Category Archives: The In & Out

Undone!

“But then… let’s not get carried away: Nothing is done… until it’s done.” This was Pinkers’s concluding comment to the proposed merger of Balfour Beatty and Carillion. Here we go… As investors we always have to remind ourselves: Money in the bank! … is all that matters! Tough luck… or perhaps good luck, after all?

Construction group Balfour Beatty has called off its planned merger with rival Carillion after Carillion said it would only press ahead with the deal if Balfour ditched plans to sell its Parsons Brinckerhoff US engineering division. Balfour, which has faced challenges in the last few months resulting in the departure of chief executive Andrew McNaughton, said the decision by Carillion was “wholly unexpected” and was contrary to the terms on which Balfour agreed to start the merger talks. It said in a statement: “This change in the proposed terms is not acceptable to the board of Balfour Beatty. “Balfour Beatty will proceed in accordance with its own business plan, including the competitive sale process of Parsons Brinckerhoff currently well underway. It will also continue to actively progress its search for a group chief executive.” The company said discussions had only been at board level, with detailed due diligence having not yet begun. Broker Liberum was “surprised” that Carillion wanted to keep Parsons Brinckerhoff, given that they have historically been opposed to owning a consultant.

Both stocks recorded double digit drops, this morning. But hey… this, of course, is not the end of the story. It has merely exposed how vulnerable the whole sector is to M&A. Carillion has shot itself in the foot… if not amputated it! This public U-turn is not only hugely embarrassing but exposes the company’s own weaknesses and putting itself into play.

Proof in the Pinkers: Balfour & Carillion!

Crystal ball gazing… one of those stupid afflictions we all suffer from. But then, it’s just such fun… despite never getting it right. The markets hate nothing more than being told where they’ll go. The BoE Governor is a serial offender… and has frittered away his last ounce of credibitly in the process.

Pinkers, too, is a culprit. However, for once, we got it right… boosting our fragile ego! Here an excerpt from an entry entitled Cheap  posted on 15 Dec 2013:

Balfour Beatty used to be construction only (and still listed as such) but has been transformed into an integrated infrastructure services group with operations in over 80 countries.  It offers both the ‘hardware’ and the ‘software’ to fund, deliver, operate and maintain major infrastructural projects.  As such, it is not only well diversified ‘within’ and less reliant on the highly cyclical side of the construction business, but offers a platform model similar to that of tech giants such a Google and Apple. The company offers a juicy yield of 5% and carries little debt.

Carillion, listed under Support, is a complete ‘no-brainer’: At the current level of 300p the P/E ratio is beginning to equal the dividend yield (8 : 6!).  Yes, this can be a warning sign that a company is either in serious trouble or that the divi is about to be cut.  However, this simply is not the case with Carillion: This is an extremely well-run outfit, chalking up a string of private and public contracts in recent months.  The debt is manageable, too, and it is almost odd that it hasn’t been at the receiving end of a takeover.  It’s churning out cash!

Finally, the potential synergies between Balfour and Carillion are hard to ignore.  WIth market caps of 1.8 and 1.3bio respectively, a merger would make perfect sense, potentially creating a new Footsie 100 candidate.”

But then… let’s not get carried away: Nothing is done… until it’s done. And what about another prediction: Surely, a gatecrasher should emerge? After all, Balfour Beatty in particular, is now extremely vulnerable. Even after today’s rise, both companies are still trading at Aldi levels! The vultures should be circling… wishful thinking? Perhaps… but that’s what it’s all about: The thrill of riding the roller coaster! Come on all you party poopers … get out of your holes and make a mess of it all! Cheque in the post? Perhaps not a lie… for once? Watch this space!

Cleared Out!

Better late than never? Or too late? The jury remains out. Yes, Mr Clark is a good man… and it is also true to say that at the time of his appointment the problems at retail dinosaur Tesco were not of his own making. In a recent televised interview with Ian King on Sky News, it was most interesting to hear that our retail saint Sir Terry was “disappointed” with Tesco’s performance. Perhaps somebody should have reminded him of Louis Nizer’s famous quote: “When a man points a finger at someone else, he should remember that four (yes, I know it’s only three but the quote is correct) of his fingers are pointing at himself.”

However, even at the time of his appointment it was crystal clear to everybody (except the company’s board!) that this ‘safe pair of hands’ was a disastrous choice. Mr Clarke is all about the ‘old’ Tesco; He even lived (or still does?) in the same village north of London on the same street as his (soon to be in?-) famous predecessor. With fossilised Tesco blood clocking up his arteries, hardly the man to carry out the radical reforms required to turn around a supertanker in trouble.

Suffering from a serious identity crisis, only a few days ago Tesco added ‘property developer’ to its ever expanding portfolio. Nobody knows what this company stands for or, indeed, what it IS! Supermarket?,  restaurant (Giraffe!)?, coffee shop chain (Harris & Hoole)?, tech retailer (Huddle)?, insurance company?, bank? and so the list goes on… Clarke clearly didn’t get it: the old-style Leahy conglomerate is not the future, it’s history. Retail analysts pressing for a price war, too, don’t seem to get the message. Slashing prices and reducing profit margins is not the answer; it will only provide a short-term blip in the landscape. Radical action is needed: Break ‘em up! And Clarke clearly was not up to the job. He was panicking, pursuing a ‘strategy’ which is well past its USE-BY (as opposed to SELL-BY) date. To top it all, Cantor recently upgraded Tesco from SELL to BUY, arguing it is now undervalued. Tesco is not undervalued. If anything, it’s overvalued. Ignore it at your peril, but a stock is cheap for a reason. And it could become cheaper still… only to turn out to be very expensive, indeed!

U Buy Sense?

Floated in June 2011, Ubisense, another Cambridge tech-tiddler, got off to a great start, trading at £2.20 a share, almost up a quarter on the IPO price and giving the company a market cap of over £47m. The company provides detailed visibility into an organization never before thought possible. In relation to people, assets and service areas, Ubisense combines elements of business intelligence, process management and data visualization with GIS and advanced location software and hardware to offer Location Intelligence that operates in both online and offline environments. Ubisense provides location intelligence solutions for manufacturing, transit, telecommunications, and utilities.Ubisense is not low on ambition. It has big plans for its real time location systems technology, which company CEO, Richard Green, believes could be as big as GPS (he calls it indoor GPS) and has previously stated that he wants Ubisense to become Cambridge’s next £1 billion company.

Ubisense is interesting: It may label itself as “high-tech” but, in fact, it’s good-old fashioned British Engineering. Well, it combines the two and that’s precisely what makes it so attractive. This is not about ‘gadgetry’. This is a ‘toolkit’. And, increasingly, large companies cannot do without it. High profile customers include BMW, Deutsche Telekom, Aston Martin, amongst others.

So far so good. But there is a snag… despite a balance sheet that appears to be in reasonable shape and despite winning a number of high-profile contracts, the comany’s profits have declined steadily over the last three years and the share price has now hit an all time low of 177p capitalising the company at a mere £44m. So what’s gone wrong? Investors’s main concern is that of ‘cash burn’ before reaching profitability. It isn’t quite clear how well the company is funded at the moment and the outlook is a little ‘foggy’. Profits may well have been sacrificed for the benefit of investment and R&D; this, of course, not only makes sense but is of paramount importance. The question, however, remains how much money have they got left in the kitty?

Pinkers, an investor in Ubisense, got in touch with the company’s ‘Investor Relations’ team on 10 July 2014 regarding the recent steep decline in the share price. Here the response:

“We have indeed noted the movement in the share price and as a rule do not comment on day-to-day or week-to-week changes. [surprise, surprise!] There is no further material information that we are aware of which has not been disclosed to the market at this time. With the period now closed you can expect a half-yearly trading update from the business as part of our normal financial reporting process in the coming weeks when we will also disclose the date of our Half Year Results.”

Yes, boring stuff. But this perhaps a little more revealing:

On 11 July 2014 another e-mail:

“The only additional comment I would make is that the investment they [Ubisense] have made in their product suite is to transition the business to higher margin Solutions which hopefully gives you some comfort on the profits points…. ”

So here we are… comfy enough to take the plunge? It’s a tough call. Reassuring, perhaps, is that the management, especially the CEO Richard Green and Director Robert Sansom, are major shareholders in their own company with a combined stake of 16.43% and have kept buying at well above the current level. Pinkers likes that. That’s why Pinkers likes Glencore. It’s always good to see that the restaurant’s staff eat their own food…

Bollocks to Bolland or redundant retail?

The answer to this question is simple: No & Yes!

In a recent interview, retail consultant Richard Hyman put his finger on the spot: “The market today is different in every conceivable way to that associated with the golden ages.” And the only M&S manager who appears to have faced up to this harsh reality is Jan Heere, outgoing Director of International Operations, who decided to leave the sinking ship before it’s too late.

It is, of course, not Bolland’s fault. It’s nobody’s fault. The food may be nice (Pinkers loves the Cauliflower Cheese!) but the truth is less palatable: The business model itself is redundant. Selling baked beans alongside ladies knickers? Let’s face it…: The simple truth of the matter is nobody in their right mind would invent M&S in today’s retail environment and not even a magician could turn this business around. It’s almost surprising it wasn’t wiped out with the last dinosaurs 66 million years ago.

So is it a SELL? No. Clearly not. But neither is it a BUY. Pinkers doesn’t really believe in HOLD (which usually means SELL) but in this instance, yes: A firm HOLD. Why? Sooner or later (well, rather sooner than later…) M&S will be taken over and broken up at around £5 or £6 a share. Probably private equity. Pinkers’s guess: A ‘Stefano Pessina character’ (Boots) rather than Mr Green who had a lucky escape with his unsuccessful bid in 2004.

PS: Readers might be amused by an article by John Davies for Punch magazine, published on 4th June 1969, 3 days after the birth of the founder of this journal – here an excerpt:

“For all round performance, there is no one quite like Marks and Spencer. The value it gives to its customers is superb. So much so that the first thing many a visitor to our shores does it to pop along to the nearest M. and S. store to load up. … At the same time, M. and S. shareholders, like the staff, can count on better things year in year out. I cannot remember when M. and S. missed failing to report higher profits, while dividend increases have followed closely in step. … “.