Almost perfect: Andrews Sykes and London Security

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It’s all about trust

I’ve been pursuing two companies on-and-off all week. Their businesses and financials fit the the Thrifty 30 template almost perfectly but I cannot add them to the portfolio.

ASY2009ann Andrews Sykes (ASY) rents out cooling, heating, and ventilation equipment in Northern Europe and the Middle East. It's blog catalogues how it kept party leaders cool during the televised leadership debates, elite runners runners warm before the London Marathon, a school open during the big winter freeze, and how it maintains the temperatures in warehouses, shops, gyms and offices.

London Security (LSC) owns companies that supply and service fire extinguishers, hoses, and fire alarm systems and provide training and consultancy in fire protection.

LSC2009ann Both are well established in vital but dull industries, so although they have demonstrated their viability, there's probably little hype in the share prices. While there are buildings, there will be demand for fire protection, heating, cooling and ventilation.

Both companies are cheap and strong, having endured profitable but difficult years in recession.

Both companies feature in my shortlists. Andrews Sykes is high up the Thrifty 30 table of companies that are struggling but should recover and while London Security isn't in the top ten, it's in the next ten. It's also in my Nifty Thrifty list of good companies that should prosper.

Both companies are buying back shares while their prices are low.

When I came across them, I felt that familiar sense of recognition and enthusiasm I experience investigating companies that almost certainly make good investments.

Unfortunately it’s gradually ebbed away.

The companies share the same chairman, Jacques Gaston Murray. His son Jean-Jacques Murray is vice chairman of Andrews Sykes and executive vice chairman of London Security. His other son Jean-Pierre Murray is a non-executive director of the two companies. They share a finance director too, and with one exception all of the non-executive directors are the same, which makes me wonder how independent they are.

And both companies are controlled, via separate investment vehicles, by a company called Tristar Corporation which is in turn controlled by two trusts. Tristar owns more than 82% of Andrews Sykes and 98.56% of London Securities, although both figures may be rising due to the buy-backs. Surely the second is a record. Less than 1.5% of the shares are in public hands.

That means the shares are not traded much, and the market maker's spreads are very wide. London Securities' spread is 100p (from 750p to 850p) so in theory your shares would be worth about 12% less than you paid for them the second after you bought them.

But it's not the spread that worries me. It's the risk they might delist. Tristar has the 75% voting power it needs to delist the companies should it want to, which could, like it did at OPD, send the share price spiralling down as minority investors scramble to get out while there's still a market to sell the shares in.

Nevertheless, the businesses themselves are so attractive I tried to establish who controls Tristar and whether I can be confident they will continue as benign co-owners. For a long-while Jacques Gaston Murray controlled it. This is what I can establish from the Andrews Sykes’ and London Security’s announcements and annual reports:

  • In 2008 Jacques Gaston Murray transferred his controlling interest in Tristar Corporation equally to trusts named after his sons.
  • The Jean-Jacques Murray Trust changed its name to the Ariane Trustee Company and the Jean-Pierre Murray Trust changed its name to the Eden Trustee Company later in 2008.
  • Those two trusts currently control Tristar.

It looks as though the chairman, JG, who is 90, is passing ownership to his sons. But the annual report of London Security says none of the directors has a disclosable interest and although Andrews Sykes discloses relatively small interests belonging to JG and JJ they’re nowhere near enough to account for the ownership of Tristar.

Asking the companies who controls them isn’t getting me far. Andrews Sykes is not returning my ‘phone calls and emails, and London Security affirms that it has disclosed all it’s required to disclose.

It’s left me questioning what exactly directors must disclose, and whether trusts can, quite legally, obscure directors’ ownership.

This is what I have established so far: According to the Companies Act (1985) directors had to disclose any interest but that clause was written out of the new Companies Act (2006). Apparently directors of listed companies are still required to disclose their holdings although I can’t find the relevant paragraph in the AIM rules (pdf), or the FSA rulebook for main market companies (it’s a daunting document so a friendly lawyer is clarifying this for me). Both London Securities and Andrews Sykes are listed on AIM.

The original reason for my enquiries was to see if the two companies could reassure me in any way they would remain listed. JG’s age means his record as a benign co-owner is less relevant than it might be, and both companies’ coyness has left me anything but confident. So I’m giving up on them.

At some point ownership becomes so absolute that it goes from being a positive to a negative. Generally I think controlling shareholders are a stabilising influence but I’m increasingly wary of any company where an individual or group has more than 50% of the vote (and therefore can pass normal resolutions at company meetings without requiring the support of other shareholders). The risk is magnified if the company is increasing their control by buying back shares from the public, and getting closer to or beyond the 75% required to pass an extraordinary resolution like a delisting.

There are times when ‘almost perfect’ is not enough.


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