Talk Talk

[Paultry]

I have just doubled our holding by purchasing 1,000 at 164.7p each plus £5 dealing and £8.24 tax.

There are problems, and I know Luni would tell you not to chase yield but I have gone ahead. Paul

[Wizard]

It's a tough one. Profits up, declared an interim dividend still, but shares in the toilet. As I understand it there is a worry about the debt covenants, but I have not dug deep enough to find out the details. I have chased 'bargains' before and been rewarded with burnt fingers, so I think I will pass.

Terry.

[blobby]

It's a tough one. Profits up, declared an interim dividend still, but shares in the toilet. As I understand it there is a worry about the debt covenants, but I have not dug deep enough to find out the details. I have chased 'bargains' before and been rewarded with burnt fingers, so I think I will pass.

Terry.

The covenants seem reasonably well explained in the Annual Report note 18. Note 18 also seems to suggest that nearly all the debt is not maturing for quite some time. The share price remains a mystery to me particularly as I bought recently at over £2 per share.

[Wizard]

It's a tough one. Profits up, declared an interim dividend still, but shares in the toilet. As I understand it there is a worry about the debt covenants, but I have not dug deep enough to find out the details. I have chased 'bargains' before and been rewarded with burnt fingers, so I think I will pass.

Terry.

The covenants seem reasonably well explained in the Annual Report note 18. Note 18 also seems to suggest that nearly all the debt is not maturing for quite some time. The share price remains a mystery to me particularly as I bought recently at over £2 per share.

Not really unless I am missing something, an extract from Note 18 says:

"The financial covenants included in all facilities are identical; they restrict the ratio of net debt to EBITDA and require minimum levels of interest cover."

What it does not say is what the ratio is that applies. With debt rising maybe 'the market' knows they are getting close to that ratio. In the 2016 annual results they said they were in compliance in H1 2016 when at 2.8x EBITDA; at the time they said they were at 2.6x and forecast coming down to 2.0x. But by the H1 2017 interims it was at 2.8x again. So I do not think I do understand the trigger points in the covenants and against previous forecasts they are moving in the wrong direction. But as we don't know the detail 2.8x could be way below the trigger point.

Happy to be corrected.

Terry.

[blobby]

Wizard (Terry), thanks for the reply. That is some food for thought.

The interims do also say

headroom on these facilities was £162m

which is quite a comfort as I would have thought that the headroom would not be given if it would exceed the covenant.

[Wizard]

Wizard (Terry), thanks for the reply. That is some food for thought.

The interims do also say

headroom on these facilities was £162m

which is quite a comfort as I would have thought that the headroom would not be given if it would exceed the covenant.

Fair point blobby, but the covenant is based on a ratio. I agree the facilities were surely granted on the basis of the covenants not be triggered if fully drawn but that must have been based on an assumed level of EBITDA. So a drop in EBITDA could presumably trigger the covenants even when they are not fully drawn. I believe in the interims they gave guidance that end of year EBITDA would be at the lower end of the indicated range. Rationally I would expect the covenants to be set at a lower level than the ratio given by the bottom of the range of forecast performance, so if they hit that number I would have thought it should be OK.

Whilst I do not want to be a gloom-monger I would also add that between 2013 and 2016 cover dropped from about 1.5 to about 0.6 and gearing increased almost four times to stand at over 300%. That was before the new facilities in H1 2017 so I am guessing that has increased further.

So, now having looked a little more, to be frank I can see why the shares are struggling. But that is not to say it isn't a bargain and DYOR.

Terry.

[grimer]

I expect that the valuation may factor in lower future growth due to the repeated data breaches. They didn't cover themselves in glory and treated their customers quite shoddily (IMHO) after the events were made public. I wouldn't take up any kind of service with them, but that's probably just me and another 30 million people.