CYG - Coventry Group

A chance conversation lead me to have a look at CYG. It seems they had a disastrous 2007. Macquarie rated them [in December] as Neutral but also with a TP of $3.69.... Current SP $1.58. PE 5.84. IML has almost a 20% stake.

I was wondering if anyone out there in ASF-Land has been monitoring this company?

This from Etrade:

"CYG's strategy is to provide strong return on capital by operating as a diversified distribution and service company to industrial, automotive and other technical based markets. This is achieved by strong branding in each of the market sectors, with a focus on customer and differential products. CYG is also targeting bolt on acquisitions in new geographic areas, as well as larger acquisitions that support existing operations. In 2005/06, CYG acquired Cornall Group and Howard Silvers Hardware as it looks to establish a cabinet and furniture hardware division. Previous acquisitions include: Thompson's Spare parts (QLD) and Rod Smith Parts & Bearings business (QLD), Independent Motor Mart (NT), in July 2004 Hamilton Nuts & Bolts (NZ) and Motor Torque (Qld). General market conditions from the previous year will continue with soft market conditions continue to weight on its automotive market. CYG will continue to evaluate and look for opportunities to grow its business by pursuing strategic acquisitions if they align with core businesses. Coventry Group reported NPAT down 115.1% to -$1.41m for the year ended 30 June 2007. Revenues from ordinary activities were $509.24m, up 4.4% from last year. Diluted EPS was -3.7 cents compared to 25.8 cents last year. Net operating cash flow was $9.98m compared to $2.06m last year. The final dividend declared was 0 cents, taking the full year dividend to 17 cents compared with 35 cents last year."

I wonder where they're heading?

Any thoughts?

Re: CYG - Coventrys

Rick, my very much laymans opinion of this one is that the only place it seems to be going is downhill. So much for Macquarie's target price last December. I wouldn't put my money in this until a clear sign of recovery was evident. Its NPAT last financial year down over 100% should tell us they're not going all that well. I'd be looking at some of the seasoned ASF'ers stock tips for the May competition before this one! Regards ColB

Re: CYG - Coventrys

ColB said:

Rick, my very much laymans opinion of this one is that the only place it seems to be going is downhill. So much for Macquarie's target price last December. I wouldn't put my money in this until a clear sign of recovery was evident. Its NPAT last financial year down over 100% should tell us they're not going all that well. I'd be looking at some of the seasoned ASF'ers stock tips for the May competition before this one! Regards ColB

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Thanks ColB - and I am very much in the layman's club as well. I wasn't considering investing -- not enough of a punter. There seems to have also been some Directors purchasing shares in August/September at prices well above the current SP.

I imagine if CYG do recover then it will be a long hard road back.

Just being curious.

Rick

A friend of mine worked for this mob for years...got quite a few shares,and the only other share he has was the second tranche of Telstra which someone put him onto.
Of course he has lost faith in the shares,especially CYG.
CYG had better get their China manufacturing connection right else their best days will never be emulated.
I assume like Hills industries they are putting most of their business offshore.
Good Luck with this one!You may need it!

robert toms said:

A friend of mine worked for this mob for years...got quite a few shares,and the only other share he has was the second tranche of Telstra which someone put him onto.
Of course he has lost faith in the shares,especially CYG.
CYG had better get their China manufacturing connection right else their best days will never be emulated.
I assume like Hills industries they are putting most of their business offshore.
Good Luck with this one!You may need it!

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I used to work for this mob, in 2 different states and now the business I run deals with them as a supplier.

They are one of the most disorganised, inefficent companies I have ever seen, they just waste money imo. The only company I've dealt with that is worse is Capral (CAA).

The chart reflects this in both stocks imo.

robert toms said:

A friend of mine worked for this mob for years...got quite a few shares,and the only other share he has was the second tranche of Telstra which someone put him onto.
Of course he has lost faith in the shares,especially CYG.
CYG had better get their China manufacturing connection right else their best days will never be emulated.
I assume like Hills industries they are putting most of their business offshore.
Good Luck with this one!You may need it!

Click to expand...

Thanks Robert but note that I do not hold and didn't intend to. After reading the replies I feel even less inclined!! I posted, as I said, because the compamy came up in a chance discussion.
I now wonder whether CYG will even survive.

Seems like CYG is selling off their NT and Queensland assets, with a significant discounted book value to SP ratio, could be a good buy for the value invester.... Then again just read the other posts in this thread and now considering if they really do have a long term future.

DYOR

I was just looking at some picks using Benjamin Graham type stuff (with a few modifications), and from a very small selection that came up based on that criteria, CYG came up as probably my top pick overall.

Any current thoughts from the value (or other) guys?

This company has come through my filters and I did a little reading into it last night.

Traditionally this company has been in very boring/traditional auto and construction businesses in AU and NZ. Coventry fasteners, auto gaskets, auto parts retail? in WA (divested 2012), hydraulic fluids, kitchen cabinet hardware (hinges).

They've been through some big changes. Renewed the management of most divisions, divested of auto parts business (except still making gaskets).

They are cashed up (over $50 million cash with a market capitalisation of 118 million) having sold the auto business in WA and all the real estate associated with it.

Revenue from continuing operations was up by 6% last year. The company has an on-market share buy back scheme registered with the ASX for 10% of the issued shares in the company, which, it appears, the haven't used (ie, haven't actually bought back any shares).

According to the Reuters Thompson data I receive, there is only one analyst following them. It would appear that to sustain the current dividends of 22c per annum (yield 7%) this will see a dividend payout of around (or a bit above) 100% over the next couple of years.

The most interesting thing about the company which I read last night however, is that they have an in-house IT department that has rolled out Oracle e-Business suite and database systems throughout the entire group and its subsidiaries in AU and NZ. They are Oracle accredited and Coventry has spun off the IT division as a separate subsidiary and they are going after other business. http://www.msservices.net.au Because they have IT offices in both Auckland and Perth they are marketing a "follow the sun" help desk offering targeting AU and NZ businesses.

At first, I thought having an IT business mixed in with an old fashioned hardware and auto parts manufacturing and distribution business odd. However, yesterday CYG announced that it had acquired MultiPro IT http://www.multipro.com.au/ which is another Perth based IT company. Quickly looking over their website, they seem an impressive outfit based on case studies of current and past projects. The main concern I would have though is whether the acquisition is going to be an exit strategy for the founder and managing director Mark Jackson (I found it interesting that in its announcement, CYG referred to Mr Jackson as "General Manager". I wonder how that will go down when he's the bloke who founded the company).

Anyway, all that has made me more interested in this company. Is anyone else following? I will do more research.

Yes, I am following this company and have a small holding. I believe the following is not quite correct in the analysts forecast...

According to the Reuters Thompson data I receive, there is only one analyst following them. It would appear that to sustain the current dividends of 22c per annum (yield 7%) this will see a dividend payout of around (or a bit above) 100% over the next couple of years.

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Dividends last year totalled $10.593m from last years Annual Report, yet cashflow from continuing operations was $18.1m plus interest received another $2.6m. With no debt and low depreciation ~$3m, I feel the analyst is incorrect. With an assumption that business conditions are improving and management of this enterprise are getting their act together with moderate expansion into profitable areas (like the aquisition of the Fluidrive) then I would envisage improved profits.

I only purchased recently, as I had been waiting for a pullback that never came, I considered it beneficial to hold before the half year report release.

I'm a little surprised the fundamental guys are not all over this one.

brty said:

Dividends last year totalled $10.593m from last years Annual Report, yet cashflow from continuing operations was $18.1m plus interest received another $2.6m. With no debt and low depreciation ~$3m, I feel the analyst is incorrect. With an assumption that business conditions are improving and management of this enterprise are getting their act together with moderate expansion into profitable areas (like the aquisition of the Fluidrive) then I would envisage improved profits.

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I looked at this briefly recently. Just had another look.

It's hard to say re the Operating cashflow because it has been traditionally lumpy. Working capital fluctuations seem to be the cause of this, as is the nature of their business portfolio. For instance in this year, they decreased debtors by $15 mil and creditors by $10m, which means $5 mil surplus cash falls onto the OCF. The operating margins are also razor thin.

Also, they have a "stay in business" capex expense that needs to come off Operating Capex before they can pay an on-going dividend. There's probably free cash flow generating ability in this business - but how much over the cycle is anyone's guess.

The big plus is the clean balance sheet. I'm not sure what returns they can get on the excess cash (obviously some will be dedicated to capital management as per the share buy back announcement). They will probably maintain the dividend in the short-term (but remember this is an admission they cannot achieve higher returns on the cash than shareholders can in their own pockets).

None of their businesses strike me as high-quality, and all have competitive forces straining margins at the moment - and this combined with the illiquid nature (which makes it hard to build a position - or to get out if something goes wrong) - makes it seem unappealing to me.

ROIC is around the cost of capital (10%) which indicates that there is no competitive advantage.

It's probably on the cheap side - but not my cup of tea.

Ves said:

ROIC is around the cost of capital (10%) which indicates that there is no competitive advantage.

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How did you calculate that? I got closer to 17%, iirc.

McLovin said:

How did you calculate that? I got closer to 17%, iirc.

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Actually I didn't calculate it very well.

EBIT 18,586
less gain on business sale (10997)
adjusted EBIT 7589

Total Assets 190054
less excess cash (45000)
less payables (27511)
Net assets employed 117543


7,589 / 117,543 = 6.5%

What are you doing differently?

PS: I get even less for 2011.

Ves said:

Actually I didn't calculate it very well.

EBIT 18,586
less gain on business sale (10997)
adjusted EBIT 7589

Total Assets 190054
less excess cash (45000)
less payables (27511)
Net assets employed 117543


7,589 / 117,543 = 6.5%

What are you doing differently?

PS: I get even less for 2011.

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Bah! You're right. Obviously I didn't recall correctly!

It did have me thinking why did I pass it up!

McLovin said:

Bah! You're right. Obviously I didn't recall correctly!

It did have me thinking why did I pass it up!

Click to expand...

Cash flow looks bloated to me after doing that little exercise. Isn't it true that cash flow always initially decreases in a business that is winding down operations because of declining working capital requirements?

Ves,

None of their businesses strike me as high-quality, and all have competitive forces straining margins at the moment

Click to expand...

The fluids business looks OK to me with sales of $80m and EBIT of $12.2m, plus there is growth of profit by 60% on a 27% increase in sales. When you add in expansion in this area for the current year, I think this is quite good quality for mine. Gaskets, with $2.5m EBIT on $12.8m sales is not bad either.

I agree that Fasteners and Hardware appear iffy, yet they really only have to break even. Hopefully new management can turn Hardware into a better position.

The new Managed Systems Services is of course blue sky, yet it is costing nothing in the price of the shares.

brty said:

Ves,



The fluids business looks OK to me with sales of $80m and EBIT of $12.2m, plus there is growth of profit by 60% on a 27% increase in sales. When you add in expansion in this area for the current year, I think this is quite good quality for mine. Gaskets, with $2.5m EBIT on $12.8m sales is not bad either.

I agree that Fasteners and Hardware appear iffy, yet they really only have to break even. Hopefully new management can turn Hardware into a better position.

The new Managed Systems Services is of course blue sky, yet it is costing nothing in the price of the shares.

Click to expand...

I think you're right - the key to valuing this business is as a sum of it's parts.


I agree the fluids business is probably their jewel, but how much of the growth is just cyclical reversion to the mean and how much of it is sustainable organic growth?

I think the longer your holding intention, the more important that that question becomes. For me, it is pretty hard to tell. I looked back a few years and the earnings look volatile throughout the cycle.

These sort of stocks are good potential for a shorter period earnings readjustment by the market, but I think even that little play is starting to run out of steam compared to $2.40.

It's just too hard to predict the earnings over the cycle for a long term hold for mine.

Good luck to all who hold - I can see why there may be interest, but it just doesn't stand out enough for my strategy.

brty said:

Yes, I am following this company and have a small holding. I believe the following is not quite correct in the analysts forecast...



Dividends last year totalled $10.593m from last years Annual Report, yet cashflow from continuing operations was $18.1m plus interest received another $2.6m. With no debt and low depreciation ~$3m, I feel the analyst is incorrect. With an assumption that business conditions are improving and management of this enterprise are getting their act together with moderate expansion into profitable areas (like the aquisition of the Fluidrive) then I would envisage improved profits.

I only purchased recently, as I had been waiting for a pullback that never came, I considered it beneficial to hold before the half year report release.

I'm a little surprised the fundamental guys are not all over this one.

Click to expand...

Thanks for your insightful analysis and thanks to those others who have also responded with analysis. I should have been more specific. The analyst figures I was referring to are the forecast EPS of 20c for the current year and EPS of 22c for the year ending June 2014.

Yet, if we look at the financial statements for 2012, the EPS per share (from continuing operations) is 42.3c, however, that figure seems to include $10.97 million of "other income" which represents about half the profit in the profit/loss statement. If you look at note 4, this $10.97 million is the "net gain on sale of land & buildings" which I believe is from the divestment of the WA auto parts business.

If this is a business that is generating earnings from which it will pay dividends I'm interested but if the dividends are being propped up by excess cash sitting on the book (and not covered by ongoing earnings) I'm not so interested.

One of the things that caught my eye when first looking into this company was that it has net tangible assets per share of $3.73 plus that the management seem to be putting the broom through the both the operational management and the businesses mix of the group. At first glance it looks like a company that could have potential my initial thoughts were as to whether it is neglected by the market because of the Coventry Fasteners and hardware businesses that don't inspire.

I'll read over the other information in this thread again tomorrow. Thanks again for the replies.

Doing one of my random screens for fun (this one for July '18 comp)

Coventry looks to be a bit of a deep value play to me at the moment, with a recent buyback announced.

As far as the chart goes; seems to have bottomed out mid-'17 at the same level as the post-GFC level, 8 years prior. Since then it's had an uptrending 12 months, more than doubling in price, currently sitting around the 12-month high...and a long way to go to hit the $3.00 mark it topped out at around mid-'14

CYG is one of many companies that I know nothing about. It hasn't come up in any of my market scans for years as the share price has been falling for quite some time. However it has been popping up in my recent scans and I've been ignoring it due to the low daily traded volume. The volume is too low for a quick momentum trade.

Now that @systematic has brought it to our attention I've taken the time to look at the larger chart and even read their last investor presentation. To my uneducated eye the business looks like improving. They've no debt and cash to pursue opportunities should they arise.

The weekly chart does look interesting as price is stair stepping higher. I like buying the first or second step as the trend starts. I also like the rising volume indicators (OBV, TMF) on the monthly and weekly charts. I suspect that this new up trend will last longer than a month.

This is the sort of trade that I'd start small with a large iSL, be prepared to add when price goes higher and hold for a long time. Sounds like an investment .