Firstly, lets talk about a couple of companies in which I hold no shares. CentralNic (CNIC) published interim results this morning. This company sells internet domain names and web services. It states that both revenues and adjusted EBITDA have tripled year on year. The share price has not moved at the time of writing.
This company is surely operating in a growth sector but the company’s share price is less than it was 5 years ago. The company has been growing via acquisitions, but the key problem appears to be that the dilution of shareholders from the issue of new shares means that reported earnings and cash flow per share have bounced around a bit but not consistently grown even though revenue has. The reported loss after tax at the half year was £3.3 million and it generated negative cash flow from operations of £1.4 million.
The CEO comments on “these outstanding results” and he is “confident in continuing our trajectory towards joining the ranks of the global leaders in our industry”. But shareholders might prefer that the company simply generates some profits and cash from the capital raised.
PI World interviewed ShareSoc’s Patron John Lee last week – see https://tinyurl.com/y6z9zwa8 and he is always worth listening to. Lord Lee is a well known private investor and writer on stock market investment. As he has realised some cash from a takeover he is looking at new investments and one he has been considering is Photo-Me (PHTM). Photo-Me has traditionally been an operator of photo booths, but as that market is strategically challenged it has moved into self-service laundry units and launderettes. It has now also acquired a fresh fruit juice vending operation in France. In effect it is focused on several “vending” type operations. A quick look at the financials gives a historic p/e of 12.9 dropping to a forecast 10.6 next year and dividend yield of 8.2%. In other words, it looks very cheap on the normal fundamental ratios.
But on Friday the Investors Chronicle published a “SELL” tip on the company. It suggested returns on capital were falling, that the photo business which still represents a major proportion of revenue was becoming more difficult as passport photos are easy to produce on any smartphone or camera, and the dividend is barely covered.
This is a business that is highly profitable with a good track record but faces some business challenges. This is why the share price has been drifting over the last few years as investors have become nervous about the future. With investors now focusing on “growth” stocks it may remain out of fashion. John Lee is not a follower of fashion though.
The Financial Times ran with a headline story of the Labour Party’s plans to confiscate £300 billion of UK company shares to give them to workers. Over 10 years all companies with more than 250 staff would be required to transfer 10% of their shares to workers over a period of ten years. The article also covered the party’s nationalisation plans including apparently perhaps even travel agents which the article suggests one in four people would support. That of course means most do not, but a Labour Government might not take much notice of the latter. Why travel agents? It appears some people think that the answer to any concerns about the cost of a service and the way it is provided justifies nationalisation. Have they learned nothing from history?
Many companies and investors might simply choose to move their assets from the UK if a Labour Government was elected but the reaction might be to impose capital controls to stop that. In other words, shadow chancellor John McDonnell might put us back into the 1960s – exchange control was not lifted until 1979.
The last time Labour was in power they nationalised Northern Rock and Bradford & Bingley banks. The original shareholders are still very disgruntled and they continue to fight for fair compensation after more than ten years. See this article for the latest on Northern Rock: https://www.sharesoc.org/sharesoc-news/northern-rock-shareholder-action-group/ , or the latest on Bradford & Bingley here: http://www.bbactiongroup.org/News.htm . The fact that the leaders of these campaigns continue to fight after so many years tells you how strongly they feel that their assets were confiscated at less than fair value.
Unfortunately there is a lot of irrationality in the political scene of late which may undermine our financial prosperity unless people come to their senses.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )