HOPE FOR 2012

web: www.tclarke.co.uk
Company was preferred bidder on the London Olympic Stadium

Bit of background. As we ran up to 2008 the city boys became more and more unhappy with the level of dividend from CTO and pressurised the management to pay out more. It fell out of favour as the management resisted (somewhat). As it turns out keeping hold of that cash was really important as the recession hit.

As we stand now we have imho a stock where there is evidence that turnover and margins have picked up but no-one has really noticed. If you read the last few accounts and interims the underlying profitability is masked by a couple of legacy contracts which people took fright over.

One of these caused a technical breach of banking covenants. It was a badly worded RNS which cause the collapse to 40-50p where I collected a lump of stock. The technical breach was caused by a contract from about 2008 which CTO inherited on acquisition of a business. This went to arbitration with settlement awarded against CTO but the whole cost was covered by their insurance. They then on advice of insurers appealed the decision and the settlement went up not down and exceeded their insurance. Thus technical breach. The excess payable by CTO was declared at £800k which in terms of a company with an underlying profitability of £2m is annoying but was never going to hurt them as they would remain cash flow positive.

From memory the RNS was clarified a day later but by then it was too late for sentiment and the share price. Great for me though as I collected a bundle under 50. Even got some from 42.5.


So, basically for me this is simple. Company with long term solid consistent performance up to the recession paying good dividends then struggles through the recession but still maintains some profitability. City boys fail to understand M&E sector is last to recover and don't forward forecast profitability well enough.

Cash got a bit tight towards the end of the recession but bank facilities very clear in all interims and finals and more than sufficient for needs. Requirement for cash drops as profitability flows through to bottom line. Expect directors to cautiously increase dividend while they strength the balance sheet.




Positives:
Sector improving
Order book at an all time high and rising
Legacy contract issues depressing the share price dealt with
Cash position fine with lots of headroom on bank facilities
Margins so low as the only way is up
Dividend 4%

Negatives
Up front costs on new large projects coming onstream may depress profit this year (depending on how they account for them)
Pension fund deficit is bigger than you would like but there is a plan agreed with trustees and frankly if profitability picks up cash flow would be such that this becomes irrelevant in about 2 years
A lump of goodwill on the balance sheet which I'm not sure I like. Accounting principles are fine on it and it has no cash impact but I'd prefer they slowly write it off over say 30 years.
New large projects coming onstream likely to suck out cash


Our you could look at this way. In 2006 when the share price was 250p, turnover was £186m, profit was £7m and dividend was 11p.
Turnover likely to be £225m+ this year. Profits at say £2-3m this year then increasing rapidly. Balance sheet will repair itself as profits convert to cash in due course.

And finally I like the way it's slowly diversifying away from pure construction to add some multi-year maintenance contracts to its portfolio. I hope they do alot more of this as it's creates long term shareholder wealth.

Speculatively if they could do more facilities maintenance they could be rated more like Mitie or Mears. This would be very interesting indeed but that isn't going to happen unless the management make it so.

Finally I believe the share price has been depressed by Henderson (check) selling out. They have been dripping shares into the market for the last 2 years but have accelerated in the 3-4 months. I think they have very few left. I've been collecting these for ages and have had to trade very carefully to collect stock without shifting the price. There was a buyer down at 75/76 for ages and I wonder whether they got frustrated and moved up to 80 as they felt they weren't getting enough.

If you want to trade this WNTS run the show on this one 90% of the time. They are extremely clever and know what they are doing. Very patient too.

I know this sector having worked in M&E for 8 years and I would go so far as to say that given the shortage of decent M&E contractors even if the directors were completely incompetent margins would pick up through natural macroeconomic effects. I don't think they are incompetent of course - they have steered a path through the recession and come out the other side in reasonable shape. I do wish they perhaps had more vision outside of strict M&E hard nosed new build large projects but I see some of that coming - for example the London underground framework

Interim statement tomorrow. I'm not sure this set of interims will excite as the large projects are only just starting to begin but I'm holding for a number of years

ok - so just to be clear it's trading statement tomorrow not interims.

Good move into the close. Someone clearly wanted in or out before tomorrow's statement and left it to end of the day. It will be interesting to see tomorrow if there is any follow through.

CC

good luck and so far has work for you, I was trading this stock a couple decades ago but many changes for the company since. When I looked a couple weeks ago, I found there was still too many negatives things on the balance sheet

1 - Low margins on high sales means also large administrative expenses that eats most of the operating profits.
2 - Pension fund deficit is far too large
3 - not paying any tax yet, when they will have to, then will eat on the profits.
4- the profit forecast is bullish, but even so the PE is over 20 ( at interim stage the EPS was 1.96p )

Positive
1 -Paying a good dividend ( hardly covered last Year ), not so good as the share price is rising now
2- Order book increasing
3 - the best is the NAV, 56p and increasing

The Breakout on the chart is on
RNS as said before on the order book much the same as at Interims £320M but margins will improve for 2016 / 17 as bidding has been for better returns.............


TClarke sees improvement in core markets

Building services group TClarke says its underlying performance for the year continues to be in line with the board's expectations, reflecting the steady improvement in its core markets.

As expected, net debt has reduced during the second half of the year and as at the end of October stood at £6m (30 June 2015: £8.7m) in line with internal forecasts. The Group's order book as at 30 September was 15% higher year-on-year and maintained at the level of £320m reported with the interim results. Of the current forward order book, £190m represents work secured for 2016 and £50m for 2017 and beyond.

It says: "More pleasingly, we can see a significant improvement in the quality of our order book as we work through the majority of contracts awarded during the down-cycle. We are increasingly confident that this will be reflected in a material increase in our operating margin during 2016 and 2017.

"The improving quality of our order book is a function of our strategies of focusing on those business units and regions with the greatest potential to impact our future performance, especially London; aligning ourselves with high quality contractors; and bidding only on those contracts that offer appropriate returns."

The group also announced that Mike Robson has been appointed as an independent non-executive director and joined the group on 18 November 2015.

I'm happy enough with the trading statement. It's the margin improvement I'm most interested in and I'm pleased to see a clear statement that this is improving. Clearly some of it was already in the price.

Thanks for the info CC, away most of last week - so I've missed a decent rise.

I'll have a proper read this week.

It appears CTO was "tipped" by Glen Arnold around 11/11/15 in his subscribers newsletter

Paul Scott is doing an interview with CTO on 25/11/15 and has a write up here:

http://www.stockopedia.com/content/small-cap-value-report-20-nov-2015-idea-cto-hal-cog-112515/

I'm holding for the long term as I don't think the share price is going to move dramatically until the improved margins as promised by the directors actually appear and that won't be confirmed until final results published in March or April.

Interview with directors here http://qualitysmallcaps.co.uk/

Good interview if you are not familiar with the sector.

Interim statement on the 16th January and stock has been rising slowly all week. It's even up today.

Given all the bargains on FTSE right now, I interpret the rise as someone in the know has knowledge of what the statement is likely to say.

And up it goes again today. Some trades going through at 90.0 and not that many sellers around. Someone clearly wants in before the interim statement. I hope it does not disappoint

CTO 87.25p ahead 3.25%

TClarke trading in line
TClarke's trading for the year to date is in line with the board's expectations, with revenues to the 30 April up at GBP78 million from GBP72 million a year ago

An update issued ahead of the annual general meeting says: "The targeted tender process that we have implemented across our businesses has been successful. This has meant that the value of our replenished forward order book remains strong and it has now reached a new record level, increasing 10% to £330 million compared to £300 million at the same time last year.

"The board believes that our expectations for the Group's annual revenues will be met for the current year. The majority of the Group's businesses have secured revenues in excess of 85% of their targets. Looking forward, 45% of forecast revenues have been secured for 2017 and a further £38 million for 2018 and beyond.

"We remain confident about the progress we are making. We are seeing margin improvements across the Group and we will continue to target opportunities to match our planned capacity and resources with a focus on projects which will further improve the margin profile of the business."

Looking ahead, the group says: "Overall the trading environment continues to improve and the Board remains confident for future prospects."
The next update is scheduled for 2 August with the release of the group's interim results.



edit - I have asked to fix the chart data

I am still in this in a big way and picked a few up over the last couple of days as it fell prior to the trading update.

I'm assuming it fell in line with the "leaked" IRV situation although that's just a guess.

Very low volume today, with SNGR and WNTS slowly moving up on L2 as if they are searching for sellers. I will be interested to see if it continues up to resistance at recent resistance at 90 as the day goes by.

I guess price has pulled back as Robson offloads his stock. I've added a few.

CC - you appear to believe in this Stock, LT, - so can you explain most-recentRNS re funds recovery - Is this still the Co.Acquisition that went wrong....or something else.
In May16 you bought more, yet sp is lower now...could there be more bad news?...e.g Not just "like losing this Cash-Recovery", I'm guessing the sp is depressed for other reasons: despite Order Book looking healthy....
BTW, did you attend their "site-tour-plus" yesterday? regardsH (+EDIT-) ThanksCC

The most recent RNS refers to a £2.8m fraud against the company from one of the companies that was acquired.

According to company statements the fraud will have no impact on this years profit so it seems reasonable to assume this is invoice fraud and accounted for in the books. (fake invoices with no supply of goods)

The sales price is depressed due to:
1. General construction sector Brexit
2. No evidence of margin improvements (although I believe this is happening but the wider market await firm evidence through the P&L)
2. Pension deficit due to low interest rates. (This isn't a long term problem but the size of the pension deficit is annoying rather than uncomfortably large. Scheme is closed to new entrants and would look very different if interest rates went up a couple of percent).

I am a little frustrated with this trade at the moment. We will see what happens after the budget statement but I expect the whole sector is stuck where it is until we have more clarity around the long term future of the UK post Brexit.

In the meantime I'll collect my dividends as I am on PSN and TW. and wait things out a bit.

Interim statement today. Shares currently up 20%. Getting there...

Up 9.5% again today. Finally JPM may have finished selling. Maybe they have a few left. They've spent the last year selling nearly 10% of the share capital for what reasons I don't know and don't care.

90p recent top which I trust will be achieved in the next 3-6 months. I'll post a long term chart when I have a few minutes. Share price used to be 300 a few years ago.
Need the pension deficit to improve through through macroeconomic factors ideally

The green line is about to cross the black one. Share price heading back to the recent 90p high where I expect some resistance. After that who knows. Price used to be 300 (without the pension deficit issues) and this sector appears to be heading in the right direction.

CC - it looks bullish - although starting to look a tad over bought.

Thank you Skinny. I am expecting it to pause at 90 which is the pre-Brexit high.

Profits and cash are good but pension deficit remains a considerable issue. Maybe inflation will help fix that