CLLN – Carillion – down 34.6%

CLLN issued a Trading Statement today, sending shares down 34.6% to 126p. An extract is as follows:

Deterioration in cash flows on construction contracts, combined with a working capital outflow due to a higher than normal number of construction contracts completing and not being replaced by new contract starts

It gets worse, as it looks like  a fund-raising is on the cards:

The Board announces today that it is undertaking a comprehensive review of the business and the capital structure, with all options to optimise value for the benefit of shareholders under consideration.

The chart looks appalling, and this is a clear case where the market was signalling disappointment:

Chart-carillion-1062017.png

Stockopedia gives it a value score of 95, and a momentum score of 27. Curiously, it does not classify it as a value trap. The algorithm missed a trick. It happens.

A data source that I used showed PBT of £146m, and net debt of £218m. That is within my limits of 3X, so I would not have been concerned based on those numbers. So it was me who missed a trick this time, as the mention of “capital structure” suggests that something is wrong with those numbers.

The cashflows reported by Stockopedia perhaps tells a more truthful story:

2017-07-10 14_00_17-CARILLION Cash Flow Statement _ LON_CLLN _ Stockopedia.png

We see that the cash from operating activities is significantly below net income for the last 5 years.

Also worth mentioning is that the dividend yield is reported as 9.7%: a strong sign that the Market thinks performance will worsen, and that the dividend will be cut.

I had invested in CLLN a few years ago, but got bored with it. This company reminds me of IRV (Interserve); a company that is sluggish and has a hard time going anywhere.

My commiserations to any holders out there.

126p

Update 10-Jul-2017: Now that I have had a chance to look at the bulletin boards, it is apparent that many investors and analysts saw this coming. I rate this company as “avoid”. Let me follow up in 6 months time and see how good my prediction is. I just don’t see the shares going anywhere. The prospect of a rights issue will squash all expectations. As ever, we shall see.

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About mcturra2000

Computer programmer living in Scotland.
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3 Responses to CLLN – Carillion – down 34.6%

  1. stepheniles says:

    **Warning – stupid question ahead **
    I’m a bit ashamed to ask but could you expand on why it is an issue that “cash from operating activities is significantly below net income”
    Thankyou

    • mcturra2000 says:

      Company reported profits are cash from operating activities adjusted for things like depreciation, debtors and creditors. If I sell you something for £10, say, then I might not receive the cash immediately, I might give the item to you on credit. I will book it as a profit, but I just haven’t received any cash for it yet. I expect to receive it later.

      There’s nothing necessarily inherently suspicious about this per se, it’s just a question of timing difference between cashflows and booking profits.

      HOWEVER, the fact that they have reported profits that are consistently above these operating cashflows for a number of years suggests there’s something phony about the way they are reporting profits. They say that they are making a lot of profits, but the cash that is going to the bank (from operating activities) is significantly less than this. This casts doubt on the legitimacy of their reported profits.

      It seems that now things are coming to a head, where the company has to admit that it didn’t make as much money as they said they did. Huge write-downs seem likely to ensue, and the company has indicated, in round-about terms, that it has a cash crisis. It seems likely that they will have to raise more money from the stockmarket. This will dilute the stake that current equity holders have in the company, which is of course a bad thing.

      I hope that helps.

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