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Author thirty fifty twenty     View Profile     Add to favourites     Ignore
Date posted 2017-02-22 16:03
Subject analysis at 41p of Growth Share Scheme 
Opinion Strong BUY
Votes for this Posting Voted UP 2 times.
Message

I thought the GSS was a very interesting RNS this morning.

After my analysis I’ve concluded that it is good news

1 – there was no obligation to announce today but they have chosen to announce today 4 weeks before the FINALS which means that there are no bad news in the FINALS, and no lost, or wobbling clients in the pipeline. It also gives comfort that there are no surprises in the accounts. Basically it puts a floor under the price at 40p (otehrwise mgt would have waited until the bad news was out and issue the GSS at a lower price)

2 – I think it also means that the directors view today’s price as relatively low i.e. they expect it to be higher after the FINALS

3 – regardless of any moral opinion it is an incentive for the directors to get the share price higher

4 – it is a reasonably ‘fair’ scheme. As a shareholder I am giving away c.3p of my gain if I gain 34p from today. So at first glance, compared to yesterday I am 3p worse off, except that I think it means there is now a much better chance that the price will get to 75p because of the heavily geared incentive to management. And the is a HUGELY increased chance that the price will get much closer to that 75p (let’s say half way at 58p) compared to yesterday. So realistically if I bought today I have a decent chance of getting to 58p within 2 or 3 years – that is compound growth of 17% p.a. for 3 years (incl dividends). I think that is attractive upside when there is little downside.

5 – the total top mgt team own c.40% of the shares in TMMG so the argument that they are taking money away from us private investors is much diluted given that they are also 40% shareholders themselves. You might argue that then they didn’t need an extra incentive and indeed that is a very reasonable argument. But taking out the emotion it means that the total mgt team will be very incentivised to stay with the business and to retain their best clients, and that the board will now go on a route to improve investor perception of the company.


Before today I thought a ‘fair price’ for TMMG was 55p over a 2 year period with a nice 4% dividend. However I also recognised that there were downside risks of client loses and some surprise. So today I see that a floor has been put under the price (there is little chance of major client losses in the near term) and now it is reasonably more certain that the FINALS, and in particular the outlook statement, will contain good news.

In conclusion, TMMG still have a great recovery story since new mgt took charge in 2010, it is growing steadily (8% a year for 8 years), it is very lowly rated, it generates large amounts of CASH, there is a decent divi and the GSS gives a lot of comfort that 40p is now a floor to the share price and also gives optimism that the price could re-rate significantly as the businesses continues to grow over the next 2 years which is backed up by a positive price trend chart..


All IMHO, DYOR + BoL
TMMG is in my portfolio

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