Full-year results from the Human Screen

Creston may not be a great company, but its remained profitable through recession and has little debt. Yet the market is totally disinterested. Either it’s a bargain or the Human Screen is missing something.

Highlights

• Adjusted operating profit down 3%
• Return on tangible assets: 32%
• Adjusted net profit of ''7.5m compared to net cash flow of ''7.5m (''5.5m after net capital expenditure)
• Net debt flat at ''0m, ''3.2m after deducting fair value of deferred consideration payments due in 2013 and 2015
• Per-share dividend up 17%

The Human Screen comments:

Creston was built up through a series of acquisitions by current chief executive Don Elgie who reversed his marketing services company Synergie Consulting into the Creston cash shell in 2001. In 2009 he reshaped the company, focusing on three divisions: Communications, Health and Insight. Communications brings in most revenue, the specialised Health division is most profitable, and Insight (market research) supports the agencies as well as being profitable in its own right. Since 2009 Creston’s acquired a US healthcare communications agency, which has subsequently acquired another US healthcare communications agency.

The Human Screen is finding it difficult to interpret the accounts of Creston because of pervasive restructuring. While it’s tempting to write the associated costs off, as the company does in its headline results, it might also be naive and flatter profitability and valuation ratios.

Creston’s unlevered post tax earnings yield is 22%, or 16% if restructuring costs are included, which implies a very low valuation. Its dividend yield is 6.5%. Although Creston cut the dividend savagely in 2009, compound annual per-share dividend growth is still 6% since 2007 according to Stockopedia and Elgie is confident Creston will be able to finance a growing dividend out of profitable growth.

The Human Screen is unnerved. Creston may not be a great company, but it’s remained profitable through the recession and has little debt.

The market is totally disinterested. Either it’s a bargain or the Human Screen is missing something.

^HS++ (currently being considered for inclusion in the Thrifty 30)