HOPE FOR 2012

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

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

TClarke plc ("the Group" or "TClarke"), the Building Services Group, announces its half year results for the six months ended 30th June 2018.

Business Highlights:
· Delivering against our strategic plan to achieve medium term margins of 3%, underlying operating margin increased to 2.6% from 2.0%.
· All regions profitable in the first half of 2018.
· 7% increase in revenues to £153.5 million.
· Year on year net cash improved from £2.4 million to £4.7 million.
· 10% increase in interim dividend to 0.66p per share (30th June 2017: 0.6p per share).
· £370 million forward order book (30th June 2017: £392 million).
· Bank Credit approved terms in place for extension of banking facilities to August 2022.

Plus pension deficit down £4.5m from year end and another £0.5m non-recurrent benefit from fraud recovery.


N+1 Note
"Shares attractively valued - In our view, TClarke is overdue a re-rating. The shares trade at a substantial discount to peers (33%-35% on a P/E basis), despite maintaining earnings forecasts (9% and 7% EPS growth forecast), strong earnings visibility and an attractive yield at 4.4%. We believe a sector rating is justified - a blended average of peer group multiples implies a share price of 104p. We believe the shares could exceed this level as EPS and order book growth is delivered."