Minerals testing specialist Campbell Brothers delivered a better than expected profit, a higher dividend and declared it had up to $400 million spending power for acquisitions in the back pocket - so, of course, its shares copped a hiding.
Part of its problem is most likely that the Campbell chief, Greg Kilmister, kept away from forecasting the outcome for its new financial year, which was no break from tradition. The group has almost always not made predictions until the annual meeting.
At any rate, its shares dropped 60? to $56.70, bringing to 18 per cent the fall since its shares topped out at $69.28 at the beginning of this month.
The final dividend of $1.30 a share, 15? above forecasts, which brought the annual pay-out to $2.25, was not enough to turn aside market uneasiness.
From what Insider can glean, the wariness comes from signs within the result that Campbell's profit margins, particularly in Europe, came under pressure - and in a global environment as unpredictable as this, that is sufficient to generate a discount on the shares.
As Richard Coppleson of Goldman Sachs said in his report yesterday: "Specifically we noted that US and Europe report fourth-quarter EBIT [earnings before interest and tax] of $US36.4 million, below our forecast of $US42.4 million ... with lower than average selling prices more than offsetting higher than expected volumes."
The Goldman numbers also noted that Campbell's result had been helped by lower interest costs and tax, which should have significantly raised the outcome.
The decline in quality of Campbell's performance will now be closely monitored, especially against a backdrop of fears that falling commodity prices will trigger a drop in mining projects and exploration.
The upside of the spread of Campbell's business is that even if the focus shifts from Australia because of local issues - such as mining costs and the main ore customer, China, buying elsewhere - Campbell ought still to be picking up the business in Africa, Asia and South America.
DJS' PAPER LOSS
Depending on whether having Simon Marais and his funds management business Allan Gray (nee Orbis) on your share register is deemed a good thing, upmarket department store group David Jones now enjoys the value investor's presence.
The substantial shareholding notice from Allan Gray lays claim to 26.5 million shares, equivalent to just over the 5 per cent disclosure level, bought at an average cost of $2.61 between August and now.
Marais's presence on a register is rarely passive - he buys in because he thinks stocks are undervalued and then sets about reminding companies of their obligations to produce value for investors.
Occasionally it involves push and shove, as in chasing down Spotless's board on engaging with a potential bidder. Spotless, in the end, recommended that offer from Pacific Equity Partners.
Insider does not disagree with the principle of keeping public company boards "honest", although questions whether every offer should be accepted just because it is the best thing going at the time.
Sadly for Marais and the team, the DJs price has not been near $2.61 since March, meaning a paper loss of about $10 million at the moment.
Going in the opposite direction on DJs' register was Matthews International Capital in San Francisco, which sold its stake down by 1 per cent to 5.2 per cent last week.
Other fund managers might like to look at the shareholdings notices of Allan Gray and Matthews International as templates for being informative, detailed yet concise.
Contrast that with Alex Waislitz's Thorney Holdings, which said on Friday that it had reduced its stake in Skilled Group by 2.64 million shares, which unhelpfully noted that the sales had been "on market sales" at "market prices".
Thorney might want to have a read of the fine print directions on substantial shareholding forms: "Details of the consideration must include any and all benefits, money and other, that any person from whom a relevant interest was acquired has, or may, become entitled to receive in relation to that acquisition."
PRINTER TARGET
Fascinating to see the Karam family's TMA Group, which delisted itself last year with a balance sheet of about $50 million of assets and $26 million of liabilities, is apparently contemplating a $230 million offer for printer PMP.
The last time that Insider looked at PMP's balance sheet, it was carrying about $170 million in debt.
That is still an enterprise value nudging $400 million, which implies either the Karams have found some extraordinarily entrepreneurial bankers, or TMA was hiding its light under a bushel before delisting.
The "privatisation" of TMA was controversial because the Karams already controlled 80 per cent and were not offering to buy out minorities.
So, when last year the Karams did not want to part with the perhaps $2 million it might have cost to buy out small investors, this year they are prepared to spend 200 times that amount.
Insider would guess probably the only way the deal works is for TMA to keep a bit that it wants and flog the rest of PMP.
Frequently Asked Questions about this Article…
Why did Campbell Brothers shares fall after a better‑than‑expected profit and higher dividend?
Even though Campbell Brothers reported a stronger profit, a higher final dividend (A$1.30, taking the annual payout to A$2.25) and said it had up to A$400 million available for acquisitions, investors reacted to signs of margin pressure. The result showed weaker profit margins—especially in Europe—and Goldman Sachs noted US and Europe fourth‑quarter EBIT was below forecasts, with lower selling prices offsetting higher volumes. Market unease about margin quality and exposure to commodity cycles drove the share price down to about A$56.70 (roughly an 18% fall from the month’s high).
What should everyday investors watch for at Campbell Brothers' next update or annual meeting?
Look for any management guidance (the CEO traditionally withholds forecasts until the annual meeting), updates on profit margins in key regions such as Europe, commentary on commodity‑price trends and mining activity that affect demand, and how the company plans to use its stated A$400 million acquisition capacity. Also note whether lower interest and tax benefits that helped recent results are recurring or one‑off.
How could falling commodity prices and weaker mining activity affect companies like Campbell Brothers?
Falling commodity prices can reduce mining projects and exploration budgets, which lowers demand for minerals testing and services and can squeeze profit margins. The article notes this risk for Campbell, though it also highlights geographic diversification—Africa, Asia and South America—as possible offsets if activity softens in Australia or China shifts buying patterns.
What does Allan Gray’s disclosed stake in David Jones mean for investors in David Jones shares?
Allan Gray (Simon Marais) lodged a substantial holding notice for about 26.5 million shares (just over the 5% disclosure threshold), bought at an average cost of A$2.61. Allan Gray’s presence often signals an active, value‑focused investor likely to press management to improve returns. However, the article notes the current David Jones share price is below A$2.61, implying a paper loss of around A$10 million on that holding.
How useful are substantial shareholding notices to everyday investors?
Substantial holding notices can be valuable: they reveal who is accumulating or reducing positions and at what cost, helping investors gauge institutional sentiment. The article contrasts clear, informative notices (Allan Gray, Matthews International) with vaguer filings (Thorney Holdings’ note that sales were “on market” at “market prices”), and reminds readers that disclosure rules require details of any consideration or benefits involved in acquisitions.
Why is the reported possible bid by the Karam family’s TMA Group for printer PMP seen as controversial or high‑risk?
TMA delisted last year with about A$50 million of assets and A$26 million of liabilities, yet is reportedly contemplating a roughly A$230 million offer for PMP. The article says PMP previously carried about A$170 million in debt, implying an enterprise value near A$400 million. That gap raises questions about how TMA would fund the deal and recalls controversy when the Karam family privatised TMA while already controlling 80% and not offering to buy out minority shareholders.
What did Goldman Sachs highlight about Campbell Brothers’ recent performance that investors should note?
Goldman Sachs pointed out that US and Europe fourth‑quarter EBIT for Campbell was about US$36.4 million versus their forecast of US$42.4 million, mainly because lower‑than‑average selling prices more than offset higher volumes. They also noted the reported result was helped by lower interest costs and tax, which inflated the headline profit compared with the underlying operating margin pressure.
How can activist or value investors like Allan Gray influence company outcomes, and what should retail investors expect?
Activist/value investors typically buy stakes when they think a stock is undervalued and then engage with boards to push for value‑creating moves. The article notes Simon Marais (Allan Gray) is rarely passive and has a track record of pressing companies—occasionally hard—for change (the Spotless example led to engagement with a potential bidder). For retail investors, this can mean renewed focus on strategy, potential disposals, or board changes, but outcomes and timing vary.
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