If the share price declines from here say to it’s historical lows of 45p then I hope to have the discipline to buy more.
They are now trading at 54p – an almost 60% decline since I first got in.
So today I’ve bought more staying true to my word.
What’s Wrong With St Ives?
There’s no escaping the fact that the conundrum that St Ives finds itself in has gone from bad to worse since I bought shares last year.
In the latest trading statement management have acknowledged ‘challenging’ first half of the financial year:
we experienced a number of project cancellations and deferrals in the last quarter of the previous financial year, which also impacted revenue growth and operating margin within the first half of the current financial year. We are encouraged by the fact that the segment has now returned to delivering like-for-like revenue growth and also that the operating margin has improved significantly
Not only that but two thirds of its business model is under review (books and marketing activation) describing pressure on operating margins as ‘intense’ and ‘continued’.
Will St Ives (LSE: SIV) board sell off segments that are no longer viable despite the cost reductions?
Who knows and from my point of view the 72% decrease in this year’s dividend from last year is of little concern for it is better that management focus on concluding what is to be done with the books and marketing activation segments as soon as is practicable.
Here’s another ‘nasty’, this time from the half year report :
On an IAS 19 basis the net deficit on the St Ives Defined Benefits Pension Scheme (the “Scheme”) has reduced to GBP18.5 million (29 July 2016: GBP26.4 million). Scheme assets performed well increasing by GBP8.9 million over the period. Scheme liabilities increased by GBP1.0 million to GBP371.5 million, where an increase in the discount rate used to calculate the liabilities was offset by an increase in the inflation rate.
I don’t know about you but three hundred and seventy million quid is a massive liability and it does not even show up on the balance sheet.
We continue to look for opportunities to further strengthen the Group’s balance sheet following the recent sale of a non-core property in Roche for £4.2 million, which successfully reduced debt and created further headroom against our banking covenants. The Group currently has one further non-core property held for sale.
How much the non-core property will fetch and it’s impact on the position of St Ives (LSE: SIV) with it’s bank is another great unknown.
Whenever a company mentions banking covenants in an RNS it’s usually a red flag that it is flirting with financial disaster.
So Why Purchase More St Ives (LSE: SIV) Stock?
Today’s purchase represents my final investment into St Ives (LSE: SIV) stock.
All else being equal and it has been a difficult one when you consider that state of the off and on balance sheet liabilities – nonetheless St Ives (LSE: SIV) remains in the Shares and Stock Markets Portfolio for the time being.
Needless to say it is the most aggressive and risky purchase within the portfolio and success or failure rests with the board and their ability to drive the business forward whilst maintaining the integrity of the balance sheet.
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In for a penny, in for a pound – long St Ives (LSE: SIV) today at 54p.