Thursday, September 27, 2012

Thu 27 Sep (part 2) - NARS

Good morning again! Terrific reaction to IND's Special Dividend, and positive outlook, with the shares up 57p to 410p. That's still cheap in my view, since shareholders will get 75p in total divis in Nov 2012, meaning that the net cost of the shares (if bought today) would be 335p. With 7.5m in issue that's a mkt cap of £25m, which looks cheap to me for a business that has just spelt out a strong outlook, which could lead to profits doubling this year from £2.7m to potentially over £5m.

I still can't get over how confident IND's CEO must feel, that he's happy to hand out pretty much all the cash pile to shareholders - remember that the current CEO was the former FD who carefully built up that cash pile over several years. So to hand it out, tells you he's really confident about the company's prospects.
A very bullish signal in my opinion.

Have to dash for a train soon, so just a quick reaction to a few other results.
Nationwide Accident Repair Services (NARS) announces interims which are not too great. Revenue down 13% (but down 4.7% on a LFL basis), and underlying EPS down from 6.1p to 5.0p. Net cash of £8m.

However, the elephant in the room with this company is the pension deficit, of about £27m. They use a frankly disgraceful, and totally misleading accounting treatment for pension deficits, called the "coridoor approach". I would call it something a lot stronger, indeed it distorts the balance sheet to such an extent that the figures are materially false and misleading.

Shame on this company for using such a misleading accounting treatment (which disregards a £27m pension deficit, and instead shows a completely fictitious £11.7m pension fund asset on the balance sheet).
Shame also on the auditors for signing off such misleading accounts. It may be within accounting rules, but the figures are so misleading that the true & fair over-ride should have kicked in. This accounting treatment is being outlawed from 1 Jan 2013, so subsequent accounts will have to be restated to show the true position, which is negative net assets, not the £27.7m false net asset figure published in NARS accounts today.

Drat, lots more results to look at, but haven't got time. Most of them seem to be resource companies anyway, which of course I don't cover here. Have a good day everyone! Regards, Paul.


  1. Hi Paul ,
    Enjoyed the write ups on both IND & NARS. I didn' realise you'd been creamed on IND :( I knew were a holder via the pub but not being a regular didn't know of the recent troubles.
    On a more positive note , I've never been a big reader of accounts when buying stocks , just tend to use the basic numbers that are out and about - PYAD like if you will. However with your constant emphasis on the hidden horrors of pension deficits etc , I will now make the effort to make the research of such items a priority.
    Any tips on investigating this stuff ? - more for comfort on my brain tbh than anything else.
    PS: This now my main port of call for daily info so TY for the insight I'm a regular reader.



  2. Hi DbD,
    Well thank you so much for your great feedback, much appreciated!
    Pension deficits are a big issue right now, as the steep fall in bond yields (driven by QE) has had a knock-on effect in that the discount rate used to calculate pension fund liabilities has also dropped sharply. That means of course that the present value of pension fund liabilities is much higher as a result.

    So it's a widespread problem - ideally we could use a database that lists every company with a final salary pension scheme, but I've not seen that. Or you could simply do a search on using keywords like "pension fund" or "pension deficit", and see what it throws up.

    However in my opinion there is no substitute for thorough research, and discussion with other investors, hence the value of bulletin boards. Throw the idea up to others, and let them comment - you may well find that there is a hidden nasty in the figures to explain why a stock is apparently cheap.

    I'm a great believer that many minds are better than one, hence between us we can cover all angles usually by discussing our share ideas here & elsewhere.

    But there is really no substitute for reading the Annual Report, including all the notes, to pick up on any "funnies".

    Cheers, Paul.