Friday, 5 December 2008

EDP twenty years on

(By Richard Holway) When I look back to the very first Holway Report in 1988, there are very few quoted companies from that year that are still here today, twenty years on. Admiral, Computer People, Hoskyns, Instem. ITL. MBS, NMW, P&P, Quotient, Sema, Star, UCL etal are now but distant memories – most swallowed up by bigger players.

EDP – it stands for Electronic Data Processing, which rather paints a quaint picture – is one of them. EDP is actually over 40 years old and IPOed in 1985. I reported that EDP had revenues of £14.8m and PBT of £1.4m in the year to Sept 1988. EDP’s share price was 60p and they had a market valuation of £5.2m. Times were good.

Twenty years on and today EDP has just reported revenues of £6.9m (up 4% on 2007) and PBT of £1.1m. Their share price is 55p. Although this now equates to a market value of £13.5m because they have so much cash, the Enterprise value is just £1m!

At times I thought EDP was more of a property portfolio company - as illustrated by the picture of their HQ building, Beauchief Hall in Sheffield. Recently they have sold the HQ building and another freehold property for c£3m but they still have another five freehold properties (valued at £6.5m) on their balance sheet.

We have long believed that companies like EDP (and I’d add others like Total) have no place as a quoted company. To be fair to Mike Heller (Ch of EDP) they had tried to do something about it. This week they had to issue a statement admitting they were in early stage discussions concerning a PE-backed MBO. But in “the current uncertain economic and banking environment, the financing which was required to support the MBO was not available”.

Clearly, as Heller admits, the wholesale sector that EDP services is going to be “very challenging” and management are rightly cautious. But they are very cash generative with £8.7m cash in the bank and more assets which can be sold. I would expect them to weather the storm.

But the sooner they are either private again or are swallowed up by another player, the better.

No comments: