One of my Twitter buddies sent me the following Notes he/she made as a result of attending an Equity Development Investor Evening on Thursday 19th November 2015. For various reasons they must remain anonymous but were happy for me to share this with WD Readers - I believe they own Shares in FRP and MTEC.
HUGE THANKS TO THE CONTRIBUTOR OF THIS PIECE - there are some important insights here and it saved me time on a Blog as well so I am extremely grateful as I expect Readers will be.
CEO was a great presenter and talked through a very well designed narrative of the history and development of the company. He said that he helped set up (I think) Direct Line so has been through the process of disrupting an industry before. He talked through the move from IVA support (market opportunity of up to £150m) into Legal Services (market opportunity of up to £200bn!). They are starting to commoditise Legal Services, offering fixed fee advice for certain things which is proving both popular and also leading to follow on work at an hourly rate and a higher margin. The fixed price work wasn't any sort of loss leader though - it was priced to make a good margin.
Their main competition are the small partnerships on the high street, often one or two guys in their 60's who have been churning out the same stuff for decades. Increasingly, these old partnerships are coming up for sale at very attractive prices and FRP simply buy the case book from the firm very cheaply and let the partners sell the property which gives them (the partners) the windfall they want. There is commonly nobody for the partners to pass the business on to. They are also picking up small companies where there is a geographic benefit as there is commonly a need for a physical presence in court etc.
There genuinely doesn't seem to be any real competition in this space - certainly nobody doing the same thing as FRP. I already have some shares which have done well and will be adding on any pull backs as I think this is a very exciting growth story.
NWF Group (NWF)
CEO was a good speaker but very honest about the company. It is a collection of three companies that have little synergy. The fuel part supplies fuel to the other two parts and they share some premises but that's about it. All three businesses are trading well and growing slowly organically and carry little risk but there's not really anything to get excited about. The shares will amble along if the eps slowly grows and suffer the occasional slip (farming shock like foot and mouth, HGV drivers strikes or whatever) I guess. A really cold winter would be good for them (both from a feed and fuel perspective).
My approach to this one will be to keep an eye on it and if it has slipped back (due to a lack of interest) and we get a cold winter I would buy for the next set of results and then sell it. A medium term trading share. It ain't going bust, it ain't going to shoot the lights out but might offer the occasional 20 - 30% which isn't to be sniffed at.
FD presented first and was reassuringly FD-like :-) CEO knew his stuff and presented well. It's a recruitment business, just like other recruitment businesses. They have a good CEO and a good team but that is probably their only differentiator. The key thing for me here is that they are undervalued when compared with their peers. I chatted to the CEO about this and his view is that this is down to a) the perceived risk associated with the NWI takeover which he admitted had been tougher than anticipated but had yielded more benefits than hoped for b) the fact that they had gone from net cash to net debt as a result of the cash spend on the NWI deal c) the fact that their growth was lower than their competitors d) a stock overhang from NWI shareholders who received MTEC shares.
On a) I think they are far enough through now to say that the companies are integrated and that the risk did not materialise. There are more synergies than anticipated so that'll come through. b) The FD said that the debt would be gone in 2 - 3 years. The cash flow statement shows that it does throw off a lot of cash c) The CEO admitted that the period of absorbing NWI had compromised their ability to sell due to management attention being distracted but he was of the view that that period was over and they were all guns blazing now and making good headway d) He felt that any last overhang, if it existed, would have been cleared by the last month's price increase.
Equity Development had done some conservative "sum of the parts" analysis and come up with 700p per share but that included the debt. Knock that out and I reckon by 2018 this will be approaching a tenner to be honest. I'm topping this one up too when the next lump arrives in the pension (I'm consolidating a bunch of pensions I've accumulated over the years which are generally in crappy funds into my SIPP).