"Madamswer, do you have any thoughts on why the market is so perplexed by the issue of underlying profitability? I'm having difficulty understanding how a fund manager could find this so challenging."@PorkandBeans,
Firstly, its not easy to get a handle on the underlying result. I like to think of myself of having a degree of accounting literacy and having looked at the result three or four times today, each time I got a different answer which I thought was reasonable.
(I'll wager that, if the people posting comments on CLG today were in the same room and all wrote down on a piece of paper what they thought the "clean" FY2024 P&L looked like for CLG, then none of those pieces of paper would reflect the same thing.)
Second, I don't think professional investors who sold today did so because they couldn't get a handle on the underlying result; I suspect they would have done so because the second-half underlying result looked disconcertingly soft, with EBITA being down some 12% on the first half, despite Gross Profit being up 15% (comparisons with pcp are meaningless because of the large acquisition made in JH2023).
But again, there's uncertainty here. Might this poor second-half result be a function of natural H1-H2 seasonality in the business? If so, it really is incumbent on management to draw attention to it. Otherwise, you'll get people believing not only is there no organic growth, but that the business is in fact going backwards.
Indeed, it is that apparent lack of organic growth which compelled me to sell my shares. However, as I'm on the record as saying, it's not a fundamentally bad business and it is not overvalued. In fact, it is cheap and the thing that has made it cheap has not been operating challenges in the company (there haven't been none, though, but nothing to kneecap the business); instead, it is cheap because investors can't figure out what it is they are buying.
And that's on management for not properly articulating the business prospects in a clear and balanced manner (despite investing a lot of time marketing and presenting to investors, which is all the more the pity).
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(20min delay)