am surprised to see the selling after the AGM on Thurs which i thought was good news.
obviously they didnt say anything specific but the directors seemed relaxed and in jolly, albeit efficient moods, which i thought was a positive sign. But maybe the seller has a better read of body language than me!!
regarding ongoing businesses....
profis in the last 12 mths were 2.8m
in the previous 12 mths to june 16 they were 3.3m.
in 2017 however they were learning re the nmew machine so were operating inefficiently they said - for instance staff had to go to USA for training. The new machine though now is doing well and very very simple to operate and maintian.
they talked confidently re sales prospects, the reception for new products and being at 60-70% capacity with no fear of current plant being able to handle c.24m/26m of sales.. so i read that as very bullish.
certianly i assuem the ongoing business will have higher profitiability ongoing as they reap learning, training and efficiencies so my fcts are 3m for 2018 (i..e EBITDA of 3.3m)
from that must come 400k going to the pension to give ongoing 2.9m EBIDTA with low expedcted cap ex requirements.
so very simplistically at 8 times EBITDA
gives EV of 23m + 2m CASH (after 5p special divi paid) + 3.4m Investment property (they talked about favourably) and urplus CASH from the run down of the p&M of the closed business = 0.5m = 29m = c.70p
that to me seems like a decent assessment of ongoing value maybe discounted 10% for a small cap and illiquid - though with authority to buy back 15% and track record of having done so that should be an underpin to the price of 60p.
for JHD must surely pay a premium to that.
for starters they could save on the 0.6m PLC costs.. directors, NED, lsiting fees etc...
that would be worth 4.8m to them at 8times rating (12p a share) (or 5p a share if say share 50/50with themselves and AIEA shareholders)
the second big cost saving i think would be in economies of scale with the sales force...
i'm estiamting c.2% of sales = c.400k a year - again worth an extra (almost 8p) a share, (or 4p is shared 50/50)
so even without a bid premium i think it is fairly easy to see how JHD could pay 20p but likely 10p more that my estiamte of future value which is c.60p to 70p.
nearly all the shareholder i met had decent size holdings , knew the mgt over a number of years and were quite relaxed if a bid happened or not. Obviously a bid is mostly preferable but if JHD didnt offer the right price then the happy to hold and benefit from future dividends, special dividends, share buy backs and possible value in the 10.5 acre manufacture site with ultiamtely development potential.
personally i doubt if JHD will pay up sufficiently as i think they are too conservative, again severla shareholders saw any price dip post non-bid news as a time they would top up , not that the company is focused and rationalised.
(btw the main reason for the closure of the business was that several property leases have expired in the last 2 years - the last one being in june 2018 so it has been a very efficnely and CSH focused run down over the last 2 years.
All IMHO, DYOR + BoL
(bid decision likely within next 10 days)
AIEA is in my top5 hldgs
Except that extensions to the deadline by the Takeover Panel are at the request of the Offeree company - ie Airea has to request it, Halstead would not be granted an extension to the deadline unless Airea request it.
Which does make it harder to deduce what might be going on here? Though clearly you are correct in (1) - that if Airea wanted to kill the sale they would not request an extension and force Halstead to 'Put up or Shut up'
It may be the large shareholders that have influenced the board to agree to requesting an extension, not the executive directors.
1) At the request of the Board of Airea, the Panel on Takeovers and Mergers (the "Panel") has consented to an extension.
2) The purpose of this extension is to provide the directors of both Airea and James Halstead with the opportunity to continue their discussions, including the provision of certain key information to assist James Halstead in assessing the value of the Company.
From 1) I conclude that Airea are keen to keep the prospect of a sale alive - and that it may not have been but for their efforts.
From 2) I deduce that Airea feel that Halstead have undervalued the company and that they feel they can extract a better offer. However, if they are confident of the potential then why are they so keen to sell? and why would Halstead pay a premium over it's own estimated value for a company whose board seems keen to sell rather than prosper with the company?
Yes indeed. I agree, and would add that the large shareholders will back the management in asking a full price. I can't see them being coaxed out for an 'average' multiple. I suspect that this gives Halstead a bit of a headache.
AIEA is one of my top three holdings - I can't specify which as they tend to change around regularly, the other two being FSJ and BOO (historically from 24p).
I did sell a few when they bounced up at around 63p. I am happy to hold on and buy back if the bid fails to materialise,
Well argued 30 50 20 . Particularly this bit, which strikes me as a good summary:
'I think AIEA mgt is very astute and will ask for a price that justifies the business they have restructured and built over the last 8 years. I dont think Halstead will pay that price. In this scenario the price could fall back towards 40p and not rise until there is a clean set of results from the re-focused business.'
thanks for posting your analysis and whilst it is logical and specific,
for me i see some differences when apllying to AIEA.
you are correct to say that the 'average' bid premium is oft quoted at c.30%,
but there are also instacnes when it is 100% - INB, Opsec, WTM and 3 specific examples i have commented on in the past. In my view the reason these companies warranted such a large premium was that they were not 'average' situations.
They were all small Market Cap companies but with a good record of good CASAH flow.
The stock market valued these companies as stand alone entities,
which as they were small companies involves a higher degree of risk.
These companies also had come through various problems,
which again enabled the stock market to attribute them a lower rating.
However the key point was that the actual businesses,
if they were part of a lerger group were worth a lot more...
suddenly the same CASH flows, when part of a larger and more stable group were 'worth' a lot more. Thus the acquiring company needed to pay a very large premum to acquire the underlying business.
I think this same instance exists with AIEA.
The underlying CASH flow is excellent since new mgt took over the company,- this is evidenced by the increasing ACSH position, the FH property, the special dividend, the share buys backs (*2) and the comfortable excess funding of the pension scheme such that the deficit is now almost eliminated.
The value of the underlying CASH flows (even before any cost synergies) could quite easily be valued at 80p a share to which one would add the FH property and the CASH.
The real hidden gem though in AIEA is the new machinery.
If extra volume can be put through this machinery the profits would increase significantly. Obvious current management will try and do this but i think Hlastead have a much better chance to acheive the same results as they ahve a much broader network and sales force. Thus the same plant and amchines could be worth a lot more to Halstead than one might value them under AIEA's ownership.
So in my mind the price that Halstead could ay and would still be a good deal for them could easily be at a 100% premium to the underlying price before the RNS (whatever price / day we deem that to be)
The reality though will all be about negotiation.
What might they offer, and what might AIEA major sharehodlers accept?
I am a long term holder and excited as i might get about a juicy take over premium,
I dont actually think the bid will go ahead.
I think AIEA mgt is very astute and will ask for a price that justifies the business they have restructured and built over the last 8 years. I dont think Halstead will pay that price. In this scenario the price could fall back towards 40p and not rise until there is a clean set of results from the re-focused business.
For me then it is a frustrating situation that i think the share price will go lower but i dont want to sell my holding in this little gem of a business and management team.
There are plenty of buyers taking up stock at 53.6p ,
and if i had spare funds outside an ISA i think buying is a good RISK / REWARD at this price (the loss if there is no bid could be offset vs CGT)
Timing is everything is it not? The JHD statement of the fourth refers to recent share movement in AIEA, yet which movement exactly? The notice of proposed closure of Ryalux on the 20th and the Final results on the 21st March each coincided with movements that together added 50% to the sp, taking it to 45p.
Presumably JHD's statement only refers to the further rise on the 4th (prior to their after hours statement), which added nearly another 6p taking the price to 50.8p
Which movement was alluded to matters because acquisition premiums apparently average up to around 30%. So, by that reckoning, it might be supposed that JHD were contemplating a maximum bid based upon the sp immediately after the Final results of that day ie 45p +30% = 60p or so. Which rather fits with today's sp - and explains the swift fall back from the (silly?) heights of 74p.
Bearing in mind that AIEA's sp has recently been around 30p, that's a pretty handsome number and, I suggest, it's quite possibly at the top end of any offer for AIEA
mantrova - 'Also not forgetting the sp here was 141p in 1994!'
but that was Sirdar plc and this is Airea plc!
In between they sold the hotel division for £14m and in 2007 'spun' out, if you'll pardon the pun the iconic Sirdar spinning to a management buyout which looks to have been successful. For some years the AIREA has been worth less than the price they got for the hotel division - not that I am complaining as it allowed me to buy at a price which, with hindsight fully engaged, is looking very cheap.
With the closure of the carpet operation the remaining business looks to be very successful - but its very different from what was Sirdar a couple of decades ago.
I've made my own calc's of the share's value, purely on a dividend yield basis.
I've noted the already paid interim of 1.75p for the current period of 18 months.
Adjusting the period for a normalised 12 months and ignoring entirely the proposed 5p special dividend, I calculate exactly 3.5p of normal total dividend for the normalised 12 month year, based on the current 18 months period now ended.
On a product/business area risk averse basis I would be looking for a yield of not less than 3.5% which surprise, surprise; gives a sp of 100p or 77.8p for a greedy 4.5% yield
But, all that is without adding anything at all for the now great state of the company and its likely huge potential for the future. Also not forgetting the sp here was 141p in 1994!
My calc's have been rather quickly done, so if there is an error, please let do me know.
at 66p I think it could be a contested bid situation
it will be interesting to see what price they are thinking of .
JHD has ebitda of 54m, CASH of 50m and a MV of 880m (220m shares at 400p). so that is an EV rating of 16 times.
Aiea will make EBITDA of 3m. It has CASH of 3m. FH of 3m and pension down to 2m.
There are 42m shares. So netting off the FH and the Pension. Valued at 16 times EBITDA gives a value of 51m (120p)
But the exciting thing is that the low cost factory would be worth a lot more to some-one like JHD as they could put extra volume through it and close one of their current factories not to mention the saving of say 0.5m of head office costs, central purchasing etc.. and PLC costs.
So I think JHD could justify a higher price than 120p I know this sounds crazy compared to the more recent share price but it is factually and logically based. JHD has 50m of CASH earning say 1% retunrs so if it buys a business and earns 5% returns that is an improvement 5% returns would be 20times earnings = 60m (150p) so it just gets better and better.
VCP has ebitda of 100, debt of 90m and a MV of 900m (120m shares at 760p). so that is an EV rating of 9 times.
Valuing AIEA at 9 times EBITDA = 30m (76p).
I do think a bid battle is likely which is great as it will maximise value ..
Given the synergies, the potential with duplicate costs and the potential to maximise the new efficient machinery AIEA has bought with extra production volume I do think that the 76p calculated above is a minimum figure.
If there is a bid price mentioned, and if there is a contested offer, I think that will support the future valuation of AIEA should a bid not be accepted. That value will be less as there are risks with operating alone as a smaller business, albeit slightly offset with the higher growth and acquisition opportunities. I think 7 times EBITDA + CASH would be reasonable = 21 + 3 = 24m (56p).
James Halstead plc ("James Halstead") notes the recent movement in the share price of Airea plc ("Airea") and confirms that the Board of directors of James Halstead (the "Board") is at the very early stages of evaluating making an offer for Airea which could lead to an offer being made for the entire issued and to be issued share capital of Airea (the "Possible Offer").
the share price has been fully supported since the results
and although there were very positive comments about ongoing trading,
cash flow and the special dividend,
it seems that people are still very keen to get hold of the shares.
the move above 44p is VERy significant n the charts
the 'complicated' results explains why they released the closure yesterday.
like you say many positives and in this negative market time it is particulalry encouraging to see that the market have faith in this mgt - that too me is the key to future share price growht here.... i..e it is easy to work out ebitda of 3m to (maybe 3.5m) p.a. as likely profits but the rating applied to that could be anywhere from (below average as current) to premiujm above average.
i've longer hoped that they would get a higher share price and then use that for a acquisition that they could make efficient...
but maybe they have read Buffet and will 'just' generate CASH and buy back the shares to generate increased shareholder returns...
quite complex the results and lots of exceptional costs so one needs to be a little careful re the underlying profit projections and the jam tomorrow story but the mgt have a decent track record and the split into 2 should lead to a small and very profitable business left.
even after the special divi there will be net cash + a £3m FH property
and with capital expenditure made there will be strong CASH generation
i think ongoing a 2p divi is sustainable on the reduced share base
Looks good with14.5% of the shares to be bought back, 5p special final dividend to be paid and payment to sort out the pension scheme. New technology coming on line and the to be closed part of the business that is loss making meaning increased profits going forward. Interesting to see how far the share price will rise this morning.
OH thanks for reminding about the impact on individuals.
i had originally intended to include that in my post but forgot.
i do have confidence though that the management will treat employees well in the circumstances as the 2 businesses are closely linked and mgt have an excellent reputation since they started to turnaround the business several years ago.
not the less it is right to be respectful of the circumstances
thanks OH for pointing out
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