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Daily comment

Credo works widely in the business and support services sector and every day we discuss issues that grab our attention. What comes below are the personal opinions of individual consultants. It's a blog, not the considered opinion of Credo as a company.

 

Alternative futures

 Monday, 17 November 2008. Posted by Leo. Filed under Support Services.

“Never make predictions, especially about the future”, Samuel Goldwyn.

Good advice for most, but strategy requires that our clients take a view of the future - and just at the moment that’s not an easy thing to do.

Let’s leave the solution to this connundrum for another time. In the meantime, here’s an example of a forecast going somewhat awry. From Gordon Brown’s valedictory address as chancellor, March 2007…

“We will never return to the old boom and bust….Looking ahead to 2008 and 2009, inflation will also be on target….In 2008, alongside North America, our growth will again be the highest in the G7 — between two-and-a-half and three per cent….Our fiscal discipline is the foundation of the strength of Britain’s finances….Britain’s net borrowing, as a per cent of our national income, in the future years to 2011-12 will be 2.4%, falling to 2.0%, and then falling to 1.8, 1.6 and 1.4 per cent.”

 

The outsourcing event of the year

 Thursday, 6 November 2008. Posted by Leo. Filed under Support Services.

No, not a Credo party - worse, we’re even not invited. But something grander, more exclusive and more (erm) romantic…

Rod Aldridge’s wedding reception takes place at the Dorchester next month. It’s second time lucky for Mr Aldridge - think Equiniti rather than Capita - and we wish him all the best.

Ministers and permanent secretaries are unlikely to want to miss the canapes. But will Paul Pindar be there?

[More about Rodney M Aldridge OBE CPFA FRSA, in his own words: http://www.aldridgefoundation.com/site/web/about]

 

Raise the red flag for FM

 Wednesday, 29 October 2008. Posted by Leo. Filed under Support Services.

Credo is used to defending the public services industry from those who think it does little but take money from “schools ‘n hospitals.” But we hadn’t previously thought of arguing that retaining local caterers and cleaners might be contributing to a class-ridden society. Here’s MITIE’s MD for PFI on the nuances in Building Schools for the Future contracts:

“There appears to be an increasing trend for Design and Build Schools (D&B) to procure only part of the Facility Management services and in particular to exclude soft services. The approach for PFI schools however is to procure full FM Service. The result of this will be that over time, a two tier estate will emerge with different standards at potentially neighbouring schools. The consequences of this will be a deterioration of the D&B school and a knock-on effect on the education standards within that school.”

 

Practical Keynesianism

 Wednesday, 22 October 2008. Posted by Leo. Filed under Support Services.

“With the economy in a hole, start digging…”

So goes the standard Keynesian response to a downturn. And the builders of Britain, shovels at the ready and eyes on their share price, are ready to help out if called.

But how practical is this?

As veterans of BSF - to take one public sector building scheme among many - will attest, there’s often something of a lag between policy and activity. Indeed, if we try and prime the pumps the BSF way, we should expect a notcieable uplift in spending after seven years or so - just in time to help the next boom boil over.

The chancellor’s promises to bring forward government capital spending should be treated with a pinch of salt.

 

Private equity and the crunch

 Monday, 20 October 2008. Posted by Leo. Filed under Support Services.

It’s an article of faith amongst private equity professionals that the real money is made in the downturn. But for all the boasting, the latest CMBOR survey from Barclays Private Equity makes it very clear that the buy-out boys, like the rest of us, tend to run with the herd: buying when things are expensive; gun-shy when the market is supposedly awash with bargains.

And so, deal value in the first half of 2008 was down 53% on H1 2007.

Regular readers of this blog will not be surprised that this crunch wasn’t evenly spread. Big deals (>£500m) fell much more, 58%, than small and mid-sized deals, down 44%. Deals in retail fell an astonishing 94% and in property and construction 81%; business and support services were at more of less the same level as a year before (off just 2%).

This chimes with our view of how our sector weathered the early part of the year. We wait to see what effect the dramatic events of the last few weeks will have on the second-half. We’d guess most private equity will still be sitting on its hands: contrarian investing is a lot harder in practice than theory.

 

Mouchel up. Did anyone notice?

 Wednesday, 8 October 2008. Posted by Leo. Filed under Support Services.

We yield to few in our fascination with the support services sector. But even we’ve found our attention wandering to goings on in other parts of the business press in the last few weeks.

So Mouchel had to shout to get noticed. And its full year results announcement on Tuesday gave it a fair crack: revenue up 46%; profit up 27%; the dividend increased by a fifth. That’s a good result from a Credo favourite.

But did anyone notice? Not to judge by the press - there wasn’t any to speak of - but the shares are up 40p (+13%), so someone’s buying.

 

What the bank bailout means for us

 . Posted by Leo. Filed under Support Services.

“The government is to invest £50bn of your money in British banks so they can lend it back to you with interest.”

[Source, The Daily Mash].

And with that, Credo’s stance of real-economy optimism (see previous posts) is put on hold. We’re OK, so are (most of) our clients; we’ll just have to wait and see

 

Take your pick

 Thursday, 18 September 2008. Posted by Leo. Filed under Support Services.

Redrow shares gained 8% on bid rumours yesterday. So far so normal. But what were the rumours? Take your pick:

One British builder, one day, five different market rumours. It’s that kind of market at the moment.

 

Jarvis, any port in a storm?

 Tuesday, 16 September 2008. Posted by Leo. Filed under Support Services.

Surveying the wreckage of the stock boards, with shares in such service sector blue-chips as AMEC, Atkins, Balfour, Capita - heck, nearly all of them - showing 20p+ falls, who stood out in the sea of red? Recording a 0.75p rise, Jarvis, almost uniquely, showed a gain.

Is Jarvis, with borrowings of £42m weighing on its £35m market cap, now a suitable home for widows’ and orphans’ savings? We doubt it. More likely, yesterday’s rise was further evidence that Richard Entwistle’s efforts to turn the railway engineer into a ‘normal’ company are not done yet.

Yesterday was one of those days where Jarvis might have preferred to fall with the crowd.

 

Johnson feels the pain

 Thursday, 11 September 2008. Posted by Leo. Filed under Support Services.

Here’s an extract from Johnson’s latest results (source: Press Association)

“In facilities management revenues were 51.6% lower at £23.2 million after a major customer took work in house.”

Ouch.

 

Serco, the word count

 Friday, 29 August 2008. Posted by Leo. Filed under Support Services.

Serco’s interim results statement contained much of interest. But it took over 10,000 words to say it. By contrast, Capita managed to get things off its chest with half this many.

Both businesses have much to boast about. Both are complex beasts that take a lot of explaining. Each has a similar obligation to pad their reports out with formulaic nods to the various regulatory regimes. But why is Serco so much more prolix in getting out its message?

Our pet theory is managerial. Serco, strangely for a company that operates a ‘lean’ and decentralised model, somehow finds itself with a Director of Corporate Communications and a Head of Investor Relations. Put each down for a bit of job-justifying hackery and you quickly have a 50 page half-year review.

 

Serco disappoints (relatively)

 . Posted by Leo. Filed under Support Services.

Serco’s interim results today boasted earnings ahead 21%. This is a cracking result in recessionary times - but how does it measure up to Serco’s own high standards?

Earnings ahead 21% is bang in line with historic performance. Serco’s done this for most of its twenty years on the stock market. Keep it up for another twenty and Chris Hyman will have over a million colleagues (and even less free time).

Our cavil is Serco’s historic success is built on organic top-line growth. It’s been bidding and winning new contracts that has driven shareholder value.

But in this half-year, Serco relied as much on margin enhancement (ROS, 4.9% to 5.2%) as old-fashioned business development. In one sense, this is welcome - other postings here have been sniffy about Serco’s margins - but this blogger prefers Serco as a growth stock. Serco will have to mature one day, but surely not yet.

 

Situation excellent

 Friday, 15 August 2008. Posted by Leo. Filed under Support Services.

We like and admire Garvis Snook, Rok’s chief executive. He’s built a £1bn business; he stands out from the crowd; he’s been guest of honour at a Credo breakfast - what’s not to like?

To these credits, add this latest pugnacious response to the crystallisation of a £l;15m trading loss and closure costs at Rok’s development arm.

“Rok will use funds from the closure of its property business to make acquisitions” [Unattributed briefing, FT]

It brings to mind Marshal Foch, the WWI general:

“My centre is giving way, my right is in retreat; situation excellent. I shall attack”

And it’s worth remembering that, after a scrape or two, Foch won.

 

PR speak

 . Posted by Leo. Filed under Support Services.

But not even Rok’s natural embullience can survive the dreary dampening of modern coporate communications.

So here’s how the interim statement describes Rok’s closing of its property division:

“Rok’s strategy remains unchanged but our business mix is evolving”

That’s one way of putting it.

 

More local government consolidation

 Wednesday, 6 August 2008. Posted by Leo. Filed under Support Services.

Not consolidation of local authorities themselves - the public sector doesn’t change its structures just because they cease to work - but more IT company match-ups in the face of falling demand.

Over the weekend, Anite’s sold its public sector IT division to Northgate. The price, we’re told, diluted earnings for Anite - and it can’t have been easy for KKR-backed (and debt-fuelled) Northgate to raise finance in these markets - so you can imagine that Anite’s hand was forced.

Local government IT is consolidating, and consolidating fast. Here’s the updated tally of deals in the last 12 months:

 

Business Stoicism

 Monday, 4 August 2008. Posted by Leo. Filed under Support Services.

This from the latest Contract Journal:

“Keepmoat, the social housing specialist group, changed hands in August 2007 at the peak of the market when its founders, Dick Watson and Terry Bramhall, sold the group for £780m to the HBoS bank.

Today Keepmoat is worth 40%-50% of its value a year ago, suggesting that £400m has simply evaporated.
So do Keepmoat’s buyers now regret their move? Their answer is ‘no’.”

Stoicism, even in these more emotive times, is still a virtue. But, even in business, it doesn’t change the score.

 

Back to the status quo ante

 Tuesday, 29 July 2008. Posted by Leo. Filed under Support Services.

An interesting survey hit my desk last week: Corbett Keeling’s taking of the temperature in private equity. Based on 500 interviews with private equity johnnies, Jim Keeling describes conditions as “surprisingly buoyant”, suggesting that 2008 is not so much 1929 all over again, but 2006. In other words, it’s not 2007 but it’s still good.

Here are some of the highlights from the survey:

So, things are poised, pricing is coming down - and, with or without the banks, deals will still be done.

Like us, Corbett Keeling are left feeling a little perplexed by what their own data tell them - “things are OK” -, and what the market mood suggests - “we’re all doomed”. We remain among the optimists.

 

Consulting and BPO

 Monday, 21 July 2008. Posted by Leo. Filed under Support Services.

Compare and contrast these snippets of news.

First up is another local government consulting acquisition where Tribal has bought again. This time it’s RSe, whose 30-or-so people do a little bit of strategy consulting for a lot of local authorities. Financial details aren’t available but, for the purposes of this blog, let’s take Tribal’s equally recent acquisition of Helm, whose 82 people went for £21m.

Then look at BPO. HCL, an Indian outsourcer, has just bought a unit of Liberata, the UK BPO outfit. Liberata Financial handles the life policies of Sun Life, AXA and Barclays, among others. It has 800 people, £30m revenue and an order book of over £250m. The cost to HCL? About £1m, say reports from India.

Five years ago private equity, such as General Atlantic, Liberata’s owner, was pouring money into BPO; consultancy was ignored, derided as unbankable. That looks to have been the wrong call.

 

Worried? Not quite yet.

 Thursday, 10 July 2008. Posted by Leo. Filed under Support Services.

Credo’s optimism in the face of the gloom in the papers is not based on the fortunes of its in-house share club, whose fresh disaster last quarter saw it switch, like a Jim Carry/ Jeff Daniels movie, from banks to housebuilders…

Instead our optimism has been based on the performance of our clients and the business and support services sector. Some sectors have been hit hard; others powered ahead. That’s not a recession, it’s a periodic adjustment.

So, as Balfour Beatty, Serco and other sector blue chips have continued to fare well, we’ve kept our cool. That’s why Morgan Sindall’s pessimism is a little troubling.

Predictably, John Morgan talked down the prospects of his ‘open market’ housebuilding operations - but these are just £100-150m or so of MS total revenue. More worryingly for his investors, he also pointed to ’softening’ in office fit-out. Here, in Morgan Lovell and Overbury, the firm has £500m of sales and acts as an indicator of broad commercial office market activity. A slowdown here is more worrying.

We’ve not joined the pessimists yet - Morgan Sindall’s fit out operations are focused on the South East and, we’d guess, disproportionately dependent on financial services - but it does leave our optimism less well-underpinned than before.

 

Local govt consulting, continued

 Thursday, 26 June 2008. Posted by Leo. Filed under Support Services.

We’re keeping a tally of the number of local government consultants being taken over by bigger companies looking to buy into this niche market.

We had four - with Atkins, Northgate, Mouchel and Serco the buyers - when we last wrote in March.

Now there’s one more: 13th June 2008, Tribal buys Helm. The quick nos. are £15m (£13m of that in cash) for 72% of Helm. That puts a value of £21m on Helm’s 82 people (£250k per person), which is pricey.

 

Carillion, that fraud in context.

 Tuesday, 24 June 2008. Posted by Leo. Filed under Support Services.

 

Another one bites the dust

 Thursday, 5 June 2008. Posted by Leo. Filed under Support Services.

As public spending slows, the private sector has quickly assessed that not all the suppliers grown fat in the boom years will survive.

In public sector software, for example, the UK’s specialists suddenly looked especially exposed. So they’ve been looking for shelter. Here’s a quick list of recent deals:

We have the sense that IBS gave up as others rushed out the door. The price achieved, for all the talk of a 65% premium, was less than it had been trading at six months ago. But the City had given up on it even earlier [see post, http://www.credo-group.com/comment/archives/340], so IBS probably had little choice.

Whatever the merits of the deal for IBS shareholders, you’d rather be in their shoes than Anite, still unloved and without a home after serial attempts to sell itself. With so much activity going on around them, being left on the shelf must be galling.

 

MITIE’s strategy, live and uncut

 Tuesday, 3 June 2008. Posted by Leo. Filed under Support Services.

MITIE is an innovative company in many ways so it was no surprise to see its Chief Executive, Ruby McGregor-Smith, deliver the latest results presentation on web-cam.

We applaud her for doing this and only wish all companies might provide similar windows on their thinking.

We’ve been critical before of MITIE’s strategy - but never its results - so here’s a transcript from the part of the presentation dealing with, in Ms McGregor-Smith’s own words:

“…Just talking through our strategy, the strategy is very much to deliver stakeholder value through a focus on sustainable profitable growth and it’s broken down into four key areas, which I’ve listed on the slide , which are stakeholders, sustainability, profitability and growth. We have an uncompromising commitment to all our stakeholders, which include our shareholders, our customers, employees in the wider community. Equity and centralization has always been at the heart of our ethos and that continues to be the case. Sustainability is about building a business responsibly and for the long term, managing the growth rates within a reasonable level and planning our resource requirements adequately. It’s also about aligning our strategies and goals with those of our customers which is something I’m going to come on to talk to you a little bit about later.

We focus very much on growing the business profitability and maintaining our margins within their target ranges. And I think finally, as you know we’re very much a greater company and we operate in fragmented markets and that are growing quite quickly and I think we’re still very well placed to maintain our record of growth….”

 

Jarvis

 . Posted by Leo. Filed under Support Services.

The UK rail market is often more akin to an Old Testament morality tale than modern business. And Jarvis generally gets to play the hapless Jonah, Job or Joseph (take your pick).

Last year was the famine - a £27m loss. This year a comparative feast, £11m profit.

Richard Entwistle stays reasonably cheerful despite it all. He talked in the latest results of ‘unprecedented spending’ on the network.

There you have the rail industry in a modern parable. Long-term we’re all bulls - there’s lots of cash about and plenty of ways to spend it - but the journey isn’t for the fainthearted.

 

Balfour lands a big one

 Monday, 12 May 2008. Posted by Leo. Filed under Support Services.

We’d trailed it here before but now the news is in. Balfour Beatty (plus Atkins, Skanska and Egis) is preferred bidder for the M25 widening contract.

More short-term misery for motorists, but short-term joy for Balfour Beatty shareholders (up 15p on the news). And in the longer term we’d also rather be Balfour Beatty than on London’s orbital motorway.

 

The credit crunch and its effects

 Monday, 21 April 2008. Posted by Leo. Filed under Support Services.

Obviously the credit crunch is big news if you’re a bank - ‘RBS firms up plan for a £12bn rights issue’ [Scotsman]. Equally obviously it has wider effects - ‘Pets at Home rules out float as sales of luxury fish tanks sink’ [FT].

But falls in specific sectors, however large, are just the cut and thrust of capitalist adjustment. A nation can have enough domestic aquaria. What everyone’s worried about is recession, when we all fall together, and the good go with the bad.

So how are things so far? What news from support services?

All good. Erinaceous and Johnson Service Group are dead and very ill, but you can’t blame Mervyn King for that. The good companies are looking good. The next CVJ will have the figures.

 

We love Carillion?

 Tuesday, 8 April 2008. Posted by Leo. Filed under Support Services.

Not a client but, hey, they can’t do everything right…  Carillion is enduring some bad press just now, prompted by its shake-out of recently acquired Alfred McAlpine.

At least 350 jobs are to go at McAlpine’s base in Tannochside, the old HQ of its 2002 acquisition Stiell.  The local paper is up in arms and there’s even a Facebook group called ‘We hate Carillion’*.

We don’t know the ins and outs.  We sympathise with those having to look for new jobs.  But from where we sit, that there are even 350 jobs to cut at an old Facilities Management HQ is evidence of plenty of fat and a lack of integration into the old McAlpine.

Carillion’s right to fix that - and in business being right is more important than being loved.

*’We hate Carillion’ currently has 17 members.  Disappointingly, there’s no one there we recognise. 

 

Strategic cringe?

 Tuesday, 1 April 2008. Posted by Leo. Filed under Support Services.

Mouchel and Serco are two companies we admire.  And in a match-up each has strengths to call on.  We’d be hard pressed to choose between them. But, curiously, it seems that one company naturally defers to the other.  Here’s a quick exerpt from Mouchel’s interim statement:

“The HBS brand has been discontinued and the business already merged with our existing Government Services business stream, all under the leadership of a new managing director, who has been recruited from Serco.”

Why the name check for Serco?  Why the implication that a Serco staffer must necessarily move Mouchel on as a business?

Mouchel has a top tier local government BPO and consulting business; Serco’s business, built around its acquisition of ITNet, is nothing to get excited about.  Yet Richard Cuthbert appears to be sub-consciously defering to Chris Hyman. Odd.

 

Hot energy

 Wednesday, 26 March 2008. Posted by Leo. Filed under Support Services.

A month or so back, Centrica splashed out £20m for 10% of Ceres Power.  Ceres is developing CHP (combined heat and power units) units for residential use.

Today Ceres announced its figures for the half year.  Sales were up from £30,000 to £279,000.  It does have one significant customer signed up - Centrica, since you ask - but otherwise that’s that. 

As the world adapts to climate change, energy majors like Centrica need access to start-ups like Ceres, even at a price of 360x sales.  And knowing how badly all those internet investments turned out the last time majors went shopping for new technology doesn’t make it any cheaper to play in the current energy boom.  

 

Capita senses a change in the wind

 Monday, 17 March 2008. Posted by Leo. Filed under Support Services.

When New Labour was in the ascendancy no one padded the corriders of power with more diligence than Capita’s Rod Aldridge. But Mr Aldridge is no longer in the box seat at Capita - an excess of Blairite diligence brought him down - so it’s left to Paul Pindar to place the outsourcer’s bets. An article in the Times today suggests that the former No.2 senses a change in the weather.

“If the BPO industry has one person to thank for its early acceptance and then huge growth,” says Capita’s new front man, “it is Margaret Thatcher…”

As Police Chief Renault says in Casablanca, “I blow with the wind, and for the moment the wind is blowing from Vichy.” Ideological conservatives might wince, but that’s politics.

 

Making it big overseas

 Tuesday, 11 March 2008. Posted by Leo. Filed under Support Services.

We made much of the opportunities for British service companies overseas in a CVJ article from 2003 and repeated this again last year. And here, from Interserve’s latest results is a neat illustration of what we mean.

For the first time the contribution from Interserve’s construction activities in the Middle East (£15.9m) surpassed that of its UK operation (£13.5m). That UK division is one that we particularly admire and, while we doubt that the boys in Dubai have built a business with such resilience, you wouldn’t bet against them making yet more money next year.

PS. Taken together, the UK and the Middle East make Interserve Construction the largest of its four divisions. Yet you wouldn’t guess this from the results presentation. Construction is listed third, behind FM (which does FM) and Specialist Services (which ‘provides a variety of outsourced services which are usually delivered discretely but can form part of a bundled package through Facilities Management’ - presumably also FM.)

 

The future of Local Government

 Thursday, 6 March 2008. Posted by Leo. Filed under Support Services.

Local government suffers from a lack of glamour. But someone cares.

Here at Credo we’ve noticed that a mini-flurry of activity has been taking place in local government consulting. Four small-to-medium consultancies have been snapped up by bigger support services players in the last eighteen months.

We reckon this is a smart and rational response to broader changes in the sector (Varney, Gershon et al). The companies below have backed that insight with more than words:

 

A good year

 . Posted by Leo. Filed under Support Services.

Here are the first six growth figures from Balfour Beatty’s results presentation: +36%, +48%, +28%, +26%, +29%, +25%. For the record that’s growth in revenue, profit, eps, dividend, cash from operations and order book.

To our mind, this confirms a number of themes Credo’s been banging on about:

 

Rentokil - ouch

 Thursday, 28 February 2008. Posted by Leo. Filed under Support Services.

Here’s the opening of Rentokil’s results statement:

“Revenue up 20.3% to £2,216.7 million. Full year adjusted operating profit and adjusted profit before income tax up 8.8% to £280.8 million and 1.1% to £211.4 million.”

Here’s the opening of the AFX news service on those same results:

“Rentokil Initial PLC today issued another profit warning saying that 2008 profit will be significantly lower than in 2007, after reporting a 14 pct fall in full-year underlying profit.”

Clearly there’s a difference of presentation here, at the very least. Whatever, the City has just marked the shares down 26p: that’s a quarter of Rentokil’s value gone in a morning.

[And Credo’s view? Here’s what we said two years ago. Here’s what we said a year ago. Here’s what we said just a month ago. We have a lot of sympathy for Doug Flynn and respect for the scale of the task he and his team are undertaking. He’d have been better served by the City appreciating the operational and business pressures he faces rather sooner.]

 

McKinsey and the public sector

 . Posted by Leo. Filed under Support Services.

Now that HM Queen has approved the bill to nationalise Northern Rock, there really can be no argument about it: Northern Rock is part of the public sector. And as such, there can be no surprise to see the government’s favourite consultancy McKinsey working with Ron Sandler.

It’s said that McKinsey is to work on a business plan for the bank. To this task it brings extensive experience from other large UK clients such as the NHS and the MOD. The stated intention of the government for Northern Rock is ‘business as usual’, so it might well get its wish, if not without incurring some fancy bills.

The clever thing is how Jermyn Street’s finest keep on selling themselves as private sector experts, here’s a good example.

 

Sometimes business really is simple

 Friday, 22 February 2008. Posted by Leo. Filed under Support Services.

We recently received a (spoof) e-mail report on British Gas’s recent record profits. You know how these things go but it illustrates a point about business, and how to make money, nonetheless.

“BRITISH Gas has said its 500% increase in profits is the result of charging people much more money to buy gas. Unveiling its annual results, the company insisted the £480 million profit jump vindicated its strategy of making it a lot more expensive to cook food and keep warm.”

And here’s Skanska with a similar, if opposite, insight. Sales in 2007 were up 44% but profit was down 7%. Why?

“David Fison, the chief executive of Skanska UK, said profit would have risen in line with sales had it not been hit by problems on unnamed projects.”

 

Balfour Beatty’s (small) spending spree

 Tuesday, 19 February 2008. Posted by Leo. Filed under Support Services.

In the four years 2004-2007 inclusive Balfour Beatty has acquired the following companies: Gammon, Signalbau Bahn, Pennine, JCM, Edgar Allen, Charter, Birse, Centex, Exeter Airport, Cowlin and Covion.

These eleven companies have variously extended its UK footprint, moved into higher value markets, bought it a significant US business, added technical capability, deepened its infrastructure investing, etc etc… all-in-all, Balfour Beatty is a much stronger business than four years ago.

But here’s a thing. The total consideration for that little lot was £300m, according to Merrill Lynch. At the same time it sold Andover Controls and its stake in Devonport Dockyard, releasing £302m, on our calculations.

That’s a transformed business for a net £2m (inflow). That’s a (very) small price to pay - and great business.

 

PFI accounting

 Tuesday, 12 February 2008. Posted by Leo. Filed under Support Services.

No one said accounting was simple, and accounting for PFIs gives more scope than most for creative interpretation. Mostly this results in changes which, to put it charitably, surprise on the downside. But here’s a nice example of things going the other way:

[RNS 11.02.08] “Kier Group plc announces the disposal of its 50% PFI investment in Hairmyres Hospital… The consideration totalled £13.8m, which was received in cash… The transaction will result in the disclosure of a profit of around £16m.”

There you go. £14m in cash and a profit of £16m. The difference? Profit from a previous refinancing, prudently deferred until now.

Take a bow, Deena Mattur, one of the only female FDs in the sector. She’s had some, ahem, difficult publicity over the last year, but today was a good day for her and her profession.

 

Amey’s brand

 Monday, 11 February 2008. Posted by Leo. Filed under Support Services.

Here’s one from the Walsall Advertiser. This illustrates both Credo’s wide reading in search of support services stories - and also the power of brand (something we’ve commented on before).

“Serco has won the contract to run education in the borough for the next seven years… Serco fought off stiff competition from the management services company Amey. Amey is best known in the borough for installing and maintaining street lights.”

Serco does all sorts of things, some of them a lot more ‘trade’ than street lights. So what did Amey do to deserve such a very-British slight from Walsall’s newshounds? We guess that’s the power (for good or ill) of brand.

 

Metronet - yet more…

 Friday, 8 February 2008. Posted by Leo. Filed under Support Services.

We’ve commented on Metronet here too many times to link to the articles but you can find them if you use the search bar to the right. Rather than continue to rail about it, we present below a few stats.

It doesn’t sound that good. But for some people, the situation seems anything but. We can’t see the obvious flaw in the following analysis but if there is one (and there must be, surely?) then please let us know…

Nice work if you can get it. Northern Rock, anyone…?

 

Carillion - on a roll

 Thursday, 7 February 2008. Posted by Leo. Filed under Support Services.

Carillion’s acquisition of Alfred McAlpine should become effective on 12th February. But corporate activity is not all that the Big C has been up to recently – in the last week the Monteray consortium (in which Carillion, Balfour Beatty and Reliance Security participate) has retained its BT FM contract (6+4yrs, worth £500m) and Carrillion’s Nottingham LEP JV has won the £208m Nottingham BSF contract.

All this and yet the share price is where it was at the start of the year. John McDonough could reasonably wonder what else he has to do.

 

Parallel lives

 Wednesday, 23 January 2008. Posted by Leo. Filed under Support Services.

VT and Babcock (see previous posts) often seem to run on parallel tracks. And so it’s been in the last few days.

Each has announced a deal to buy into nuclear services. VT, on last Friday, with BNFL Project Services and Babcock on Tuesday, with International Nuclear Solutions.

It’s not copying that’s got the two companies to the same place at the same time; it’s strategy. Moving out from a reliance on defence shipbuilding has pre-disposed each to seek markets with ‘mission-critical’, long-term, engineering-based contracts. Throw in the weary familiarity each has with difficult customers - the MOD, the NDA - and you get the parallel announcements of last week.

Here at Credo, we expect both these moves to pay off. The only cloud on the horizon is that business success, like finding the best holiday spot, sometimes relies on others not having the same idea. There should be plenty of money going around in nuclear. Babcock and VT will just have to share.

 

Jumpy markets

 Monday, 21 January 2008. Posted by Leo. Filed under Support Services.

IBS is a local government software company. Here’s its pre-close trading update from 17th January:

“Revenue, profits and earnings per share showed year on year growth compared with 2006 although slightly short of analysts’ formally published expectations. Operating margin…was broadly similar to the previous year.

The sales growth rate in the second half, which was partly driven by further market share gains was, however, tempered by some tightening in market conditions; these conditions are anticipated to continue into 2008 but the Board also remains confident of further market share gains.”

Not jumping for joy, but nothing to scare the horses, you’d think. In fact, the shares promptly dropped 20%. Ouch.

 

Hawkpoint’s year

 . Posted by Leo. Filed under Support Services.

Here’s a snippet from Hawkpoint’s review of the year.

“Our restructuring team was active, particularly in the second half of the year. It is currently advising ISTC, an Irish company that invests in bank capital, on its recapitalisation options.”

There you have it.

 

The stockmarket and the economy

 Thursday, 17 January 2008. Posted by Leo. Filed under Support Services.

The FTSE100 hit a new year low today, bringing the index back to its level of last August. And who has dragged it down most? Retail (off 39% since the summer) and support services (off 33%).

Retail’s poor performance even we understand - debt and rising utility bills must be hitting spending. But support services - in our sector we reckon demand is strong, so why the gloom?

It’s time for optimism. Buying Atkins, Serco and Capita would give you three growth stocks, buoyed by infrastructure investment, outsourcing and public spending incontinence. Avoiding Rentokil, Compass and Experian would save you worrying about execution risk, management competence and American credit cards. Job done.

PS. I found out the other day that Credo’s amateur share club was long on Royal Bank of Scotland. ‘I have faith’, says one of the duff stockpickers. He’d be better off relying on analysis: there’s better value closer to home.

 

Share tipping

 Friday, 11 January 2008. Posted by Leo. Filed under Support Services.

Every new year the newspapers pick their top shares for the year ahead. Journalists are paid to write not invest money, but, hey, it’s all good fun - and sometimes instructive.

Last year the tips were full of business services companies. Amec, VT, Xansa, Compass, Atkins and Intertek all featured. I haven’t gone back and checked but I reckon this would have been a good portfolio. These are all good companies (well, most of them are) and ours has been a strong sector.

And this year? A quick skim through the Times, Telegraph, Guardian and Independent throws up lots of oil and energy companies -and someone* even picks Northen Rock as a ‘gamble’ - but only one business and infrastructure firm features.

That firm is Balfour Beatty. It’d be Credo’s top tip for 2008 too, but where are the others? There’s plenty of demand for our sector, businesses are well-capitalised and cash-generative. There are always hiccups but surely a bit of analysis could help you avoid these. Credo would have been far more bullish than the papers. We’ll see…..

*That someone is the Independent. Just so you know.

 

When to buy and when to sell

 Wednesday, 9 January 2008. Posted by Leo. Filed under Support Services.

Private equity chaps are smart johnnies so they’ll be aware that the trick is to buy low and sell high. And indeed, as the every downturn starts to bite, there’s always a lot of brave talk from the sector about the opportunities likely for the savvy investor.

So what do the data say?

The data from the CMBOR (see previous post) say that the historic peaks in investing activity have been 1989, 2000 and (most likely) 2007.

The suggests that the sector as a whole - 3i appears to be a notable exception - is buying high and selling low.

 

How things change

 Tuesday, 8 January 2008. Posted by Leo. Filed under Support Services.

Barclays funds the Centre for Management Buy-out Research and its data are the best around for tracking activity in the UK private equity market.

Just this week, I open a nice mailer from Barclays with the figures up to Q3 2007. ‘Figures for the first nine months reveal that 2007 is already a record’, it says.

And today, I see in the Times that the CMBOR has put out its Q4 numbers. ‘The volume of British buy-outs tumbled 80% in the fourth quarter.’

Print runs and holidays can make fools of us all, but it’s clear the market has changed.

 

Happy New Year, I think

 Thursday, 3 January 2008. Posted by Leo. Filed under Support Services.

Back in the office and I open the traditional present from Guy Hands of Terra Firma. It’s a book: JK Galbraith’s ‘The Great Crash of 1929′.

This’ll now be sitting on thousands of desks across London and the UK - Credo is hardly the most important company Terra Firma deals with - and it should give plenty of people pause for thought.

Guy Hands’ own musings on crashes and the coming year are sent with the book. These are commendably straightforward and self-critical. Credo remains optimistic about 2008, but Mr Hands’ is an attitude we’d all do well to copy.

 

Happy Christmas

 Friday, 21 December 2007. Posted by Leo. Filed under Support Services.

Happy Christmas. We’ve had a fabulous year, and so have many of our clients. There’s plenty of comment elsewhere about what 2008 might bring for the markets. But let us just wish you all health and happiness, and a well-deserved break.

 

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