"Tamdown competes by tender for contracts offered by the big building firms and it has historically won at least one out of every three bids, with the current year-to-date win rate improving to one in 2.4. "
how many of the big building firms competitors is there in the market?
"Inflation was a particular problem because tenders for contracts are at a fixed price that is set in advance. So inflationary pressure was entirely absorbed by Nexus. It is unlikely that 11% inflation rates will return any time soon"
I am not sure regarding inflation going forward, and I expect a lot of volatility in the coming years, unless/as long as geopolitics reaches new equilibrium.
Therefore I am interested if going forward, they have some inflation protection clauses in their contracts...?
It is a valid point. The only solution to the National debt crisis in the UK and US may be inflation. Government policies, as announced by the new UK Government in its recent budget are certainly inflationary - whether or not that was the intention is less clear. However, the cost of human labour has increased in the UK due to increases in minimum wage and National Insurance tax on wages increasing. That will be passed through to the consumer. The US is threatening Tariffs under the new Trump administration, which will also be inflationary.
I honestly don't know whether Nexxen has adjusted its contracts to provide it with inflation protection. It would be sensible.
It's intentional for sure. One who doesn't believe it shall show a better way (at least for "them) to lower relative pressure of debts and other obligations. That is also constant with all (fiat) currencies, that they are depreciating through times, in real terms.
It is in the process of a full restructure having divested 2 of 3 subsidiaries and acquiring a new one. As such, historic data doesn't mean much. The company has never broken its numbers out by segment, which makes analysis of individual parts very difficult anyway. This is one of those special situations where one needs to take a chance if you feel that the asymmetry of the situation is favourable.
The bigger issue, in my mind, is that the management has completely changed. The new CEO was previously a COO and the new CFO was a finance director/Company secretary. Are either sufficiently skilled at business administration and capital allocation? Only time will tell. The restructuring, cost cutting measures and efficiency improvements are all good signs. However, the Coleman acquisition seemed to be at a high multiple on an EV/EBITDA basis and they seem committed to paying dividends, which for a turnaround company looking to grow both organically and possibly by future acquisitions, is entirely the wrong thing to do.
As I always say, a company which changes its management isn't the same company. It may have the same customer base, products and services, but the company's performance is dependent upon who is steering the ship. Just look at Apple under John Sculley, who nearly bankrupted it, and then under Steve Jobs, who turned it into a power house. Same company, different management, a stark contrast in outcome.
Long story short, and in answer to your question, for this kind of situation the qualitative considerations are the most important. I would advise against trying to assess this on a quantitative basis.
With no long-term debt and £9m cash on the balance sheet that accounts for 75% of the £12m market cap, it piqued my interest. You have spotted that receivables are another £28.5m with payables at only £12.8m. So this looks like a business trading well below NAV. While I have no further information relating to the nature of receivables, I note in my analysis that the lions-share of corporate revenue comes from very large and well established house builders, so one may infer that most if not all of the receivables are secure. The company has only made a £2.9m provision for bad debts which reinforces this assumption.
However, there are lots of legitimate questions such as these. They are difficult if not impossible to find answers to due to the huge transformation of the business, both in terms of its constituent parts and its management.
I researched this opportunity and decided not to invest at this time, but to wait, give the company some time to demonstrate success in the turnaround and then to reassess at some future date. This would inevitably mean entering at a higher price if all goes well, but paying a higher price for lower risk is a trade I would be happy with.
Having done the preliminary research, I published to the Rock & Turner community so that others could assess the situation for themselves and use it as a foundation for their own due diligence.
If you or anyone else in our investment community undertakes further analysis and is able to add any colour to these topics then please do post those findings in this comment section for the benefit of us all.
"Tamdown competes by tender for contracts offered by the big building firms and it has historically won at least one out of every three bids, with the current year-to-date win rate improving to one in 2.4. "
how many of the big building firms competitors is there in the market?
"Inflation was a particular problem because tenders for contracts are at a fixed price that is set in advance. So inflationary pressure was entirely absorbed by Nexus. It is unlikely that 11% inflation rates will return any time soon"
I am not sure regarding inflation going forward, and I expect a lot of volatility in the coming years, unless/as long as geopolitics reaches new equilibrium.
Therefore I am interested if going forward, they have some inflation protection clauses in their contracts...?
It is a valid point. The only solution to the National debt crisis in the UK and US may be inflation. Government policies, as announced by the new UK Government in its recent budget are certainly inflationary - whether or not that was the intention is less clear. However, the cost of human labour has increased in the UK due to increases in minimum wage and National Insurance tax on wages increasing. That will be passed through to the consumer. The US is threatening Tariffs under the new Trump administration, which will also be inflationary.
I honestly don't know whether Nexxen has adjusted its contracts to provide it with inflation protection. It would be sensible.
It's intentional for sure. One who doesn't believe it shall show a better way (at least for "them) to lower relative pressure of debts and other obligations. That is also constant with all (fiat) currencies, that they are depreciating through times, in real terms.
Great read! What does the free cash flow profile for the company look like and where does it trade respective to international peers?
It is in the process of a full restructure having divested 2 of 3 subsidiaries and acquiring a new one. As such, historic data doesn't mean much. The company has never broken its numbers out by segment, which makes analysis of individual parts very difficult anyway. This is one of those special situations where one needs to take a chance if you feel that the asymmetry of the situation is favourable.
The bigger issue, in my mind, is that the management has completely changed. The new CEO was previously a COO and the new CFO was a finance director/Company secretary. Are either sufficiently skilled at business administration and capital allocation? Only time will tell. The restructuring, cost cutting measures and efficiency improvements are all good signs. However, the Coleman acquisition seemed to be at a high multiple on an EV/EBITDA basis and they seem committed to paying dividends, which for a turnaround company looking to grow both organically and possibly by future acquisitions, is entirely the wrong thing to do.
As I always say, a company which changes its management isn't the same company. It may have the same customer base, products and services, but the company's performance is dependent upon who is steering the ship. Just look at Apple under John Sculley, who nearly bankrupted it, and then under Steve Jobs, who turned it into a power house. Same company, different management, a stark contrast in outcome.
Long story short, and in answer to your question, for this kind of situation the qualitative considerations are the most important. I would advise against trying to assess this on a quantitative basis.
I hope this helps.
I'd also be curious to know about the FCF conversion, and nature of the receivables.
With no long-term debt and £9m cash on the balance sheet that accounts for 75% of the £12m market cap, it piqued my interest. You have spotted that receivables are another £28.5m with payables at only £12.8m. So this looks like a business trading well below NAV. While I have no further information relating to the nature of receivables, I note in my analysis that the lions-share of corporate revenue comes from very large and well established house builders, so one may infer that most if not all of the receivables are secure. The company has only made a £2.9m provision for bad debts which reinforces this assumption.
However, there are lots of legitimate questions such as these. They are difficult if not impossible to find answers to due to the huge transformation of the business, both in terms of its constituent parts and its management.
I researched this opportunity and decided not to invest at this time, but to wait, give the company some time to demonstrate success in the turnaround and then to reassess at some future date. This would inevitably mean entering at a higher price if all goes well, but paying a higher price for lower risk is a trade I would be happy with.
Having done the preliminary research, I published to the Rock & Turner community so that others could assess the situation for themselves and use it as a foundation for their own due diligence.
If you or anyone else in our investment community undertakes further analysis and is able to add any colour to these topics then please do post those findings in this comment section for the benefit of us all.
Thank you in advance.
Thanks for the detailed response, was it ai generated?