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Bought The Clapham House Group (CPH)

Important: What follows is not advice to buy or sell ANY shares. I’m a private investor, storing and sharing my notes. Read my disclaimer.

Just a quick update to my share write-up in November on London-listed The Clapham House Group. (Google Finance: LON: CPH).

The shares have moved from 53.5p to 93.5p, so my caution was not warranted. I wrote back then that I was not comfortable with the group’s loan arrangements:

According to section 19 of the accounts (which were compiled before the Bicycle Club sale, remember), Clapham House then had £19 million in bank loans, which will mature between 1 and 5 years from now.

This situation was addressed in Clapham’s December 10th Interim Results:

I am pleased to announce that we have as at 9 December 2008 renewed our main banking facilities until June 2012. As a result, we have incurred a one off arrangement fee and will be paying a small increase in margin. The same total Company facilities of £21.7 million remain in place following this renewal.

This was what I wanted to hear; the group’s Gourmet Burger Kitchens are throwing off cash, but if Clapham hadn’t been able to extend its banking facilities when the loans matured it could have faced a crippling cash call.

With hindsight I might have judged that if I saw the company as a good bet so would its bankers, but you can’t be sure of much in the current environment.

I’ve bought Clapham House at 93p

The long and the short of it is I’ve looked to buy shares since the debt issue has been resolved, but they’ve moved sharply against me for nearly two weeks.

The reason is renewed bid speculation from Nando’s owner Capricorn, who you may remember owns 24.9% of the shares:

Clapham House, which owns Gourmet Burger Kitchen and The Real Greek restaurant chains, firmed 2.3 per cent to 89½p after Dresdner Kleinwort said a bid from rival restaurant operator Capricorn was likely.

Capricorn, owners of the Nando’s chain, has already amassed a 24.9 per cent stake in Clapham. “Capricorn are experienced investors in the restaurant sector and we have long believed combining two fast casual dining concepts will create substantial value,” the broker said.

So that explains the steady uptick in the graph in recent days.

Buying on bid speculation is a risky game, but I like Clapham’s underlying burger business. I’ve eaten twice there in the past seven days and can confirm it’s doing a brisk trade, though the 2-for-1 main meal vouchers are clearly being used.

Other key highlights from the Interim Results:

  • Revenue increased for the six months by 21% to £30.3m (2007 restated: £25.1m) driven by continued organic growth
  • Profit before taxation for the six months increased by 114% to £1.5m (2007 restated: £0.7m)
  • Diluted EPS increased for the six months to 2.6p (2007 restated: 1.2p)
  • Diluted EPS from continuing and discontinued operations increased for the six months to 2.4p (2007 restated: 0.8p)
  • Net debt at 28 September 2008 decreased to £12.1m (2007: £13.3m)

Despite the good results, the recent rise has put CPH perilously close to my £1 target I mooted back in my original write up. I think the Capricorn story is just too strong, however – and a predator will need to move sooner rather than later if the shares keep ticking up.

The company does look pricey on a forward P/E of 15, especially with that Earnings figure so vulnerable in a slowdown. I see CPH as a likely short-term holding, and may get out at around £1.25 without further news.

Please note: I may not write about Clapham House again, and remember I’m just a bloke on the Internet not an adviser: Do your own research!

Note: I take no responsibility for the accuracy of this post. Read my disclaimer.

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