Magic Sixes quick check: Creston plc
Regular reader know that I run a “Magix Sixes” screening for investment idea generation.
This idea is from Peter Cundill’s book and is a very simple screen: Stocks which trade below 0.6 book, below 6 PE and have a dividend yield of > 6%.
As one could imagine, the result of this search are not really “wide moat” beauties…
However, one new entry, Creston PLC doesn’t look too bad.
Current “traditional” valuation metrics are:
(Market cap ~31 mn GBP)
P/B 0.3
P/S 0.3
P/E 5.6
Div. Yield 6.8%
EV/EBITDA 3.4
At a second glance, some issues show up:
Tangible book is slightly negative, the comapny seems to have made a lot of (bad ?) acquisitions.
However one can quickly see, that on balance sheet debt is minimal and free cash flow generation in the past 5 years at least until 2010 has been quite good.
Important for UK companies: Almost no Operating lease exposure and also no pension obligations.
The company itself seems to be a marketing service company focused on health care companies which might explain part of the problems. 6 days ago, the company issued a profit warning despite topline grwoth.
Major shareholders seem to be Artemis (10%), BT pension scheme (8.5%) and Ruffer (8%), there doesn’t seem to be a controlling shareholder.
Analyst coverage is weak, only 3 small firms are out with buy ratings.
Other preliminary issues:
Based on the numbers of the first 6 months , net working capital increased, especially receivables, this is something to watch closely.
In the blogosphere, the stock is covered by Expecting Value with a very comprehensive post here and Marc Carter.
Summary: On a first look, Creston plc could be interesting, although I am normally not a big fan of UK stocks. Howver I think it will be fun to look at a UK based services group with negative tangible book in order to learn something new. So I will try to come up with some valuation soon.
value and opportunity 
It’s in the UK portion of the account. At the point of addition to the portfolio, they were top of the list in terms of an aggregated score of 5y EBIT / EV, incremental return on capital, Momentum and F-Score within the UK stock universe. Momentum obviously changed a lot and F-Score declined as well so that they are likely to be kicked out in the next update round.
thanks. Yes, EV/EBIT look cheapat the moment.
Thanks for bringing them up. They have been in a mechanical portfolio I run since June. They look quite good by the numbers and it would be nice to read your qualitative view.
I wonder to what extend these comps (High, ADLPartner are others…also look good), are people businesses. In fact, I would have a very hard time to buy a consulting comp, as they seem to be a sum of their partners. If the partners leave, so does the company. E.g. I know one large law firm from Germany that was ‘bought’ by a UK law firm but there was no transaction price for the firm itself. This is suprising as it is a name everybody recognizes.
No idea in how far Creston is dependend on key people…thoughts?
may I ask which filter are used within your mechanical portfolio ?