I only bought shares yesterday so the rise was unexpected......Possibly there has been a fair number of reluctant holders & hence sellers following last years company purchase.
We hope progress is being made in turning round the new businesses.
A reason for the recent uptick maybe due to the recent tip in Chronic Investors:
As expected, Avingtrans (AVG:223p), a maker of critical components and services to energy, medical and industrial sectors, has launched a recommended takeover bid for specialist engineer Hayward Tyler (HAYT:44p). I highlighted this possibility a month ago when I rated shares in Avingtrans a buy at 218p (A trio of small-cap buys, 27 June 2017).
At the time, I believed there was scope for Avingtrans' shrewd management team to replicate their success on previous turnaround situations and create significant value for shareholders by exploiting the recovery potential of the indebted bid target. Under the terms of the All-Share acquisition, Hayward Tylers shareholders receive one new Avingtrans share for every 4.755 shares held, which means that Avingtrans will issue 11.53m new shares to give Hayward Tylers shareholders 37.6 per cent of the enlarged share capital. On completion of the takeover, the company will have a market value of £68.5m. The terms being offered seem sensible to me and to the 45 per cent of Hayward Tylers shareholders who have already decided to back it. Thats understandable as there are justifiable reasons why this deal should be value-accretive to shareholders of both the companies.
Firstly, Hayward Tyler is heavily indebted with net borrowings of £22.1m, implying balance sheet gearing of 100 per cent of shareholders funds at the end of March 2017, a level of indebtedness that is also significant in relation to the £25.8m equity value of the All-Share bid. In stark contrast, Avingtrans finances are in a rude state of health as the company has net funds of £26.2m on its balance sheet. Therefore, the combined entity will have modest levels of gross borrowings in relation to pro forma combined net assets of £67.2m, and retain cash in the bank and ample headroom on existing banking facilities to pursue growth opportunities, both organically and through further acquisitions. Removing duplicated costs will result in a slimmer cost base, too.
Secondly, both businesses enjoy strong positions in their respective energy market niches, in particular the nuclear sector, so there is a healthy crossover of business activities. Moreover, in the power sector, Hayward Tylers core business should see the benefits from the increased scale resulting from being part of an enlarged entity, not to mention funding is on a better footing to enable its management to target investment. In addition, the enhanced scale of the business and greater access to the Chinese energy market should enable the enlarged group to make inroads into the Chinese nuclear energy market and achieve critical mass.
I also feel there is a great opportunity for Avingtrans management to work their magic and build up margins on Hayward Tylers record order book of just shy of £50m, and return that business to sustained profitability following mixed trading last financial year when it reported cash break-even on revenues of £62.7m following a difficult first half.
Its the type of deal I was hoping Avingtrans shrewd directors would pull off when I recommended buying the shares at 200p in my 2017 Bargain share portfolio, and still believe that the share price should be trading at a decent premium to the combined groups pro forma book value of 219p. In fact, I have a conservative-looking target price of 275p. Interestingly, its possible to buy Avingtrans shares on the cheap by purchasing Hayward Tylers around 44p in the market, and then accept the All-Share offer, to give an entry point of 209p, or 14p lower than Avingtrans current offer price. I would recommend doing just that given that earnings upgrades look firmly on the cards after the deal completes at the end of next month, after which the embargo on analysts publishing forecasts will be lifted.
On the other hand, why would they implement a placing when they have just returned cash to shareholders on a buy back? Why not just use their credit facilities, they already have a healthy cash pile of about 28 mil.
I think you are bang on with your assessment and according to previous commentary by Lion Rock below, I believe this possibility was mentioned at the AGM. I'll wait while the dust settles before committing more funds.
AVG price noticeably weak today, down 11p @ 215p, though declared volume only 34500.
Should we conclude that the talks are off? I think failure to do the deal would be seen as negative for AVG. They can always argue that they won't overpay, but it just looks such a good fit that it would be a shame if the chance was missed.
Indeed patience is a virtue given the negotiations between AVG & HAYT now into the second extension. Given the extension request can only be requested by HAYT one has to wonder what the real situation is as there are many possibilities, I am however confident the AVG Board will not overpay.
Noticeable activity over the last couple of days, probably in anticipation of the Interims that I understand are due on 17th Feb. No doubt the fact that approx. half the shares now in circulation than before may also have some effect, interesting times and the 3M3 boxes have not yet ramped up!!
Nice to see you popping back, yes have to admit not the most exciting of AGMs but then again in the light of the Aerospace sale I did not expect it to be. It was though interesting to see the Board are very open minded in terms of where they go next the bedrock of the future being the 3M3 boxes. They are certainly on the look out for acquisitions but as they have emphasised they are in no hurry and neither will they overpay. It was also interesting to note their pre production boxes had been approved by Sellafield whilst the other supplier has not as yet had theirs approved. AVG it was noted also have capacity to multiply by at least twice their production rate perhaps if a tender for Magnox emerges........
"Difficult to see what may develop with the company"
If you can trace this back to Stainless Metalcraft (had you asked me in 2011 then I could have given you the annual reports back to late 80's) and you want to try to guess where it go you might be able to answer your own question. To try to answer you myself. 17 years ago I had to get some cash and it was a toss-up between this and a computer software engineering company. The later had been growing at 30%. BUT I did a back of envelope comparison of directors salaries and the number of higher degrees on the board. I saved a fortune, the software company no longer exists. Now clearly a completely different team at the top but I would like to think that that is the ethos of the board. I continue to watch, but with skin in the game, albeit skin that has cost me nothing.
Well done on another excellent resume of the AGM, Lion Rock. As mentioned some time ago, I sold 100% of my holding but still look at the posts. Difficult to see what may develop with the company and very surprised that no indication of likely acquisition policy mentioned at the AGM. They will have to cover all the overheads from a tiny base until there is an additional revenue stream and I will continue to watch from afar pro tem. Good luck.
Lion Rock - thank you for posting the information that came out of the AGM. It is nice to get that kind of sense of what might transpire in the future. It was also not with time and effort on your part and generous of you to share.
All tendered got taken up though do not yet have the cash in the bank. Just tried a dummy buy and can get 3000 for 196.89 so could have sold a few more and bought back at "profit" of £93.30 less dealing charge of £5.25 so £88.05. Another minnow that has got away!
Sincere apologies for the delayed report on yesterdays AGM due to lap top problems now resolved!
There were just two shareholders myself and Brian Gee along with the Board to hear a somewhat muted report compared to previous years due to things now being in a state of flux following the sale of the Aerospace division and the progressive build up of the Energy &Medical unit.
The Chairman as usual quickly despatched the official part of the event stating as he did so the results of the take up of the share buy back declaring that not all of the available amount had been tendered. The share holding of himself and Nigel Wray had been reduced to reflect the result pro rata. In respect of what use the monies available for the outstanding shares not taken up would be put was not mentioned.
Steve McQuillan CEO then took over, to give a run down of the current state of play with regard to the Energy & Medical divisions and their current status.
The progress of the 3M3 boxes for Sellafield is ongoing with the pre production examples now having been constructed and passed inspection by the Sellafield authority and they are now working towards the production examples that will take just about most of the next Calendar before manufacture in volume rapms up in the beginning of 2018. The manufacturing site has the capacity to expand to possibly two or three times current anticipated production should this be required principally because there are other such requirements in Europe that whilst not the same as the Sellafield design, the ability to manufacture the alternative structures is well within the Metalcraft capability. In regard to this European possibility the Board feel that given the Brexit situation they may well obtain a company in Europe in order to access this market but time will dictate the steps required.
The Board themselves are currently looking to search out possible acquisitions that may be able to enhance the Company prospects for the future and stress there is nothing on the horizon as yet and they have no preconceived ideas at the size of any possible acquisition, indeed if the intended acquisition is big enough to warrant it in the future they would not be averse to a fund raising by the issue of shares he stressed if this becomes the situation not wishing to be seen as strange talking of more shares to be issued whilst buying back at the current time! As previously stated they are not in any hurry and will not overpay. Metalcraft recently won a top industry award with the Nuclear Decommissioning Authority that pleased the Board immensely explaining that whilst there was no cash involved the raising of the Company profile within the industry pointed to the fact they were the Company to be contacted in certain areas of expertise. They are looking to tender for work that will arise once Hinckley C gets into its stride but that is probably more than 2-3 years away whilst the concrete is poured and set! They are also busy with items previously supplied from the Maloney inventory such as the Nuclear valves required by various EDF sites as well as other equipment.
In respect of the MRI scanner manufacture there are now three companies in China for whom they are manufacturing equipment albeit on a small scale at the present time but see good opportunities following the Rapiscan order that is also involving the composite division, most major airports will be required to have the capability to rapidly scan hold baggage in order to maintain the efficiency of baggage handling in various forms.
The Future Engineering Technology project is ongoing this is being undertaken by Crown and there is a possibility of further projects based on the equipment thus developed That may have alternative applications within the carbon capture environment.
To conclude, very much a case of wait and seeone has to say it was very much a reduced agenda given half of the Company aerospace is no longer included
We have nearly 4 weeks to make up our minds and the market price nearer the date will make my choice clear. FWIW all I hold in my SIPP will be up for tender, unless come 1st Nov I can get more than 201p in the market. The majority of my shares I have held for a long time in an ordinary account and would have to pay capital gains on anything if I sell more than half, I can (and do) swing my CG by selling losers but running out of space and there is a limit to total sales before you can just tick the two boxes:
1) Yes have CG but gain less than 10840(?) and:
2) Total sales less than 32000
Hope that helps, and I am very happy to pick up, and sell, your allocation of shares in the tender offer from and within my SIPP.
Fare thee well. I hold from 1987? 'Twas Stainless Metal Craft, floated in SW by brokers, one of whom was later on Tele and * later found was a brother of my colleague, now retired neurosurgeon in Nottingham, (only discovered after I had bought in) and connection to Oxford and MRI/CT scanners, remember not which At least 20 yrs ago I did a simple points total for directors of my first two big buys, kept this one and sold something that went huge and flamed out a few years later.
I think you might be wrong, they got a good price for aviation business, having built it up to limit of stainless in UK, Chinese can now do it much cheaper (but probably rubbish, google rocna anchors). I think nuclear has huge future (I am also into FSJ but that is the de-commissioning). The potential upside here is on the medical side.
Tejo - I was very sorry to read of your decision but given your recent comments was not surprised. I honestly believe that there will be progressive performance from here on with regard to the new emphasis in the nuclear market, and the opportunities believed to exist there.
It is my belief - and still is - that had you been able to attend an AGM and meet the Board you would have had a clearer perception of them and their intentions. I sincerely hope that before too long you will have your faith restored and will once again be a shareholder before very long.
It was with a heavy heart that I sold my holding in AVG yesterday, having held the shares for a long time. I was not happy that the high tech and growth part of the business was sold and part of the proceeds being returned to shareholders. I wanted an investment not the cash. The tender offer has been long drawn out and the adviser is being replaced. We are left with a tiny business that now has to bear all the central corporate overheads in, at best, a seemingly slow growth business. There is a lot of residual cash that hopefully will be invested well, but will take a long time to produce good results. There may well be some further upside when the details of the tender are finally announced but that will be followed by a long period of fluctuating fortunes before the clear picture of the future emerges. The nuclear sector looks good but not so good elsewhere in the residual business.. I will be truly sorry not to have further exchanges with Lion Rock and, because of his faith in the management, I will keep an eye on proceedings and may buy back at some time in the future. Good fortune to all!!
An excellent order to kick off the remaining business accompanied by a recent article in IC:
'To put this into some perspective, after stripping out net cash from the current market value of £52.8m, the companys energy and medical division is in effect being valued at only 17p a share, or £4.8m, hardly an exacting valuation given that analyst David Buxton at brokerage finnCap expects this business to make pre-tax profit of £300,000 on revenues of £24.3m in the 12 months to end May 2017, rising to pre-tax profits of £1.4m on revenues of £31.1m the following year when the Sellafield contract really kicks in. This means that the medical business is in effect being priced on little over three times profits. I would also point out once you strip out the cash pile, the retained businesses have a net asset value of around 60p a share, so are in effect being valued on less than 30 per cent of book value.
"The sale of Aerospace leaves the group with net cash of c£47m. Half this, or 103p per share, will be given back to shareholders. Its underlying operations are accorded little value and will see a strong recovery from 2018, with acquisitions expected."
AVG Avingtrans trades below its cash pile.
Finncap; Also we point out that Avingtrans at 156p (down 10%) is now at a 17p discount to its net cash of 173p per share clearly an anomaly and we remain buyers!
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