ADVFN Logo

We could not find any results for:
Make sure your spelling is correct or try broadening your search.

Trending Now

Toplists

It looks like you aren't logged in.
Click the button below to log in and view your recent history.

Registration Strip Icon for charts Register for streaming realtime charts, analysis tools, and prices.

Cello Interims – Time to Move On

Share On Facebook
share on Linkedin
Print

AIM listed International marketing services group Cello (LSE:CLL) was a not so hot share tip from me back in August 2010 at 38p. Those who followed me have trousered a few decent dividends but at 40.5p today, investors are not exactly celebrating a ten bagger. Reading today’s results for the six months to 30th June 2012 I am struggling to see what I was so excited about in the first place.

Revenues grew by just 2.8% to £63.3 million, underlying pre-tax profits grew by 2.2% to £3 million and earnings per share actually fell from 3.06p to 2.69p. The one bright point is that the dividend was increased by 5.5% to 0.88p and the stock now offers a decent 5% yield but I do not think that the dividend can be viewed as 100% safe. This is a company with borrowings of £13.7 million (up from £11.2 million) – that is debt of 16.6p per share.

The health operations (market research, medical communications and strategy consulting) performed well with the margin up from 20.7% to 25%. But the consumer side (market research and consulting) saw margins plunge from 7.8% to 0.4%. Cello says this operation has now been “stabilised and a planned recovery” is underway. You can plan all you want but the environment is “challenging” and I am not convinced that this sort of operation has any real pricing power.

In terms of cashflow at an operating level the bleed was £858,000. The company then p0onied up another £1 million in tax payments and capex of c£858,000. That worries me when the debt looks a little high. The other thing that strikes me about the balance sheet is that while the net asset value is £67.878 million that is more than 100% made up of goodwill and intangibles of £75.7 million. Tangible net asset backing is non existent.

The company says that it will hit full year forecasts. So that means earnings of 6.45p ( down from 6.71p) with 6.85p forecast for 2013. You may well say that on a 2012 price earnings ratio of 6.3 the rating is undemanding. But then again this is a company which between 2011 and 2013 will have grown its earnings at just 1% a year. This is not really a growth play. My sense is that the macro-economic risks for earnings are on the downside and not the upside.

I would far rather that the company paid down its debt than bluster with an increased dividend when earnings this year will actually fall. I am sure that Cello is a good enough company. It is just that I cannot see much in the way of upside while there are clear downside risks. The profits for those who followed my original tip on a website that I do not mention any more are not great. Call me a chicken but I’d cut and run and take them anyway.

CLICK HERE TO REGISTER FOR FREE ON ADVFN, the world's leading stocks and shares information website, provides the private investor with all the latest high-tech trading tools and includes live price data streaming, stock quotes and the option to access 'Level 2' data on all of the world's key exchanges (LSE, NYSE, NASDAQ, Euronext etc).

This area of the ADVFN.com site is for independent financial commentary. These blogs are provided by independent authors via a common carrier platform and do not represent the opinions of ADVFN Plc. ADVFN Plc does not monitor, approve, endorse or exert editorial control over these articles and does not therefore accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at ADVFN.com is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by ADVFN.COM and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Authors may or may not have positions in stocks that they are discussing but it should be considered very likely that their opinions are aligned with their trading and that they hold positions in companies, forex, commodities and other instruments they discuss.

Leave A Reply

 
Do you want to write for our Newspaper? Get in touch: newspaper@advfn.com

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

Support: 1-888-992-3836 | help@advfn.com