Walbrock’s companies results 10/07/2018

This entry is part 4 of 7 in the series Daily Company results

Before I begin, I just want to say sorry for the inconsistencies in my daily reporting because I’m super busy upgrading my website and other stuff. Hopefully, I can continue my reporting.


Ignoring all the political news, today the following companies results are getting covered:

1). AdEPT Telecom;

2). Begbies Traynor;

3). Jaywing;

4). Photo-Me.



AdEPT Telecom



Adept is a communication company. The areas of communication services include:

1). IT Support;

2). Unified Communications;

3). Voice and IP telephony;

4). Wi-Fi;

5). Desktop telephony;

6). Super-fast connectivity.


Investors in Adept Telecom have done well, especially those who took a chance and invest at around 10 pence/share during the depths of the great recession.

For those who invested from the start when the issue price was £1.40/share back in 2006, it has been a rollercoaster, but I wouldn’t be surprised if the early investors have ditch Adept. To the loyal shareholders, they have gains of 153%, although, after inflation, the real returns fell to 79%.

Now, with the share price near record highs, is there more room to go higher?


Adept Business Model

Adept package multi-product solutions from their network partners, which are communications and IT businesses into one package and selling it at £400 per month, which is below that of their competitors.


Important factors for shareholders to consider

Now, let’s look at some of the important things about Adept Telecom investors need to know.


1). Starting with revenue, this grew by 34.8% to £46.4m which is beating the 15 years historic average growth of 16%.

2). Profits before tax grew by 32.8% to £4.5m. Profits have been steadily rising over the years and played a role in giving shareholders confidence.


We can attribute most of this growth through acquisitions of various businesses over the years. To be more specific, Adept began their acquisition spree back in 2014 and so far, spend a total of £40m. So, its surprising to see under the company’s financial highlights stating capex is around 0.8% of revenue as this is misleading. If you include acquisitions it’s more like 30% of revenue!

But we are seeing some weakness in their traditional fixed line division with revenue decreasing to £14m from £15.4m.


3). Their biggest division is managed services,  accounts for 69.8% of total revenue vs. 55.4% in 2017, helped by the acquisition of Atomwide Limited.

4). Shareholders get to enjoy another bumper increase in dividends of 13% to 8.75 pence/share, which gives a modest yield of 2.4%. People who took a chance back in the great recession are now seeing yields of between 50% to 80%. It’s an example of how long-term investing paying off. To those shareholders who stuck with the company from the beginning (bought in at £1.40/share), they are seeing their dividend yield rise to 6.25%, not too shabby given the low savings rate.


5). It signed a new 5-year revolving credit facility of £30m with RBS and Barclays. Total borrowings stand at £24.7m and this gives Adept Telecom in £5.3m of undrawn credit. Also, it has a £6m worth of convertible loan at an exercise price of £3.93/share, which is convertible at any time.

Given the £40m of spending on companies, it’s understandable why total borrowings are at all-time highs.

6). On an operating cash-basis, it grew to £8.2m from £4.3m.

You can read more on Adept Telecom’s results HERE.


Brokers’ forecast


£m 2018 2019 2020
SALES 44.4 48.1
EBIT n/a n/a
Net profit 2.9 2.6
EPS (pence) 11.2 10.1
Forward-P/E (times) 31.5 35


Today’s sales and net profit results beat analysts’ expectations.



Here is management outlook for the coming year: “The focus for the coming year remains on developing organic sales through leveraging AdEPT’s approved supplier status on the various public-sector telecom frameworks, maintaining profitability and cash flow conversion, which will be used to reduce net borrowings and/or fund suitable earnings-enhancing acquisitions.”

On the whole, Adept is realising that borrowing is too high, while at the same time seeking acquisitions. Does this mean Adept will raise equity in the future to fund acquisitions and pay off debt?

It looks possible from the outlook statement.

My thoughts

Adept Telecom has been a great company for shareholders and the business has delivered growth via acquisitions and manages to grow profits and operating cash flow.

Despite spending £40m, it recorded goodwill of £14m which tells us Adept isn’t acquiring companies at “sky-high” prices.

Share price verdict: I’m amazed this company is still valued at below £100m. In the past, acquisition type businesses are super favourable in the market and command a PE of 30 to 40 times earnings.

For Adept, its PE is at 20 times earnings, but on an OCF-basis this falls to 10 times.

Overall, the shares are fairly-valued at first glance.


Begbies Traynor Group



Begbies Traynor Group plc is a leading business recovery, financial advisory and property services consultancy.


The share price of Begbies Traynor is the reverse of optimism meaning during periods when the economy is doing well, there are fewer businesses in distress resulting in Begbies having fewer clients.

Therefore, you see the share price spike during the financial crisis to £2, before tumbling to 20 pence as the economy recovers.

Now, at 65 pence, Begbies is ready to profit from the next financial crisis as the world economy enters 10 years of growth.

P.S. There will always be periods when the economy goes into recession.


Important factors for shareholders to consider


These are the following points investors should have picked up on:


1). Unsurprisingly, revenue has slipped from their “great financial recession” highs of 2008-09. Today, revenue grew to £52.4m vs. £49.7m and is below their all-time highs of £62.8m in 2010.

2). Profits before tax grew to £2.3m from £0.6m. Again, this peaked was reached in 2010 when it made £10.2m.

3). One positive is borrowings are falling. And today’s results saw total debt tumble to £11m from £17m as it repays £6m of debt.  The group has borrowing facilities are unsecured, mature on 31 August 2021 and comprise a £25m committed revolving credit facility and a £5m uncommitted acquisition facility.

This gives a total undrawn credit of £19m, as well as £3.5m in the bank.


4). Another positive takeaway is Begbies is adopting lower capex spending in this cycle vs. their previous spending cycle. The last five years saw average spending at £2.7m vs. £8.58m between 2006 and 2010.

Today’s net investing fell to £2.4m from £3.2m and this is boosting Begbies excess cash generation of around £5m.


For more on Begbies’ results, click HERE.



Brokers’ forecast

Begbies beat their sales and net profit forecast.

£m 2018 2019 2020
SALES 51.9 54.6 57.4
EBIT 7.9 8.6 9.3
Net profit 0.8 2.1 3.1
EPS (pence) 3.6 4.1 4.5
Forward-P/E (times) 19.5 17.1 15.6



Last year outlook saw Begbies state earnings are in line with expectations and the results are benefitting from the diversification into property services which account for 30% of revenue.

This year outlook states that Begbies is in a strong position to grow earnings by seeking improvements in their investments made so far. Also, it remains in a strong position to invest in further opportunities given Begbies financial resources.


My thoughts

It appears Begbies is on the rise as high street retailers and slowing property prices are increasing insolvencies and financial difficulties.

Begbies valuation of £76.6m means it’s on a 60 times PE multiple, which is misleading as cash conversion is much greater than their profits. On a cash flow basis, this multiple declines to 10 times, which is similar to last year.

Overall, I think there ARopportunitieses for further upside to the shares. Without further research, I can’t say for sure.






Jaywing is a data science led agency and consulting business with a marketing technology division and the beginnings of an international footprint.


Brief business model

This agency has two core propositions: performance marketing and brand-led marketing and their clients base include: PepsiCo, SKY, RBS and more.

The problem marketing companies have is when more of their clients start announcing cost-cutting, the advertising budget is the first to get cut.


Important factors for shareholders to consider


1). Sales growth was higher than last year at £47.5m vs. £44.5m, marking a neat recovery. It appears sales are returning to their pre-recession highs. And Jaywing is achieving this feat utilising LOWER total non-current assets.

A closer look will tell you value is deceptive. First,  most of their assets are goodwill and in 2011 it impaired some £16m of goodwill. Also, if a business has lots of goodwill but lacks profitability the acquisitions aren’t doing them any favours.


2). There is no profit, as losses came in at £1.13 vs. £3m loss.

Looking at Jaywing’s long-term profitability, I can describe the trend as volatility and inconsistent.  The adjusted EBITDA fell from £3m vs. £4.9m.

Ignoring the disappointing profits for a moment, Jaywing is earning positive operating cash flow. However, this year, operating cash flow is slashed by more than half to £1.5m vs. £3.9m. Thanks to lower depreciation of assets and lower share-based payment expenses.

Over the longer-term, operating cash flow has been disappointing because it was once earning £9m in 2008 and £8.4m in 2009 during times when digital marketing was in their infancy.

So, Jaywing isn’t a leader and is facing intense competition when you margin under pressure.

Digital marketing is becoming a saturated market.


3). Total borrowings came to £6.55m, up from £5.75m.

Banking facilities comprise a term loan for £3.0m, a revolving credit facility for £3.5m and a bank overdraft of £2.0m. There was headroom of £2.6m at the year-end. The facility has been re-structured after the year-end.


4). Not only is Jaywing borrowing from the debt it is raising cash from investors. Total raised amount to £4.3m and results in the increase of shares to 99.5m from 78m shares.


For more on Jaywing’s results, click HERE.


Brokers’ forecast



£m 2018 2019 2020
SALES 47 46.3 46.8
EBIT 2.5 2.9 4.2
Net Income n/a n/a n/a
EPS (pence) 1.7 2.3 3.4
Forward-P/E (times) n/a n/a n/a


Although sales meet expectations, EPS didn’t as it came in negative 1.25 pence vs. a forecast of positive 1.7 pence.

I think the above forecast is too optimistic.



Management states the following: “We have started the year with good new business wins from larger clients where we clearly demonstrated the value of our integrated ‘One Jaywing’ approach in a competitive process.

Whilst there is still caution in the UK market we believe we are well positioned to achieve our market expectation, especially with the continued growth in Australia enhanced by our most recent acquisition.”

This statement didn’t address whether it will make a profit in the future and the deteriorating cash flow.

By simply stating that it is winning new business is good, but how much sacrifice did Jaywing make to their margins to win these contracts is another question investors should ask!


My thoughts

Jaywing is a mediocre business with deteriorating operating cash flow. I feel the £2.6m of undrawn credit will be breach this year if cash flow performance is repeated this year. Add in the effects of lower cash and cash equivalent of £0.6m and together you see the conclusion that the firm has no choice but to raise more money.

Then there are the company’s brokers’ super optimistic forecasts of sustainable and growing profits. I guess the market isn’t taking any notice because valuation is around £21m.

My first impression is Jaywing a poor business in a competitive sector and management isn’t addressing profitability.  Therefore, this company doesn’t meet the requirements for medium to long-term investment. For those interested in Jaywing, I would do some serious research before considering it as an investment.



Photo-Me International



Photo-Me is famously known for its photo ID kiosk for passports but is branching out into a laundry business and a printing kiosk business.

The share price took five years to rise from £1 to £2 and requires a few months to fall back towards the £1 mark.


Important factors for shareholders to consider


1). Sales are up by 7.1% to £229.8m and statutory profit before tax is up 4.4% to £50.2m. It appears sales are closing in from its previous peak at £237.4m (reached in 2005).

The more important data is profit before tax which is another all-time record and is 45% above their previous peak.

For shareholders, the most important number to watch is Earnings per share and this comes in at 10.6 pence per share, a record and tells us the company isn’t raising equity to grow their business which is a plus.

2). Although borrowings have been falling to £10m last year, it rose this year to £33.6m, partly due to the company intentions to increase their cash and cash equivalent to £58m from £47m. Also, I feel the amounts of dividends are too high, as it is being supported by existing cash balance and borrowings.

No details are given on future capex.

3). It is still churning out £60m in operating cash flow similar to last year.

For more on Photo-Me, click HERE.


Brokers’ forecast


£m 2018 2019 2020
SALES 229 238.4 250.5
EBIT 46.9 45.6 49.2
Net Income 34 33.6 36
EPS (pence) 9.67 8.57 9.93
Forward-P/E (times) 11.4 12.8 11.1



The outlook is interesting as management has now concluded that 2019’s profit before tax will come in at £44m vs. the previous forecast of £45.5m, which isn’t too bad given the market has devalued the shares by half.

Also, Photo-Me could be seeing an influx of people taking new photos and changing their passport as Brexit looms.


My thoughts

There could be a recovery in Photo-Me photo ID division as Brexit looms, the benefit won’t occur till next year as it won’t take effect on October 2019.

Despite the collapse in share price, Photo-Me is fairly-valued at 11 times earnings. Given we are seeing zero profit growth this is justified.




Resources for Readers

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Included in the resource page are some of my recommended investment books which are useful because it helps:

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