Investment research into UK Stocks by Walbrock Research

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Old Oct 5, 2017, 5:08pm   #25
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Walbrock Research started this thread Capita declining share price didn’t happen because of problems in the past few years, but occur much earlier (you are talking about the time during the financial crisis). By using secondary metrics like Sales per employee, you would have noticed that productivity per staff has stalled and was experiencing a gradual decline.

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Another interesting observation, which could disrupt the way we analysis market valuation is to pick the most important financial/non-financial data. For Capita, it is their employees.

So, what you do is divide the employee numbers by market capitalisation to get market capitalisation per employee. Then you divide employee numbers by normalised profits to get normalised profit per employee.
Next, divide Market Capitalisation per employee over Normalised profit per employee to get multiple. Much like the PE ratio, a low number signals cheap valuation and vice-versa.

You measure that against Capita’s share price to achieve this correlation.

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This gradual internal inefficiency has led to their share price decline.
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Old Oct 6, 2017, 11:00am   #26
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Ideagen mystery cash flow generation explained

Walbrock Research started this thread Donít know much about technology, but net cash generation coming from depreciation and amortisation.

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Another interesting observation is since 2013 net cash earnings totalled £18.4m, but capital expenses came to £46.8m. This produces a deficit of £28.4m.

How did they meet this cash shortfall?

By issuing share proceeds totalling £34.2m.

If you visualise it in your mind, you can see three-fifths of Ideagen total cash inflows coming from shareholders and market investors.
Another way to evaluate Ideagen growth prospects is for every £1 generated internally, it needs to raise £2 externally.

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Old Oct 30, 2017, 6:31pm   #27
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Walbrock Research started this thread Lok n Store Group

Share price: £3.75 (up 3.4%); Market Cap.: £109m.

Preliminary results

This self-storage company saw revenue increased by 3.7% to £16.65m, as LFL is up by 5.6%.
Profit after tax rose to £3.17m, up from £2.46m last year, an increase of 28.8%. Looking at it in detail, we see operating profit fell to £4.26m from £6.228m. Thatís because last year it was helped by net settlement proceeds of £1.94m.
So, excluding for net settlement proceeds, operating profit remains unchanged.
Unsurprisingly, the rise in property valuation fell from £17.7m to £7.7m, reflecting a slower price appreciation.

Some would ask this question:

Is this a change in wind direction or a minor correction in property value?
The chart below shows this is the first time Lok n Store has reported a smaller increase in property gains.

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See ďMarket ValuationĒ for the effects of lower property gains.

Divisional Breakdown

The majority of Lok n Store revenue income comes from self-storage and the rest is a mixture of document archive, retail sales (boxes and duct tape) and insurance. The breakdown is below:

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Ignoring profits, the revaluation of property is a better business than renting out self-storage units. Thatís because asset turnover decreased from 0.15 to 0.11, a falling ratio means revenue generated grew slower than the rise in property value.
For more proof, UK property prices rose by 5% last year, compared to unit price rise of 0.8% down from 2.2%. But the occupancy rate rose by 6.5% to normalised occupancy rate to 69.8% (Stripping out stores which have opened or moved in the last 3 years) up from 64.5% in 2013.

Other Financials

Net cash profit rose to £5m from £2.8m, thanks to lower receivables cash outflow of £2m and no one-off item. If we look at 2014 and 2015, it made £5.2m and £5.6m. It puts the improvement into perspective.
Net debt saw an improvement of £17.4m from £23.5m helped by proceeds from treasury shares of £9.9m. Also, this helps cash balance to £11.4m as it brings down the loan to value to 14% from 20%.
They made a profit from the sales of treasury shares since they bought it for £1.52 per share and sold it at £4.05 per share. Not a bad investment!

Historical Performance

Lok n Store valuation isnít necessarily based on how much profits get made or sales generated, but it relies on the pillars of the two ďRsĒ revaluation and reclassification of land and property value.
If you look at their annual report (see note 10/11 on property, plant and equipment) there are four different categories on land and property value, these are: -

1). Additions; - land and property directly acquired;
2). Reclassification; - that is the conversion of development property assets to land and property;
3). Revaluation; - the revaluation of existing land and property portfolio based on the change in property prices;
4). Disposal of assets.

Below is the breakdown in the change of land and property value for 2015, 2016 and 2017:

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For the sake of context, Lok n Store land and property value rose from £51.4m in 2014 to £87.5m in 2017, a £36.1m change in value.
The cash outflow for acquiring these assets totals £13.7m and two-thirds came from revaluations of existing property.
Important: - If property value falls in the UK, then the domino effect of Lok n Storeís market valuation is huge because revaluation is why the shares are rising.

Last year, their development of property assets dropped to £500k from £14m in 2014. It made investors wonder if the company was taking a conservative approach. Now, it has added £4.67m of developmental property to their portfolio.

Market Valuation

The usual PER of 30 times is a misleading indicator for self-storage companies.
A better indicator of under/overvaluation is to use the price to tangible assets ratio.

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This graph above paints a picture of more upside to come, but there is a word of warning!

Caution: Lok n Store didnít revalue their property assets back in 2005 and 2006 which inflated their price to tangible ratio!

For example, in 2006 their tangible assets were valued at £25m and they spent just £9m in capex. The market cap. was £39m. So, 39/25 = 1.56 times.
In 2007, they revalued their tangible assets from £25m to £76m. Overnight, the ratio fell to 0.8 causing undervaluation in the shares and caused the share price to rise by 50%.
Therefore, I conclude that last year the price to tangible ratio was at an all-time high of 1 time.

A secondary measure that could be useful is the NAV/Net Cash from Operation ratio. Itís a measure of how the rise in Lok n Store NAV correlates to their operational performance.

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Indicators that will move Lok n Store share price

The obvious mover of Lok n Store share is identifying the trend or the increase/decrease of property revaluation, this is obviously linked to the UK property prices. Given that PE ratio is in the 30s, then a decline in value would be intrinsically bad for the market value of the self-storage business.
My second factor is the occupancy rate and price increase of renting out storage. Although it plays second fiddle, the demand for more self-storage is a sign that Britain is spending too much money on things. A reflection of a consumer society.
Lastly, this factor affects both the first and second, that is a recession.

Final Thoughts

Lok n Store depends heavily on property revaluation to keep their share price high. Earnings and revenue are secondary measurements.
Right now, the market capitalisation has risen faster than the value of their property portfolio, causing valuations to be on the high side.
A lower property revaluation number does bring some concerns. Therefore, I feel the shares have raced ahead.
At best a hold, and donít expect to see much in the way of share price appreciation.
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