The Lemon Fool

Anyone hold this company?

battered valuation, but IMO there is a solid core business. the management have diverted money towards loss making (pass my parcel) and competitive industries (tuffnells) and complicated what should be a straightforward task of running a distribution monopoly as efficiently as possible.

almost all of the free cash flow goes on the dividend. there was a recent asset sale which was used to cut debt from around £140m to £86m ish. the business is more straightforwards than it was a year or two ago.

newspaper / magazine delivery is in terminal decline, but the good news is they have a monopoly over given areas. apparently their service is not the best, but shops have nowhere else to buy on a sale or return basis.

to make the business more robust, there needs to be a reduction of debt IMO. there may be a cut in the dividend coming, although the market clearly expects this with a current yield of over 17%!

the update yesterday wasn't the best, but the share is already so depressed that it didnt fall much.

I'm not sure why you'd buy these tbh. It doesn't look cheap to me on an ev basis based on yesterday's results especially if you believe it is in terminal decline.

I reckon it's a bargepole job myself.

Yes I'm long, bought over the past couple of months. The newspaper distribution part of the business is in decline, perhaps terminal given time - but quite likely a lot of time - in the meantime it's throwing off cash. Other parts of the business will either be got to work or be sold, management have shown they are happy to offload non profitable bits. The FY div will be cut, but with interim at over 5% the yield will remain good (probably around 10% on current SP), and covered. This is not a growth story, but it's a company that produces cash that has the potential to sort out several elements of the mess it's got into which would lead to a rerating. I don't see the downside risk from here as great in the short term (unless they foul up big time again - it can happen) but even if things go on with little improvement the dividend is going to stop the SP falling too far, for now.

Peter

PeterGray wrote:Yes I'm long, bought over the past couple of months. The newspaper distribution part of the business is in decline, perhaps terminal given time - but quite likely a lot of time - in the meantime it's throwing off cash. Other parts of the business will either be got to work or be sold, management have shown they are happy to offload non profitable bits. The FY div will be cut, but with interim at over 5% the yield will remain good (probably around 10% on current SP), and covered. This is not a growth story, but it's a company that produces cash that has the potential to sort out several elements of the mess it's got into which would lead to a rerating. I don't see the downside risk from here as great in the short term (unless they foul up big time again - it can happen) but even if things go on with little improvement the dividend is going to stop the SP falling too far, for now.

Peter

yes, i agree the main business is a reliable cash generator. the management in my view is not the best and their acquisition of tuffnells has proven to be a disaster.

i wonder if it is worth waiting for them to cut the dividend. as with the AA and Capital who both had an unsustainable dividend, a cut could cause more panic. i bet there are a number of investors who would sell on such an announcement.

a more sustainable dividend would be around £15m per annum (which is still 11% yield at current prices). this would free up at least another £5-10m per annum to spend on debt reduction.

i wonder if it is worth waiting for them to cut the dividend. as with the AA and Capital who both had an unsustainable dividend, a cut could cause more panic. i bet there are a number of investors who would sell on such an announcement.

That may be a sensible way to go. However, it's going to depend on expectations. If a lot of investors are expecting the div not to be cut - and remain at a 16% or so yield - then any cut will be badly received. I can't see that being the case. My (largely guessed) expectation is something in the order of a repeat of the interim for the final, bringing the yield down to 10% or so, with a quite possible flagging of a lowering of the interim for next year (depending on this years outcomes), so perhaps bringing forward divs down to 8% or so, at current SP. They should be able to manage that safely, and free cash for reducing debt (or possibly some restructuring). If that's what they do I can't see much happening in the way of a negative SP reaction, unless it's risen a fair bit in the mean time, and in fact I'd expect clarity on that sort of level to lead to an increase in SP.

Of course I could have got this wrong - wouldn't be the first time!

Peter

i have held a few years , and currently well underwater .

it a popular share with some well known pundits - i am holding on for now.

I guess it takes all kinds to make a market, but I stopped getting involved with fag butts like Connect years ago and my returns have improved markedly since. The penny eventually dropped that I was getting pulled in by a large dividend and then when it was inevitably cut the permanent capital loss always ended up being far greater than dividends collected. Connect is a rubbish business with wafer thin margins, negative NTAV and very poor management operating in a declining and/or highly competitive industries - a horrible cocktail.

I wish all holders well and I would highly recommend reading Phil Oakleys Weekly Roundup if you have access.

All the best, Si

jackdaww wrote:i have held a few years , and currently well underwater .

it a popular share with some well known pundits - i am holding on for now.

in fact sold my remaining (small) stake today .

jackdaww wrote:

jackdaww wrote:i have held a few years , and currently well underwater .

it a popular share with some well known pundits - i am holding on for now.

in fact sold my remaining (small) stake today .

interesting - coincidence?

I have a very small percentage holding in my HYP - I really don't know what to make of CNCT ....I think the management team are pretty p- poor. The recent sale of their Books division illustrates my point.

http://www.londonstockexchange.com/exch ... 23400.html

"Connect Group PLC said Thursday it finally agreed to sell its books division for GBP6.0 million to Aurelius Equity Opportunities SE & Co KGaA, nearly half the original expected price agreed in December 2017."

The share price graph tells it all.


( HYPTUSS tells me that CNCT are #1 for a top up...I'm going to take a pass on that and just leave it to fester).

And after today's results........ Currently a 63% fall in sp.

http://www.londonstockexchange.com/exch ... 77213.html

yes, further deterioration in the business, with tuffnells proving an awful waste of shareholders funds.

probably a good thing that the CEO is to leave. could this now be a private equity buy out? i think with more competent management there is cash to wring out of this company. PE could bring this to the table.

westmoreland wrote:with tuffnells proving an awful waste of shareholders funds.

Tuffnells' goodwill was being carried on CNCT's balance sheet at about £52 million, and according to today's finals, the company wrote that down by £46 million. So that worked out well.

I don't think there's any doubt that the Tufnell purchase was a serious waste of money for the company, and shareholders. But the interesting question is what happens now (that the goodwill has been largely written off, and kitchen sink thrown out).

CNCT are still generating a lot of cash, and though a lot of that comes from a declining industry, the decline is not rapid and with the potential to reduce or reverse losses at Tufnells and Pass the Parcel to the delivery box in the sky, the future from here may not look so dire.

These did very well for me - but only because of the dividend that threw off loads of cash.

So now its collapsed in price, the question is not about the past but the future - is it now fairly priced as a company, even if its core business is in slow decline, can they continue to trade well enough to be a long-term plodder type share.

I doubt it. I think its more reasonably priced and unless it sold off Tuffnells to return some cash to shareholders, it's just going to plod along going nowhere. It does make a lot of cash though, £20m free cash flow (compared to its market cap of £87m). At that price you think it might be worth holding for the dividend only and the hope management turn it into a smaller company focussed on the business rather than egotistically stupid acquisitions.

I thought the Divi was cancelled.

"No final dividend - making a full year dividend of 3.1p, down 68.4% (FY 2017: 9.8p)"

In retrospect, in December 2017 I should have noticed that unlike the two previous years, there was no announcement of the payment of deferred consideration for the third year of the Tuffnells earn-out period, presumably because the performance criteria had not been achieved. The lowest price at which CNCT shares traded that month was 102.5 pence, which is considerably higher than the price at which I eventually dumped my holding.

And getting out in December 2017 would have been a good idea, in retrospect, because it was in the following month that the shares began to collapse with the release of a profit warning. CNCT stock fell 33% in January 2018, and 50% in the first quarter, followed by the 46% plunge in June with the release of the unscheduled trading update.

i sold half in 2017 - at a loss - gut feeling.

sold the rest after the profit warning .

a loss overall but averaged selling price around 80p.

consigned to the duds bin.