06.07.2008

Tanfield takes a drubbing

A report in this weekends Telegraph claims that Tanfield, owner of Snorkel and UpRight, has agreed to call in a team from Price Waterhouse Cooper “to verify the company's accounts and working capital assumptions. The team will also investigate what caused the implosion of Tanfield's shares, which plummeted by over 80 per cent last week.”

The London newspaper also claims that the “Stock Exchange has already started an investigation and that the Financial Services Authority, is also understood to be looking through Tanfield's financial statements to determine whether the company could have warned the market about its problems earlier.”

With shares dropping from a high of 203p to around 5p on Friday, Investors have seen the company’s market capitalisation drop from £700 million to just £18 million.

Mike Stoddart, an analyst at Daniel Stewart Securities, is quoted as saying: "When we met the company on June 2, the guidance from the finance director was that cash at the end of June would be £18m. Now they are saying it was £11m. This is a major problem."

Vertikal Comment

There is no getting away from the fact that Tanfield took a risk in setting very high expectations with city investors. When they began to get concerned earlier this year that the Tanfield story might be too good to be true, they were genuinely reassured by the company’s progress.

The problem with the aerial lift market is that over 80 percent of all production is sold to rental companies, and when the economy falters like it has in recent months, especially when combined with an irrationally high oil price and high levels of uncertainty – Rental companies will stop buying and even cancel orders while they wait and see what happens.

Most rental aerial lift rental companies are still doing relatively well, however all the uncertainty combined with some major takeovers in the UK and Spain followed by major order cancellations at the acquired businesses, has caused knock-on difficulties for companies like UpRight and Haulotte. When combined with the profit warning from Oshkosh, most of which was unrelated to its JLG business, panic ensued in the City causing many investors to make a sharp exit from Tanfield.

The fact that Tanfield reported a 36 percent like-for-like growth in revenues, and £14 million in Pretax profits compared to £12 million in 2007 (£17 million like-for-like) with £11 million in cash has been totally disregarded. What professional investors are focusing on is, as usual, the short term and the fact that Tanfield had originally forecast profits of £43 million.

Tanfield is discovering that the City is an unforgiving place, that hates surprises, as a result analysts, financial reporters and investors are all out for blood and talking as though the end of the company is nigh. What they seem to forget is that the share price has no direct link to revenues or profits, although baying for blood and talking as though the company is finished, while inflicting overpaid auditors on a company will definitely have a negative effect.

Roy Stanley and Darren Kell have their work cut out to regain the favour of city investors, as many have found before them it can take years, and has in the past caused a number of big names to end up taking their businesses private again after such an experience.

In the meantime at less than 6p a share the business would be a bargain for someone keen to buy in to the aerial lift market or the electric truck market for that matter. The shares might also be a fantastic investment, probably not for the faint-hearted though.