T Clarke in bargain territory
Posted on June 1, 2009 by Richard Beddard
Filed Under Companies |
In practice:
The old ones are the best
Forget London 2012 for a moment. T Clarke (CTO), which claims to be the nation’s oldest electrical contractor, wired up the BBC Broadcasting Centre at Wembley for the 1948 Olympics. It installed electricity in the Tower of London in 1900, in the Beatles’ HQ at Savile Row and Abbey Road Studios in 1968, and the London Eye in 2000. Oh, and it’s wiring the new Olympic Stadium.
The original Tommy Clarke, who I presume is the bloke in the middle of this picture, won his first contract 120 years ago in 1889.
Pat Stanborough, chief executive, is standing down this year. He’s been an employee since 1964, and his replacement, electrical engineer Mark Lawrence, just 41 years old, has worked for T Clarke since he was 17.
If longevity is evidence of a strong business that can adapt to change, then T Clarke is one. Electrical wiring may not seem inspiring, but it was in 1889. That year Edison submitted his patent for insulated wire, so T Clarke can claim advertising its speciality, “wires encased in fire-proof material, etc.”, was like selling nanotechnology today. No doubt wiring the London Eye, or The Pinnacle, soon to be London’s tallest building, is just as challenging as lighting the Savoy Theatre, the first public building to be lit entirely by electricity – by, you guessed it, TC.
It’s difficult for me not to be nostalgic about T Clarke, especially as it’s wrapped its 2008 annual report in anniversary memorabilia and the company earned me a good profit between 2003, and 2006 when it was completing a national expansion programme and I owned shares.
Since then, investors seem to have reappraised the company, though. Instead of being strong in London with growth potential and a reputation for quality, it looks like a national contractor slugging it out for contracts in a poor market. Until last year, profit margins shrank as turnover grew and although T Clarke nearly doubled its earnings per share in 2008, the trend in profit growth is erratic.
The future feels particularly uncertain because nobody really knows when the recession will end, but a major slump in the commercial property market is already apparent. T Clarke’s profits in 2008 were probably earned mostly on contracts agreed before the recession started leaving it a gap it can’t completely fill now, and the company may find it increasingly difficult to collect payment from some of its customers.
On the plus-side, T Clarke is still hammering home its traditional virtues of quality and service, the order book is healthier this month, than it was at the end of the year and the company hasn’t made a loss since 1996.
Unsurprisingly, after what the company describes as an ‘exceptional’ year, it’s financially strong. It’s F_Score is nine out of nine, demonstrating improving profitability both in accounting and cash terms, no long-term debt and cash in excess of its overdraft.
The shares are cheap too. They cost less than ten times T Clarke’s annual average profits over the last ten years, putting them in bargain territory.
Perhaps now investors are less expectant, and the price has fallen from 290p in 2005 to under 120p, the shares are worth considering again, although, with predictions that the “next big milestone” in this recession will be a wave of bankruptcies in the commercial property sector and T Clarke likely to favour skilled and motivated employees over short-term cost cutting should things get worse, there’s plenty to worry about in the next year or two.
In theory:
The shape of things to come
Gillian Tett, cuts through all the nonsense about ‘V’, ‘U’ and ‘W’ shaped recoveries and predicts it will take the form of the shorthand symbol for ‘bank’ (left).
Peter Temple thinks the recent rally is a mid-bear market recovery and expects months of downward drift, hence his model income portfolio is a third in cash.
Marc Faber predicts hyperinflation in the US, with 100% confidence.
Meanwhile, Pimco’s Paul McCulley says the best explanation for the mess we’re in is Hyman Minsky’s Financial Instability Hypothesis, which is more than thirty years old. If you own an interest-only mortgage, read it.
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