SpaceandPeople – Cyclically adjusted price earnings ratio

PUBLISHED: Oct 25 2018 @ 02:00 | Comments (0) |

SpaceandPeople (LSE:SAL) shares have fallen 86% in four and a half years to 21p (MCap £4.6m). During that time there was only one year (2016) when losses were made. Even with that loss of 3.12p the average EPS over eight years was 4.34p.

Note in the calculations below I have completely ignored the directors preferred measure of earnings which excludes various exceptional items. The managers have a habit of entrepreneurially going for new businesses, e.g. setting up in France or creating S&P+. This is commendable, but some things work, others don’t; it’s all part and parcel of being a young company feeling its way.

The problem arises in how they treat the money spent on ventures. The prudent approach would be to take these costs as they are incurred and write them off against profits that year.

But the managers prefer to store up the costs on the BS, then when they have confirmation of failure they write them off as exceptional, discontinued or restructuring costs – they even use a lovely phrase “retrospective costs”.

In the following analysis I have no truck with all this finance director cleverness because I’m trying to gauge the capacity of the firm to produce cash for shareholders over a span of years.

I’m assuming they will keep experimenting, keep failing in some areas, and so keep writing off losses at the same rate.

Here are the exceptional items they’ve reported in the last few years:

2013: zero

2014: “reduce costs and streamline overheads: £391,000” (consisting of redundancy £230,000, other £11,000, retrospective costs in relation to UK centres £150,000)

2015: zero

2016: “£289,000 restructuring costs and MPK France pilot costs, closing of S&P+ business £543,000”

2017: zero

2018, first half: zero

Also, the numbers below are based on fully diluted earnings per share because it seems that the directors have awarded share options to themselves and other staff amounting to around 2m shares.

	Basic earnings per share (p)	Earnings per share excluding exceptional items (p)	Dividend per share (p)
2010	5.06	6.72	2.0
2011	5.75	6.09	2.9
2012	7.78	7.78	3.5
2013	8.98	8.98	4.1
2014	2.10	3.51

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