numberbiter
20 Dec 2017
Re: Bought If you had got out when I first suggested it, then you would have banked 10p per share (assuming you bought back at today's lower price). However, I still think that it might be worth selling, even at today's price. What is causing the share price to fall is uncertainty; we know the last stock valuation was false, but we don't know by how much. I have seen this type of event many times before and investors are drip fed bad news. To put this in perspective, if the stock adjustment wiped out growth, then the P/E should be around 10, rather than 17.Of course, all this is pure guesswork, but the balance of probabilities suggests that selling is a better bet than holding. But as I have said many times before; you never know!
Hardboy
20 Dec 2017
Re: Bought hi Mickey,You sound in a similar situation to me; and have summed up my thoughts pretty well. I don't think there is much doubt that the business is growing sales strongly; and I believe in the future of the product. (I'm slowly converting all my lights to LED.) The trading update whilst being a profit warning is still predicting a growth in profit of around 8%. So if they're growing profits by 8% a year when they've c**cked up their financial management; they should be able to do a lot better once they've got on top of it and I am sure they will be playing a lot of attention to it now. It's currently trading on a prospective PE of around 17; and for a company growing sales at around 30%, that's probably cheap. So I've convinced myself to hold on at least till the next update.
smilingmickey1
20 Dec 2017
Re: Bought I'm sitting on quite a big paper 5 loss here, luckily only with a dip in the toe investment.Having re read the profit warning and looked at the books, there does not seem to be a weakening of sales revenue, no mention of redundent stock build up. Luceco operates a business where the manufactuiring costs are in remnimbi, their invoice basis is dollars but the biggest market is the UK where any weakness in sterling is going to cause problems (either weaakening margins or loss of business). It seems Luceco may have chosen weakening margins to loss of revenue. Seems to me that chopping teh Controller for failing to highlight the problem earlier is a bit rough. Hands on Management should have known the problem was going to happen. NOt sure whether to hold or jump.
Hardboy
19 Dec 2017
Re: Bought One slight difficulty with applying your logic to Luceco is that it has only been a listed company for 15 months, so judging trends over time is difficult due to lack of data. I just checked the interims which is the last figures we have, and cash flow from operations was bigger than operating profit. I think it was £10.3m v £9m.
numberbiter
18 Dec 2017
Re: Bought Thank you Hardboy for a very reasoned comment. I agree I over-simplified the issue, but this was solely to make the point understandable.Many years ago, I was advised to compare 'cash inflow from operating activities' (cash flow statement) with 'operating profit' (income statement). Cash inflow must be higher than operating profit and if it is not it is a sign of potential problems ahead. Companies that fail this test for three consecutive accounting periods AND have a high level of debt have a 50% chance of either going bust or seeing their share price trashed (the test does not apply to banks, insurance companies and house builders (in this case, land is in stock rather than fixed assets).I agree with you that stocks may increase for exceptional reasons (as you describe) but in such cases, stocks will go up and down and not always on the up. I agree with you also that the correct stock level will vary from business to business, but we are not interested in a single figure, but the trend over time.A prime example of what I mean was what happened to Stanley Gibbons. They failed the test in five of seven accounting periods (including three consecutive ones), primarily because they were selling stamps on a sale or return basis and their stock went up dramatically year on year. It was pretty obvious that something was radically wrong when the shares were 300p, soon after they were around 10p.You never know, but my guess is that Luceco's figures are so bad that there will be worse to come. If you believe otherwise, then the shares are a buy at the current price of 125p,
Hardboy
18 Dec 2017
Re: Bought Number,I always read any posts you make on shares I follow with interest. You invariably talk sense and often introduce a different aspect to the discussion. Please keep it up. Having said that, I'm now going to disagree with you. Not exactly; just suggest that your post was a little over simplified. But you do raise some very valid points about stock levels and debt. You're absolutely right that a key ratio in a manufacturing business is the stock days, or churn. To make a statement like "For a manufacturing company anything over 60 days maybe suspect" is only saved by the term "maybe." The correct figure depends on so many things which vary from industry to industry, from product to product. Key factors to take into account are - consistency of demand, lead times in ordering, supply channels & distribution channels, exchange rates etc. etc. take for instance a manufacturer of food stuffs where their supplies come from an annual harvest. Keeping to 60 days stock days would be stupid if you want to be able to supply all year round. Highlighting that the stock days for Luceco has gone up is important; and what should happen then is to look into the story behind it. I don't know the answer, but some justifiable reasons could be: buying Kingfisher Lighting puts them in an aligned but different market, which will have different demands and lead times - and maybe their stock management was not as good as Luceco's. When shipping products half way round the world, sometimes opportunities come up to take advantage of cheap delivery opportunities, and maybe geopolitical risks involved in doing that means it's prudent to carry larger stocks in case of disruptions; maybe increasing stocks ahead of advertising campaigns, or moving into new territories makes sense. As for the heavily indebted bit - At the last finals net debt was just under £30m & Operating profit £15m; so debts around double the annual profit. I agree that is high for a well established company like Carillion, but is it so high for a fairly young, and quickly growing business? I would think that's in manageable territory. I read an article on that subject recently (can't remember the source - I tend to focus on content rather than origin) which suggested you should really get worried when net debt is 4 times profits, and/or when pension deficits are 10 times profits.The only meaningful comparison of such figures are comparing a product against itself over time. If you sell eggs and have a field behind the shop with a load of chickens laying more than enough eggs every day - you only need a few days stock. If one the other hand you supply jet airliners and need to keep spare jet engines which have a 3 year delay from order to delivery you will need a considerably higher stock.
wineberry
15 Dec 2017
Re: sell Numberbiter,Thank you - ouch indeed. Not a good mathematician but I do look at the indebtedness and any pension liabilities. Ignored the debt on this one on the basis of MF's recommendation - they've done me very well on others like Somero and Keyword Studios.
numberbiter
15 Dec 2017
Re: Bought Wineberry, there are books out there that explain basic ratio analysis, which can save you are fortune. One such ratio is stocks days (showing how many days it would take to clear out stocks if no further stock was produced or bought). For a manufacturing company anything over 60 days maybe suspect. The formula is: stock divided by cost of sales (annualised) x 365. For Luceco stock days were 163 days in 2016 and 138 days in 2015. Clearly these figures were not right and the company have stated that the value of stocks have been over-stated and the Chief Finance man responsible will be leaving the company.The key question investors should ask is when any qualified accountant can see immediately that something is wrong, how is it that the auditors cannot work it? Carillion recently collapsed after writing off over £1 billion four months after a clean audit. Now Luceco Plc announces that its accounts were wrong. What do these two companies share in common - same auditor - KPMG Birmingham.This company is highly indebted and it is quite possible the worst is yet to be revealed. You never know, but my advice would be to get out now.
Hardboy
15 Dec 2017
Re: Update 140p. Prospective EPS of over 7, so you're valuing it under a PE of 20, which for the growth in turnover this is producing is probably good value. It's been up & down like a fiddler's drawers today. If it had opened higher I would have sold and looked to get back in; but as it was I did nothing. At least the rest of the market had a good day. It'll take some time to settle down and last year they gave an update early in Feb; so hopefully that will be repeated; and an update on sorting out the mess & full year out turn will give some better direction. As for his sale of shares, you have to wonder if he had an inkling of this. It will be impossible to prove and something like this has to be notified to the markets straight away, so he probably did not know. The sale of shares was just after his lock in period was up, so that was probably the reason for the timing.
Ramptastic
15 Dec 2017
Re: Update He sold £2M shares a few weeks ago. Not very impressive.I've bought a few more shares @ 140p, but credibility has been seriously damaged. I'm regretting it already.J
Hardboy
15 Dec 2017
Re: Update "His (CEO's) days are numbered."Interesting thought, but I suspect he'll survive. This is his baby. He lead the management buyout 13 years ago; and has been CEO ever since. He saw the company grow & go through the IPO. I think he's still under 50, and he is the 2nd biggest share holder. I think he'll survive.
schwee
15 Dec 2017
Re: Update It is all very well firing the finance guy, but by association the CEO is culpable as well. His days are numbered.
Hardboy
15 Dec 2017
Update Ouch!This isn't good. Watch a lower open this morning. So some negligence in the Finance Dept. & the FC has gone, they've found out what the problem is and are doing what needs to be done to improve things; and things should be going swimmingly in about a year. PTP is now forecast to be around 13.2m (it was forecast to be 16.7m) but that is still up 8% on last year, which many businesses would be pleased with. It puts the EPS on around 7.25 (as opposed to 9.2) which makes the current sp, which had significant growth expectations built into it, look high. So it'll fall this morning - the question is how far? an does that represent a buying opportunity. The operational business is still the same, and the growth potential is still there. I'm guessing it'll probably be around 180 today.
Hardboy
24 Nov 2017
Re: Hornby Sells Bit surprised there was not a drop in share price with the announcement. When a CEO sells £5m of shares in a small company the sp would usually drop like a stone.
Hardboy
24 Nov 2017
Hornby Sells CEO has sold 2 million shares. That is part of what I was expecting (see my previous post.) I expected once the lock in period was over the original shareholders would take the opportunity to get some cash - that would be Hornby (CEO) Brand (Chairman) & Epic.So that's the first move. It doesn't signify any lack of confidence in the company IMHO - he's still got over 19%; but it could trigger some market weakness, and it could be followed by sales by others. I'd guess that will probably all he sells this financial year (unless he does lose faith in the company) but there could be more next year. The sale does not seem to have weakened the share price; but I'm still hopeful of getting in a little cheaper.
