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)
Div. Yield 6.8%
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.
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.