raytoei (96.69)

Catching up on my reading: Centerplate (CVP) and Thomas Group (TGIS)

August 20, 2007 – Comments (0)

have been ordering free annual reports (mentioned previously) and finally got around to reading up on a couple of them. I think reading annual reports requires a discipline and possibly a lifestyle change, nevertheless, I try to skim the consolidated financials, and possibly glance at the Management Discussion & Analysis (MD&A).

Here are some of the more salient points on a couple of companies I looked at yesterday.


Centerplate (CVP):

Profile: Centerplate (formerly Volume Services America Holding) provides concession services to arena facilities, including professional baseball and football stadiums, convention centers, and similar locations. Products include traditional sporting-event fare, as well as high-end catered foods, and alcoholic and nonalcoholic beverages. The company also operates some in-stadium stores and provides roving vendors for facilities.

This business is stable but growth is limited. It sells food and catering to stadiums.

Revenue                2005> 643m       681m       703m
Dividend Per Share: 2005> 1.43       1.56       1.56
Net Income             2005> -5m        3m         3m  
Book Value/Share  2005> 0.69       0.06       -0.59
LT Debt                2005> 211m       210m       209m
Share Count         2005> 18m        18m        21m 

Well, in 2005, the company took on debt, which explains the low Book Value of 0.69 in 2005 as compared to 1.68 in 2004. So what happened to the Book value in 2006 ? Looking at the changes in the balance sheet, we see that a combination of reduced assets and increase in short-term loans and payables shrank the BV (also the reduced Retain Earnings from losses in 2005).

So in essence, the company has been dishing dividends beyond what they can afford, and the increase in Debt will result in increased interest payments. Dividends will be cut unless the company raise more debt soon or issue more shares. I think the share issuance is unlikely because sitting on the board is a Private Equity MD, a University Asset management manager, and a private investor.


Thomas Group (TGIS)

Thomas Group provides consulting and management  services. The company's Process Value Management methodology focuses on reducing the time and money needed to complete inter-company processes. The company assesses a client's potential improvements, trains a client's senior management, and helps to implement performance-improving actions. Its clients are typically large global companies in a range of industries, as well as government agencies such as the United States Army and Navy.

The financials actually look quite decent from the annual report and digging up from online data: 4.6% dividend yield, revenue and earnings accelerated  growth in the past 3 years, low P/E and little or no debt. Did I find a hidden gem in this 89m micro-cap business consulting company ?

Well, this is a cyclical business, the company is currently operating at its peak, the last trough was in 2002 during the last recession. The company probably slowed down its international business and concentrated on the N.A market, as mentioned in the annual report. Ten years ago, TGIS had 70+m in revenue, ten years later, the revenue is 59m. The share price has stayed around the same price.

I simply would not have known about the difficult environment which TGIS is operating in if I had not looked past the last three years data.

raytoei