SKE - Skilled Group

[craft]

Not that I've seen. The downgrade probably won't come until after the fact, as per usual.

I have skin off on this one – A re-occurrence of my premature accumulation condition.

Yep the near term looks challenging and they will face some redundancy/restructuring costs but it’s a good well run fairly diversified variable cost business. The price is implying way less then cost of capital returns over the long run. I reckon they will do way better than that.

Obviously Energy exposure and rising unemployment is freaking the market out – how low will it go?

On the upside we have a Know nothing in response to the speeding ticket and a reconfirmation of the business update from the AGM which indicated typical cycle low margin squeezing business performance but nothing more.

New CEO in place (wish my LTI grants were being priced at the moment),

Debt refinanced at lower rate and extended term.

Come on Mr Market – make me say WTF again.

Actually I think there are a couple of good resource service companies that are good long term value at the moment – but who knows how low they can go.

 

[Ves]

They've done pretty well so far cutting into their cost base. And the acquisitions have been pretty good.... they are steadily improving their capability to service areas of the economy that are not mining or O & G related. However, economy is still sluggish so it's a waiting game (read: could be longer than most broker's forecast periods).

The main problem, and craft, did touch on this, is the rest of the cost base and potential redundancy liabilities. It could potentially wipe out earnings for a year, perhaps more, going forward, if they get caught with their pants down and need to lay-off a whole heap of workers quickly.

Debt looks high, but a lot of it is funding the Ichthys project ramp-up, and it'll begin to hit peak and wind down when the main cash comes through next year. I don't see it as a major problem: famous last words.

At the moment it's a case of: the mining boom is over and there's no chance that this company will be able to diversify outside of it. I disagree, so I look like an idiot for now.

I remember that they've had some pretty substantial telecommunications contracts in the past. There's definitely some potential there at the moment....

 

[skc]

At the moment it's a case of: the mining boom is over and there's no chance that this company will be able to diversify outside of it. I disagree, so I look like an idiot for now.

I don't know... why buy a company hoping that they can diversify in what they do? As an investor it's infinitely more appropriate to do the diversification yourself.

Agree it does look cheap for the short term and wouldn't surprise me for this to run back up towards $1.60 range in the near future.

 

[notting]

Well, I was going to start lampooning the response from SKE that the bid was opportunistic given the majority of it is pegged to the share price of PRG which had probably fallen just as far.

But, charts kind of agreeing that it is, a little.

If they ever recover, otherwise it's, well, somewhat dangerous, unless you are happy with ya 25c as an SKE share holder, because Lord knows what PRG will be worth when the 30 year mining age is well and truly, well, dead.

 

[Wysiwyg]

Agree it does look cheap for the short term and wouldn't surprise me for this to run back up towards $1.60 range in the near future.

That was a hot bounce off $1.04 on the 17th Dec. to $1.695 yesterday. The 17th Dec. was the day Programmed Maintenance made a merger proposal to Skilled, so I just read.

 

[Ves]

I don't know... why buy a company hoping that they can diversify in what they do? As an investor it's infinitely more appropriate to do the diversification yourself.

What I meant was that I disagree that they need to at all. They've got a track record outside of the mining boom.

But as I said, I often look like an idiot. So I could be one!

 

[craft]

What I meant was that I disagree that they need to at all. They've got a track record outside of the mining boom.

But as I said, I often look like an idiot. So I could be one!

As a general rule, the crowd doesn't differentiate very much. Mining/oil services - chuck it out. Its pretty hard not to no look like a fool whilst the crowd is stampeding - But that's where the opportunity lies.

I was pretty impressed with the opportunisms of PRG (the lesser company IMO) to launch the bid at the price they did. Obviously they have been talking for a while but it was a fairly unfriendly move - not likely to do much to resolve what was no doubt a sticking point over price to get the marriage done.

 

[Ves]

I was pretty impressed with the opportunisms of PRG (the lesser company IMO) to launch the bid at the price they did. Obviously they have been talking for a while but it was a fairly unfriendly move - not likely to do much to resolve what was no doubt a sticking point over price to get the marriage done.

They're a pretty good fit for each other in my opinion.... but the price seems way out of whack to me. It's probably not the last we will hear about it in the next few years either.

 

[notting]

The (net) financial synergies from a merger are in the order of the $20 million per year stated by Programmed and would take a number of years to achieve.
Upside potential is limited by activities already undertaken by both SKILLED and Programmed
Majority of cost saving opportunity would be the removal of duplicated corporate overheads –does not better position the business for future growth
Some dis-synergies impact is also likely 
The remaining synergies could be achieved over 2 -3 years, but would be more difficult to realise
Cash cost of realising the synergies would likely outweigh the benefits in the first year
SKILLED has delivered significant cost savings over the past two years, with further programs underway. Programmed has also delivered cost savings and undertaken branch network reduction in recent years Proposal undervalues SKILLEDPAGE 11The terms of Programmed’s proposal undervalue SKILLED
Terms do not reflect the quality and breadth of SKILLED’s businesses
The contribution of SKILLED to a potential merged group is not reflected

Well that was obvious. Thank you.

Why would SKE have fast forwarded the new CEO a few weeks back if they were going to accept?
They would have just sat back in their arm chairs and let PRG do all the forward thinking.
I think I pointed this out in the PRG thread at the time.

 

[notting]

Gearing up from 21.9% to 31.4%
Debt up from 132.9 to 221.6
Change of 279%

Cash flow down 60.1%

Dividend unchanged at 7.5c per share!!!!
That’s 17.7 million cash being tossed out.
Dividend value trap loving market loves it for about half an hour then warms to it as much as the dividend payout. I guess many were not expecting anything.
Watch out for day EX!!

 

[Ves]

Gearing up from 21.9% to 31.4%
Debt up from 132.9 to 221.6
Change of 279%

Cash flow down 60.1%

Dividend unchanged at 7.5c per share!!!!
That’s 17.7 million cash being tossed out.
Dividend value trap loving market loves it for about half an hour then warms to it as much as the dividend payout. I guess many were not expecting anything.
Watch out for day EX!!

My replies would be....

1. EBITDA to cashflow conversion is always very low in 1H. Not exactly a surprise.
2. Debt levels increasing in 1H 2015 has been known for 18 months. Some was from the acquisitions, but a lot also had to do with the massive working capital ramp-up for Ichthys project. Definitely not unknown to the market, and debt will decrease (unless the company decides to buy some more businesses).

 

[Wysiwyg]

Watch out for day EX!!

Tomorrow is the last day to lay claim for that juicy dividend. Share price looks primed to test the low and beyond with ex div. on Monday continuing this down trend. At a guess a stab through $1 before May. Another company I would like to hold for the long term when business turns around.

 

[System]

On October 19th, 2015, Skilled Group Limited (SKE) was removed from the ASX's official list in accordance with Listing Rule 17.11, following implementation of the scheme of arrangement between the Company and its shareholders in connection with the acquisition of all of the Company's shares by Programmed Maintenance Services Limited (PRG).