OPD (again)
Posted on May 8, 2009 by Richard Beddard
Filed Under Companies, Investing, Markets |
In practice:
Signs of overconfidence warn me off
Sorry about the absence of a post yesterday. OPD (OPD) waylaid me. It’s funny how it’s the shares you decide against that take the longest to appraise.
I wrote about the recruiter last week. It fits my pattern. The shares are dirt cheap. The 10 year price earnings ratio is about two, which indicates that most investors have given up. However, it’s profitable, has more cash than debt and operates in an industry that is reasonably predictable even if it could hardly be described as stable.
Normally that would be enough to include it in a safety-first portfolio, designed to avoid the risk of paying too much, investing in financially weak companies, or companies without a future.
But I’m a bit sceptical about the actions of the board in recent times, splurging out on Odgers, another head hunting company, and then writing down its value, the failed, and costly pursuit of Imprint, and the resignation in April of Mike Kirkham, a non-executive director and chairman of the remuneration committee.
According to old media (you see, it is good for something: here’s the report in thisismoney, and here it is in the FT), he resigned because of a disagreement over the large bonuses the board wanted to award itself. If that’s true, it looks as though the directors are reluctant to share the pain with investors and staff.
In fact the papers’ biggest gripe were the bonuses paid to Richard Boggis-Rolfe and Baroness Virginia Bottomley who are board directors and run Odgers. Since Odgers was OPD’s best performing business last year, perhaps the bonuses are justifiable in a similar way that banks justified bonuses to executives in the parts of their businesses that remained solvent and profitable.
I don’t know, the company isn’t commenting.
Even the chairman’s share purchases last year, normally a good sign, seem ill-judged, bought as they were at prices more than twice the current price.
Although, OPD’s an interesting speculation, the signs of overconfidence; the flashy acquisition, the big bonuses, are warning me off. I’d rather see more conservative management of a business that roars in boom times but whimpers in recessions.
In practice:
Seven lean years
In his latest newsletter, Jeremy Grantham thinks the US stockmarket is responding to the unprecedented economic stimulus, but it’s a last hurrah. Seven lean years will follow seven fat and overstimulated ones because we’re no longer as rich as we thought we were, and we’re entering a less indulgent, more realistic world. The good news is, that means seven years (or so) of low price earnings ratios.
Philip Coggan agrees. An observer who woke up after sleeping for two years would be alarmed at the numbers. Sentiment has flickered higher as a dissected frog’s leg twitches at an electrical stimulus.
Bear market historian Russell Napier thinks the bounce could last two years, but then there will be a cataclysmic bear market bottom as inflation takes hold, and unleashes the mother of all bear markets in treasuries. Once treasuries reach 6%, shares are doomed.
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