HOPE FOR 2012

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

Whoosh - once again moving up 10%+, this time as a result of the AGM trading statement.

It's had another bash at resistance at 90 but inevitably we still have a few sellers to shift around this area.

Why I like CTO

Financial year end Dec 2016
Cash £12.3m, revolving credit facility drawn £3.0m = Net Cash £9.3m
Interest paid in year £0.1m, in-line with revolving credit facility suggesting debt does not exceed £3.0m at any point in year
Underlying profit £6.2m, Reported £3.7m. Difference due to £2.7m fraud
EPS underlying 11.7p, reported 6.9p

Current dividend 3.2p. Yield 3.7%. In order triple the dividend to 10p, if 30% of pre-tax profits distributed (50% retained, 30% dividends, 20% corporation tax), pre-tax profit of £14m is required.
As company has nearly no debt, pre-tax profits service pension deficit, acquisition and shareholders. Pension deficit is £20m but agreement with pension trustees in place to fix by 2029 and payment profile similar to recovery payment in 2016.
Order book up 22% compared with this time last year. Margins improving driven by market recovery but more importantly by improving product mix and vertical integration.
In February company stated would beat analysts expectations for year and re-affirmed same in May. Not unreasonable to suggest an underlying profit of £9m for 2017.
£9m profit this year = £6.5m free cash flow assuming only minimal rise in dividend in 2017 as strengthening balance sheet and building cash for acquisition more important in short term than dividends. Would give £15.8m net cash by end of year.
By this time next year net cash will be £20m and what are they going to do with it? CTO used to pay dividend of 13p back in 2008. By 2020 if they get to £14m profit by then, if they don’t increase the dividend net cash will be £32.5m or 95p per share (recognizing that pension fund deficit will still exist, although I expect annuity rates to recover in this timeframe)
Downside Brexit apparently. Upside is government get hold of PSBR and are able to fund increased capital spend.

Think within 3 years worst case scenario is 50% upside, best case a multi-bagger.

Half year results will be interesting but we will have to wait until year end until we see the full picture. The management team imho are excessively cautious at half year to give themselves some slack in case the second half does not go well

Still can't get through 90p, possibly because in-house broker target is 100p.

A very frustrating share this. Picked some more up recently. It seems to be under the radar and no-one is interested.

N.G. Bailey - one of the few M&E contractors and competitors who aren't part of a larger group. Results out yesterday. No market reaction in share price on CTO at all.

https://www.constructionnews.co.uk/companies/financial/ng-bailey-doubles-profit-and-grows-revenue/10021372.article?blocktitle=More-news&contentID=7121

Doubles profit to £12m on a turnover of £500m. It's all about the margin.

Which is where I think this stock is going and why not only have I filled my boots but also my wheelbarrow.

I'm hoping it's going to do a NMD

Continuing to hold. Interims next Tuesday. Hoping for it to break over 90. thought it might do it today but construction PMI seems to spoilt that plan.

Acquisition

Acquisition of Eton Associates

TClarke plc ("TClarke" or "the Group"), the building services group, is pleased to announce the acquisition of Eton Associates Limited ("ETON") a London based privately owned control systems specialist offering a variety of Building Management Systems.

ETON is well known to TClarke and the Group has worked alongside them on a number of high profile projects in our core markets in London. It specialises in installing and maintaining sophisticated building controls systems on complex office buildings. Recent projects ETON has been involved with include, 20 Fenchurch Street, Chiswick Park, One Canada Square, Bloomberg London, Lacon House and Angel Court.

Under the terms of the acquisition agreement, TClarke has paid an initial cash consideration of £1.5 million, and a further £0.5 million is due to be released to the vendors following agreement of the final completion accounts. Further consideration of up to £0.6 million, will become payable to the vendors, subject to certain earnings targets being met in the two years to 4th August 2019.

For the year ended 31 May 2016 (the latest financial period for which audited results are available), ETON reported revenues of £9.5 million and a pre-tax profit of £0.3 million. As at 31 May 2016 it had gross assets of £3.2 million and net assets of £0.7 million.

After integration costs are taken into account, the acquisition is expected to be earnings enhancing in 2018.

With regards to the two principal directors and owners of the business, Jamie Ward will be remaining with the business for a minimum of two years following the acquisition and Graham Millward will remain available as a consultant to the business for a two-year period.

Acquisition Rationale

The acquisition of ETON is part of TClarke's stated strategy to grow and develop its range of services in the area of Intelligent Buildings, providing our customers a comprehensive offering and supporting our core M&E contracting business.

About ETON

ETON employs around 80 people and is currently based in London Docklands with a manufacturing plant in Essex. The intention is to co-locate the operations of ETON at our London Head Office at Moorgate and at our recently opened purpose built prefabrication facility at Stansted.

All of ETON's engineers are trained in Cylon, Honeywell, Trend & Tridium Building Control Systems which are the most utilised systems throughout the world, these engineers are supported by dedicated in House Software Design Engineers.

ETON's current client relationships include:

· Canary Wharf Management and Contractors
· CBRE Maintenance
· Lend Lease
· Sir Robert McAlpine
· Stanhope Plc

Interim Results for the six months ended 30 June 2017

TClarke plc ("the Group" or "TClarke"), the Building Services Group, announces its interim results for the six months ended 30th June 2017.

Business Highlights:

· £392 million forward order book (30th June 2016: £320m).
· 17% increase in revenues to £142.8 million
· Year on year net cash improved from £1.3 million to £2.4 million.
· 20% increase in interim dividend to 0.6p per share (30th June 2016: 0.5p per share)
· New 26,000 Sq Ft prefabrication facility at Stansted, Essex now operational
· Acquisition of control systems specialist Eton Associates Limited
· Investing in our future workforce, 70 new apprentices begin training across the UK from September.


more.....

Market hates the numbers as I write. Perhaps it would have been helpful it they had included a 17% increase in profit before tax in their business highlights but they obviously didn't feel it was an achievement.

My analysis suggest they will still beat market expectations for the year but now only by a small amount rather than now with ease.

IMHO interim profits depressed by FD continuing to clean up the balance sheet. Market appears suspicious that there is more to come. I think it's now the other way around and FD is now hiding money for a rainy day.

When the FD has finished hiding money for a rainy day I still remain of the view that this stock will fly.

In the meantime it looks like I will be continuing to collect my dividend which at around 4.1% is ok but I'm more interested in the capital appreciation which isn't going to plan at present.

I think it will claw it's way back to 90 now, once the analysts have worked out the underlying position, where once again I expect the sellers to come out at resistance.

TClarke plc ("TClarke" or the "Group"), the Building Services Group, today issues a trading update for the period from 1 July 2017 to date.

We entered 2017 in an optimistic mood. Our trading performance during the period has continued to justify that optimism and the Board is pleased to report that the results for the year ending 31 December 2017 are expected to be in line with current market expectations, which are an underlying profit before taxation of £6.5m and revenues in excess of £300m.

In August we announced the acquisition of ETON Associates Limited ("ETON"), a London based privately owned control systems specialist offering a variety of Building Management Systems. The acquisition, together with investment in our new off-site, prefabrication manufacturing facility at Stansted, has entailed aggregate cash expenditure of approximately £3.0m in the current financial year. However, the Group's cash position remains strong with the year-end net cash position, which can be affected by timings of our stage payments, expected to be in the region of £9.0m.

We continue to target projects that we believe will add value and help to improve the margin profile of the Group and the Board is encouraged that, whilst maintaining our selective approach to bidding, our forward order book now stands at £380m against £320m at the same time last year and a record £392m at the interim stage.

Some examples of recent project wins include;

· Our Transport Division has been awarded a place on the MAG (Manchester Airports Group) EMA Small & Medium Works Framework covering M&E projects up to £3.0m at East Midlands, Manchester and Stansted Airports. The Framework will run for an initial period of three years.

· In Vauxhall, London we have secured the Electrical Shell & Core Package at One Nine Elms. The two towers on the One Nine Elms project rise to 58 storeys (City Tower) and 43 storeys (River Tower) respectively, accommodating 487 new homes. At the base of the towers, opening onto a new piazza, will be a 187-room Dalian Wanda luxury brand 5-star hotel, the first of its kind in Europe.

· The London region has been awarded the Shell & Core package for building S9 at The International Quarter London, Stratford development. This 10 storey, 26,000m² office building represents the next phase of the 22 acre overall development by Lendlease (following on from the successful S5 & S6 projects). We have secured both the M&E works on this phase.

Also, our team in the North West is in final client negotiations to secure an extension to the current BAE Systems contract at Samlesbury and Warton for a further three years.

In addition, we have handed over two significant schemes in the period, Bloomberg's New European Headquarters in the City of London and Rathbone Square on Oxford Street, the new home to Facebook's London Headquarters.

We are pleased with the progress of integrating ETON into the Group and the positive reception in the market place for the acquisition along with early feedback from clients to our strategy of jointly targeting bidding opportunities.

There remains a clear demand for our specialist services in the markets in which TClarke operates. We have already secured £190m and £100m of our planned revenues for 2018 and 2019 and beyond, respectively, and we are encouraged by the number and quality of the opportunities that continue to be available both within our established M&E markets and from the new opportunities that we are pursuing, driven by sustained investment at national level in both technology and infrastructure. The future for the Group remains encouraging.

Moving up nicely today after appearing to have cleared a seller. WJG would have been a better bet though even after the last weeks fall.

Finally starting to move. Tipped by Naked Trader this time.

Over the last 3-4 months selling appears to have gone on and on. Today it's finally broken the downtrend line, although it seems to have got stuck at 80 for the moment as someone offloads.

Fingers crossed.

Well it was going so well until along came Carillion. At the end of last week significant volume was going through at 90 (resistance) and someone was throwing around 25k trades like they were confetti. About 1% of the total share capital exchanged hands up there.

And then Carillion. Market has reacted by a bit of sell-off like the rest of the sector. I assume due to nervousness around the balance sheet.

All unwarranted imho. CTO had £9m net cash at last year end and will deliver £6.5m profit this year. The £9m is after their drawn £3m revolving credit facility which they pay for whether they use it or not. I assume they are using it most months of the year as that would fit with their annual interest payments in note 6 to the accounts of £0.1m. So, a bit of window dressing on the accounts at year end, just as everyone else does.

So, no concerns over cash here. With a years profits they probably don't use the RCF most months of the year. Possibly it won't be drawn at year end.

I'm not sure what the market wants to see but you won't find many quoted construction companies with no debt.

Oh and they issued a statement saying CLLN would cost them less than £100k so that's a rounding on £6.5m profits and probably covered by the bad debt provision anyway.


So, I'm left with a sell off for no reason based on market sentiment.

Of course we have the sizeable pension deficit (£22m), but there we have a 10 year recovery plan which is now a 9 year one and the additional contributions are already in the run rate and profit of £6.5m.

So, I'm a little frustrated. Carillion impact should be positive for CTO as this should ease pressures on margins in the industry and Carillion's work will now flow to respectable contractors who CTO are willing to work for.

Perhaps the pension deficit looks scary, but it shouldn't look any more scary than it did a week ago. Unlike Carillion, the balance sheet makes sense. Profits are flowing to the bank balance and the interest on the bank balance confirms that day to day they are borrowing very little and possibly in the 2017 accounts when they are published zero

This stock appears to require endless levels of patience. Market cap of £35m. This years profits £6.5m underlying (£7.9m non-underlying). No debt. Improving margins in sector. Business growing. Pension deficit decreasing as interest and annuity rates rise.

http://www.tclarke.co.uk/news/an-interview-with-eton-associates-director-jamie-ward

An interesting and educational article.

Why all the excitement in the market now about ‘Intelligent buildings’ ?

In simple terms, if you can learn in real time from the data coming to you from millions of sensors in every item on a building control network, then you can only heat or light the areas people need right at that moment, you can learn from patterns of behaviour, you can give people the services they want - be that data, wifi coverage, heating, security or whatever - and so you can get the most value financially from owning that buildling and create the best possible experience for the end user.

To do those things, you need to have all the building’s systems integrated in one system and accessible through what we call ‘one pane of glass’ so you’ve got a dashboard to control and understand the whole thing.

I recently saw the global CEO of a major organisation calling for a worldwide decrease in energy costs across that company’s estate. For them, a 1% decrease in those costs would amount to savings of millions. Intelligent buildings will make these and many other aspirations possible now.

Mark Lawrence, Chief Executive commented:

"I am pleased to report that TClarke is in an excellent position. We are focused on the future and have a clear strategy to deliver on our five key strategic markets. We are confident that this will enable us to continue to drive improving returns for our shareholders, as is demonstrated by our setting ourselves the medium term target to increase underlying operating margin to 3%.

Underlying this, TClarke shows strong and improving cash generation, rigorous risk control, excellent revenue visibility, a balanced quality order book and improving profitability. This financial and strategic strength is allowing us to invest for future growth in our markets, driven by investments in infrastructure and the digital world."


My largest holding is still struggling along. I'm in profit and things are going well enough but I really did the share price would be substantially higher by now when I placed my trades.

Another post from me on my (second) favourite stock. I'm afraid it's been moved down the list one place. I'm holding and will be doing so for a number of years. If anyone can find a trade as good as this one feel free to email me. Thanks


The latest RNS states a objective of an underlying margin of 3% in the medium term. They don't say what the medium term is but I interpret that to mean somewhere between 2 and 3 years.


So, worst case. 3 years to get to 3% margin, 3% turnover growth, P/E 6
Current turnover £311m * 1.03^3 = £340m
£340m at 3% margin gives a profit before interest of £10.2m and £9.4m after interest
If we use a really low P/E of 6 this would give a valuation of £45.7m or 109p per share, some 31% higher than it is today at 83p. This is pretty close to the N+1 Singer note Rivaldo refers to of 106p per share although I don’t have access to it and don’t know what calculations they do.

Best case scenario, 2 years to get to 3% margin. 6% turnover growth. P/E 10
£311m*1.06^2=£350m
At P/E of 10 gives market valuation of £78.6m or 187p per share.

In both scenarios dividend is now 3.5p (4.2%) and given that it went up 0.3p this year I think it's safe to say it's guaranteed it will go up 0.3p in 2018 and that given the cash flow it will move higher. I’ve ignored the fall in interest costs in the above calculation as the cash balance increases but this would add to the valuation too.

So, how do-able is the 3% margin. Currently it looks like this:
Revenue Profit Margin
London & SE 177.6 8.5 4.8%
Central & SW 62.6 -1.8 -2.9%
North 48.0 2.4 5.0%
Scotland 23.0 0.8 3.5%
Group -2.6
Total 311.2 7.3 2.3%

To get to 3% we need a profit of £9.3m, an additional £2m. If we look solely at Central & SW the loss in June interims was £2.2m, but ending the year at a loss of only £1.8m suggesting it’s now turning a profit. The finals say this “Looking forward, South West has its budgeted turnover secured for 2018 with good quality jobs. As a result, the region is expected to be profitable in the current period”.

It would seem that this would produce the additional £2m on it’s own or alternatively you might view the £0.4m profit in the second half of the year could be doubled giving an improvement of £2.6m.

We should note the additional £0.25m additional contribution to the pension scheme will have to be found too but however I look at this the 3% margin doesn’t look too challenging and whilst the directors are renowned for under-promise and over-deliver it seems the 3% margin might be done in 2018 especially if you consider the general margin improvements being reported by the sector. I will curb my enthusiasm and suggest there will always be a problem job somewhere in the company and thus the 3% won’t be achieved this year but a two year time horizon does seem very do-able.

Finally I note the company is retaining about £5m cash a year after payment of corporation tax and dividend (if no further significant investment or acquisition) which is going to give net cash of around £23-25m within 2 years. I would guess part investment in the future and part dividend growth.

We are pleased to report that we continue to expect revenues and profits for 2018 to be in line with current market expectations. To put those in context for the year ending 31 December 2018, these are forecast to be revenues of £300 million, underlying profit before tax of £7.0 million and underlying EPS of 13.2p. We also expect to maintain our trend of underlying positive movement in net cash year-on-year.

Our forward order book has been replenished and as at 30th April 2018 stood at £368 million, increasing from £337 million as at 31st December 2017. Encouragingly, we are seeing no lack of opportunities, but we maintain a strict policy only to bid for projects that meet our internal risk analysis and where we are comfortable with the covenant and market reputation of the contractual counterparty.


N+1 Upgrade with “In our view the shares are due a rerating, currently trading at very modest multiplies of earnings (6.1x P/E with a 4.6% dividend yield)”.

The Company announces that Trevor Mitchell, Group Finance Director of the Company, has advised the Company that he has made two purchases of shares in the Company. He purchased 50,000 shares at 82p each on 26(th) June 2018 and he purchased 67,000 shares at 83.5p per share on 27(th) June 2018.

https://www.moneyam.com/action/news/showArticle?id=6039603

Regent Gas Holdings buy 3.44% of the shares. A very strange purchase as although they do own a few shares they are in the business of gas supply.

They have £36m net cash and their owner is worth £126m according to the Times rich list.

Whilst one could speculate on synergies, one doesn't need to buy shares to do that.

Rather a puzzle. I guess I'm hoping there is something to this which will become apparent in good time.

The puzzle continues.

Regent continue to purchase shares sourcing them from Miton who have been selling out.

Regent have now acquired 6.18% in the last month. Miton still have 10.81% so plenty left to sell if they want to.

Another 340k went through yesterday so assume that's another Miton to Regent switch.

This would take Regent to 6.99% (as much as they can buy without triggering another threshold), and Miton to 10.00%, which will trigger another RNS as Diverse Income Trust which gets reported separately will fall below 4%)

Are Miton going to stop selling at 10% as it's a nice round number? I doubt it.
Are Regent coming to come in for more and take it straight to 8%+ in one day like last time on the move from 4% to 6%? Maybe.

It's interesting to watch this play out. So far Miton have managed to sell 7.13% of their shareholding of which 6.99% has gone to Regent. All in the last month. The difference is 58k shares of which I've bought 36k shares in the same time period.

It's like a game of chess. Results on Tuesday 7th July. I sense Miton aren't bothered about selling by results. They will have attended the analysts meetings over the years and know the results are stable enough. Regent may see it differently.

Commentary of likely results coming up on 7th July.

Last half year CTO reported an underlying profit before tax of £2.9m at half time and £6.5m for the full year. This included a £2.2m loss at half time in the South division due to final account settlements and late start on projects.
Analysts forecasts are for a full year profit of £7.0m this year and I'm not aware of a forecast for the half year.

We know this loss in the South has been eliminated this year as the FD stated at the AGM that South was running a profit for the first four months of the year.
Some crude maths would therefore suggest that if the £2.2m isn't going to re-occur and additionally they will have a contribution from the purchase of Eton this time, the company should make the £3.5m at half year with considerable ease, even if some cock-up occurs somewhere else or the trading in London has slowed down a bit.

All imho

Results tomorrow. Project win at Battersea Power Station on Friday which has to be a big one.

MM's having a laugh today.

Current spread 81.6-85.2. Any sell order on the book at 85.0 is being ripped off instantly yet I can sell significant quantity at 83.0. Buyers being made to pay almost the full offer.

Results leaked or someone wants in?

Both Miton and Regent have ceased selling and buying for the last week