The Lemon Fool

Dod101 wrote:For me what I want to see is that reported profits are more or less equal to free cash flow

cshfool wrote:Hi M&M -

Yes correct I mean the Phil Oakley book, which I'm working through, partly based on your useful notes here. A very interesting read, though there do seem to be some slightly annoying typo/ inconsistencies for the forensically inclined reader seeking to do their own sums, eg compare the Doms 2015 change in working capital pg 45 of 6.4 with the 2015 change in working capital of 10.7 pg 52- the issue seems to be the 4.4 provisions. Despite that he gets the same bottom line Cash from operations of 80.4 so some typos going on, possibly to do with the publication process. Nevertheless some good stuff here as far as I can tell, and an interesting and new voice.

I was previously impressed by Phils identification of Carillion (see Investors Chronicle, March 10, 2017) as a value trap likely to implement a substantial cut in its dividend based on FCF, doubtful EPS growth through acquisition, pension liabilities etc. prior to final implosion. I identified CLLN as a sell here based on my own meagre workings from other directions, (with a gang of shorting hedge funds admittedly) but its nice to find another thinking black sheep.

Check out Terrys "Fundsmith" site and some of his vids at his annual backslap, his "Accounting for growth" book is worth a look too.

thanks for your worked contributions (the detailed calculations are helpful) and for pointing to this book,

csh

Melanie wrote:Been applying this to a couple of prospective buys. Just applied to Spirax-sarco, looked alright 2014-2016, but seems that the numbers go south from 2017 (some acquisitions diluting value, in my incredibly naive/newbie opin).

ADrunkenMarcus wrote:

Melanie wrote:Been applying this to a couple of prospective buys. Just applied to Spirax-sarco, looked alright 2014-2016, but seems that the numbers go south from 2017 (some acquisitions diluting value, in my incredibly naive/newbie opin).

I should declare an interest as I hold Spirax Sarco Engineering and it's more than doubled my money on a total return basis since March 2015. They did undertake a large acquisition in 2017, however I'd still suggest keeping an eye on the company and I think free cash flow will improve substantially over the 2017 figure. It's averaged about 23% ROCE since 2000 (calculated by me on an unadjusted basis) and even in 2017 it was over 16% which is far better than the vast majority of companies. The dividend growth record is also very strong over a very long period.

Best wishes

Mark.