7:59 cut – TUNE, EIG

Focusright (TUNE) – FY Results

I previously held shares in this musical products producer, but sold out in January because they appeared overvalued for the pedestrian growth forecast. Forecasts were then upgraded and today modestly beaten but, despite a cash acquisition, unadjusted EPS was up just 11% in contrast to the premium PE of around 28 (both when I sold, and after likely upgrades today).

On the positive side, there was only a 6 week contribution from the acquisition and so some growth in H1 and FY 2020 is baked in. Adjusted EPS grew faster and cash levels remain reasonably strong.

I believe my original reasons for selling remain intact – yes, it is a pity I didn’t get back in during the August retracement, but they never quite fell by the 20% I was looking for. There remain much better opportunities elsewhere and the current high valuation is at risk from a change in sentiment or profits setback. After a strong rise into today’s results any further rise is likely to be short lived.

EI Group (EIG) – FY Results

Though EI have been bought by Stonegate subject to a competition investigation, I monitor results in the sector as read-across to elsewhere.

I consider EBITDA a problematic measure for pubs because of the large amount of ongoing refurbishment (and associated depreciation) required to maintain customer numbers. However, their like-for-like sales growth suggests the capital expenditure is adequate which gives be confidence over the sustainability of their reported free cashflow (that is, operating cashflow less investment). This, combined with the lack of incentive to manipulate the figures, gives credence to the story being told by the adjusted EPS figures (21.6p vs 21.2p despite de-gearing) of a business and sector ticking along nicely.

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