I have followed The 600 Group plc for at least forty years. This was mainly because, as a much younger man, I saw the way forward lay in machine tools. This enthusiasm was a bit late. I recall Alfred Herbert of Birmingham and Jones and Shipman, both of the Midlands, which I visited and admired. Somehow this central, as I saw it, feature of British industry just slipped away.
However, The 600 Group plc (SIXH), then run by a George Cohen, seemed to me to be on the right track with the additional attraction that it was around tangible net asset value. But SIXH just declined and declined despite its business being essentially trading in (i.e. not manufacturing) heavy machine tools. So I rather lost sight of it.
Things move on: latish last Friday, the chairman, Paul Dupee, also boss of Haddeo Partners, a private equity grouping, which holds 22.5% of SIXH has granted a call option over this holding to Disruptive Capital Investments. DCI have stated that they have no present intention of bidding for SIXH and, further, SIXH has to agree to the transfer of this holding. This is slightly unusual for a plc where, understandably, one presumes that shares are freely transferable. That noted, it looks a certainty that DCI will get the requisite clearances and fancy a bid.
SIXH has a walloping pension surplus. On 16th December 2016 SIXH announced an “accounting surplus” of £35m. SIXH also disclosed that using a “much more prudent technical provisions basis for valuation” gave a surplus of £2.2m. I am not sure what these different approaches imply or, indeed, what can be inferred. What is certain is that no more payments will be made by SIXH into its pension scheme.
The business is currently seemingly profitable (perhaps – it is hard to estimate – 2.8p EPS) and tnav is c. £30m in contrast to a capitalisation of 104m shares at 12.5p or £13m. I have bought this morning.
About fifty years ago the then joint senior partner of Coopers (to which I was articled), SJ Pears, told me over dinner that many small quoted companies had their auditors in their pockets. Therefore valuations shown of stock and work-in-progress, to name just two features of accounts, were highly suspect.
Events move on. UK law is now tough on misrepresentation of financial positions (with judges imposing custodial sentences) and most companies are audited by one of the big four firms where there is zero chance of bribing them.
However, Italy is riddled with fraud as BT (BT.A) is now finding out (Parmalat was not so long ago). It is reported that internal auditors conspired with external auditors (PwC) – although that seems unlikely to me. Things like this could not/would not happen in the UK. Or so I like to think. That noted, BT.A is oversold at 305p.