The week’s results

3 sets of figures out this week for companies in the portfolio – Howden Joinery, Tullett Prebon and Trinity Mirror. My most recent discussions of the three companies can be found at the following link, and searching in the top right will find older material:

Howden Joinery
Tullett Prebon
Trinity Mirror

Howden Joinery

Howden have appreciated further versus a pretty flat market since my last post, having added about 10%. They dropped about 6 of those percentage points since the results, which came on Thursday morning, though in reality it’s just a blip in what has been a rather smooth upward trajectory since the start of the year.  Given the evident quality of the business, though this is very easy to say in hindsight, I think this was certainly one of my safer shares.

The results were wholly uninteresting, though seem to indicate some slowing momentum – revenue is up 4.3% for the year so far, though only 2.2% in the second half. The remaining two 4-week periods account for about 10% of their remaining revenues, and so we can fairly easily see how that figure for the year will pan out, but a slowdown in growth makes another unexciting year likely. Not that any fireworks were particularly expected. On the physical growth front, the company reckons it’ll finish the year with 20 more depots than it started with – 4% more – which is a positive given the minimal up front cost (they lease the depots and estimate the fit-out cost at £170,000 – seems extremely cheap to me!) and good returns on capital. The company says they break even at, usually, about 2-3 years, though maturation is much longer given the lack of advertising and the organic way they grow. There’s plenty of scope for continuing locational growth – they think room for about 150-200 more – and there’s a good deal of free growth built in to the way these depots do take time to mature.

Revenue per depot peaked at about £2.2m in 2007, and now sits at about £1.7m; even though openings has slowed, meaning a maturer profile of stores.

Depot growth, locational growth, unit growth, cohesive business model. A slowdown for this IMS doesn’t really concern me – times aren’t fantastic. They’re not expensive against the profit of not-fantastic-times, though, and so I think downside is limited and upside is large.

Trinity Mirror

Trinity Mirror, since the post I’ve linked above, have also been rather exciting. First a 30% dip on the hacking news, and then more or less back up due to a combination of better sentiment and the figures they released. They, basically, were business as usual. Revenue is falling, as expected, but they put the full year operating profit for the business at £104.5m. Capex is slightly down, and net debt has fallen more than expected. It is, basically, the same story as ever, just with every passing day they manage to keep churning out cash paying down that debt and thereby making the equity more valuable.

The pension deficit came in substantially worse,  but that’s volatile anyway. The trading statement hasn’t really changed much – I suspect that will just be a matter of time. If they keep performing, there will be a point, suddenly, whereby it becomes clear they are going to have cashflows far exceeding their myriad potential liabilities, and equity will rerate. Business as usual just takes us closer to that point.

Tullett Prebon

If those two were boring, Tullett Prebon’s statement was less so. The shares are down 9% on the results, which put revenues down 12% YoY for four months in question. Like-for-like revenue was down 15%. It is perhaps not as bad as it sounds, given Tullett’s variable cost base and their good margins, but I expect the revenue figure is considerably worse than expected.

My main problem, really, is the same as in the post I linked – indeed, today makes me feel this even more so:

Normally, I try to understand the business, understand the figures and invest after I know what I’m getting in to. In short, I look for no obvious roadblocks on the horizon, and instead try to invest in companies which I think are unfairly penalised. Tullett Prebon clearly does not fall into this category. While I understand what they do, sort of, the regulatory questions about the role of intermediaries in the financial system means their fate is probably tied up in questions which fly far above my head.

If you’d asked me yesterday where revenues would be, I wouldn’t have had a clue. I suspect that sounds ridiculous to anyone who knows the business and the financial markets; given the issues they explained, it should have been obvious revenues would fall. The statement simply serves to hammer home how little I understand of the fundamental drivers of their business at a core level. Superficially, as I say, what they do is easy to explain. They’re a broker;  they match people, facilitate trade, take a commission. They do all sorts of interesting financial products as well as some rather more boring ones.

Could I give an opinion on the regulatory reform that’s coming, or tell you which direction it seems to be headed? Hardly; and those questions are intrinsic to the value of the business.

At the same time, I tell myself; “the market overstates change. Change is always slower than anticipated. Market leaders always wrangle to remain market leaders, just in a new and different market.” I find that rather persuasive, too. To warp the words of a rather splendid Greek – the only thing of which I’m certain here is how little I know!

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