ALF - Allied Farmers Limited

[GTM 3442]

I would be happy with the 0.01cps dividend sure, but I'm also happy enough without it.

This particular punt is trundling along, headed in the right direction. What did they say? "Good things take time"

[Vaygor1]

You won't have to wait long on the scheme of things GTM, and I it should be a lot more than 0.1cps I think.



I see the Chairman of the board Garry Bluett exercised another 1,450,000 of his rights today lifting his holdings above 2.5% of the business.
Mark Benseman, beneficial owner of 11.5% of the business also joined the board relatively recently.

I am looking into the results and intend to supply some commentary here soon. I note Earnings per Share were treble that of the previous financial year.

Holidaying around South East Asia so not really doing too much analysis at the moment.

Preliminary examination leads me to the following:

Value/share for ALF based on projected EPS.. well one can estimate the EPS growth based on the most recent 2 years then use ones chosen PE ratio to arrive at a figure, but not a good measure on a stock not quite ready to pay a dividend, is still emerging from the penny dreadfuls, and has only recently (comparatively speaking) moved into growth phase.

Value/share for ALF based on NTA.. some hidden value here. Difficult to analyse now the audited report does not separate the Group / Parent figures. I say conservatively $0.08 per share. On top of this, they have not insignificant tax credits. I used a goodwill figure of $0.00 per share.

[percy]

I notice you and Forest are attending the agm.
I have heard they are doing the right things to improve their livestock trading.
Yet,current liabilities of $8,841,000 exceed current assets of $8,297,000 and the stated NTA is -0.024cents.
Paying no dividend and with a weak balance sheet,what is the attraction?

[Vaygor1]

I notice you and Forest are attending the agm.
I have heard they are doing the right things to improve their livestock trading.
Yet,current liabilities of $8,841,000 exceed current assets of $8,297,000 and the stated NTA is -0.024cents.
Paying no dividend and with a weak balance sheet,what is the attraction?

Hi Percy.

I have historically found ALF's financials difficult to interpret. Firstly, NZFL (ALF's main source of revenue and owned 66% by AFRL, in turn owned 100% by ALF) used to be ring-fenced out of the consolidated balance sheet for historical reasons, and secondly, now that it is consolidated as stated in the financial notes (although I cant find it's $6M-$10M of worth to ALF itemised in the financials), the new annual report format makes no distinction between the group and the parent.

In any event I believe there is at least $700k residing in extra equity to ALF, attributable to the difference between book value & market value of NZFL, and there are other off-balance sheet values that I believe need to be taken into account.

i.e. the balance sheet is not as weak as it appears.

But that aside:

Hanover, United, Crown Asset, and IRD debt is now ancient history.
Spiers and Stockmans debt (and for that matter, deferred debt of years of director fees), all gone.
Earnings per share doubling and tripling on an annual basis when taking 1-off gains out of the equation.
Acquisition of LI Redshaw in Hawkes Bay.. ALF currently own 34% (was 17% last financial year, and are increasing to 52% on 1-July-2017).
ALF recently consolidated the (previously) enormous amount of shareholders holding less than 1000 shares, not a cheap initiative but with a payback greater than 100% per annum.
They kicked off a finance division very recently, solely for the transacting/financing of livestock sales (mainly Dairy Bulls).
They recently expanded into Northland and the South Island
All on-demand debt is gone. Debt restructuring is now secured.
The efficiency gains from the 6 points immediately above are yet to come through on the books I believe.
Also ALF have decent tax credits.
Meanwhile NZFL continues to grow.
Lawrence Redshaw passed away recently. It is unknown to me if acquiring the remaining 48% of LI Redshaw is on the cards or not.
I'm waiting for the board to signal the likelihood of dividend payments in the near future; this will depend on the generation of free cash flow throughout this and the next financial year.

With this going on, I maintain ALF will not be going broke. Far from it.... they are in growth mode with other acquisitions in the pipeline.

SP seems to have a lot of upside potential and very little on the downside.

Sharemarket Liquidity appears to be good (relative to many listed companies) due to public knowledge of ALF and history of the company, and the media coverage it gets as a result.

I trust the board these days, since cyclone Alloway ripped through the company and departed many years ago. To take the company from where it was when Garry Bluett took the Chair to where it is now has been one hell of a feat really. To now grow it at the same rate it was pulled out of the s**t should be a cinch.

Unlike in the past, the board members now have substantial holdings in ALF, totalling about 15% of the business by my calcs, and on top of this, two of the Directors personally hold bonds totalling between $250k to $1M.

For what it's worth, that's my take on it anyway. ALF might still be a penny stock but I don't rate it a penny dreadful any more.

Reading above, it looks like I have just blatted down a small book.

Regards, Vaygor

[forest]

Paying no dividend and with a weak balance sheet,what is the attraction?

For me it is just to see if there is a value potential versus risk which I want to take.
But I agree with you percy on first look one can find plenty of reasons to disregard ALF. Sometime ago I expected ALF to be doing a Wynyard.
The fact that ALF is still here made me decide to have a closer look.
Now I am keen to talk to management and directors to judge if they are able to overcome the past.
Vaygor1 has given some reasons why ALF hopefully still has potential.

[percy]

Vaygor1 and Forest.
Thank you both for your posts.
Knowing both of you are "value" investors I think I can understand your interest in ALF.
I trust you will learn more to share with us from the agm.

[blackcap]

Vaygor1 and Forest.
Thank you both for your posts.
Knowing both of you are "value" investors I think I can understand your interest in ALF.
I trust you will learn more to share with us from the agm.

I cannot attend the AGM as I am attending another AGM, but if one of you two gentlemen would be so kind to provide thoughts from AGM I would be very grateful.

[forest]

Back in Auckland from an nice couple of days New Plymouth.
blackcap the AGM was positive and the points Vaygor mentioned on the 27th of Nov 16 was more or less the body of the presentation.
Vaygor has passion for ALF, he knows the fine detail and easily could have written the presentation. He even got a book about ALF's history covering the period from, the late 1800's.
Yes about 120 years of history on ALF so if interested in ALF reread his post of the 27th.

[janner]

Vaygor1 and Forest.
Thank you both for your posts.
Knowing both of you are "value" investors I think I can understand your interest in ALF.
I trust you will learn more to share with us from the agm.

Yes. Thank you both..

As an ex share holder ( losing ) . It could be time to revisit.. ..

[blackcap]

Back in Auckland from an nice couple of days New Plymouth.
blackcap the AGM was positive and the points Vaygor mentioned on the 27th of Nov 16 was more or less the body of the presentation.
Vaygor has passion for ALF, he knows the fine detail and easily could have written the presentation. He even got a book about ALF's history covering the period from, the late 1800's.
Yes about 120 years of history on ALF so if interested in ALF reread his post of the 27th.

Thanks forest, appreciate it. Makes sense and good to see some support on the markets the last couple of days too.