Cenkos Securities PLC (CNKS)

[WickedLester]

I bought a few shares in this company after the final results as they look reasonably priced to me with a decent yield and a solid balance sheet.

https://www.investegate.co.uk/cenkos-se ... 00046829I/

The market cap at £1.10 is about £60m, Net tangible assets are nearly £30m with much of that being cash. Profit after tax on continuing operations was £8.2m. One thing I will accept is that as a stockbroker profits tend to be lumpy so there is no guarantee that they will improve on this performance this year. In fact last years profit after tax on continuing operations was just £3.2m.

But what caught my eye was the below statement.

Since being admitted to trading on AIM in 2006, the Company has returned £108.0 million of cash to shareholders, equivalent to 165.3p per share, before the payment of the proposed final dividend of 4.5p per share.

I haven't tried to work out an annualised return for them but that looks like a pretty good return to me over 12 years.

I did well out of Panmure Gordon, buying when they were trading at a discount to net current assets and selling when they got taken over at 100% premium to the price I paid.

Does anyone else have an opinion?

[Gengulphus]

I bought a few shares in this company after the final results as they look reasonably priced to me with a decent yield and a solid balance sheet.

https://www.investegate.co.uk/cenkos-se ... 00046829I/

The market cap at £1.10 is about £60m, Net tangible assets are nearly £30m with much of that being cash. Profit after tax on continuing operations was £8.2m. One thing I will accept is that as a stockbroker profits tend to be lumpy so there is no guarantee that they will improve on this performance this year. In fact last years profit after tax on continuing operations was just £3.2m.

But what caught my eye was the below statement.

Since being admitted to trading on AIM in 2006, the Company has returned £108.0 million of cash to shareholders, equivalent to 165.3p per share, before the payment of the proposed final dividend of 4.5p per share.

I haven't tried to work out an annualised return for them but that looks like a pretty good return to me over 12 years.

Hmm... Looking at a share price chart covering that entire period, it looks as if the share price just after admission to trading was about 210p per share. It's now 107p per share, so the capital loss offsets a lot of that cash return, leaving a net ~60p/share from a ~210p/share investment over about 11.5 years (the admission to AIM was in October 2006). That's a positive return, but I'd call it a pretty lacklustre one...

Which of course only means that buying the shares in October 2006 would have turned out not to be a very good investment, which doesn't have all that much to do with whether it's a good investment now! The relevance of a company's history to an investment now IMHO lies much more in what it tells one about the steadiness and growth of its business than in what returns an investor would have got in the past. And a look at the same share price chart suggests to me that it's distinctly lacking on both of those fronts, with no hint of overall growth (in fact, a distinct appearance of the opposite) and a good deal of long-term volatility (peak of ~265p in 2007, trough of ~70p in early 2009, peak of ~220p in late 2009, trough of below 50p in 2012, peak of ~240p in 2014, trough of ~70p in 2016). A quick look at the dividend history, which according to https://uk.advfn.com/p.php?pid=financials&symbol=cnks is (with one obvious duplication removed) 22p, 10p, 20p, 8p, 5p, 7.5p, 12p, 17p, 14p, 6p, 9p, reinforces that suggestion.

As you indicate, lumpiness of earnings (and thus of returns) comes with the territory from companies in their business, so basically one either accepts it or one doesn't invest in such companies. But I would want something to compensate me for taking the lumpiness on, such as higher anticipated returns than I would expect from a steadier business, good short-to-medium-term prospects of selling for a capital gain, or long-term growth. At least the last of those looks to be missing, and the yield of a share tends to be more of a small bonus for winners / small compensation for losers than a major consideration for the other two...

All of that is only suggestions from a rather superficial look at the company so far. None of it is intended as definite conclusions - instead, treat it as points that a quick look at the company says to me are worthy of further research, followed by checking for compatibility with my investment strategy. The only definite conclusion I might come to at this stage would be one that the amount of research required and the chance of it coming to a conclusion that I should invest combine to say that doing the research is a poor use of my time - it doesn't at present look like a very good fit to my particular investment strategy. But that's a very personal decision, based as much on my knowledge of myself as anything, and it's not one I've actually made yet. So even if I do end up deciding it's not worth further research, that won't be a decision that I expect to apply to others, nor one I would recommend to others.

Gengulphus

[WickedLester]

Hi Gengulphus

Thanks for the response and interesting points.

Where I would disagree with you is that as you rightly say a total return of 60p on a £2 investment over 12 years is not stunning performance but what I would say is the price is now just £1.10 and 12 years is a pretty good representative period to measure performance over.

I can't see that they're in a dying industry so I think it's reasonable for me to assume that they may be able to repeat this performance over the next 12 years in which case the performance will be pretty good. Also there are other things to consider such as the strong balance sheet giving a reasonable margin of safety.

Another point that you make is that the price has peaked a couple of times at over £2 and troughed at under £1. That's fine by me, if the price does rise to over £2 again i'll sell and take the capital gain and if it does fall below £1 i'll hang on and collect the dividend until the price rises again. I tend not to panic at a paper capital loss and only sell if I think the fundamentals have changed permanently and there is no prospect of getting any more back.

[Gengulphus]

Where I would disagree with you is that as you rightly say a total return of 60p on a £2 investment over 12 years is not stunning performance but what I would say is the price is now just £1.10 and 12 years is a pretty good representative period to measure performance over.

I can't see that they're in a dying industry ...

Nor can I, and indeed the industry may well be in a similar state now as it was in 2006 - certainly there's the point in common that both are after some years of bull market. Quite a lot more years now than in 2006, but in both cases enough years for investors to have become reasonably confident again.

But it's perfectly possible for a company to be a dying company in a thriving industry, simply by being outcompeted by other companies in the industry. Not saying that that's happening to Cenkos, just that I would regard the near-halving of share price over 12 years as something to look for an explanation of. It might well be some effect that has done its damage, with no reasonable expectation of more - e.g. something related to the financial crisis. If that's the case, all well and good - but if it turns out to be a continuing problem, not so good.

So basically a point that IMHO needs research, not one that's definitely against the share.

Gengulphus

[torata]

From memory, Cenkos were Nomads for Quindell, and tried to sponsor them onto the main market, resulting in a fine. I remember reading comments at the time along the lines of "yet another rip off that Cenkos has brought to market", but would not be able to name any of those other AIM companies.

I also noticed this from a year ago:
https://www.ft.com/content/7172c6aa-c7e ... b644d2c8ef
"Profits tumble at Cenkos Securities as fundraisings dry up"

So while at some point I will be looking to reinvest money from NEX in a similar space, it wouldn't be in Cenkos.

torata

[WickedLester]

I was aware of the Quindell fine but tbh just about every financial services company I can think of relies on shafting their customers, just look at how often the big banks have to cough up billions in penalties and compensation as they lurch from one scandal to the next.

In fact I saw a story about RBS the other day where a member of staff had actually forged a customer's signature to sign them up for a product they didn't want. That strikes me as borderline criminal.

[vrdiver]

a member of staff had actually forged a customer's signature to sign them up for a product they didn't want. That strikes me as borderline criminal.

Borderline?????

[WickedLester]

Well if anyone's interested, and given that we all own a large part of it, this is worth a read:

http://www.dailymail.co.uk/news/article ... ature.html

[WickedLester]

This is worth a read:

https://www.telegraph.co.uk/business/20 ... s-jackpot/

The move is the latest example of consolidation in a sector which for years has been struggling against rising competition, pressure on fees and costs associated with new regulations such as Mifid II. City sources expect a slew of M&A deals in the sector in the months ahead.

[WickedLester]

Is now a good time to buy Cenkos with the price in the mid forties and the shares trading at a very small premium to net cash?

I expect a raft of fundraisings over coming months as companies seek to shore up their balance sheets after the lock down and hopefully Cenkos will be well placed to benefit from this.

[smicker]

I bought a good chunk on this news

https://www.investegate.co.uk/cenkos-se ... 02337613I/.

[WickedLester]

There's a story on Sky News today about a merger between Cenkos and Finncap. I bought back into CNKS recently having traded them up and down a few times. I don't expect much of a premium if this is true but I'm quite pleased, the combined entity should be cash rich and should be able to find synergies to boost profitability once markets are better.

https://news.sky.com/story/amp/investme ... l-12840378