Mouchel Group – Road Closed

http://www.mouchel.com/

Its lights out for shareholders of Mouchel Group PLC (LSE:MCHL) who have seen their shareholdings been completely dissipated following a series of poor management decisions. Mouchel specialises in a variety of engineering support and solutions including traffic sign operations, delivery of potable water and building and management design. The company has been plagued by falling profits amid the financial crisis which has seen its share price plummet to less than one pence, from a high of four hundred pence. Pitifully, the company now only has a market cap of £1.12m with it having a market cap of over £500m in 2008. The story of Mouchel in recent years follows.


Through a quick glance at the company’s pre-tax profits since 2007 its easy to see the main driver of the share price. Profits in 2006 stood firm at £48.13m quickly falling to £26.31m, before collapsing to a pre-tax loss of £64.80m in 2011.

In February 2010, VT Group offered 294p/share equivalent for Mouchel in a share deal which would see existing Mouchel shareholders awarded VT Group shares (at the time the shares were circa 500p). This offer followed an earlier offer by VT Group that valued Mouchel at 260p/share which was rejected. Surprise surprise, Mouchel rejected this second offer also, despite it being attractive to shareholders. Another mistake by shareholders and the company. Shares in VT Group were soon acquired by Babcock international. VT Group holders gained 361.6p in cash PLUS 0.7 shares in Babcock for every VT Group share. This represented a 50% gain for VT Group shareholders. Moreover, since then Babcock (LSE:BAB) has seen its share price rise by approximately 60%.

The interesting part about Mouchel began in late March 2011. The firm was trading around 150p /share and received two takeover offers valuing the company the company substantially higher than any time in the past year. Costain (LSE:COST) made a £175m approach, whilst Interserve (LSE:IRV) gifted a £151m offer. The company swiftly declined both offers after consulting the biggest shareholders – pronouncing the start of what turned out to be a calamitous decision. Mouchel said that Costain’s offer carried too high ‘execution risk’ whilst Interserve’s offer ‘significantly undervalued’ the company. Following this news the share price lost a third of its value. Clearly the disappointed by the low bid by Interserve and the 73% fall in pre-tax profits noted above did little to steady nerves. Interestingly, anyone following brokers at the time will have done well to sell considering Panmure Gordon reduced Mouchel to a sell.

The second mistake took place in October – leading to the value of the shares halving again. An actuarial error (error when calculating sums) led to a steep fall in forecasted profits (-£8.6m). This sort of error should not be happening in any sized firm let alone a fairly large one that is backed by the government. The company then announced it must set aside £4m in liabilities. The CEO quit with immediate effect and to add to the pain, Mouchel was also stripped of a £50m contract with Westminster council in other circumstances. At this point shareholders should have realised that the bandwagon had lost all wheels. The share price reached 16p on this news.

At this point Mouchel was in meltdown, having their £130m Rochdale deal revoked and clearly entering all sorts of debt problems with covenants. Rather optimistically the company still said, ‘“We have continued to win contracts and the actions to right-size the business are well under way, including plans to restructure the balance sheet of the Group within the first half of 2012 and return the Group to growth.” As a further pre-cursor the company’s fate, Schroders reduced their shareholding by more than half to 9.3% and thousands of jobs were planned.  

In June 2012, they then finally announced the inevitable; balance sheet restructuring was occurring and in each, value for shareholders will be minimal, further sending the shares down by a third (to just less than 4p) and with the market cap now at £5m. As the telegraph mentioned, ‘The options for Mouchel, which has £104m of net debt, include a highly-dilutive rights issue, a takeover by banks, new investment from third parties, restructuring through insolvency proceedings, or a takeover.’ £104m debt compared to a £5m market cap, clear enough.

On the 1st August, the restructuring plan was announced. 1p/share or nothing. That was effectively the option shareholders were given. If shareholders failed to accept the special dividend of 1p, the company would effectively become insolvent and be wiped out. Whilst this will safeguard 8000 jobs, it will do little to relieve the anger of shareholders, a lot who will lose the entirety of the original capital through paying commission on the sale.

The moral pf Mouchel’s story is simple, holding out for a profit when all is sour is not guaranteed to work. No matter how solid a company is, if things begin to deteriorate, re-evaluate your position. Many shareholders will have wished they had sold out anywhere between 100p and 10p, but many did not, citing a recovery. Trust your instincts, not your hopes.

1 comment:

  1. Joke of a company. Keep up the good articles. Im sure a lot of people appreciate it :)

    ReplyDelete