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.

4 comments

  • 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 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?

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