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Carillion post-mortem

Practical discussions about equity High-Yield Portfolios (HYP) for income
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NeilW
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Re: Carillion post-mortem

#109987

Postby NeilW » January 12th, 2018, 7:00 pm

Alaric wrote:One of the regular Guardian columnists has noticed that Carillion is in trouble.

https://www.theguardian.com/commentisfr ... ayers-bill

It's a valid point in the piece though, how entwined is Carillion in all sorts of public sector or near public sector projects? Were it to be taken into State ownership to safeguard these projects, what sort of price, if any, might existing shareholders see?


Why not just put Carillion into administration and get the debts and pensions monkey of the back of the business. That's what administration is for.

It's always worth remembering that the business is separate from the company that contains it. Once it goes into administration, the administrators can run the business or it can be pre-packed into another shell for £1. The creditors and the remaining shareholders then take the appropriate cold bath.

Capitalism without bankruptcy is like Catholicism without hellfire. It doesn't work as a concept.

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Re: Carillion post-mortem

#109988

Postby tjh290633 » January 12th, 2018, 7:06 pm

A late RNS has appeared: https://www.investegate.co.uk/carillion ... 08218019B/

Update on Recapitalisation and Restructuring Discussions

Carillion plc ("Carillion" or the "Group") met with representatives of its creditor groups to present its business plan on 10 January 2018. Further to this presentation, Carillion continues to engage in constructive discussions with a range of financial and other stakeholders regarding options to reduce debt and strengthen the Group's balance sheet. Suggestions that Carillion's business plan has been rejected by stakeholders are incorrect. It is too early to predict the outcome of these discussions but Carillion expects that any such agreement is likely to involve the raising of new capital and the conversion of existing financial indebtedness to equity which would result in significant dilution to existing shareholders. As part of its engagement with stakeholders, Carillion is in constructive dialogue in relation to additional short term financing while the longer term discussions are continuing.


Who knows what the market will think on Monday?

TJH

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Re: Carillion post-mortem

#109992

Postby Bouleversee » January 12th, 2018, 7:30 pm

One lesson is that we can't assume the Govt. knows what it is doing though they should do so and I am serious about writing to our MPs. If you look at the huge amount of work CLLN does for the govt. in numerous fields, one might assume that they were closely monitored and any problems would be recognised and sorted before they got to this parlous state. The opposition is, of course, baying for all these types of work to be renationalised rather than outsourced. I doubt if that would save much if anything, though it would be the blissfully unaware taxpayers that would be subsidising it rather than shareholders losing their investments. When you get down to the root of the problem, it's impossible for us to know how much is down to underquoting to get the contracts, and how much is due to the incompetence, laziness or possibly even dishonesty of the people actually responsible for or actually doing the work. Unless it was IRV, I believe CLLN sub-contracted a lot of the work, which does of course mean even more loss of control. At the end of the day, I think that a lot of workers at various levels think that the govt. (i.e. the taxpayer) is a bottomless pit and if this sort of thing is to be avoided, very rigorous controls are required.

Be that as it may, improvements are never achieved unless people make a fuss. It took me many years of lobbying to get independent taxation for wives' investment income and capital gains but that was worth fighting for. Once I have finished my tax return and that of the estate, I intend to start lobbying on this front as well. I hope I won't be a lone voice in the wilderness. Aux armes, citoyens!

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Re: Carillion post-mortem

#110018

Postby Nimrod103 » January 12th, 2018, 9:48 pm

To what extent are Carillion's woes due to unpaid Middle Eastern bills, or to underbid UK contracts? I have heard both things mentioned.
No position, but my late father's pension (after various changes in company ownership) was paid by Carillion.

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Re: Carillion post-mortem

#110040

Postby Alaric » January 13th, 2018, 12:01 am

Nimrod103 wrote:To what extent are Carillion's woes due to unpaid Middle Eastern bills, or to underbid UK contracts? I have heard both things mentioned.


Both probably. Underbid Middle Eastern contracts and unpaid UK bills as well perhaps.

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Re: Carillion post-mortem

#110046

Postby UncleEbenezer » January 13th, 2018, 1:02 am

Today's RNS (quoted by tjh above) reads like there's life there yet. Lots of dilution with fundraising and debt-to-equity, yes, but not a wipeout.

OK, no certainty of that, but one suspects the risk of wipeout is priced in. And perhaps that risk just fell a little?

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Re: Carillion post-mortem

#110051

Postby idpickering » January 13th, 2018, 6:11 am

vrdiver wrote:
As others have said, the lesson from Carillion is now worth more than the shares. I just have to work out what the lesson is!


Quite right vrdiver. Unfortunately, none of us can tell the future. For me, I'm going to stick to my 'big guns' only policy, and focus more on FTSE100 companies rather than their smaller brethren in the lower index in the future. Has anyone else here come to the same conclusion? Either way, all the best to those that are still invested in Carillion.

Ian.

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Re: Carillion post-mortem

#110055

Postby ap8889 » January 13th, 2018, 6:46 am

Just sticking to Ftse 100 is a dubious choice. The Ftse 250 has outperformed the 100 for quite a while so why limit your chances of success?

idpickering
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Re: Carillion post-mortem

#110058

Postby idpickering » January 13th, 2018, 7:03 am

ap8889 wrote:Just sticking to Ftse 100 is a dubious choice. The Ftse 250 has outperformed the 100 for quite a while so why limit your chances of success?


I do get where you're coming from ap8889, but bearing in mind that this thread is about Carillion specifically, I think it highlights the danger of looking to the lower index to much, if at all. Safety is paramount, and peace of mind too. I do hold Tate & Lyle, Royal Mail and Pennon Group from the FTSE250 currently though.

Ian.

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Re: Carillion post-mortem

#110059

Postby Horsey » January 13th, 2018, 7:18 am

idpickering wrote:
vrdiver wrote:
As others have said, the lesson from Carillion is now worth more than the shares. I just have to work out what the lesson is!


Quite right vrdiver. Unfortunately, none of us can tell the future. For me, I'm going to stick to my 'big guns' only policy, and focus more on FTSE100 companies rather than their smaller brethren in the lower index in the future. Has anyone else here come to the same conclusion? Either way, all the best to those that are still invested in Carillion.

Ian.


Pretty much my thinking Ian, except I also have a few large European good/high yielders in my mix - BASF, BMW, Daimler, Aegon, LVMH, Unibail-Rodamco, Allianz

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Re: Carillion post-mortem

#110069

Postby idpickering » January 13th, 2018, 8:40 am

Horsey wrote:
idpickering wrote:
vrdiver wrote:
As others have said, the lesson from Carillion is now worth more than the shares. I just have to work out what the lesson is!


Quite right vrdiver. Unfortunately, none of us can tell the future. For me, I'm going to stick to my 'big guns' only policy, and focus more on FTSE100 companies rather than their smaller brethren in the lower index in the future. Has anyone else here come to the same conclusion? Either way, all the best to those that are still invested in Carillion.

Ian.


Pretty much my thinking Ian, except I also have a few large European good/high yielders in my mix - BASF, BMW, Daimler, Aegon, LVMH, Unibail-Rodamco, Allianz



Thanks Horsey. Interesting that you've got some directly held European shares. That never crossed my mind to be honest, and I was always happy with the Global exposure of some of my larger listed holdings from the FTSE100. Hmm?

Ian.

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Re: Carillion post-mortem

#110073

Postby moorfield » January 13th, 2018, 8:54 am

idpickering wrote:For me, I'm going to stick to my 'big guns' only policy, and focus more on FTSE100 companies rather than their smaller brethren in the lower index in the future.


Me too Ian, the smallest cap dividend paying share I hold now is IMI, just below the FTSE100.

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Re: Carillion post-mortem

#110075

Postby kempiejon » January 13th, 2018, 8:55 am

ap8889 wrote:Just sticking to Ftse 100 is a dubious choice. The Ftse 250 has outperformed the 100 for quite a while so why limit your chances of success?

Now I guess that's capital or total return of the two indexes, for income/yield, the FTSE100 has outperformed for about as long as I can remember. The FTSE250 yields only 2.5% - whereas the 100 offers 3.5%. HYPers look at that at an individual level and there are FTSE250s yielding 4% or more and we have to satisfy our own safety criteria. I have previously used £1,000M as a guide minimum market cap but dipped below that too. There is rich pickings in both indexes but I suppose the idea is bigger could weather a longer storm better. I don't know if my experience adds or detracts much from that, I've had problems and recoveries in both indexes.

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Re: Carillion post-mortem

#110081

Postby ap8889 » January 13th, 2018, 9:20 am

I have spent the last few hours weighing up the option to pick over the CLLN carcasse.

CLLN is going bust without refinancing. That seems clear. They need 300m tout suite, or the pensioners get thrown into/under the PPF bus, the big contracts go into limbo and expensive chaos occurs.

The banks have declined, according to reports.

The lender of last resort is the U.K. Government.

If the Government offers support to salvage the company situation it faces bad headlines, accusations of moral hazard etc. Plus issues with unfair competition etc. But they keep critical contracted services running without disruption. Shareholders will get a very diluted part in a newly solvent company with billion pound contracts, and I think that is going to be valuable. SP may ultimately rise!

If they let CLLN go bust, they will face angry pensioners, the PPF takes a hit, chaos will reign as contracts fail. Bad headlines here too.
Shareholders get zero.

At 14p, it's an interesting gamble. I have been playing with the Excel this morning trying to work out if it is worth a small fun money flutter.

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Re: Carillion post-mortem

#110082

Postby moorfield » January 13th, 2018, 9:21 am

idpickering wrote:Either way, all the best to those that are still invested in Carillion.


Well in my portfolio, Carillion has gone from this ...



... to this in the space of a year.



Ouch!


Coming back to HYP Practical, perhaps it's a "no brainer" that dividend cutters should just be sold immediately following announcement (pyad was clear on that I think?), but many of us don't (TJH has dicussed a few times IIRC?), and the Board Guidance doesn't deal specifically with this, only going as far as stating:

A long term buy and hold (LTBH) of these shares is envisaged.


So other than "feel", "smell" and the already cut dividend, did others here apply any other criteria when selling Carillion from their portfolios?

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Re: Carillion post-mortem

#110084

Postby moorfield » January 13th, 2018, 9:27 am

ap8889 wrote:If the Government offers support to salvage the company situation it faces bad headlines, accusations of moral hazard etc. Plus issues with unfair competition etc. But they keep critical contracted services running without disruption. Shareholders will get a very diluted part in a newly solvent company with billion pound contracts, and I think that is going to be valuable. SP may ultimately rise!

If they let CLLN go bust, they will face angry pensioners, the PPF takes a hit, chaos will reign as contracts fail. Bad headlines here too.
Shareholders get zero.


My thoughts too, they are damned if they do and damned if they don't. Which means it might come down to political calculus - which option gives Jezza, the Unions and co. more ammunition to kick the Government with?

At 14p, it's an interesting gamble. I have been playing with the Excel this morning trying to work out if it is worth a small fun money flutter.


Then don't even bother with the shares. If you wan't a fun money flutter then use a spread bet. This time next year Rodders ...

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Re: Carillion post-mortem

#110090

Postby monabri » January 13th, 2018, 9:57 am

At the moment the shares are priced at 14p. We've been told they will be diluted further. Some here postulate of a brighter future for Carillion in X years time ( who knows!). So, at the risk of posting on the wrong board, wouldn't it be better to cash in at 14p, await the dilution to 1p (?) and then take a punt on recovery hoping that the penny share one day increases?

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Re: Carillion post-mortem

#110093

Postby ap8889 » January 13th, 2018, 10:06 am

I think a diluted share of a solvent company could be worth instantly far more than an undiluted share in an insolvent one. If Carrilion was refinanced and solvent it would be worth way more than the current MCap based on the contracts and orders it has. Currently it isn't going to survive long enough to profit from them, but if thrown a lifeline, who knows?

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Re: Carillion post-mortem

#110099

Postby Bouleversee » January 13th, 2018, 10:20 am

Alaric wrote:
Nimrod103 wrote:To what extent are Carillion's woes due to unpaid Middle Eastern bills, or to underbid UK contracts? I have heard both things mentioned.


Both probably. Underbid Middle Eastern contracts and unpaid UK bills as well perhaps.


CLLN were very slow indeed in paying their own bills to companies they had outsourced to.

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Re: Carillion post-mortem

#110106

Postby Dod101 » January 13th, 2018, 10:27 am

Were it not for Government involvement Carillion would have been in admin by now not much doubt about that. The lessons? When a profit warning comes, assume it is the first of two or three. Sell when a dividend is suspended. The actual timing of the sale is up to the holder but I do it right away.

A HYP is about income through dividends not about recovery situations. There are plenty other fish in the sea. LTBH does not mean hold at all costs and in any case pyad is not a genius such that his 'rules' need to be followed to the letter.

Dod


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