Pan African disposal amendment

A small South African based precious mining group that produces gold and platinum from high grade ore bodies at a low cash cost.  I have a holding in my growth portfolio (epic code: PAF).

Today Pan African announced an amendment to the disposal conditions of the sale of its Manica mine.  This disposal was initially agreed on 29 August 2012 and amended on 14 December 2012.

In the initial agreement PAF received 25m shares in Auroch Minerals (the acquiring company) and deferred consideration of AUD 2m to be received 18 months after completion.  There were also potential further consideration dependent on future milestones.

This consideration in the initial agreement has now been replaced in whole by the receipt of AUD2m, of which AUD150k will be received on 30 November 2013 and the balance by 1 March 2014.  The balance payment can be extended by a further two months on payment of AUD50k per month, this is not an additional AUD50k per month, but part of the AUD2m.  So there is little benefit in Auroch paying the balance on 1 March.

The shares of Auroch Minerals currently owned by PAF will be returned on receipt of the AUD2m for no consideration.  The shares have a market value of AUD2.625m (£1.496m) and are carried on PAF's books at £1.183m.

I fail to see any benefit to Pan African in agreeing to this, since they were in any case due the AUD2m some months later than now agreed and have given up 25m shares with a market value of £1.5m.

Petrofac contract award

An oil & gas services company providing design and build for oil and gas infrastructures; operates, maintains and manages assets and trains personnel. I have a holding in my growth portfolio (epic code: PFC)

Petrofac today announced a contract award in a 50/50 joint venture with Korean based Daelim Industrial Co Ltd.  It is a 36 month Engineering, Procurement and Construction contract for Oman Oil Refineries and Petroleum Industries Company - a new customer for Petrofac.  The contract value is valued at US$2.1bn, so Petrofac's annualised share is just over 10% of next year's expected turnover.

Paypoint interims

Provides clients with specialist consumer payment transaction processing and settlement across a wide variety of markets: (energy pre and post-payment, telecoms, housing, water, transport, e-commerce, parking and gaming) through its retail networks, internet and mobile phone channels. I have a holding in my income portfolio (epic code: PAY).

Paypoint announced their interim results to 30 September yesterday with revenues up just 0.4% to £102.2m.  Transaction volumes were up 2.1% to 351.9m and the value of transactions up 4.1% to £6.9bn.  These show a decline from the growth historically experienced mainly due to the expected decline in Top-ups revenue.  Transaction and revenue performance is shown in the table below, compared to last year's numbers:

Click on table to enlarge

 

Operating profit improved by 10.9% to £20.9m benefitting from a delay of IT project costs into the second half of the year.  EPS improved by 18.8% to 24p and an interim dividend was declared of 11.4p up 11.8% on last year.

Free cash flow was £6.6m for the half year compared to £8.6m last year.  Net cash stood at £23.5m, compared to £46.6m at the beginning of the year after paying out £24.8m in dividends, which included special dividends of £10.2m and share based payments of £5.3m.

Commenting on the outlook management stated "...Trading is in line with the company's expectations taking into account moving expenditure into the second half of the financial year, which has benefitted our first half results..."

Paypoint is a highly cash generative business and I would expect the continuation of inflation beating increases in the dividend pay-out, along with the occasional special dividend. 

Telecom Plus interims & acquisition

TELECOMPLUSPLC

Trading as the Utility Warehouse, Telecom Plus PLC provides a range of services to households and small to medium sized businesses. The Company is engaged in the supply of fixed telephony, mobile telephony, gas, electricity and Internet services through independent distributors. I have a holding in my growth portfolio (epic code: TEP).

 

Telecom Plus announced their interim results today together with details of an acquisition and placing of approximately 8.8m shares (~12.4% of current issued shares) at 1475p.

For the six months to 30 September revenue was up 17% to £245.8m, profit before tax (excluding share incentive scheme charges) was up 10.1% to £13.7m and adjusted EPS up 11.5% to 15.5p. Statutory EPS was up 6.1% to 14p and the interim dividend increased by 23% to 16.0p, although some of this increase is due to TEP moving to a more even split between the interim and final payments.

Free cash flow was £9.9m compared to £11.2m last year and the net cash at the beginning of the year of £0.8m was reduced to a net debt position of £1.4m, following £12.7m pay-out for the final dividend.  

Commenting on the outlook for the full year: "...The Board has expressed confidence that we will deliver record turnover, profits and earnings per share for the full year (excluding the benefit or any other impact of the acquisition), notwithstanding the significant and growing amount we are investing each month in expanding our customer base; this is reflected in the 23% increase we are making in our interim dividend payment and by our stated intention to pay a total dividend of 35p for the full year..."

 

Also being announced was that TEP are to acquire Electricity Plus Supply Limited and Gas Plus Supply Limited from Npower Limited, a subsidiary of RWE AG, for £218m.

 

As part of the Acquisition, they will enter a new 20 year energy supply agreement with Npower which will substantially increase the energy margins available to TEP and enable it to provide even more competitive tariffs to its customers.

 

The details of the consideration is that £196.5m is payable on completion in cash and £21.5m deferred for three years.

 

TEP will fund this from a combination of a firm placing a placing and open offer and a drawdown of approximately £100m from new debt Facilities entered into with Barclays.

 

The Firm Placing and the Placing and Open Offer are fully underwritten and will raise approximately £130m of gross proceeds at an issue price of 1475p.

 

The Firm Placing will raise £100m and the placing and open offer will raise £30m at a 1 new share for every 35 existing shares.

 
Following completion of the Acquisition, the gross margin that TEP earns from supplying energy to  customers will immediately increase by 4.25% and Npower will assume responsibility for certain metering costs currently borne by TEP.

Management state that PBT for 2013 would have been £9.3m higher if this deal had been in place then.  Using their average tax rate of 22% and the increased shares in issue after the placings, then a pro-forma EPS for 2013 would be ~43.2p an increase of 13.4% over the 38.1p reported.
Not surprisingly management state that the acquisition will be materially earnings enhancing in the first full year of ownership.

The market responded well to this and was up 15.5% to 1739p in early morning trading.    

 

           

Halma interims

Designs, manufactures & markets equipment for process safety, infrastructure safety, medical and environmental & analysis.  Typical products include - fire detectors, gas detectors, water treatment systems, ophthalmic instruments and machine safety systems.  I have a holding in my income portfolio (epic code: HLMA).

Today Halma announced their interim results and as expected after a strong start to the year, commented on here, the results were good with revenue up in all geographic segments and in all product divisions.

Revenue from continuing operations increased by 11.7% to £333.1m and adjusted PBT up 9% at £65.1m.  On an organic basis growth was 8% for revenue and 5% for PBT, this is impressive since organic revenue growth for the first quarter was 6% and 3% for the whole of last year.

Geographic sales growth was:

Asia Pacific  +15%, including +32% in China;

USA  +15%;

UK  +9%;

Europe  +8%;

Adjusted EPS from continuing operations was up 7.2% to 12.99p and Statutory EPS down 12.8% to 11.27p as last year benefited from a gain on disposal; if we exclude this gain from last year statutory EPS is up 4.9%. 

An interim dividend of 4.35p per share was declared, up 7.1%.

Order intake since the period end has continued to be slightly ahead of revenue and in line with their expectations.  In their July IMS they stated that order intake was 3% ahead of revenue for the first quarter, so I'm reading into this that it might be slightly less for the six months. 

Free cash flow was £47.1m compared to £40.2m last year and net debt decreased slightly from £110.3m to £109.8m as the majority of free cash flow was spent on acquisitions (Talentum plus ear-out payments on prior year acquisitions) for £16.7m and £29.7m on dividends and share buy-backs.

Management state that the business "...remains on track to make further progress in the second half of the year..."

This is a good set of results by a well run company, so not surprising that at 584p the company is probably fully valued at 23.9x last year's earnings, 20.5x this year's and 19.5x next year's.  The forward yield is less than 2% and so although Halma is a quality business with a wide economic moat, at these prices its difficult to see value, but worth watching for any weakness in the SP.

Melrose Industries IMS

Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders. I have a holding in my income portfolio (epic code: MRO).

Melrose Industries issued an interim management statement today that covered the period from the half year to now.  Management state that trading for this year is in line with expectations and that Elster (their most recent acquisition from last year) continues to perform strongly and that the remaining FKI businesses is trading as planned.  They comment that "...revenue growth across the Group still remains hard to find but there are some early signs that 2014 could also be a better sales environment..."



Some specific comments on the Elster business were encouraging - the Water division has more than doubled its headline operating profit, the Electricity division's order intake was up 14% and the Gas division's sales were up 8%.  Management believe that the Gas division is expected to be the source of most value creation in Elster over the medium term. 



Management commented on the return of capital to shareholders and assuming the disposal of Crosby and Acco completes this year, they intend to return capital in the region of £600m.  This is as a result of the following disposals:



July 2013 Truth £129m
August 2013 Marelli Motori £181m
Assumed December 2013 completion £627m

Producing  total gross proceeds of £937m



I did expect them to hold more cash back to reduce their high level of net debt, but I guess their admirable willingness to return a high portion of the proceeds to shareholders, underlines their confidence in the cash generating abilities of Elster which now account for 66% of the Group.

The return of capital if it is, as in the past, in the form of cash will amount to 47p per share (based on 1,266.6m shares).  Which will require another capital reorganisation if they wish to retain EPS and DPS historical comparability.

Aberdeen Asset Mgt prelims & acquisition

A global investment management group, managing assets for both institutional and retail clients from offices around the world. I have a holding in my income portfolio (epic code: ADN)

Aberdeen Asset Management released their preliminary results for the year ended 30 September 2013 today and agreement for the acquisition of Scottish Widows Investment Partnership (SWIP).

Net revenue was 24% higher at £1,078.5m, underlying profit before tax increased by 39% to £482.7m and underlying EPS increased by 44% to 32.5p, with statutory EPS increasing by 49.4% to 26.22p. All of this was a little better than was expected by the market.

The final dividend was increased by 40.8% to 10.0p per share, making 16.0p for the full year up 39.1%.  I believe the markets were expecting a full year dividend of 15.1p.

AuM were £200.4bn compared to £187.2bn last year, with the greater portion of the increase coming from higher margin pooled funds.

Free cash flow showed a healthy improvement over last year increasing by 31.6% to £457.7m, net cash (here I'm including the Perpetual Capital Notes) improved from £68.3m last year to £105.0m. 

Management state that "...investor sentiment may remain volatile for the foreseeable future, we have entered a new financial year in a strong financial position and remain well placed to continue the Group's profitable growth..."

ADN have increased owners' earnings (NBV and dividends) by a CAGR of 16.3% pa over the past 5 years and FCF has increased by a 5 year CAGR of 19.9% pa over the opening NBV.  I have held ADN since 2007 and although I sold off half my holding in 2012 to rebalance my portfolio, they have not disappointed and returned a compound 12.8% pa (dividends not reinvested).  My current yield on my original cost is 8.1% and with the recent acquisition announcement I feel there is more mileage in this stock.

Commenting on the acquisition - ADN have acquired SWIP from Lloyds Banking Group for 9.9% of ADN's equity plus a potential £100m earn-out.  For this ADN receive £136bn of Assets under Management (68% of ADN's AuM) and £234m of sales (21.7% of ADN's sales), this is expected to be materially earnings enhancing by the 2015 financial year.  We should expect some reorganisation costs in 2014 as any overlap is eliminated and ADN take action to improve the performance of SWIP.  This probably places ADN within the top 30 fund managers in the world and although size is not everything, the increasing cost of regulation creates a substantial barrier to entry within their market with smaller players finding it increasingly difficult to achieve returns on the required investment.