Coral Products PLC (CRU)

[WickedLester]

I've had this company on the watchlist for ages but have never invested up until now. They make plastic products and used to make DVD boxes until Joe Grimmond took control and diversified them away from this and effectively saved the company.

Anyway I had never invested before due to their mixed record of profitability but on Christmas Eve there was some news which I believe is game changing and leaves them looking cheap at 10p.

https://www.investegate.co.uk/coral-pro ... 00037547J/

Basically they are selling their two biggest subsidiaries for nearly £8m. The market cap on the price is about £8m and the proforma balance sheet shows they will have net tangible assets of around £12m and net cash of £7m. Net current assets are £10m which includes the freehold property of one of the subsidiaries which is not being sold as part of the deal and has been leased for 10 years at £300k per annum. This property is in the books for £2.52m but may be worth in excess of the book value based on the rental yield and is up for sale.

They have two remaining subsidiaries to sell which both have value and I believe these will go next year as the company is now sub scale and Joe Grimmond is in his mid seventies and probably looking to retire.

I think there is a good chance of this company returning 15-20p next year and I believe it will be hard to lose money at the current price.

Thoughts and comments welcome.

[Heinous]

I agree it looks like a gift, and I hate to look a gift horse in the mouth.

But I am guided by that age-old advice "If it looks too good to be true, it probably is".

Though the only flaw that instantly arises is "Just because the company is cash-rich, doesn't mean the shareholders will benefit any time soon". The boss may retire; he may not. Perhaps he has offspring who will take over, with the security of having cash in the bank?

[WickedLester]

Well I guess no investment is without risk but Joe Grimmond doesn't have a controlling stake in the business so would probably come up against opposition if he tried to pass on control to any children he may have.

[SKYSHIP]

Heinous - "If it looks too good to be true, it probably is"

A valuable old truism; but one that should never be applied to stock-market investment.

Stocks trading in an open market are subject to the whims and prejudices of a myriad investors, who invariably adopt group-think.

Stock prices therefore oscillate between moments of extreme optimism and extreme pessimism.

Value investors therefore seek out asset-backed securities where the share price is anomalously mis-priced.

Whether CRU is one of those remains to be seen. Personally I prefer PRIM, one with the same characteristics, especially the fact that cash in the B/s = the current MCap. However CRU too is one I shall be watching...

[simoan]

I've had this company on the watchlist for ages but have never invested up until now. They make plastic products and used to make DVD boxes until Joe Grimmond took control and diversified them away from this and effectively saved the company.

Anyway I had never invested before due to their mixed record of profitability but on Christmas Eve there was some news which I believe is game changing and leaves them looking cheap at 10p.

https://www.investegate.co.uk/coral-pro ... 00037547J/

Basically they are selling their two biggest subsidiaries for nearly £8m. The market cap on the price is about £8m and the proforma balance sheet shows they will have net tangible assets of around £12m and net cash of £7m. Net current assets are £10m which includes the freehold property of one of the subsidiaries which is not being sold as part of the deal and has been leased for 10 years at £300k per annum. This property is in the books for £2.52m but may be worth in excess of the book value based on the rental yield and is up for sale.

They have two remaining subsidiaries to sell which both have value and I believe these will go next year as the company is now sub scale and Joe Grimmond is in his mid seventies and probably looking to retire.

I think there is a good chance of this company returning 15-20p next year and I believe it will be hard to lose money at the current price.

Thoughts and comments welcome.

The Pro-forma accounts certainly show a bullet-proof balance sheet. Is that enough though? For a full out value investor it probably is, even if you're conservative and completely write off the goodwill and are prepared to sit and wait. It's a new company to me and I can see why looking at the long-term chart, the poor profitability metrics (ROCE and Op Margin), and the market cap is way below the lower limit of my "investable universe".

Having looked at the director holdings it doesn't seem that Mr. Grimmond has a large enough slice to decide the future of the company on his own, but given they have sold the largest subsidiaries, there doesn't seem much point in continuing with a stock market listing - it's basically a cash shell with a couple of small businesses remaining. So a return of capital could be on the cards if you trust the management to do the right thing. However, I can't get away from looking at the 5 year chart and ask myself why the management that oversaw such poor performance and destruction of shareholder value, would be best placed to return value now? If that was on the cards why didn't they sell the property to the acquirer rather than sign a 5 year lease?

It's an interesting situation but is not something I'd really want to have much money tied up in.
All the best, Si

[WickedLester]

Hi SKYSHIP

Personally I think CRU may be a better opportunity than PRIM. The price to cash is roughly the same for both of them and I think also the discount to net tangible assets but in the case of PRIM they are planning on reinvesting the cash and the new management are unproven. They may struggle to find another Greatland Gold.

In the case of CRU I think there is an excellent chance that the whole lot will be sold off and the cash returned to shareholders.

If you just want an investment company with similar characteristics to PRIM you could look at LMS which also pays a dividend.

[johnhemming]

Stockopedia says they have debt of about £8m. I have looked at the RNS and understand this now.

* Pre-tax profits are stated before management charges and Covid related exceptionals

[simoan]

Stockopedia says they have debt of about £8m. I have looked at the RNS and understand this now.

* Pre-tax profits are stated before management charges and Covid related exceptionals

FWIW Stocopoedia numbers are way out of date and don't include the latest interims for the HY ending October. The numbers shown are up to the last FY to April only.

All the best, Si

[SKYSHIP]

Wicked Lester - two things to say after your last:

# Take a look at the PRIM thread and you will see I posted just a couple of days ago about the new management. With their background I'm certainly prepared to chance a fair %age allocation. In fact I'm making it my Tip for 2021 on my JDT thread over at ADVFN. You mentioned Greatland Gold (GGP). As you will see on the thread for 2020, coincidentally that was my Tip for 2020 - turned out to be a 20-bagger!

# LMS. Have made quite a few turns out of that one over the years since I discovered Private Equity. It is quite bizarre that Robert Rayne is back in the saddle - one of the largest value destructors known in the LSE. It was his appalling track record that eventually resulted in Gresham House taking over the management; but they were unable to prevent his constant meddling, they fell out & Rayne used his family trust backing to vote him back in. A disaster for LMS.

[Heinous]

Looks like it was too good to be true.

1. It turns out that the 'boss's retirement' is irrelevant as he does not have control
2. It turns out that all that loose cash is pretty much matched by debt after all.

Looking at the recent share performance, I guess a few people got suckered.

[johnhemming]

Looks like it was too good to be true.

1. It turns out that the 'boss's retirement' is irrelevant as he does not have control
2. It turns out that all that loose cash is pretty much matched by debt after all.

Point 1 may be true, but Point 2 is dealt with by the RNS.

Corporate finance transactions are often complicated by the issue of taking on the purchase and sales ledger of the company being bought hence the cash payment only tells part of the story.

The RNS tells the rest. I have, however, not put in an order nor as yet made a decision so to do. I will keep an eye on the stock. There are quite a few things around which are trading at some form of discount to a reasonable assessment of value.

[WickedLester]

The sale of Coral Products and Interpack has now completed.

https://www.investegate.co.uk/coral-pro ... 54498835Q/

Joe Grimmond has said:

"This sale places the Group in a strong financial position with circa £8 million of net cash and two profitable remaining businesses in Tatra Rotalac and Global One-Pak. Furthermore, the Group continues to own the freehold site at Haydock which will now generate £300,000 p.a. in rent. It is the Board's intention to conduct a review to determine the most advantageous route to deliver shareholder value and apply the proceeds from the Disposals."

Hopefully a sale of the remaining two profitable businesses and cash return is on the cards.

[WickedLester]

Well it looks like a complete wind up isn't on the cards just yet after this news today:

https://www.investegate.co.uk/coral-pro ... 00079347Q/

Coral Products plc, a specialist in the design, manufacture and supply of plastic products based in Wythenshawe, Manchester, is pleased to announce that it has acquired the entire issued share capital of Customised Packaging Limited ("CPL") for a net consideration of £1.25 million ("Acquisition"), comprising £883,956.25 to be satisfied in cash and £366,043.75 to be satisfied by the issue of 3,327,669 new ordinary shares to the vendors of CPL ("Vendors") at a price of 11 pence per share ("Consideration Shares").

I'm not sure what to make of this news. It's not a large acquisition but i'm also not sure I want to hold shares in a plastics business. It's left me in a quandary as to whether to keep holding for the outcome of the strategic review or take a modest profit now. I still feel there is more value in the shares.

[WickedLester]

I sold my shares today for a modest profit. JG has signaled with the acquisition that he doesn't intend to throw in the towel just yet and I really don't want to hold shares in a small cap plastics business with an erratic record. There' probably more value in there but i'll leave it for someone else.