Well seeing as I'd considered re-opening a new position in DOM, I thought I'd grab their latest AR. I was planning on spending a couple of hours with this and the last few years' ARs and was thinking of doing something in depth.
Instead I just glimpsed at
the AR18 this lunch break. I don't think what I saw is very encouraging. Briefly:
Just check out page 31. The latest (in a stream) FCO states:
In 2018 we generated £85.8m in net cash flow from operating activities, a decrease from £104.2m in 2017, largely due to less favourable working capital movements of £15.4m.But on the same page he summarises how they spent some (actually much more than their net CFO) cash:
Capex £29m
Divs £44m
Acquisitions £60m
Share buybacks £59m
Isn't this insane? Just the divs and buybacks exceed the net CFO. Buybacks at 2x capex?
Then the FCO states:
During the year we invested £59.2m in buying our own shares, at an average price of 323p. We assess the value of share buybacks by reference to the Board’s own view of intrinsic value as well as an internal rate of return calculation.
But for the last half year the market has valued their shares at 220p-280p. Surely they should have not spent any money on buybacks but used it all to help fund their growth abroad, or give their franchisees more favourable terms?
Anyway, before I gave up on this, I had a quick comparision of their cash flow calculation. This is on page 106:
So for 2017 they have £81.5M of EBIT and they generated £104.2M of net cash.
In 2018 they have £64.2M of EBIT and they generated £85.8M of net cash.
But given that they had, to quote,
less favourable working capital movements , how did they still manage +120% cash conversion? Compare the impairment charge lines for the 2017 and 2018. £2m and £20m respectively. Looks dodgy to me. I don't like the look of this. What do others think?
Matt