Well UK sales slid badly in December according to official figures:- http://www.bbc.co.uk/news/business-42744499
So it was a bad day on the stock exchange for many retailers. No I have not followed SCVP, mainly because I was unaware of it!
Yes, AIEA is a bit opaque so I used to have chat with my local carpet retailer to find what he thought about AIEA. I sold my AIEA some time ago, partly on the basis of his views. He thought that AIEA made good carpets but was relatively expensive with several other manufacturers competing in their market sector. Agreed AIEA have made some good overseas industrial sales - and that the European economy has been slowly improving, but the recent strengthening of the £ has not helped.
I was a bit wary that AIEA was paying a high dividend and risked running short of cash: my view is that lower sales with fixed overheads could cause problems. In fact I voted against the dividend at one AGM as I felt that they should have built up some cash reserves to cover periods when the market cycle is down. Yes they have some useful building land, yes they have consolidated their sites, yes they have some modern equipment, however their current site would not be constructed in the same way if they were building from scratch again.
To summarise, I think that one should be wary that AIEA might have lower sales due to market conditions. It up to one to decide whether the prospective future profit will support the current dividend etc etc and in turn put one's own valuation on AIEA.
Graham Neary just covered Carpetright and United Carpets on today's Small Cap Value Report over on Stockopedia. Don't know if you follow the SCVR and its discussions, but well worth it IMHO - another clutch of profit warnings this morning it seems.
I would say the turnover and profits are steady. I would describe the increase in dividend payout as very good news at over 16% increase. I would expect from here a steady rise in price but good luck if you are buying on dips. I topped up earlier in the week, now hoping of course that was a low point!
Overall I'd say the results are 'Yes, But........'
Although called interim the results are for 12 months as the company is changing its reporting dates. The final dividend last year was 1.5p and this dividend 12 months later is 1.75p - though called an interim it's not clear what level of dividend may be expected in 6 months time.
I suspect this is intentional and depends upon the success of the new product launches. Sales in the 12months were actually down. Cashflow was demolished by increase in stock and equipment. Unless this is reversed then the progress of the last few years will come to a stuttering halt.
Having said that management speak was optimistic and as they are already 3 months into the final 6 months they should know how things are working out.
But carpet companies are seen as very exposed to any economic downturn, and with good reason. I've been putting off new carpets for 25years now! Airea is too small a company to be on the radar of most investors and with the confusion caused by brexit is probably undervalued but no reason for that to change based upon the recent results. The shares are closely held and illiquid.
Result is deafening silence.
I'm looking to buy some more should they slip in the next few weeks to avail myself of the increased cash dividend.
I would have expected the results to be out by now given the date of last year's.
of course it is a guess but I think logic steers that the delay is more likely to be because they are organising some piece of corporate action - i.e.
or surplus FH,
or investment property
or excess CASH
so the delay leads me to be more optimistic when the RNS is out.
Yes I think AIEA has been an 'obvious' target for VCP for quite a while and the lack of approach must mean something. I can think of a couple of possibilities.
AIEA is currently trading on around 11x its historic earnings of 3p per share. VCP would need to pay quite a premium to persuade shareholders to relinquish their shares? The price might be too rich for VCP's scaling up model? They have had easier pickings elsewhere thus far?
I used to hold VCP but haven't for some while. I sense that the 'new' VCP has been able to buy a number of small companies which have been run inefficiently at cheap prices? AIEA has spent years and invested to make itself much more efficient - so there's no easy gain for VCP here?
AIEA has a rump of shareholders from the old Sirdar days who are not too concerned about selling apparently. Plus there are still potential property development gains in the background if I remember rightly.
No point in VCP showing its hand only to fail? They may be waiting to see how things pan out and whether AIEA stumbles along the way,
VCP results today as very positive which means trading at AIEA should be solid.
VCP also talks re the benefits of efficiencies and the lowest cost producres which is what AIEA also acheive. At face value AIEA would seem to be an obvious take over candidate for VCP but i presume there is a reason that has not already happened.
that's good thinking re the ISA transfer. it was small amount but the point still valid.
maybe that's why not able to buy if a few people have had the same thought though why the MM don't just just they job for 10k of shares and then move the price up 2p - its hardly going to break their bank even if they do close out at a small loss and IMHO if anything not having shares to trade just puts people off trading altogether.
Anyway, a second thought is that maybe the FD only has limited window to do that transfer so we could still get a lower price before the next results.
Anyway hopefully the company specifics strong enough to over come any general marke turbulemnce.
I last bought AIEA on 1st March 9655 shares with no difficulty. I didn't try today as I wasn't at my computer but I couldn't buy a similar number of shares through the same account for the last couple of days.
I don't need anymore shares - it's also one of my largest holdings - I was tempted to top up after the recent rns for the wife ot the FD xfring shares into her ISA.
Why? It might be for the tax free dividend payment but any old high yield share would do that. I think its more likely a 'bed and ISA' to crystalise existing gains for cgt and put future gains into the tax free wrapper of the ISA.
So if the wife of the FD thinks its worth putting into an ISA I thought I'd follow suit with a few more shares.
I'll try again next week. Happy to wait for a down day and get them a little cheaper into the bargain,
Weak sterling will help the company in terms of exports in that their added value will be cheaper although more expensive imported raw materials will push up UK prices although they will still have a competitive advantage over imported carpets than previously.
But obviously demand generally for carpets/floor coverings is the key factor.Higher interest rates should benefit pension valuations;so prob as you indicate at a max low point now.
The pension situation seems to be under control but they seem very cautious about the outlook for both domestic and europe. Weak sterling now seems to be a short term issue and their Brexit crystal ball isn't working. This won't be sorted for some time and I can't see much upward movement till they sound more positive.
I too hold AIEA - from the old Sirdar days, and I agree there is much to like in these figures - and the management execution which they infer. One minor gripe - I would like slightly more detailed disclosure with the results statements.
These figures and @ 29p SP puts the stock on a 5.2% divi yield, c.10x PER, 5.8x EV/EBITDA and a whopping 16% FCF yield (though I doubt last year's free cash generation can be sustained - but still, the underlying picture is still pretty healthy).
If you take the pension situation out of that picture, you can easily get to an equity valuation for the operational business of £20-25m, on pretty undemanding assumptions. In other words, the market is currently discounting £8-13m (at least?) for a pension liability currently valued below £7m.
Ultimately, it comes down to your view on pension deficits - as a long term, value-orientated investor I am more relaxed about them than some, as I have been posting already today on another board, but I concede it is a big uncertainty you'd have to be prepared to live with.
I am not diving in for more quite yet, but they look a bit too cheap still and I will be following with interest.
I was nervous of bad news on the pension position a la carclo but analysing the results and these guys are still undervalued IMHO. They might turn out to be a share price rise a la Victoria or Styles & Wood.
What I see...
1. much improved profitability. H1 was 700k; H2 was 1.4m.
so good chance for higher profits news year.
2. as mentioned in other posts - lower GBP also improves profits and also gives them chances of growth overseas - double win
3. I do like their simple strategy - create products that people want to buy !!
4. They generate CASH. Bank balance is current 3m. Deprec is higher than Cap Ex - even during rationalisation so it will defo be higher for the next couple of years. SO CASH levels will rise. That is 4m CASH next year on a MV of 12m!!
5. Pension - they have taken action to limit liabilities. Again to me this is double whammy. Not only does it reduce liability but it give credibility to mgt for seeing issues and taking action for the benefit of shareholders.
6. Investment Property - I think reading between the lines this will be sold this year. It is in the books at 2.9m but as they have mentioned it publicly I assume the buyer is the current leaseholder and with higher commercial property prices I think this will yield a further 3m CASH - maybe at the expense of 100k profit (vs LY). So with 7m CASH fcst by the end of next year - yes 2 or 3m might go to the pension fund but it supports higher divis, share buy back or special divi.
7. share buy backs. This was my cue to invest. They bgt back 10% of shares last year - that is very unusual. They must have had agreement with the pension trustees to use surlus capital in this way - thus I concluded that the pension situation must be manageable.
8. as others have mentioned the mgt have built up a decent track record. when we look beyond the stock market pressure of year on year growth - what they have achieved over the last 5 years is impressive. sales growth, huge margin improvement, rationalisation, pension resolved, whilst reducing shares in issue and paying high dividends. this mgt team should be on a premium rating!! and what about the profit potential is they acquire something and rationalise that too..... so thinking of potential EPS of 4p on a 12x or 15times rating is not inconceiveable for a growting business with good CASH + Cash flow and reputable mgt....
TB - I think your pension point is well made. However I think there are two rteasons to be positive which are probably not baked into the share price:
Firstly the FX benefits not only reverse poorer performance in H1 but they provide an opportunity for growth.
Secondly the benefits from site rationalisation are clearly materially benefiting the P&L in H2. But the run rate EBIT will be substantially higher now so that should lead to further growth in the current financial year.
Finally the pension deficit looks a lot more manageable against a higher EBIT and therefore any remaining distress priced into the share price should recede.
All told - a great bit of news flow over the past year and probably more to follow.
yes the increase to the divi is very gratifying but I'd prefer that the company is fully funded for growth than pays too much in dividends.
Most surprised and gratified by the 50% rise in the share price! Suddenly this tiddler is one of my larger holdings.
There is more pension information available in the full report available on the company website aireaplc.com
I don't know much about pensions. The pension exchange exercise seems interesting. If I understand the gist they are offering pensioners more cash/income now in return for low lower future liabilities to the trust? Sensible. Though how much effect it will have in reducing the extent of the over liabilities and potential for problems from their increase seems limited.
Overall the management here is starting to establish a credible track record. As these are the results to end of June the management should already have the figures for the first months of trading in the current year.
I suspect that the increase in divident says as much or more about the trading and cash flow in the current year to date than it does of the results to June?
The results look good on the surface. I just hope that they are not giving too much away in dividends - I had a spirited debate on this with the Chairman a few years ago. My one concern is the defined benefit pension scheme. For some reason (if I am reading things correctly) they seem to have had a pension credit of £1.3m. Now one might have heard that Carclo recently had to cancel a declared dividend because the pension deficit had increased as a result of using a lower discount rate (as a result of the 'bank rate' going down to 0.25%) to calculate the pension liabilities. I did not spot an assumed figure in the final results, but they will have to adopt whatever the accountants deem to be a suitable figure.
I'd almost forgotten I held these. The results seem to have taken everybody by surprise. The comments that profits had been adversely affected by strong sterling suggests that with a now far weaker sterling then this year should be even better. If the SP rises by another few percent I'll be breaking even.
Colefax (CFX) sells at the top end of the market (like AIEA) with fabrics, wall paper and decorating. Their outlook statement includes:-
"The recent trends in our two major markets, the US and the UK, suggest we are entering a period of more challenging market conditions. Together with the turbulence in global markets that has marked the start of 2016, we are cautious about prospects for the remainder of the year"
If CFX are anticipating a more challenging environment in the UK market, then AIEA would be anticipated at having similar issues with the domestic carpet business.
What no one seems to mention is that fuel costs should be falling quite rapidly, plus oil based products used in the manufacture of carpets ought to be cheaper as well. If they can hold their prices then their profit margin should improve.
The business has close to £25m of total costs. Closing down two of four facilities and generating rental income from one of those facilities has to be worth a meaningful amount of cost relative to the profitability of the business overall.
The RNS is hardly helpful in determining what those costs would be and the accounts really tell us little more with cash operating costs at a level of about £23m. But even if the facilities savings is only a handful of personnel per site it will also have an impact on the capex line (as facilities maintenance always costs something) and in addition they earn some rent - so this may sound naive, but how can closing 2 sites and renting out one not impact the P&L by at least £250k per annum - which is after all material for this business.
I was also wondering about the upmarket residential versus the tiles businesses which may prove to be a good split in the end.
The building land has almost been forgotten, no bad thing.
As I read it the lease is expiring on one property, the property to be leased is freehold? If so, I like their style - better to realise a good yield on a property right now than add it to cash where it doesn't work for the business. Especially with other land still to sell. Makes me think that the management and board are thinking long term?
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