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I bought into Hogg Robinson (LSE:HRG), the travel consultants for large organisations, in April last year at 47.1p. Since then I’ve received 2.32p in dividends and the share has risen to 73p – 74p giving a market capitalisation of £237m – £240m. So, after a 60% return in just over a year, the question is whether it is time to sell.
(Earlier posts for background to Hogg Robinson: 13th – 20th April 2015, 11th – 12th June 2015)
Here are some facts to start our thinking:
| To March |
Underlying eps (p) |
Basic (reported) eps (p) | No. of shares | Dividend (p) |
Revenue (£m) |
| 2016 |
7.2 |
5.8 | 324 | 2.51 |
318 |
| 2015 |
6.6 |
4.6 | 323 | 2.32 |
330 |
| 2014 |
7.8 |
5.3 | 324 |
2.21 |
341 |
| 2013 |
7.8 |
6.9 | 312 | 2.1 |
343 |
| 2012 |
8.3 |
7.4 | 303 |
2.0 |
374 |
| 2011 |
7.3 |
6.3 | 301 | 1.5 |
358 |
| 2010 |
6.3 |
4.4 | 301 |
1.2 |
327 |
| 2009 |
4.7 |
2.4 | 304 | 1.2 |
351 |
| 2008 |
5.4 |
5.5 |
304 |
2.8 |
332 |
| Average |
6.8 |
5.4 |
Cyclically-adjusted PER, based on Underlying earnings = 71.5p/6.8p = 10.5
Cyclically-adjusted PER, based on Basic earnings = 71.5p/5.4p = 13.2
These CAPE numbers are getting toward the average for the market, so the share is no longer in deep value territory.
However, we have an impressive degree of profit stability over the years. Not a lot of growth I’ll grant you, but no losses and a determination to hold to a “progressive dividend policy”. They have certainly fulfilled that, with an 8% rise in the dividend this year.
Furthermore, they have done an impressive job of getting the net debt down. It used to be over £100m. Today it is only around £33m, which, as multiple of operating profit or cash flow is 1 or less.
Talking about cash flow: we can observe a reasonably stable pattern through the recession, with only one negative year (The numbers are “free cash flow” – after deducting capital expenditure and additional pension fund payments as well as investments in additional working capital):
2007 £16.1m
2008 £16.3m
2009 £44.0m
2010 £16.2m
2011 £21.4m
2012 £19.6m
2013 -£10.5m
2014 £24.8m
2015 £17.9m
2016 £28.9m
Here is some more detail on the profit numbers (the managers do love to emphasize “underlying” profit numbers. So much so that they emphasize underlying numbers year after year despite the regular large differences between underlying and basic – an negative indicator of managerial integrity in my book).
|
2016 (£m) |
2015 (£m) |
2014 (£m) |
|
| Underlying operating profit |
44.8 |
42.5 |
49.3 |
| Amortisation of acquired intangibles |
(0.7) |
(1.0) |
(3.5) |
| Exceptional items |
(4.8) |
(6.3) |
(7.0) |
| Adding up these three items gives Operating profit |
39.3 |
35.2 |
38.8 |
| Share of associates and joint ventures |
1.0 |
1.1 |
1.1 |
| Net finance costs |
(13.6) |
(13.1) |
(14.6) |
| Profit before tax |
26.7 |
23.2 |
25.3 |
| Tax |
(7.4) |
(7.5) |
(7.6) |
| Profit for the period |
19.3 |
15.7 |
17.7 |
| Non-controlling interests |
0.6 |
1.0 |
0.9 |
| Profit attributable to the owners |
18.7 |
14.7 |
16.8 |
Cost restructuring actions in FY2016 yielded £4m cost savings. The managers’ expectation is £8m will be saved this year and in future years. Cost control is helped by the increasing trend of customers booking online through Hogg Robinson. Already 50% of transactions are completed this way.
Fraedom
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