to date, and we start the new calendar year with a run rate up 740% on January 2017. Overall, volume growth is in line with our plans and we are pleased with this aspect of progress, which demonstrates an increasing consumer awareness of PMP, and the range and availability of its services. Year to date revenue of £2.5m is up 222%, representing strong growth.

Despite these positive indicators, forecasted margins and costs have been adversely impacted because the primary driver of growth has been a rapid increase in lower margin customer returns through parcel shops, with further acceleration over the Christmas peak. Ongoing delays to the implementation of new contracts and the roll out of new B2B services means that the margin mix is unlikely to improve in the near term. As a consequence, we do not now expect full year losses from PMP to reduce from those incurred in FY2017.


Media

DMD media distribution to airlines and travel points continues to perform in line with our expectations.

Mixed Freight

External revenue of £63.9m (FY2017: £63.1m) increased by 1.3% with the volume of consignments up by 3.6% on last year.

Our desire to protect service levels in what remains a highly competitive market has required some of our forecasted cost reduction plans to be re-phased, and the national shortage of LGV drivers has also added cost and impacted efficiency of operations. Overall, the combination of cost headwinds and the increasing market uncertainty towards the end of the calendar year has had an adverse impact on profitability to date.

Actions to address performance shortfalls are underway, including the introduction of new organisational structures that will improve efficiency of operations and depot management. We are also restructuring our commercial functions and making investments in additional experienced sales capability to drive profitable growth and enable opportunities arising from the Group's integrated capability.

In January 2018, we appointed Stuart Godman to the Executive Leadership Team as Commercial Director. Stuart joins from DX (Group) plc, bringing a wealth of experience in Mixed Freight to the Group. He will play a key role in the commercial development of the integrated business, focussing in the first instance on driving margin growth in Mixed Freight and PMP.

Looking ahead, we are confident that our profit recovery actions are gaining traction, however demand remains uncertain. As a result, the medium-term outlook continues to reflect both risk and opportunity in the wider market.

Integration and business transformation

The Group continues to make good progress with its integration and business transformation strategy.

In light of market conditions, we have determined that the new structures and ways of working associated with the business integration require careful introduction so as to ensure that there is no impact in the quality of our service. As a consequence, we have revisited the time frames for realising initial savings; while we remain confident of achieving our £15m targeted efficiencies over two years, we now expect the weighting to be greater in year two of the plan.

Work on reviewing the Group's longer term network and operating model is continuing. The next phase of the review will determine the optimum network for greater efficiency and growth, providing a clear picture of additional savings and business opportunities of a fully integrated operation. We expect to have completed this work before the end of the current financial year.

There has been no change in the underlying financial condition of the Group since the Preliminary financial results announcement on 26 October 2017.

The Group will announce its interim results for the six months ending 28 February 2018 on 1 May 2018.

We refer to our announcement of 21 December 2017 that we had signed an agreement ("SPA") to dispose of our Books Division to the listed pan-European mid-market investor Aurelius Equity Opportunities SE & Co. KGaA (together with its subsidiaries and affiliates, "Aurelius").

The disposal was conditional only on anti-trust merger approval from the German Federal Cartel Office which was subsequently received (as expected) on 17 January 2018. As a result, the SPA is now unconditional and under its terms completion is obliged to occur by 31 January 2018 at the latest.

Despite this, Connect Group has been notified by a letter received on Sunday 21 January 2018 stating, inter alia, that Aurelius Omega Ltd (the purchasing vehicle) "can no longer complete on the current terms (as we, the Directors of Aurelius Omega Ltd, can see no way of financing this transaction)". Connect Group has sought urgently to clarify Aurelius' position , including the legal basis, if any, upon which it purports not to complete on the transaction and we have reiterated in writing that Aurelius is legally obliged to complete the transaction on or before 31 January 2018. Further, Connect Group has reserved its right to pursue legal redress against Aurelius in light of this development.

Connect Group will make a further announcement in due course when appropriate.

This stock was on my possible list of buys for dividend yield. I'll have to think a litle harder now.

This and its former incarnation NWS has been one of my favourite SIPP shares in the past, but since October I've only traded it by S/B - last trade on January 3rd.

I'll keep watching......

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