Wednesday, July 25, 2012

Wed 25 July 2012 - Morning Report

Good morning. Most important results this morning to me, are Interims from Mecom (MEC). I flagged it here as a value opportunity recently, and the shares have risen about 30% since, coincidentally. Mecom is a European print publishing business, mainly newspapers, focussed these days on Holland, Denmark, and Poland, having recently disposed of their Norweigan business for a remarkable E195m.

This disposal has enabled Mecom to repay two thirds of its net debt, which has now fallen to E109.7m, making it a far more attractive proposition. It is also now churning out large dividends, and the Interim divi announced today for y/e 31 Dec 2012 is E6c, so I make that 4.7p payable on 31 August. Not bad considering the shares are 65p, so that's a 7.2% yield just for the Interim dividend alone!

Advertising revenue is down badly, at -14%, but subscription revenue was flat after adjusting for closed titles. Other revenue rose 2%, so overall revenue was down 8%. Not great, but not disastrous, as similar to Trinity Mirror, costs are variable, so are being reduced heavily as revenues fall.

So yes, print is a declining sector, but in the meantime it's still nicely profitable & in this case churning out bumper dividends & likely to continue doing so.

The rest of 2012 will benefit from much lower interest charges, and further cost reduction. In the Outlook section today, they reiterate guidance for the full year of between E85-95m. That's a pretty chunky number, considering the mkt cap is only £79m, and net debt has been reduced by two thirds to E110m.

So the attraction of Mecom shares is that as the business gradually declines, it will throw off enormous dividends. Also the whole group is now in play, with the CEO having already announced his departure, and all strategic options being considered.

Difficult to say how the market will react to today's figures, but there don't seem to be any nasty surprises in there as far as I can see. And the debt reduction, combined with big interim divi are surely positive? Although the balance sheet overall looks pretty weak, with substantial negative net assets, once you strip out intangibles.

At £2.2bn, Informa (INF) is out of my mkt cap range. Everything Everywhere is also too big, and has an utterly stupid name.

Renishaw (RSW) results looks pretty impressive. £924m mkt cap, so again too big for me, but the shares look interesting for several reasons. Most striking is their very high operating margin, of 25%, indicating seriously good pricing power. EPS is up 8% to 95.6p, so the shares look reasonably priced at 1270p, a PER of 13.3 is not bad for a growing, high margin company. Especially as it has net cash, although only £21m. Total divi for the year is 38.5p, a yield of 3%, better than a deposit account. Looks an interesting company to me.

I'm scratching my head a bit over results from exhibitions group Tarsus (TRS). The narrative states that their Interims represent a strong performance, and that their financial position is strong. Yet neither claim looks even remotely true to me! They only produced £1.8m profit on £19.2m turnover in the 6 months to 30 June 2012, and have a horrible balance sheet with negative net tangible assets. Bear in mind the mkt cap is £147m.
I presume they must have an H2-weighted trading year, but I've seen enough to put me off bothering to find out!

Synectics (SNX) is the new name for CCTV company Quadnetics. Their interim results to 31 May 2012 look pretty sound. Underlying profit has risen from £1.8m to £2.8m for the half year, and diluted underlying EPS is up from 8.4p to 12.7p. It has net cash of £2.7m. Interim divi maintained at 2.5p. Order book up. Outlook says they have increasing confidence for in-line full year results, but there is also a sting in the tail in that H2 is expected to be below H1. Ah. Broker consensus is for 17.7p EPS, so at 285p a share that gives a PER of 16.1, which is not cheap in my book. I'd want a considerably stronger Outlook to justify the £50m mkt cap, so wouldn't be surprised to see this fall from current levels.

Markets open now, so that's it for now.

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