AGL - Accordant Group. was previously AWF Madison, Allied...

[Snoopy]

Going to take a darn long time to trawl up a cool 1 mill shares at the rate they're coming
over the NZX line of late .. ;)

might have to throw some more bucks at the job, if they want to avoid still being sitting trying to achieve it
this time 4 years down the track .. ;)

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AGL/370215/343655.pdf


OK, this April 2021 announcement touted buying back 'up to one million shares'. So technically just buying one share could complete the buyback. But it is fair to say the buyback fell well short of its maximum.

The Accordant result for FY2021 came out on 27th May 2021. First shares reported on 31st May as 'bought back'. Last shares reported as bought back on 7th July 2021, but with details reported on 8th July 2021 showed Accordant held 517,289 of its own shares as 'Treasury Stock'. This total had not changed by the time the annual report for 2022 was issued with a balance date of 31-03-2022.

All the shares were purchased within a six week window of the results coming out. I am not familiar with all of the rules around in house buybacks. But six weeks may well be a legal cut off date.

As part of employee share schemes, 885,000 new options were granted during the year (AR2022 p63). During the year 129,200 + 20,800= 150,000 'G share employee plan options' were redeemed by the company for no cash consideration as they expired worthless (AR2022 p62). Add to that total 81,000 more expired options and 66,000 forfeited options (AR2022 p63), and we get a grand total of: 150,000+81,000+66,000=297,000 options withdrawn. This means the net number of options issued over the year was: 885,000-297,000= 588,000. That total isn't too far away from the 517,289 shares bought back in the 2021 buyback.

The next vesting of employee share scheme options does not occur until 1st July 2023. At this time 150,000 are allowed to be exercised at $1.50. There are plenty of company owned shares in the Accordant kitty to cover that. But on 1st January 2024, 637,800 more options are allowed to be exercised at prices between $1.85 and $1.90. This could mean we are in for another share buyback when those FY2023 financial results are announced in May 2023.

SNOOPY

[Snoopy]

Absolute IT

HYR2022 p5 "Absolute IT challenges included skills shortages driven by offshore talent being unable to enter the country."
AR2022 p8 "Absolute IT did not achieve the goals we set for the business." "Attracting and retaining key talent within the business has also been front of mind as a key enabler."



In view of the challenges in the market facing AbsoluteIT, I thought the following article was interesting

https://www.scoop.co.nz/stories/BU2206/S00493/new-zealands-video-game-developers-are-looking-to-australia.htm

"In last year’s budget the Australian Government announced a Digital Games Tax Offset of 30% with an eligibility date from 1 July 2022. This is on top of a 10-15% rebate from several Australian states. Locally, interactive media receives no significant Government funding."

"This will halt the growth of what has been one of the New Zealand economy’s fastest growing and most promising sectors, which previously reported growing 34% each year."

"Industry surveys make it clear that with borders opening, jobs will flow one-way to Australia."

This really is 'not good news' for AbsoluteIT. With salaries already $40k to $50k higher in Australia for equivalent positions coupled with lower living costs, AbsoluteIT will find it harder and harder to sell the benefits of a software career in New Zealand.

SNOOPY

[Snoopy]

The sentence in bold at the end of CEO Jason Cherrington's report in AR2022 is the one that sticks out to me. I get the impression that Accordant is 'primed to go', but the building blocks they cannot control are not in place. The student/travelseeker market is still down and other countries post pandemic shock are opening up faster. Will these potential workers return like they did before? The number of working holiday visas granted per year post the Covid-19 arrival shock dropped from 60,000 to under 1,000.

https://figure.nz/chart/XiAyD2LiuU82BMpD

The government seems keener on fewer higher net worth travellers who won't have to interrupt their OE to make a few bucks. Not great for AWF.

AbsoluteIT is operating in a market where the supply of students is not drying up.

https://figure.nz/chart/nqRblNs4jmN5Eo7y-W30IALwSk3zq4ecw

Post the arrival of Covid-19, domestic students in IT have taken up the slack of overseas students no longer studying in NZ. Yet somehow AbsoluteIT is not getting the growth traction management expect. It could be the more senior positions they specialise in are unattractive compared to job offers overseas. The Aussie federal government is offering a '30% refundable tax offset' for the gaming industry.

https://digitaleconomy.pmc.gov.au/fact-sheets/investment-incentives

That means that gaming companies spending $0.5m or more can operate 'income tax free'. That policy will surely take the wind out of gaming industry growth sales in NZ. In addition the Australian government is looking to increase digital economy venture capital project tax concessions.

Madison after some cool years look to be back into their stride. It is good that they have been able to take advantage of changing opportunities provided by the pandemic. But I remember how well they did out of the Census project and how business slumped after that. Hiring intentions within Madison would suggest they see more opportunity than slump on the horizon. The fact that they have hired more people and are looking to hire even more is a statement of substance over blind optimism.

Reading the JacksonStone website shows wide penetration into both the government and non-government sectors. These senior level employment search contracts are largely exclusive, rather than openly competitive. A strong income stream and satisfied customers bodes well for the future.

As an Accordant shareholder, I am feeling like I have a stake in building a highly tuned four cylinder performance internal combustion engine. Two of the cylinders are running cleanly (JacksonStone & Madison), another is showing signs of good performance but has a high speed misfire (AbsoluteIT) while the fourth cylinder (AWF) is blowing smoke and in need of a 'ring job' (they need more workers to 'ring in'). Now I imagine taking my highly tuned motor to the racetrack and putting it up against the (investment) competition. I feel positivity, I feel hope, but I don't feel as though I will be racing around at the front of the pack. My new chief mechanic, Jason Cherrington, is a bit of a wiz on motor tuning. But no matter how top notch the engine management talent is, you have to give him good equipment to work with. I don't see a quick and easy fix for AWF, which if you apportion management and interest costs to it is now loss making. It will take more than Simon Hull on a megaphone to fix it. My overall feeling is that my 'fiery little motor' is currently an 'also ran' :-(

discl: Shareholder, not feeling the accumulation love :-(


We can throw numbers and comparisons around for a long time. But for any potential investment, we investors need to 'believe the story' before we buy in. A writer can only write a believable story when the ingredients of that story 'hang together'. Here is what I see as the pre-story ingredient map for Accordant, compiled from the multitude of posts I have made on this company over the last few weeks.



Negative Vibes
Positive Vibes


AbsoluteIT Did not achieve sales goals. Offshore talent locked out (post 979)
New CEO Jason Cherrington "making all the right noises" (post 976)


AbsoluteIT NZ software developers bleed to Australia (post 1002)



JacksonStone Actual income earned over FY2022 lower than original estimate from 01-06-2019 (post 979)
Madison Strong year headed by NZ Covid-19 response (post 979)


AWF Unfavourable working visa restrictions for Pacifica workers relative to Australia (post 1000)



AWF Many workers that had no opportunity to work from home, meaning income fell by 50% (post 983)



AWF Forced to stand down a significant proportion of of workforce. While no overseas students are in the country, this represents 1,000 temporary placements per day lost (post 989)




I feel like I should weave a nice positive bedtime story out of all of this, so that all you Accordant shareholders reading here can smile and go to bed happy. But you know what? I can't. It isn't that I don't have confidence in the Accordant management. It is just that the 'negative vibe' column contains a lot of macro-variables that the company executives do not control.

Our government has incentives available for making movies in this country. But there is nothing specific for the gaming industry which could be equally significant (while there is in Australia). Not favourable for AbsoluteIT.

AWF is a business unit equally restricted in recruitment by government policy, and the relative attractiveness for students and the pacific island workforce to be here rather than Australia. Learning that AWF has shed a significant portion of its workforce was probably a good cost cutting measure. But this leaves them with the problem of getting those workers back in a tight job market.

JacksonStone is looking good, but we did learn that some of the founders of this business departed during the year. So some business execution risk going forwards must exist.

Madison is performing well, but incremental growth can only come if growth going forwards exceeds the loss of jobs caused by specific Covid-19 related positions winding down.

To me this looks most likely to be 'no recovery' reporting period over FY2023, with a lot of running around needed for the result to stay still.

Last years result did include the final earn out payment for JacksonStone of $0.845m (a one off expense that will not recur). I would also back out a small $24k gain on property plant and equipment sales. These adjustments see a normalised profit for FY2022 of:

$2.999m + 0.72($0.845m) - $0.024m = $3.583m

Divide this by the 34.326m shares on issue and I get:

Forecast eps = $3.523m/ 34.326m = 10.4cps

Dividends declared over FY2022 amounted to 12.1cps (fully imputed). But there is still some non-cash amortisation that will boost the cashflow over FY2023, allowing management to maintain that dividend if they see fit. And, of course, there exists a DRP that Accordant management could reactivate.

Accordant was bid up to $1.88 on Friday

So we a looking at an historical gross dividend yield of : (12.1/072)/188 = 8.9%

Accordant as a member of the '8% gross interest' club, is enough to keep me interested as an investor at $1.88. But there is too much execution risk for me to boost my own holding at this time. I will re-evaluate my position at the half year result announcement. In the meantime I am happy to 'sit on my hands' with this investment.

SNOOPY

discl: holder

[Snoopy]

Here is what I see as the pre-story ingredient map for Accordant, compiled from the multitude of posts I have made on this company over the last few weeks.



Negative Vibes
Positive Vibes


AbsoluteIT Did not achieve sales goals. Offshore talent locked out (post 979)
New CEO Jason Cherrington "making all the right noises" (post 976)


AbsoluteIT NZ software developers bleed to Australia (post 1002)



JacksonStone Actual income earned over FY2022 lower than original estimate from 01-06-2019 (post 979)
Madison Strong year headed by NZ Covid-19 response (post 979)


AWF Unfavourable working visa restrictions for Pacifica workers relative to Australia (post 1000)



AWF Many workers that had no opportunity to work from home, meaning income fell by 50% (post 983)



AWF Forced to stand down a significant proportion of of workforce. While no overseas students are in the country, this represents 1,000 temporary placements per day lost (post 989)




I feel like I should weave a nice positive bedtime story out of all of this, so that all you Accordant shareholders reading here can smile and go to bed happy. But you know what? I can't. It isn't that I don't have confidence in the Accordant management. It is just that the 'negative vibe' column contains a lot of macro-variables that the company executives do not control.

Our government has incentives available for making movies in this country. But there is nothing specific for the gaming industry which could be equally significant (while there is in Australia). Not favourable for AbsoluteIT.

AWF is a business unit equally restricted in recruitment by government policy, and the relative attractiveness for students and the pacific island workforce to be here rather than Australia. Learning that AWF has shed a significant portion of its workforce was probably a good cost cutting measure. But this leaves them with the problem of getting those workers back in a tight job market.

JacksonStone is looking good, but we did learn that some of the founders of this business departed during the year. So some business execution risk going forwards must exist.

Madison is performing well, but incremental growth can only come if growth going forwards exceeds the loss of jobs caused by specific Covid-19 related positions winding down.

To me this looks most likely to be 'no recovery' reporting period over FY2023, with a lot of running around needed for the result to stay still.

Accordant as a member of the '8% gross interest' club, is enough to keep me interested as an investor at $1.88. But there is too much execution risk for me to boost my own holding at this time. I will re-evaluate my position at the half year result announcement. In the meantime I am happy to 'sit on my hands' with this investment.


A video version of the Accordant AGM may be found here:

https://accordant.nz/accordant-asm-fy2022-video

Here is my outlook summary.

3 Year Strategic Plan

Short Term: Optimisation of capacity, Employee Engagement, and Technology Enablement.
Mid Term: Expansion of value proposition, awareness and partnerships.
Long Term: Diversification of services and revenue streams. organic and acquired.

Acquisition likely this year.

FY2023 Progress to date

Madison: Have done well, delivering on key project work relevant to the pandemic response, have great recruitment tools.
AWF: Immigration opportunity remains the key. Have new Immigration Accredited Employment status. Matching offshore talent with opportunity onshore. Positive impact in Q2 and Q3 this year.
JacksonStone: Strong start with both permanent and contract placement: All sectors: private, non-for profit and government (in particular reform work) are busy. Established new GM to manage the demand for Maori placement.
Absolute IT: New strategic approach, double digit growth in contract placements. Consistent candidate management is critical to success. Gained award for 'candidate experience'.
The Work Collective: Collected award for excellence in social purpose.

Question Time Answers

1/ Have a DRP, but don't see the need to reactivate it at the moment.
2/ Potential Acquisition: looking for businesses with deep deep roots in the market and deep experience. Also looking for leverage across other group brands.
2a/ Have no recruitment sector-presence in health.
2b/ JacksonStone is very Wellington centric and 80% public sector centric => opportunity exists in the private sector space.
3/ Move to Maori sector recruitment (via JacksonStone), was customer driven, and significant business can be expected to evolve within the next 12-18 months (Three Waters with Iwi governance, Maori Agency in Health Reforms).
4/ Annual Report issue: 'Software as a Service' accounting changed. Software now capitalised as a prepayment under 'trade and other receivables' and written off over its useful life.

Half year result will be announced towards the end of October.

SNOOPY

[Snoopy]

Accordant as a member of the '8% gross interest' club, is enough to keep me interested as an investor at $1.88. But there is too much execution risk for me to boost my own holding at this time. I will re-evaluate my position at the half year result announcement. In the meantime I am happy to 'sit on my hands' with this investment.




Acquisition likely this year.

Potential Acquisition: looking for businesses with deep deep roots in the market and deep experience. Also looking for leverage across other group brands.
a/ Have no recruitment sector-presence in health.
b/ JacksonStone is very Wellington centric and 80% public sector centric => opportunity exists in the private sector space.

FY2023 Progress to date

Madison: Have done well, delivering on key project work relevant to the pandemic response, have great recruitment tools.
AWF: Immigration opportunity remains the key. Have new Immigration Accredited Employment status. Matching offshore talent with opportunity onshore. Positive impact in Q2 and Q3 this year.
JacksonStone: Strong start with both permanent and contract placement: All sectors: private, non-for profit and government (in particular reform work) are busy. Established new GM to manage the demand for Maori placement.
Absolute IT: New strategic approach, double digit growth in contract placements. Consistent candidate management is critical to success. Gained award for 'candidate experience'.
The Work Collective: Collected award for excellence in social purpose.


The update looks like more of the same. Madison continuing to go well. AWF hanging on a turnaround in immigration, although having 'approved immigration employment status' at least should steer more overseas workers toward the AWF job offer list. JacksonStone, I didn't know was so dominated by government vacancies. So the push into screening Maori leadership positions makes sense. AbsoluteIT is a worry to me -still. There must have been some big wage increases to hold onto their existing contracting staff. How many of these costs are recoverable?

I am going to continue to put off any investment top up decisions until those half year results are reported on in October. Share price slipping away on thin volume (down to $1.84 today).

SNOOPY

[Snoopy]

Good news...

Madison has been awarded a contract commencing on 20 October 2016 and running through to 30 June 2018. This major project will involve the recruitment of between 3,500 and 4,000 staff throughout New Zealand who will be responsible for all Census activities...


And now some not so good news. The Census of 2018 was good news for Madison. But I see another agency are advertising for census workers for the upcoming Census: 'Persolkelly'

https://www.persolkelly.co.nz/censusjobs/

Who are 'Persolkelly'? From that website:

"PERSOLKELLY brings together the legacy and experience of four organisations that shaped the staffing landscape over the past century: Kelly Services, who pioneered the modern temporary help industry in 1946; SKILLED, who crafted the staffing industry in Australia in 1964; Programmed, the leading provider of operations and maintenance services across Australia and New Zealand; and PERSOLKELLY, the largest workforce solutions provider in APAC."

So basically an Oz outfit muscling in on a quintessential NZ task. But they have been active in NZ 'in some form' for 14 years.

https://opencorporates.com/companies/nz/2178657

So Madison 'out in the cold' this time, 'contract not renewed'. I wonder if this is a reflection on the job they did last time :-(?

SNOOPY

[winner69]

Everything looks pretty hunky dory at Accordant

More than solid first half

Even the accounts look pretty clean

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AGL/401182/381935.pdf

[Snoopy]

epsdps (imputed)


FY201815.88.2 + 8.0


FY20196.28.2 + 8.0


FY20209.48.2 + 8.0


FY202118.10.0 + 0.0


FY202210.48.2 + 6.5


FY2023?5.6 + ?


Total59.960.7


5 year Average12.1



Note

1/ By coincidence the two latest dividend payouts add up to exactly the five year average dividend payout!

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (12.1c / 0.72) / 0.08 = $2.10

I see the share price was bid up as high as $2.03 at the end of last week, as we come up to the 17th June ex-dividend date for the 5.6c dividend payment due on June 30th. That $2.03 seems a reasonable bid which is still under that 8% gross yield business cycle price. But as time marches on, those higher historical dividends roll off the historical calculation feed, to be replaced by today's lower dividends.

Despite the half year mismatch in my earnings and dividend totals above, it is clear that AGL has in effect paid out 100% of their underlying earnings as dividends over time. So if dividends are to be restored to previous levels, then so must earnings.

New CEO Jason Cherrington is making all the right noises that opportunities are there and profits can rise from the Covid malaise. But making noises and actually doing it are different things. In the meantime I am happy to hold my AGL shares.




epsdps (imputed)


FY2018? + -0.001Not Applicable


FY20196.28.2 + 8.0


FY20209.48.2 + 8.0


FY202118.10.0 + 0.0


FY202210.48.2 + 6.5


FY20236.1 + ?5.6 + 6.5


Total50.259.2


5 year Average11.8



Note

1/ Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (11.8c / 0.72) / 0.08 = $2.05

-------------

Higher historical dividends roll off the historical calculation feed, to be replaced by today's lower dividends. This is why the capitalised dividend valuation of the company has reduced by 5c, despite the more positive outlook. Nevertheless at the closing price of $1.64, the share price is well within the band of keeping Accordant in the 8% yield club.

It has been a turbulent six months for the share price. The support line of $1.60ish was tested a couple of times, and may yet be again. The share price has bounced as high as the mid $1.80s even if most traders were either SHAZ members or bots.
IOW to trade a meaningful sized parcel of shares to take advantage of this share price volatility would be impossible.

Once again cashflow exceeded profit. That was fortunate because the announced half year dividend exceeded profit as well, albeit not by a huge amount (6.5c vs 6.2c). The rest of the excess cashflow went towards reducing debt. Long term debt fell by $3m to $15m. This little game of cashflows exceeding profits is coming to an end though, as the amortisation of various 'restraints on trade' and 'historical customer relationships' created as a result of paying more than net asset value for past business acquisitions fades with time.

Dividends declared I see as a vote of management confidence. So it is historically interesting that the 6.5c interim dividend declared exactly matched the interim dividend declared last year, despite a more positive outlook. The segment analysis showed that revenue is down for the blue collar temp workers (yet again, probably as a result of overseas labour supply constraints) while revenue for white collar temporary workers surged by 20%. Our CEO Jase is telling us "the labour market continues to see unprecedented client demand." I wonder if this is an indication that Accordant is 'near the top' of the earnings curve? So much going forwards rests on how the Blue Collar division recovers from 'the blues'.

AGL has in the past payed out 100% of their underlying earnings as dividends over time. So if dividends are to be restored or even increase above historical high levels, then so must earnings.

Tempering the outlook is the ghostly figure of former CEO Simon Bennett looking for complimentary business acquisitions. And that means 'cash out' from the balance sheet is an imminent threat. That could be why the market received what I thought was quite a positive result in a muted way. From HYR2023

"We have an appetite for acquisition as previously indicated. Whilst it has been complex identifying and progressing with suitable targets in the past couple of years, we have been assessing some interesting and attractive prospects. The opportunity for sustainable growth via acquisition therefore continues to appeal."

I take it the fact that no purchase has been announced is that Bennet is being very careful with his due diligence. Let's hope so!

SNOOPY

[winner69]

Bit of worry FCF each half is on the decline - doesn't seem to tie in with all the positive words

I reckon last 3 half year FCF have been $3,86m then $2,28m and H123 at $2,53

[Snoopy]

Bit of worry FCF each half is on the decline - doesn't seem to tie in with all the positive words

I reckon last 3 half year FCF have been $3,86m then $2,28m and H123 at $2,53


It is true cashflow has been on the decline. But I can't reconcile how you have calculated the figures above Winner. My own assessment of the cashflow deterioration follows.

$1.312m of the cashflow deterioration (September 2021 to September 2022 half year) has come from the fall in government grants. I am guessing that is wage subsidies as part of the Auckland lockdown running up to September 2021. Those wage subsidies were always going to be temporary. So no real issue for me with that.

Interest on bank overdrafts and loans was higher by $0.151m. But $3m of debt was repaid from the end of the full year (albeit with a commensurate fall in cash).

"Interest is calculated on a floating rate and the annual weighted average rate is 3.17% (For FY2022) (2021: 2.21%). The rate is reset every three months." (AR2022 p58).

Actual interest rate payments for the last three half years have been:



HY20222HY2022HY2023


Operational Cashflow$5.432m$5.047m$3.884m


Operational Cashflow decrement-7.09%-23.0%


Cash$4.989m$4.972m$2.517m


less Bank Borrowings($18.000m)($18.000m)($15.000m)


equals Net Borrowings($13.011m)($13.028m)($12.483m)


Net Borrowings Increment/Decrement+0.13%-4.18%


Interest Payments$0.318m$0.353m$0.469m


Interest Payment Increments+11.1%+32.9%



Interest payments were going up faster than debt. But that isn't surprising. Even though the borrowed capital has stabilized, interest rates are going up at a faster rate than the debt is reducing. To put this in context, this eighteen month performance period is covering over a very difficult time in the blue collar labour hire business.

"AWF has continued to be challenging. AWF has the most reliance on a temporary workforce, which has been affected by prolonged worker shortages. Across a number of our talent pools, we rely on both travellers on working holiday visas as well as skilled migrants." (HYR2023 p4)

Changes in the immigration laws announced on 12th December 2022:

https://www.stuff.co.nz/national/politics/130738527/government-changes-immigration-rules-for-nurses-teachers-and-bus-drivers

"...mean truck and bus drivers, motor mechanics gas fitters, drain layers, crane operators, civil machine operators, telecommunications technicians and civil construction supervisors will all get a workplace to residence pathway. Next year Halal slaughterers will be on the same path."

If we allocate a right sized portion of unallocated costs to the AWF business unit over HY2023, it was loss making. Thanks to the opening up of more opportunities to recruit overseas job seekers. the potential for a reset rebound in AWF and hence the entire Accordant business is now apparent. If Accordant have managed to hang on this well -while the supply of job seekers has been so constrained-, just think what they will do as the job market opens up.

As CEO Jason Cherrington so neatly puts it:
"Demand for our services and expertise remains at an all time high."

This then is the case for investment going forward, and why I have been topping up as the share price slipped back below $1.70 recently. I look for an 8% gross yield for my income investments. And at $1.70 the gross yield is closer to 10% on this one.

SNOOPY

[Snoopy]

Tempering the outlook is the ghostly figure of former CEO Simon Bennett looking for complimentary business acquisitions. And that means 'cash out' from the balance sheet is an imminent threat. That could be why the market received what I thought was quite a positive result in a muted way. From HYR2023

"We have an appetite for acquisition as previously indicated. Whilst it has been complex identifying and progressing with suitable targets in the past couple of years, we have been assessing some interesting and attractive prospects. The opportunity for sustainable growth via acquisition therefore continues to appeal."

I take it the fact that no purchase has been announced is that Bennett is being very careful with his due diligence. Let's hope so!


I noticed the AGL share price trending down over the last few days, but was too busy to understand why. I got a shock when I saw the aforementioned 'Bennster Bomb' had struck!

----------------

News Release 24 January 2023

Accordant Group to acquire prominent executive search firm Hobson Leavy

---------------

About Hobson Leavy:
"Hobson Leavy is a retained executive search firm that was founded in 2006 by Carrie Hobson and Stephen Leavy. Hobson Leavy has enjoyed strong and consistent growth and today the business has 14 staff across offices in Auckland and Wellington. Hobson Leavy operates exclusively in the “C” suite: Board Directors, CEOs and Executive team members such as COO, CFO, CIO, CTO positions. With an extensive track record in both the public and private sectors, over the last 17 years Hobson Leavy has built a substantial network of clients and contacts at the most senior levels of New Zealand business and the public sector, successfully leading hundreds of executive searches and appointing some of the country’s most senior leaders at Board, CEO and Executive level."

-------------

"The acquisition was funded from existing debt facilities and is expected to grow annual EBITDA in excess of $2m."

Over FY2020 (the last year mostly unaffected by Covid-19) EBITDA was $5.891m. So a forecast $2m EBITDA boost to that underlying figure is quite significant. Nevertheless we aren't told the purchase price, and so can't work out the ongoing interest burden that this acquisition incurs.

"Hobson Leavy’s strong identity and operational leadership will remain which is consistent with Accordant’s previous acquisition strategies. Founders Carrie Hobson and Stephen Leavy will continue to lead the business and are excited to continue delivering the same quality of service they are renowned for with the opportunity to utilise new access to the Group’s infrastructure, broader network, and additional offerings."

I am glad that Carrie and Stephen have agreed to stay with the business, and that they remain 'excited' at work. I guess this acquisition paves a way for the Hobson Leavy founders to eventually retire. But in the meantime their excitement is bound to go sky high on 31st January with that Accordant money for purchasing their business hitting their bank accounts!

SNOOPY

[Snoopy]

News Release 24 January 2023

Accordant Group to acquire prominent executive search firm Hobson Leavy


"The acquisition was funded from existing debt facilities and is expected to grow annual EBITDA in excess of $2m."

Over FY2020 (the last year mostly unaffected by Covid-19) EBITDA was $5.891m. So a forecast $2m EBITDA boost to that underlying figure is quite significant. Nevertheless we aren't told the purchase price, and so can't work out the ongoing interest burden that this acquisition incurs.


Thinking about this acquisition a bit more, I have decided I can make a good educated guess at the acquisition price, and the downstream consequences of that. All will be revealed in AR2023, but that is still a few months away, and I want answers now.

If we roll back to FY2019, here is what Accordant said about acquiring their other senior executive recruitment business 'Jackson Stone' in their May 19 2019 update. Jackson Stone serves a very similar market to Hobson Leavy, - albeit skewed towards more governmental and non-profit clients:

"JacksonStone has successfully recruited CEO and C-suite roles for large numbers of central and local government organizations along with high profile corporate and not-for-profit clients. The breadth of service includes executive search, recruitment and top-level contracting assignments."

"Normalised EBITDA for the year ending 31 March 19 in excess of $3.0 million."

The total purchase price for Jackson Stone, less any cash and cash equivalents acquired was (AR2020 p68):

$10.520m - $1.547m = $8.973m

If we guess that Hobson Leavy purchase was made on the same EBITDA multiple, this suggests a purchase price for Hobson Leavy of:

$8.973m x ($2m/$3m) = $5.982m

Let's call that $6m (round figures). On the last full year reporting date, the average floating annual interest rate charged by the bank was 3.17% (AR2022 p56). I reckon going forwards Accordant is likely to be paying nearer 8%. So the annual interest charge on this purchase (all borrowed money remember) will be: $6m x 0.08 = $0.480m

Acquisitions such as this, where the purchase price exceeds the NTA are generally balanced in accounting terms by introducing 'customer relationship' or 'restraint of trade' assets that are subsequently depreciated or amortised. This affects the profit of the Accordant business going forwards, but not the cashflow. Customer relationships and restraint of trade assets on the acquisition of JacksonStone totalled $2.185m + $1.406m = $3.591m (AR2020 p47). If we apportion that to EBITDA profitability, the equivalent figure for Hobson Leavy would be: 2/3 x $3.591m = $2.4m. Apportioned over 5 years, that works out to $0.48m per year.

Lease Liabilities (eventually an interest cost under IFRS16) totalled $0.905m on the acquisition of Jackson Stone. So using my 2/3 scaling factor, I am guessing these were around $0.600m at Hobson Leavy. Assuming a 2 year lease contract (weighted average), this amounts to $0.3m per year to be written off as interest.

Finally we now have an estimate of the annual incremental NPAT from the Hobson Leavy acquisition:

NPAT = (1-T) x (EBITDA - I -DA)
=(1-0.28) x ($2m - $0.48m -$0.48m -$0.3m) = $0.523m

I was a bit worried when Accordant did not announce their new acquisition was 'eps' accretive. But my back of the envelope calculation shows that it probably is.

SNOOPY

[Snoopy]

Thanks to the opening up of more opportunities to recruit overseas job seekers. the potential for a reset rebound in AWF and hence the entire Accordant business is now apparent. If Accordant have managed to hang on this well -while the supply of job seekers has been so constrained-, just think what they will do as the job market opens up.

As CEO Jason Cherrington so neatly puts it:
"Demand for our services and expertise remains at an all time high."

This then is the case for investment going forward, and why I have been topping up as the share price slipped back below $1.70 recently. I look for an 8% gross yield for my income investments. And at $1.70 the gross yield is closer to 10% on this one.


We have had a hiccup in terms of a business acquisition, But for those who have not 'seen through' my posts 1011 and 1012, I have been topping up my Accordant shareholding at $1.65 over the last few days. The story remains the same as last time I topped up. But the uncertainty of what was to be acquired has gone.

The loan facility negotiated with the ASB Bank was $30m at last balance date of which $18m had been drawn (AR2022 p56) That means a $6m acquisition of Hobson Leavy was well within present banking arrangement ceilings. As a result I am not expecting a cash issue soon to pay down debt, particularly as the earnings capability of AWF business unit in particular looks set to rebound.

This is one of the few investments that I hold that is 'underwater' (actually the only one on the NZX). At least my average holding price is now under that magic $2 price, now sitting at $1.97 - Yay! But the lack of liquidity has certainly made accumulation at the right price an exercise in patience. That same lack of liquidity also means I can't sell out if my mood changes. But then again with a gross yield of over 8%, why would I want to?

SNOOPY

[nztx]

We have had a hiccup in terms of a business acquisition, But for those who have not 'seen through' my posts 1011 and 1012, I have been topping up my Accordant shareholding at $1.65 over the last few days. The story remains the same as last time I topped up. But the uncertainty of what was to be acquired has gone.

The loan facility negotiated with the ASB Bank was $30m at last balance date of which $18m had been drawn (AR2022 p56) That means a $6m acquisition of Hobson Leavy is well within present banking arrangement ceilings. As a result I am not expecting a cash issue soon to pay down debt, particularly as the earnings capability of AWF business unit in particular looks set to rebound.

This is one of the few investments that I hold that is 'underwater' (actually the only one on the NZX). At least my average holding price is now under that magic $2 price, now sitting at $1.97 - Yay! But the lack of liquidity has certainly made accumulation at the right price an exercise in patience. That same lack of liquidity also means I can't sell out if my mood changes. But then again with a gross yield of over 8%, why would I want to?

SNOOPY


Still a bit expensive for my liking Snoopy .. think I will let you fill your boots at these levels :)

Your words of a further acquisition, and usual pattern of debt and invisible intangibles that usually flow on
with that sort of conduct all make me nervous on this one ;)

[Snoopy]

Still a bit expensive for my liking Snoopy .. think I will let you fill your boots at these levels :)


I am working on normalised historical NPAT earnings for FY2022 of: $2.999m + 0.72($0.845m) - $0.024m = $3.583m

That takes out the effect of the final earn out payment for acquisition JacksonStone and some PPE sales.

$3.583m / 34.325m = 10.4cps

At a share price of $1.65 that means AGL is trading on an historical PER of 165/10.4 = 15.9

However the first half result for FY2023 is already in at $2.094m, up 37% on FY2022.. Last year the underlying second half profit was greater than the first (just over $2m). So I think a full year profit of at least $4.1m is already baked in, and in 2024 we add to that the acquisition benefits of Hobson Leavy. of $0.5m. So if FY2024 profit is $4.6m, or $4.6m/34.325m = 13.4cps, that means we are looking at a forward PER of 165/13.4= 12.3. That doesn't look so demanding and is assuming no synergies between Hobson Leavy and the other Accordant divisions. Throw in a bit of that amortising cashflow and the historical average dividend rate of 11.8cps (post 1008) looks not only sustainable but beatable. Actual dividends last year were 5.6cps + 6.5cps = 12.1cps. I think the apparent high PER that Accordant trades at today is because it is coming out of the bottom of the earnings cycle.



Your words of a further acquisition, and usual pattern of debt and invisible intangibles that usually flow on
with that sort of conduct all make me nervous on this one ;)


Just to be clear the 'further acquisition' was Hobson Leavy. I would not be expecting another acquisition on top of that soon. Debt looks under control and those 'invisible intangibles' is what gives this company cashflow ahead of profit. Nothing to be worried about in my view but YMMV and obviously does.

I am sticking to my 'no growth' business cycle valuation of $2.05,(post 1008), with an expected business cycle share price fluctuation of 20% around that figure ($1.64 to $2.46). That means at a market price of $1.65 today we are currently 19.5% below 'fair value' and I am being paid 8% gross while I wait for the share price to recover to $2.05. That means $1.65 was at an attractive share price for me to do some portfolio re-balancing.

SNOOPY

[Snoopy]

I am working on normalised historical NPAT earnings for FY2022 of: $2.999m + 0.72($0.845m) - $0.024m = $3.583m

That takes out the effect of the final earn out payment for acquisition JacksonStone and some PPE sales.

$3.583m / 34.325m = 10.4cps

At a share price of $1.65 that means AGL is trading on an historical PER of 165/10.4 = 15.9

However the first half result for FY2023 is already in at $2.094m, up 37% on FY2022.. Last year the underlying second half profit was greater than the first (just over $2m). So I think a full year profit of at least $4.1m is already baked in.


I got this wrong - ouch! Annual profit for the year was $1.977m, which means a loss over the second half. Yet they are still paying a final dividend, albeit reduced. So what were their excuses?
"This year’s result includes the cost of the additional statutory holiday (Monday 26 September 2022) to commemorate the life and passing of Queen Elizabeth II,"

Blaming the dear departed queen seems a bit of a low blow.

"in addition to high claim costs incurred by AWF associated with work related injuries incurred in prior years. AWF participates in the ACC Partnership Discount Plan. Under this plan AWF Limited, as the employer, undertakes injury management and accepts financial responsibility for employees who incur work-related injuries. The high claim costs incurred in FY23 are associated with the ACC Full Self Cover plan, which AWF exited as at 31 March 2021. Under the ACC Full Self Cover plan AWF undertakes injury management for claims registered to 31 March 2021 for a 48-month term through until 31 March 2025, with financial liability for the life of the claim. In order to de-risk the business, AWF changed to the Partnership Discount Plan with 12 months’ claims management post-year end, with financial liability terminating at the conclusion of the claims management period."

Section F2 in the financial report contains the quantification of this. The way the figures are presented makes it a little difficult to see what the effect on profit was. Rehabilitation costs are set out as a provision. The provision at the end of FY2022 was $0.400m and the provision at the end of FY2023 was $582m. But that was after $0.653m in costs were paid out during the year. So to balance the provision pot, the amount of money put into it during the year must have been: ($0.582m-$0.400m+$0.653m)= $0.835m.

Nevertheless, it would not be expected that annual medical costs in a normal year would be zero. If I look at the previous five years the actual medical payments out were $0.223m (FY2022), $0.344m (FY2021), $0.152m (FY2020), $0.272m (FY2019) and $0.152m (FY2018). I make that a five year average of $0.229m. So maybe the 'abnormal' adjustment for the year should be more realistically thought of as: $0.835m-$0.229m=$0.606m.

There were also business acquisition expenses relating to Hobson Leavy incurred during the year of $0.379m, and a $0.109m impairment of 'right of use' AWF assets (a lease ended early?). Finally there was $44k of gain booked from property plant and equipment sales.

Adjust for those unusual transactions back onto the declared profit. For the normalised profit I get:
= $1.977m + 0.72($0.606m+$0.379m+$0.109m)-$0.044m = $2.721m

That makes the profit is closer to the adjusted profit of $3.583m from the previous year. Blame the queen for dying like that for the difference. What was she thinking? If we had been a republic and it was President John Key that had died, this 'royal loss' would never have happened.

SNOOPY

[Snoopy]

epsdps (imputed)


FY2018? + -0.001Not Applicable


FY20196.28.2 + 8.0


FY20209.48.2 + 8.0


FY202118.10.0 + 0.0


FY202210.48.2 + 6.5


FY20236.1 + ?5.6 + 6.5


Total50.259.2


5 year Average11.8



Note

1/ Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (11.8c / 0.72) / 0.08 = $2.05

-------------

Higher historical dividends roll off the historical calculation feed, to be replaced by today's lower dividends. This is why the capitalised dividend valuation of the company has reduced by 5c, despite the more positive outlook. Nevertheless at the closing price of $1.64, the share price is well within the band of keeping Accordant in the 8% yield club.

It has been a turbulent six months for the share price. The support line of $1.60ish was tested a couple of times, and may yet be again. The share price has bounced as high as the mid $1.80s even if most traders were either SHAZ members or bots.
IOW to trade a meaningful sized parcel of shares to take advantage of this share price volatility would be impossible.

Once again cashflow exceeded profit. That was fortunate because the announced half year dividend exceeded profit as well, albeit not by a huge amount (6.5c vs 6.2c). The rest of the excess cashflow went towards reducing debt. Long term debt fell by $3m to $15m. This little game of cashflows exceeding profits is coming to an end though, as the amortisation of various 'restraints on trade' and 'historical customer relationships' created as a result of paying more than net asset value for past business acquisitions fades with time.

Dividends declared I see as a vote of management confidence. So it is historically interesting that the 6.5c interim dividend declared exactly matched the interim dividend declared last year, despite a more positive outlook. The segment analysis showed that revenue is down for the blue collar temp workers (yet again, probably as a result of overseas labour supply constraints) while revenue for white collar temporary workers surged by 20%. Our CEO Jase is telling us "the labour market continues to see unprecedented client demand." I wonder if this is an indication that Accordant is 'near the top' of the earnings curve? So much going forwards rests on how the Blue Collar division recovers from 'the blues'.

AGL has in the past payed out 100% of their underlying earnings as dividends over time. So if dividends are to be restored or even increase above historical high levels, then so must earnings.

Tempering the outlook is the ghostly figure of former CEO Simon Bennett looking for complimentary business acquisitions. And that means 'cash out' from the balance sheet is an imminent threat. That could be why the market received what I thought was quite a positive result in a muted way. From HYR2023

"We have an appetite for acquisition as previously indicated. Whilst it has been complex identifying and progressing with suitable targets in the past couple of years, we have been assessing some interesting and attractive prospects. The opportunity for sustainable growth via acquisition therefore continues to appeal."

I take it the fact that no purchase has been announced is that Bennet is being very careful with his due diligence. Let's hope so!





epsdps (imputed)


FY20196.28.2 + 8.0


FY20209.48.2 + 8.0


FY202118.10.0 + 0.0


FY202210.48.2 + 6.5


FY20239.65.6 + 6.5


FY2024?3.0 + ?


Total53.754.0


5 year Average10.8



Note

1/ Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (10.8c / 0.72) / 0.08 = $1.875

-------------

Higher historical dividends roll off the historical calculation feed, to be replaced by today's lower dividends. This is why the capitalised dividend valuation of the company has reduced by 17.5c from six months ago. The closing price of $1.70 today is a chart resistance point. With a shortage of job applicants in AbsoluteIT and AWF, I don't see the shares going much higher until members of that 'Double A' team shows signs of life.

The shares closed today at $1.70 and even with the slashed final dividend, the share price is still flirting in that band of keeping Accordant in the 8% yield club (actual historical gross yield 7.8%).

The share price was largely sinking for six months to date, but recovered sharply just before results day . The support line kissed $1.50 a couple of times. But that looked like Shaz trading on near zero volume, so not really real.

Cashflow from operating activities ($4.715m, 13.7cps) exceeded adjusted profit ($3.297m, 9.6cps), even if it was only the cashflow that exceeded the dividend paid during the financial year twelve months totalling 12.1cps.

Long term debt has blown out from $15m at the half year to $23.5m today But $5.87m of that is the cash paid out for acquisition Hobson Leavy. Add in the $0.835m to sort out the ACC medical account balance and you have most of the explanation.

The little game of cashflows exceeding profits has been extended with the purchase of Hobson Leavy. This purchase has fed the 'historical customer relationships' intangible asset pot to the tune of $1.072m. Amortisation of this balance will produce future cashflow ahead of earnings to the tune of a few hundred thousand dollars a year at least.

AGL has in the past paid out 100% of their underlying earnings as dividends over time. So if dividends are to be restored or even increase above historical high levels, then so must earnings.

SNOOPY

discl: holding

[Snoopy]

CEO Jason Cherrington is taking advantage of that buying window insiders have following a results announcement.

https://stocknessmonster.com/announcements/agl.nzx-413208/

For that relevant interest-
Number held in class before acquisition or disposal: 16,214
Number held in class after acquisition or disposal: 71,345
Current registered holder(s):
Registered holder(s) once transfers are registered: J Cherrington

$79,839.06 paid 55,131 shares acquired. Price paid per share, $1.45!

SNOOPY

[winner69]

Jeez, just noticed AGL share price down to $1.33

If you block out covid times about the same price as 2011

What’s up Snoopy ….they going broke or something

That Jason probably wishing he didn’t buy more a few weeks ago

[Snoopy]

Jeez, just noticed AGL share price down to $1.33

If you block out covid times about the same price as 2011

What’s up Snoopy ….they going broke or something

That Jason probably wishing he didn’t buy more a few weeks ago



No, not going broke Winner. There are a couple of short term headwinds I can see though. We have the 'software drain' caused by Australian government subsidies making software development more lucrative in Australia , and cutting the candidates able to be placed in NZ by subsidiary AbsoluteIT.

Accordant have also been gearing up for the maoriisation placement side of co-governance. That might take a hit with a National/ACT government. On top of that there are slowing job adverts generally, no doubt being affected by the Reserve bank interest rate policy.

The main recent historical drag on profits has been the shutting off of the overseas worker supply at blue collar recruiter 'Allied Workforce'. That restriction is now gone, but maybe there will not be a resilience of demand bounce back for fruit pickers in some areas like Hawkes Bay?

This has been by far the worst performer in my portfolio of late , wiping out all my SCT gains during the year. :( . Swings and roundabouts I guess. Accordant was my last NZX share parcel purchase (SCT was just before that , and I intend to buy more Accordant. However I have a new self imposed investment rule where I am not allowed to purchase two parcels of shares in the same company twice in a row. So I am looking for something else to buy first. And all the rest of my portfolio is looking fully (although not over) priced :(

SNOOPY

[winner69]

Snoopy ….if you haven’t already it seems you should break your rules and buy AGL twice in a row

When it was nearly 2 bucks not that long ago I didn’t expect it to go down to 117

Downtrend seems relentless

And labour market booming still

[Snoopy]

Snoopy ….if you haven’t already it seems you should break your rules and buy AGL twice in a row

When it was nearly 2 bucks not that long ago I didn’t expect it to go down to 117

Downtrend seems relentless

And labour market booming still


No I can't break my rules Winner. Looking really hard for something else to buy, but nothing yet quite ticks the value box. AGM later this month on the 21st for Accordant. 'Our Jase' will be able to enter the market again and top up his CEO shareholding at that point. We might even get some positive news.

Meanwhile I have decided to side with you guys and vote against the pay rise of that greedy Todd Turner's board. I mean +40%? What were they thinking? Maybe we could make a counter offer of paying for Toyota Prius uber rides to monthly board meetings or something? Mind you, I could be open to bribery.

What about if we shareholders press for free track day at Hampton Downs with director Grant Baker's collection of Ferraris? Would you be a starter for that? We might even send Grant Baker to Italy for the weekend to stop him worrying about his cars. Suddenly that 40% pay rise for Turners board members is sounding surprisingly reasonable......

SNOOPY

[winner69]

Saw AGL top of NZX leaderboard this morning

Hadn’t realised share price had gone as low as $1.13

[silverblizzard888]

CEO Jason Cherrington is relentless in his buying of the company's stock. Hes done a lot of buying since June, business must be good. Expecting a good interim report with that enthusiasm.

2022
4/11/22 bought 7083 shares at $1.80 each (total owned 7,083)
18/11/22 bought 7917 shares at $1.80 each (total owned 15,000)
22/11/22 bought 1214 shares at $1.80 each (total owned 16,214)
2023
13/6/23 bought 55,131 shares at $1.448 each (total owned 71,345)
12/9/23 bought 24,940 shares at $1.16 each (total owned 96,285)
13-15/9/23 bought 3,774 shares at $1.21 each (total owned 100,059)
26/9/23 bought 4000 shares at $1.165 each (total owned 104,059)

[winner69]

Recruitment outfits in Oz going broke

If happened in NZ probably good for Accordant …less opposition / possible cheap acquisitions?

https://www.smh.com.au/business/the-economy/recruitment-labour-hire-companies-collapse-amid-worker-reluctance-to-swap-jobs-20231006-p5ea8q.html

[Snoopy]

Recruitment outfits in Oz going broke

If happened in NZ probably good for Accordant …less opposition / possible cheap acquisitions?

https://www.smh.com.au/business/the-economy/recruitment-labour-hire-companies-collapse-amid-worker-reluctance-to-swap-jobs-20231006-p5ea8q.html


A quick review on those Oz job agencies that have run into trouble:
1/ 'The Nudge Group' https://thenudgegroup.com/:
"Designed to work with start-ups, scale-ups and accelerated growth businesses, The Nudge Group is a disruptive force within the recruitment industry, offering a system known as “the nudge experience.” "
I can see why 'scale ups' and 'accelerated growth opportunities' might be on the back burner in the current economic climate. Unemployment in Australia is still low at 3.7%, so that is not a a good climate for employees who are let go to reinvent themselves as a start up.

2/ 'Digital Gurus Recruitment' https://www.digitalgurus.online/
"Digital Gurus is a fast-growing, award-winning branch of The ReThink Group, a provider of resourcing solutions and recruitment to the IT industry. Excelling in the business and technology sectors across the UK and Dubai, Digital Gurus, which was formed in 2005 as ReThink Recruitment, was named best IT recruitment agency in 2007 and has continued to grow since then. The 150 staff are all shareholders in the company, which motivates them to provide the most professional and effective service to clients and candidates possible."

The above surprised me as I thought that computer software was a real growth area in Australia supported by tax breaks. However, I know that an agency cannot create more high tech job candidates quickly, and many agencies chasing the same people may not end well:
"National insolvency firm Mackay Goodwin director Grahame Ward, who is the administrator for Digital Gurus, said times were challenging for recruiters amid fierce competition for new candidates." (Snoopy comment: It is also possible that changes in the Digital Gurus UK market office may have affected the outlook).

As far as Accordant is concerned, they have been having 'lack of job candidate' issues with their 'AbsoluteIT' subsidiary. But that is well known and publicised.

3/ The SMH article then talks about 'multiple labour hire businesses' getting into trouble and quotes Grahame Ward again who says
“Some industries such as logistics, construction, childcare, and nursing appear to be struggling now to attract local candidates.”

Medical job recruitment is the one area where Accordant do not have a presence.

Further from the SMH article:
'The federal government’s changes to visas have made it easier for migrants to fill in-demand roles and plug skills shortages."

Accordant does recruit from overseas countries. So I don;t see the above comment applying to them.

The SMH article again:
“The high share of blue-collar workers in the construction industry means the blue-collar workforce will likely bear the brunt of the labour market slowdown."
"Duet Recruitment, ARI Recruitment, Collar Up Recruitment, GRB 365 Recruitment and PG Labour Services, have called in administrators as their work dries up."

Accordant's AWF blue collar division is certainly in the doldrums. But a lot of their workforce are farm workers, and it looks like summer fruit in NZ will be due for a good season.

From what I can tell none of those agencies listed as going into receivership have a presence in New Zealand. The article does highlight headwinds that are affecting Accordant in NZ that we already know about. But repeating information that we already know shouldn't have any decremental effect on the AGL share price going forwards.

SNOOPY

[silverblizzard888]

According to Xero theres some decent job growth numbers, should bode well for AGL.

"Despite weak sales, jobs growth remained strong - rising 7 percent year-on-year - while wages increased 3.5 percent."

https://www.rnz.co.nz/news/business/501003/jobs-growth-within-small-businesses-despite-tightening-of-the-belts-xero

[winner69]

Going to be a year of two halves …..best to come they say after making just over $1m in first half

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AGL/420653/405987.pdf

[percy]

Going to be a year of two halves …..best to come they say after making just over $1m in first half

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AGL/420653/405987.pdf

I have my doubts.

[winner69]

I have my doubts.

Surprised how upbeat they are …. but all those immigrants and the new government will see through

[percy]

Surprised how upbeat they are …. but all those immigrants and the new government will see through

10 years ago their share price was $2.82.Today $1.10.
Going to have to be a "gangbuster" second half for me to change my view of them.Currently I see them as a serial non-performer.

[winner69]

10 years ago their share price was $2.82.Today $1.10.
Going to have to be a "gangbuster" second half for me to change my view of them.Currently I see them as a serial non-performer.

Hasn’t been under a buck since 2010 so not too bad lol

Getting close again eh

[winner69]

Probably under 100 by end of week

Been downhill slide last results

But 100 a nice round number so might hold

Long wait until next update from company …..probably Feb next year

[winner69]

There we are …sub $1 intraday

Might close above $1

You buying Snoops

[silverblizzard888]

Too much selling pressure, heading towards low 90s.

[Snoopy]

There we are …sub $1 intraday

Might close above $1

You buying Snoops


AGL was the last parcel of shares that I bought 'on market' Winner. Heck that was back in February and I paid $1.65! My share purchasing rule is I am not allowed to buy more AGL until I buy something else first. The purpose of my rule is to stop the 'tunnel vision' effect that occurs when 'you just know you must be right'. only to be upset by what you don't know. I have run my investment ruler over SCT, SKL and PGW. I have investment price targets for those three that Mr Market has not given me yet. I have been eyeing up a first investment for me in the property sector big eight. Again the price and risk factors are not quite lining up. It is all a bit frustrating. Lots of shares 'on sale' from this time last year. But nothing that is ticking the value acquisition box yet. Which just goes to show that a share going down in price doesn't necessarily make it cheap.



Too much selling pressure, heading towards low 90s.


585 shares traded today so far in seven lots? Could be a kid at Sharsies cashing up to buy some some Christmas presents!

SNOOPY

[silverblizzard888]

585 shares traded today so far in seven lots? Could be a kid at Sharsies cashing up to buy some some Christmas presents!

SNOOPY

Its more the sell orders amounting to over 35,000 shares for sale at $1 or less that are desperate to get out at that price level. Given the volume that trades daily, thats quite a large amount with no ready buyers to support the sell off, the price will continue to fall. Either represents an opportunity to buy more at a good price or a dangerous falling knife.

[nztx]

12 month graph is pretty impressive - a nice downwards ski slope

50c or 60c might be worthwhile for a further look in (about the level of the negative NTA)

[Snoopy]

Its more the sell orders amounting to over 35,000 shares for sale at $1 or less that are desperate to get out at that price level. Given the volume that trades daily, thats quite a large amount with no ready buyers to support the sell off, the price will continue to fall. Either represents an opportunity to buy more at a good price or a dangerous falling knife.

I don't have ready computer access to market depth, so I wasn't aware of so many shares being for sale at under a buck. Thanks for that. We are talking $35k of shares here (or a bit less). In capital market terms this is not big money, even for the NZX. But if there is virtually no-one on the buy side you are right. The share price will only go one way



12 month graph is pretty impressive - a nice downwards ski slope

50c or 60c might be worthwhile for a further look in (about the level of the negative NTA)


This business is not about NTA. It is about cashflow. If you acquire other job agency businesses based on their 'business connections' (which is the way AGL has been expanding their white collar offering), then you end up swapping cash for 'nothing tangible'. If you then keep paying good dividends from your cashflow, then this is how you can end up with a negative tangible assets on the balance sheet. AGL could stop paying dividends to increase their net tangible assets at any time. But that would not increase their attractiveness as an investment, for this dividend hound at least.

I do know that AGL have been making good money on the Maorisation of of corporate governance, which includes Maori tribal appointments to regional councils and to governance structures for 3 waters , or 10 waters or whatever it became. I imagine that the coming 'Luxonsiation' of this process may affect future returns in this business domain.

SNOOPY

[silverblizzard888]

I don't have ready computer access to market depth, so I wasn't aware of so many shares being for sale at under a buck. Thanks for that. We are talking $35k of shares here (or a bit less). In capital market terms this is not big money, even for the NZX. But if there is virtually no-one on the buy side you are right. The share price will only go one way

Share depth showing 14,000 shares at 90 cents or less. Todays drop to 90 cents from 97 cents was on 3,807 shares being sold, so can't underestimate the impact of small volume sell offs.

[nztx]

I don't have ready computer access to market depth, so I wasn't aware of so many shares being for sale at under a buck. Thanks for that. We are talking $35k of shares here (or a bit less). In capital market terms this is not big money, even for the NZX. But if there is virtually no-one on the buy side you are right. The share price will only go one way



This business is not about NTA. It is about cashflow. If you acquire other job agency businesses based on their 'business connections' (which is the way AGL has been expanding their white collar offering), then you end up swapping cash for 'nothing tangible'. If you then keep paying good dividends from your cashflow, then this is how you can end up with a negative tangible assets on the balance sheet. AGL could stop paying dividends to increase their net tangible assets at any time. But that would not increase their attractiveness as an investment, for this dividend hound at least.

I do know that AGL have been making good money on the Maorisation of of corporate governance, which includes Maori tribal appointments to regional councils and to governance structures for 3 waters , or 10 waters or whatever it became. I imagine that the coming 'Luxonsiation' of this process may affect future returns in this business domain.

SNOOPY


Thanks Snoopy - so another one with a similar MO to MFB

The recent Div pattern in higher deposit rate times wont be helping

With possibly a reset on where future Biz is or isn't in the turbulence, current Div (a fraction of a year or two back) coming under potential further pressure in the downdrafts, might be inspiring market nerves

The 6.0c & 8.0 cps dividend shots were nice while the party rocked along with music blasting .. :)

[Snoopy]

Thanks Snoopy - so another one with a similar MO to MFB

The recent Div pattern in higher deposit rate times wont be helping

With possibly a reset on where future Biz is or isn't in the turbulence, current Div (a fraction of a year or two back) coming under potential further pressure in the downdrafts, might be inspiring market nerves

The 6.0c & 8.0 cps dividend shots were nice while the party rocked along with music blasting .. :)


I wouldn't draw a parallel with MFB, which rode high on the Covid-19 wave.

What used to be the heart of the Accordant business, the AWF blue collar recruitment arm, which brought in seasonal workers from overseas, was severely impacted by Covid-19. That division should be starting to get back on track now. In more recent times much of the white collar recruitment has been on 'pause' until the full effect and objectives of a pending change in government became clearer. With that uncertainty removed, such 'pending hires' can now proceed.

What I expect in the next reporting period for Accordant is that some parts of the business will be up, while others will be down. Accordant does not do well in severe recessions (the figurative economic winter) . But neither does it do well when the economy is performing strongly and more recruitment is done by companies directly (the figurative economic summer). Accordant actually performs best in the economic spring and autumn, where opportunities are nuanced. That time is right now.

SNOOPY

[winner69]

Wonder what materially lower than $2m means ….maybe code for a LOSS

From the update …Resulting revenues are down 9% year to date, with net profit predicted to be materially lower than the $2.0 million reported for the prior year.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AGL/427364/414170.pdf

[winner69]

Still pretty upbeat about the future ….that’s good so no worries

[Nor]

So .... are we going to get a divy?
Or on a more serious note, is it a good bet going forward? Actually 'going forward' always amuses me because we can't go backwards, well not in time anyway.

[nztx]

Last year 2023 (from 31 Mar 2023 Annual Report )

T/over $227.4 M

NPAT $ 2.0 M


Rip out 9% on the Revenue in 2023 = $20.50 M in revenue shaved off


Now how much of that Revenue / Surplus is variable - that is clipping the ticket on hours etc ?


---


Half year Report released 6 months 30 Sep 2023

T/over $ 112.1 M

NPAT $ 1.164 M


EPS 3.4 cps

DPS 3.0 cps



Int Div paid 27.10.23 3.0 cps + Imp credits




The Sep 2023 Accounts had Retained Earnings / Reserves at just aggregate $3.944 M

$1.014 M of that shot out the door in the Oct 2023 3.0 cps Div.


On a vast Revenue dive & presumably similar lighter earnings in turbulent times - is it prudent
to pay a Div or will what has been paid in Oct 2023 Interim be the sum total for 2024 year ?


Snoops is the Expert on these guys, but from what I'm seeing it looks pretty
fine if not ominous message of possible Dividend now Goneburger


SP close today $ 0.85 - may suggest the market is saying Div gone in that ..

[jg8512]

So .... are we going to get a divy?
Or on a more serious note, is it a good bet going forward? Actually 'going forward' always amuses me because we can't go backwards, well not in time anyway.

at interims they had $24.5m of LT debt (and current assets only match current liabs), I don't think they should be paying a dividend.

they've had too much debt for too long (why I sold) now I fear they might be punished as a result

[Snoopy]

Wonder what materially lower than $2m means ….maybe code for a LOSS

From the update …Resulting revenues are down 9% year to date, with net profit predicted to be materially lower than the $2.0 million reported for the prior year.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AGL/427364/414170.pdf


I have just been looking at the Madison goodwill on the books. It totals $13.223m. This was easily justified in AR2022 with five years of expected sales growth at 1.5% per year, coupled with modelled terminal sales growth of 1.5% carrying on after that. Sales expectations were up at Madison looking forward to FY2023 . That 'Madison goodwill' continued to 'look good' based on 2.5% sales growth over 5 years coupled with a modelled terminal sales growth of 2.5% after that. Actual sales numbers are buried within the wider 'white collar' job segment. But what is the betting that management were evaluating a five year 3.5% p.a. growth plan with a terminal 3.5% p.a. annual growth expectation after that for the FY2024 annual result, before the auditors double checking that goodwill cried 'enough'?

From the link above:
"Whilst Madison have experienced the same decline in government contracting, the more widespread slowdown in temporary and permanent entry level and support roles has driven a 20% drop in revenues and we therefore expect to review the carrying goodwill value for the business unit as of 31st March 2024."

A 20% drop in revenue and the accompanying profit fall following on from already distressed white collar segment profit levels (segment profits fell over the white collar divisions over FY2023, see AR2023 p39, even without allowing for any accretive profit from the Hobson Leavy acquisition AR2023 p75)), is huge.

It is hard to assess exactly what has gone so wrong at Madisons. It has been all downhill since they lost (did not win) the last census contract, while hiring more recruitment agents in anticipation of more such work. We have had the guardian angel and founder of Madison's, Wynnis. retire from the board during FY2023. Granted she hasn't been in the day to day running of Madisons for a long time. But it does seem a lot of these acquired agencies are founded by 'larger than life personalities'. With Wynnis gone, for those running Madisons now it is 'just a job': Wynnis replaced by a 'Lose-ys' at the top of the tree at Madison.

Do Accordant 'bite the bullet' and write of all $13.225m of that Madison goodwill? Sack 'Lose-ys' and try to make a fresh start at Madison? If last years total group profit was a declared $2m, and this years is looking to be well down on that figure, then a goodwill write off (even if only partial), must swamp remaining operational profits (if any) to create a significant headline loss for the year. Thankfully most of that loss will be 'non-cash' though. That Madison acquisition well predates CEO Jason Cherrington coming on board at Accordant. If I were Jase, I would be looking to put any further 'shadow from Madison' going forwards to bed. So a significant declared loss predicted for the Accordant group over FY2024, I think, is a given. But even if Accordant canned the final 3cps dividend, that would only save $1.085m - room for hope for another divvie payment?

Looking at IR2024 p62, the revolving credit facility was reduced to $23m (down from $30m), and a 'trade finance facility' of $15m replaced an overdraft facility of $8m. So overall finance facilities available stayed steady, although I can't see Accordant paying a dividend out of their 'trade finance facility'. The revolving credit used at half year was $18m, say $19m now following the subsequent payment of the interim dividend. So I think there is still room for a 3cps dividend here. But that last sentence on the referenced Accordant profit update is ominous:
"We are planning to further expand our offerings in FY25 to meet long term demand in additional growth markets."

So Accordant still keen on buying more complimentary job agencies? No spare cash for shareholders this time around, because 'we can spend our earnings better than you shareholders can' (and 'more debt would be good'?) Perhaps the great acquisitor, ex-CEO Simon Bennett - now a hired hand specializing in acquisitions - needs to go, and let new CEO 'our Jase' sort out some of the messes that have been accumulating first?

SNOOPY

[nztx]

at interims they had $24.5m of LT debt (and current assets only match current liabs), I don't think they should be paying a dividend.

they've had too much debt for too long (why I sold) now I fear they might be punished as a result



No Div, a Cap Raise perhaps on back of large Loss needing good clean up ? ;)

Only 33 M shares on issue - but is this outfit still worth 80 - 85cps ?

Time for a Management Buyout / privatisation to get it out of the Spotlight or not ?

Peaking over $2 in May 2022 - it's been mostly downhill since then..

[winner69]

For those that are interested

[quote]quote:
NZXR
09/06/2005
GENERAL

REL: 1130 HRS New Zealand Exchange Limited

GENERAL: NZXR: Allied Work Force IPO to raise $11.4 million

Allied Work Force IPO to raise $11.4 million

Specialist labour hire firm Allied Work Force Group Limited today announced
that it plans to list on the NZSX and raise $11.4 million in an initial
public offering of ordinary shares.

The share offer opens on June 13 and the company expects that its shares will
be listed on July 6. ABN AMRO Craigs are lead managers of the offer.

Founded 17 years ago by its managing director and major shareholder Simon
Hull, Allied operates nationally and is New Zealand's largest specialist blue
collar labour hire company. It provides on-demand labour across an industrial
spectrum that includes firms operating in the distribution, manufacturing,
processing, infrastructure and construction industries.

Simon Hull says the company has a 'crew' of around 8000 skilled and
semi-skilled workers who are available to be placed in some 6000 client
businesses.

In the year to March 31, 2006, the company is projecting a net profit after
tax (pre goodwill amortisation) of $3.1 million on revenue of $74.2m. Based
on the offer price of $1.50 per share the company will list with a market
capitalisation of $39.2 million.

"The business has grown on the back of demand for more flexible labour
arrangements," says Simon Hull.

"We believe we are now one of the largest employers in the country in terms
of the number of IRD returns we file each year. This year we expect to supply
4.4 million hours of work to our crew and our customers."

"We make it easy for businesses to use casual labour, which means that they
can get the necessary work done without incurring the long-term costs
associated with having a permanent labour force.

"For many companies we open the door to a more cost-effective business model
that allows them to cope with seasonal trends, special projects and overflow
work."

He says the on-hire business model also provides benefits to members of the
Allied crew, in that as well as enjoying attractive wage rates and
conditions, they get to handle a variety of work and to develop a range of
different skills.

ACC information suggests that, based on the wages paid to on-hire workers,
the New Zealand market has grown by 56% in the four years to 2004.

The company's board is made up Simon Hull, Allied's chief executive, Greg
Webster, and the independent directors Ted van Arkel and chairman Ross
Keenan.

Mr Keenan says Allied is a hands-on, can-do sort of business that has
expanded rapidly in the past few years through organic growth and more
recently by acquisition.

"We believe that growth is far from over yet and part of the reason for
listing is to position the company for further acquisitions."

Mr Keenan says that after the IPO Simon Hull will retain a 66.8% stake in the
company, and will continue to lead the business through its next phase of
development.

"At this stage he is only selling down to the extent required to meet the
spread requirements of the NZX and to provide some liquidity in the market,"
he says.

Allied Work Force is projecting an annualised gross dividend yield of 9.48%
based on a fully imputed net dividend of 9.5c per share for the financial
year ending 31 March, 2006. The company expects to pay dividends of 70% to
80% of net profit after tax, subject to prudent future investment
requirements.

Allied has 90 full time staff and operates from 21 locations around New
Zealand in addition to the 'crew' in its 8000 strong labour pool.

The company uses its own software and proprietary systems for managing
on-hire labour and its rate of successfully placing 'crew' into available
roles is approximately 98%.

Allied estimates that the New Zealand on-hire labour market is made up of
around 15,000 workers, or some 0.7%

Back in 2005 that was

Snowie didn’t join in the fun

IPO price was $1.50 …..went to $1.52 after the open but closed day 1=at the $1.50

Today price is $0.76

Has it ever been lower?

Been some journey eh

[nztx]

For those that are interested



Back in 2005 that was

Snowie didn’t join in the fun

IPO price was $1.50 …..went to $1.52 after the open but closed day 1=at the $1.50

Today price is $0.76

Has it ever been lower?

Been some journey eh



Closing High Bid 0.70 Lowest Offer 0.71

Last sale 0.76

[winner69]

Goog grief …I think I saw 69 cents on the ticker down on the wharf

[nztx]

Goog grief …I think I saw 69 cents on the ticker down on the wharf



0.60 Buy Offer ; 0.68 Sell - but on the usually minimal volumes with this one

[nztx]

https://www.nzx.com/announcements/428237

CFO signals it's time to jump overboard

SP sinks to 65.0 c

[winner69]

OMG ….AGL share price down to 57 cents

Market cap now only $19m

At this rate won’t qualify for next years picking comp

[nztx]

OMG ….AGL share price down to 57 cents

Market cap now only $19m

At this rate won’t qualify for next years picking comp


looks like a few might be pulling the ripcord ;)

still plenty of headroom above that amazing NTA ..

[bull....]

looks doomed with massive govt cuts coming soon

[nztx]

56 pennies now .. what will next week bring ? .. perhaps an avalanche of shortly to become jobless
Civil servants looking for new day jobs ? ;)

Hey - AGL could always point the pointy end of the funnel at Aussie and charge by the head for each one
to blow them through to better pastures where they wont be so conspicuous ;)

[Snoopy]

Last year 2023 (from 31 Mar 2023 Annual Report )

T/over $227.4 M
NPAT $ 2.0 M

Rip out 9% on the Revenue in 2023 = $20.50 M in revenue shaved off

Now how much of that Revenue / Surplus is variable - that is clipping the ticket on hours etc ?


The 9% of revenue that nztx refers to above is the amount that revenue that AGL is down year to date on FY2023, as disclosed in the 4th March 2024 market update.

Good question though. If you can't control the costs when the revenue goes down, then you can get into trouble. So how has the company done in reaping and spending the operational cashflows over the last four years?




Operating Cashflow Analysis
2HY2024HY20242HY2023HY20232HY2022HY20222HY2021HY20 21



Cashflow from Customers {A}
$94.803m (1)$113.592m
$105.592m$124.370m
$108.427m$110.693m$78.202m$134.644m




Payments to Suppliers and Employees {B}
$?m$108.141m
$104.350m$117.843m
$104.245m$103.734m$76.746m$141.768m



'Principal & Interest' Lease Liability Payments (Rent) {C}
$?m$1.506m
$1.536m$1.317m
$1.372m$1.389m$1.454m$1.532m



Sum of Operational Payments {B}+{C} or {D}
$?m$109.647m
$105.886m$119.960m
$105.617m$105.123m$78.200m$143.300m



Operational Payments as a %ge of Customer Cashflow
?%96.5%
100.3%96.5%
97.4%95.0%100.0%101.1%



Operational Cash EBITDA (IFRS16 adj.) {A}-{D} or {E}
$?m$3.855m
($0.304m)$4.410m
$2.810m$5.570m$0.002m($8.636m)



Bank Interest Paid {F}
$?m$1.240m
$0.884m$0.481m
$0.354m$0.331m$0.215m$0.508m



Tax Paid {G}
$?m$1.334m
($0.008m)$2.441m
($0.628m)$2.498m$2.245m$2.534m



Operational Cash EBDA {E}-{F}-{G}
$?m$1.281m
($1.180m)$1.488m
$3.084m$2.741m($2.458m)($11.678m)



Dividends Paid
$1.085m$1.071m
$2.322m$1.987m
$2.306m$2.865m$0.0m$0.0m



Dividend payment per share
3.0cps3.0cps
6.5cps5.6cps
6.5cps8.2cps0.0cps0.0cps





Notes

1/ 2HY2024 revenue estimate calculated as follows:
(0.91x$227.371m) - $112.105m = $94.803m. I am using the assumption that 'cashflow revenue' will equal 'booked revenue' for this period.

-------------------------------

Lot's of information in that table. So I think it is time to review what the time-frame covered by the table represents.

The AGL financial year ends on 31st March. So FY2021 represents the 01/04/2020 to 31/03/2021 period, which covers the main Covid-19 period of disruption. The massive operational cash blowouts over FY2021 should be read in that context. I have not included any government wage support payments in the above table. I was 50/50 as to whether to do this or not. On the one hand, you could argue that the government wage subsidy was a correction to restore normality to the negative effect that the government imposed lock-downs had on what was the normal business environment. On the other hand you could say that the government's payments were 'just a cover up', distorting the real operational position of the business, and 'papering over' the company's underlying vulnerability.

That FY2021 was 'the Covid year' also explains why no dividends were paid in that year. A company in receipt of large government subsidies, that then immediately made their way into the hands of greedy rich shareholders (like me) would not have been a good look!

In the end a large chunk of that subsidy payment of $33.323m indirectly went towards reducing the debt of the company by $21m. So my shareholder greed ended up being satisfied in a less obvious and subtle way. Good stuff! Moving on from FY2021, there is a reasonable correlation between the operational cash coming into the company and the dividends paid out. The exception to that is 2HY2023, representing the period 01-10-2022 to 31-03-2023. The Queen was partially to blame for this, having the audacity to die on us after 70 years of service. The resulting 'pay the staff for their day off' one day commemorative holiday was the 'price business (including Accordant) had to pay' for all her hard work over those years. Also, there was a $0.430m incremental dollar increase in ACC related expenses, - largely from a legacy 'injury funding agreement' that is no longer current with Accordant. Then there was the much higher interest bill, not only due to higher interest rates in general, but because of the incremental borrowing used to acquire Hobson Leavy in January 2023.

From a dividend paying perspective, some businesses 'look through' such cash downturns in the interests of keeping dividend income predictable, and in anticipation of earnings improving. In this instance 'anticipation' did not equate to reality: FY2024 has turned out to be tough. Following current sentiment, there is an 'active recession' and there is anticipation of public sector job cuts (Accordant is an active operator in the government recruitment sector) that is causing a 'wait and see' approach to some executive appointments.

The ability to adapt the company cost base, as market conditions change, is of particular interest (see the percentage of operational cashflow cost to operational customer cashflow row). 'Normal operations' post Covid, seem to have this figure at '95% to 97.5%', with 96.5% being an eyeball median. I would not automatically criticise the company when the percentage figure has crept up to 100% and over (meaning an operational cashflow loss). This is because a large percentage of these costs represent the people talent within the company. And if you fire staff at the slightest sign of a downturn, then it leaves you the expense of picking up and training new staff as the business turns around. Having said that, and considering the 2HY2024 half year that we have just worked through, if this pattern continues into HY2025, then we will see twelve month revenue back down to Covid-19 lows. And we have to remember that during the Covid lows, Accordant did not own Hobson Leavy! And furthermore unlike FY2021, in FY2025, there will not be a 'government subsidy' to bail we shareholders out. Group revenue for Hobson Leavy totalled $0.752m for the months of February and March 2023. Annualising that figure implies an annual revenue figure attributable to Hobson Leavy over FY2023 of 6 x $0.752m = $4.5m.

Work has been done on consolidating physical work-spaces. AbsoluteIT and Madison now largely share the same spaces and tenancies. But property lease rationalisations remain as a 'gain at the margin'. The cashflow picture makes it clear that 'rents' never exceed much more than 1% of operating cashflow costs.

Barring the transition between HY2021 and 2HY2021, a period where no migrant workers were allowed into the country, the largest period to period fall off in 'employment and sales costs' was between HY2023 and 2HY2023. Over those times, these costs fell from $117.843m to $104.350m, a half year drop of $13.493m. Could similar cost savings be made between HY2024 and 2HY2024? If Accordant management are predicting a rebound, would AGL even want to do that?

SNOOPY

[Snoopy]

Barring the transition between HY2021 and 2HY2021, a period where no migrant workers were allowed into the country, the largest period to period fall off in 'employment and sales costs' was between HY2023 and 2HY2023. Over those times, these costs fell from $117.843m to $104.350m, a half year drop of $13.493m. Could similar cost savings be made between HY2024 and 2HY2024? If Accordant management are predicting a rebound, would AGL even want to do that?


To answer my above question, I don't believe such slashing of costs could occur again for the second time in six months. But I will take a guess and say that costs can be slashed by half that amount. In our favour is that, thankfully, the Queen did not die again. And hopefully payments into the ACC agreement mess will be lower. Plus of course - despite being disgruntled about the performance of AbsoluteIT - our executive team at Accordant remains ever optimistic about a rebound. And they won't be able to rebound if they cut their workforce much further. So I am predicting incremental operational cost savings of half that achieved in the prior period ($13.493m/2). On the interest payment front I am predicting 'no relief'. So let's plug those changes into our spreadsheet model and see what happens. I have added up the two 2024 half years to produce a full year 2024 forecast.

For comparative purposes, I have included the comparative full year figures from FY2023.



m
Operating Cashflow Analysis

FY2024 (1)
2HY2024 (1)
HY2024
FY2023




Cashflow from Customers {A}
$208.395m
$94.803m (2)
$113.592m
$230.322m




Payments to Suppliers and Employees {B}
$210.036m
$101.895m
$108.141m
$222.193m



'Principal & Interest' Lease Liability Payments (Rent) {C}
$3.012m
$1.506m
$1.506m
$3.403m
:


Sum of Operational Payments {B}+{C} or {D}
$213.048m
$103.401m
$109.647m
$225.596m



Operational Payments as a %ge of Customer Cashflow
102.2%
109.1%
96.5%
97.9%



Operational Cash EBITDA (IFRS16 adj.) {A}-{D} or {E}
($4.743m)
($8.598m)

$3.855m
$8.129m



Bank Interest Paid {F}
$2.480m
$1.240m
$1.240m
$1.683m



Tax Paid (Refunded) {G}
($1.073m)
($2.407m)
$1.334m
$2.433m



Operational Cash EBDA {E}-{F}-{G} or {H}
($4.910m)
($6.191m)
$1.281m
$4.033m



Dividends Paid
$2.156m
$1.085m
$1.071m
$4.309m



Dividend payment per share
6.0cps
3.0cps
3.0cps
12.1cps


Operational Net Profit After Tax {H}-{I} ($9.692m) ($0.595m)
Depreciation & Amortisation {I}
$4.782m


$4.628m



Operational Net Profit After Tax {H}-{I}
($9.692m)


($0.595m)




c.f. Declared Net Profit After Tax
$?m
$?m
$1.164m
$1.977m





Notes

1/ These columns represent estimates.
2/ 2HY2024 revenue estimate calculated as follows:
(0.91x$227.371m) - $112.105m = $94.803m. I am using the assumption that 'cashflow revenue' will equal 'booked revenue' for this period.

---------------------------------


The last row shows the actual net profit declared over the reported periods. This shows that deriving profits from operational cashflows, and deriving profits according to accounting rules, which also include non-operational transactions, are not the same thing. So perhaps of more interest than the absolute value of derived cashflow profits is the forecast change from FY2023 to FY2024: ($9.692m) - ($0.595m) = ($9.907m). Transfer that across to the declared profits and you are looking at a NPAT loss of:

FY2023 Normalised net profit = $1.977m + 0.72($1.406m+$0.379m+$0.109m) - $0.044m = $3,297m
Where$1.406m represents a one off ACC scheme adjustment, $0.379m represents an earn out payment for the Hobson Leavy Acquisition, $0.109m a one off impairment, and $0.044m money from a Property Plant and Equipment sale.

$3.297m + ($9.907m) = ($6.610m). Ouch!

And on top of this we have the $13.223m of Madison goodwill and $7.836m in AbsoluteIT goodwill that will/may need trimming. Double ouch! No wonder the Accordant share price has taken a hammering in recent times. But the bankers are still happy - apparently.

SNOOPY

[Snoopy]

And on top of this we have the $13.223m of Madison goodwill and $7.836m in AbsoluteIT goodwill that will need trimming. Double ouch!


Jason Cherrington CEO speaking at the AGM on 21st August 2023:
"Following on from a solid reporting of the first six months of FY2023, we experienced a much faster than anticipated softening and market environment, most prominently felt in the final quarter of the year (January-March 2023). And in some parts of the business, that challenge eventuated by year end on a less than optimal return on the cost deployed."

On Madison:
"As a general recruiter specialising in more entry level roles, and support service areas of the market, Madison felt the biggest impact in the second half of the year - and is somewhat of a good barometer for what is happening generally, within the marketplace. Whilst Madison's project delivery exceeded expectations in the first half of FY2023, it was the core business that felt the level of confidence drop during the pre-Christmas GDP contraction that we saw across the market. With an increased lens on costs for many, administrative and support roles were affected the most, with businesses 'making do' rather than back filling roles. Development in technology will to some degree have lead to a noticeable drop in hiring intentions amongst administrative and support staff, but, as such, Madison have continued to shift their focus to more roles that are future proofed. Despite the borders opening fully, NZ's white collar temp market has not picked up to pre-Covid levels, especially in the private sector. And while immigration and statistics point to an increase in working holiday applications, we still haven't seen the impacts with the temporary labour market pool that is usually visible by now. The thesis for all this is that people coming to this country probably delayed two or three years, probably came with more money, probably weren't eager to get straight back into the labour market and enjoy what New Zealand can offer first. So we do expect to see some of those numbers come back through, potentially post election, but for now we stay close to that. Broadening our client activity remains a key focus, with key activity around the specialist channels of accounting, business transformation based on where the market currently is, and marketing communication supported by new hires that we have brought into the business to lead these areas, with effective experience and proven historic delivery results."

On the first four months of FY2024:
"Within our Madison and AbsoluteIT business, we continue to see the challenges around skill shortage and business confidence."

Barely a month later in the FY2024 Interim Report dated 30th September 2023:

On Madison:
"Many private sector businesses either pared back growth strategies or froze hiring altogether. Support and administration roles saw the biggest impact with many businesses cutting back costs in this space and choosing to recruit internally at least initially, rather than via an agency. The government sector also slowed for Madison with reduced spend on contractors and an increased lens on cost in the lead up to the general election."

Announcement to the market on 4th March 2024:

On Madison:
"Madison have experienced the same decline in government contracting (permanent placements down 15% against prior year to date), the more widespread slowdown in temporary and permanent entry level and support roles has driven a 20% drop in revenues and we therefore expect to review the carrying goodwill value for the business unit as of 31st March 2024."

------------------------

If you have a revenue decline of 20%, and the difference between 'cost to do business' and revenue of less than 5% under more normal operating conditions (see post 1059), this is getting serious. I love Jason's euphemism of 'a less than optimal return on the cost deployed." Outside of 'corporate speak' we call that 'a loss'.
If overall placements are 'only' down 15% on a revenue decline of 20%, that means the underlying core temping positions must be down nearer 25%. AR2023 p56 shows the Madison goodwill was predicated on 2.5% of sales growth. An actual sales 'growth' of -20% is not tenable with that modelled figure. No wonder Madison goodwill is due for a severe haircut. Of the $13.223m of Madison goodwill on the books at EOFY2023, I wonder how much will be left at EOFY2024?

Could it could be that automation has permanently reduced what was the core market for Madison?
What are these alternate roles that are 'future proofed' that Madison talks about?
Could it be that Madison's 'temp' pool will be permanently down, due to tourism not returning to its pre-Covid highs?
We have been told before that when times are good, businesses gravitate to having their own in house recruitment teams. But now we are told that when times are bad, businesses are doing the same thing? Perhaps as Accordant shareholders, we should be hoping for more business customers in that 'squeezed middle' space?

SNOOPY

[Snoopy]

Jason Cherrington CEO speaking at the AGM on 21st August 2023:
"Following on from a solid reporting of the first six months of FY2023, we experienced a much faster than anticipated softening and market environment, most prominently felt in the final quarter of the year (January-March 2023). And in some parts of the business, that challenge eventuated by year end on a less than optimal return on the cost deployed."

On AbsoluteIT:
"In our annual report, I refer to enhancing our offering within the IT channels, coming alongside our clients early on in their digital transformation plans, and looking at ways in which we can better deliver holistic solutions in this space. AbsoluteIT is already well known for additional IT staffing, and so to be able to leverage their strengths to offer solutions to some of the headaches that our clients feel, experienced across the whole of the tech sector, is for us a no-brainer. AbsoluteIT's traditional channel continues to face the ongoing skills shortage and New Zealand remains in fierce competition with the likes of Australia for the same. Whilst easing immigration has created some opportunities, as a country the retention of talent is going to have to be even greater, as we are simply not developing enough organic talent fast enough within the New Zealand market. The nervousness about job retention has seen candidate movement slow down. The great resignation is probably over -I would say- in this area specifically of the market. But neither address the significant growth we see in the tech sector, and we must remain capable of delivery as the industry, the government and ourselves, look for a more permanent solutions to tech shortages at all levels."

On the first four months of FY2024:
"Within our Madison and AbsoluteIT business, we continue to see the challenges around skill shortage and business confidence."

On tax relief for gaming software development in Australia:
"Australia got a steal on the march and did confirm that nationally across Australia, 30% is the tax benefit they (gaming developers) would get as a reduction, and some states 40%. What does that mean for talent? It does mean that a lot of those big organizations are now looking to Australia and that will take senior talent away. I don't necessarily agree that it will take any of the developers away that we would see within AbsoluteIT as an example. A lot of this stuff is done offshore as well (by NZ companies), in the lower level of development areas (already). I don't see a significant impact for AbsoluteIT specifically, but it is an issue for New Zealand and the gaming industry that is growing and is growing quite quietly and quite phenomenally over a relatively short period of time."

Barely a month later in the FY2024 Interim Report dated 30th September 2023:

On AbsoluteIT:
"AbsoluteIT has underperformed against expectation and investment made in some areas has not been realised to date. Whilst this traditional IT recruitment channel continues to face ongoing digital skill shortages, it has had the opportunity to perform much better than the current delivery suggests."

Announcement to the market on 4th March 2024:

On AbsoluteIT:
"Following senior leadership changes and a national restructure, Absolute IT is operating more leanly in a subdued environment for technology recruitment, as job ads fell by 58.3% in 2023 according to RCSA’s “The Jobs Report” and 38.0% as measured by Jobs Online. In line with market, revenues remain at -15% against the prior year."

-----------------------------


I am a little concerned when an umbrella recruitment group (Accordant) takes over a niche recruitment specialist (AbsoluteIT) and then proceeds to tell them that they are not doing their job properly (reflected in the recent change of AbsoluteIT leadership). IIRC there was a small section of Madison recruitment specialising in IT, that got folded into AbsoluteIT, when the latter business joined the Accordant family. At that time there was no doubt that Accordant management thought AbsoluteIT 'knew what they were doing'.

If you were a third party 'Company IT developer', and a lead member of your team wanted to hive off to another company, might you not be tempted to give your team member a significant salary boost to ensure their retention? AbsoluteIT would only get paid for people who actually switch jobs. And in a time where 'in demand' people with the right skills are short, might you not expect less 'job hopping'?

Jason speaks as though there is some kind of gulf between gamer programmers, and the perhaps more prosaic database managers and software troubleshooters and package software experts who are on the books at AbsoluteIT. I wonder if this is really true? What iif AbsoluteIT was suffering more under 'unfavourable market dynamics' rather than 'management incompetence'? In this instance time will tell. It does sound like AbsoluteIT is being refocussed on offering turnkey solutions to business problems, rather than just having computer savvy temps ready to help out. I hope it works for them (and being a shareholder - me!). But if job ads fell by between 38-58%, maybe a revenue fall of 'only' 15% at AbsoluteIT is actually a good result in this market?

SNOOPY

[Snoopy]

One way to assess how vulnerable a company is, is to look at the interest bill that the bank charges them.

The net interest rate paid on last years (FY2022) average net loan balance can be estimated as follows:

Interest Rate = $0.671m / 0.5x($13.028m +$13.205m) = 5.1%

From AR2022 Note C8 pg56

"The Group has complied with all covenant requirements during the year. Interest is calculated on a floating rate and the annual weighted average rate is 3.17% (2021: 2.21%). The rate is reset every three months. The loan is an interest only loan, and is repayable on 1 October 2023 (2021: 1 October 2022)"

This means that over the last year, the loan facility was renewed early. As part of this renewal, the maximum amount that can be borrowed from the ASB remains steady at $30m. Actual term borrowings have gone up from $15m to $18m over the year.

Accordant haven't been on any new capital growth initiatives during the year, although $5.171m was paid out in dividends. It looks like borrowings were used to top up the dividends (profits totalled $2.999m over the same period). I guess management are thinking very carefully about satisfying shareholder dividend demands given the dividend freeze over the Covid-19 period. I guess that is good?

"The banking facilities require the Group to operate within defined financial undertakings."

My post 985 confirms all banking covenants are being complied with.


I was a little lazy in my interest rate paid assessment for FY2022. I merely took the net bank balance (bank loans-cash) at the start and end of the financial year and averaged those two figures. Since we are told the net loan balance at mid year as well (from HYR2022), I might as well use that extra data point which will give me a three point average of the loan balance. Let's see if that makes a significant difference to the calculation.

One way to assess how vulnerable a company is, is to look at the interest bill that the bank charges them.

The net interest rate paid on last years (FY2022) average net loan balance can be estimated as follows:

Interest Rate = $0.671m / 0.3333x($13.028m+$13.011m+$13.205m) = 5.1%

That means the extra datapoint has made no difference. This is not too much of a surprise as overall, the Accordant business is not seasonal.

From AR2022 Note C8 pg56

"The Group has complied with all covenant requirements during the year. Interest is calculated on a floating rate and the annual weighted average rate is 3.17% (2021: 2.21%). The rate is reset every three months. The loan is an interest only loan, and is repayable on 1 October 2023 (2021: 1 October 2022)"

This means that over the last year, the loan facility was renewed early. As part of this renewal, the maximum amount that can be borrowed from the ASB remains steady at $30m. Actual term borrowings have gone up from $15m to $18m over the year.

Accordant haven't been on any new capital growth initiatives during the year, although $5.171m was paid out in dividends. It looks like borrowings were used to top up the dividends (profits totalled $2.999m over the same period). I guess management are thinking very carefully about satisfying shareholder dividend demands given the dividend freeze over the Covid-19 period. I guess that is good?

"The banking facilities require the Group to operate within defined financial undertakings."

My post 985 confirms all banking covenants are being complied with.

SNOOPY

[Snoopy]

I was a little lazy in my interest rate paid assessment for FY2022. I merely took the net bank balance (bank loans-cash) at the start and end of the financial year and averaged those two figures. Since we are told the net loan balance at mid year as well (from HYR2022), I might as well use that extra data point which will give me a three point average of the loan balance. Let's see if that makes a significant difference to the calculation.

One way to assess how vulnerable a company is, is to look at the interest bill that the bank charges them.

The net interest rate paid on last years (FY2022) average net loan balance can be estimated as follows:

Interest Rate = $0.671m / 0.3333x($13.028m+$13.011m+$13.205m) = 5.1%

That means the extra datapoint has made no difference. This is not too much of a surprise as overall, the Accordant business is not seasonal.

From AR2022 Note C8 pg56

"The Group has complied with all covenant requirements during the year. Interest is calculated on a floating rate and the annual weighted average rate is 3.17% (2021: 2.21%). The rate is reset every three months. The loan is an interest only loan, and is repayable on 1 October 2023 (2021: 1 October 2022)"

This means that over the last year, the loan facility was renewed early. As part of this renewal, the maximum amount that can be borrowed from the ASB remains steady at $30m. Actual term borrowings have gone up from $15m to $18m over the year.

Accordant haven't been on any new capital growth initiatives during the year, although $5.171m was paid out in dividends. It looks like borrowings were used to top up the dividends (profits totalled $2.999m over the same period). I guess management are thinking very carefully about satisfying shareholder dividend demands given the dividend freeze over the Covid-19 period. I guess that is good?

"The banking facilities require the Group to operate within defined financial undertakings."

My post 985 confirms all banking covenants are being complied with.


One way to assess how vulnerable a company is, is to look at the interest bill that the bank charges them. I will use the loan balance on the three snapshots in time we know (FY2022, HY2023 and FY2023) to assess the average loan balance over the year.

The net interest rate paid on last years (FY2023) average net loan balance can be estimated as follows:
Interest Rate = $1.343m / 0.3333x($13.028m+$12.483m+$21.546m) = 8.6%

The big jump in debt can mostly be explained by cash outlaid to purchase Hobson Leavy during the year. The large interest rate rise over the year can be put down to the greed of bankers.

From AR2023 Note C8 pg62

During the year the interest only revolving credit facility was reduced from $30m to $23m. But a trade finance facility of $15m, ostensibly replacing what was an overdraft facility of $8m was added. Thus the overall package of loan facilities available remains at the same level, and the arrangements have been fixed until 1st October 2024, and this loan facility was renewed early.

The revolving credit loan is drawn in tranches which are financed for 90 days. The trade finance loan is drawn in tranches which are financed for 30 days, repayable during the interest term without penalty at the company's discretion. The weighted average cost of interest including bank margin and line fee (excluding the bank facility fee) was 5.18% (comparable figure for FY2022 was 2.57%).

The loan facilities require the group to operate within 'defined financial undertakings' (read 'covenants') and all have been complied with throughout the year.

Apart from the Hobson Leavy purchase, a $1.669m reduction in government grants received over the year has affected the company's net debt position. $4.309m was paid out in dividends, which was in excess of declared profits of $1.977m and normalised profits of $3.297m.
So for another year it looks like borrowings were used to top up those dividends.

My post 1065 leaves a question mark as to whether all banking covenants are being complied with. I am not saying AGL do not comply. It is just that with the figures as presented in the annual report, I haven't been able to figure out 'how'.

SNOOPY

[Snoopy]

Financial Year2017201820192020
2021
2022


EBITDA (Snoopy produced) {B}$12.751m$11.751m
$7.679m$8.795m
$14.230m
$7.901m


Finance Cost {C}$1.193m$1.297m$1.380m$1.502m$0.723m$0.684m$7.90 1m

]
Interest Coverage {B}/{C} (target >3)10.79.05.65.9
19.711.6


Net Bank Debt {D}$32.383m$29.731m$26.643m
$29.822m$13.205m$13.028m


Leverage ratio {D}/{B} (target <3)2.5
2.53.5
3.4
0.931.65



Notes

1/ Historically (up to and including FY2019), I have calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA.

2/ Following the introduction of IFRS16, which had the effect of turning what were 'rent expenses' into a 'right of use asset depreciation' with an associated 'interest on lease liabilities', I have had to adjust the 'annual interest change' and 'annual depreciation charge' to remove this effect.

FY2020: EBITDA = NPBT + I + DA = $3.897m+($2.084m-$0.582m)+($6.194m-$2.798m) = $8.795m (with I=$1.502m)

FY2021: EBITDA = NPBT + I + DA = $10.929m+($1.228m-$0.505m)+($5.286m-$2.702m) = $14.230m (with I=$0.723m)

FY2022: EBITDA = NPBT + I + DA = $4.705m+($1.095m-$0.411m)+($4.941m-$2.429m) = $7.901m (with I=$0.684m)

--------------------------

It is no surprise that with interest rates so low, that the 'interest rate cover' covenant is so easily met. It is pleasing that the 'debt ratio coverage' is back to manageable levels too, even if this is a slight uptick in the half year position (see quoted text). And all this is after $5.171m in dividend payments were made over FY2022. Good stuff.

I have no real concerns with the financial position of the company as it stands. Going forwards, I am hopeful that the 'opening of the borders' will allow more candidates to fill the AbsoluteIT potential job placements and allow a big recovery of profits there. On the negative side, I have fears of a 'cash issue' to make an acquisition. No doubt Simon Bennett will figure out a way that any such acquisition is 'eps accretive' (that's good). Let's just hope that it isn't neglect of the existing business units that make it so.




Financial Year2017201820192020
202120222023


EBITDA (Snoopy produced) {B}$12.751m$11.751m
$7.679m$8.795m
$14.230m$7.901m$6.627m


Finance Cost {C}$1.193m$1.297m$1.380m$1.502m$0.723m$0.684m$1.34 3m

]
Interest Coverage {B}/{C} (target >3)10.79.05.65.9
19.711.64.9


Net Bank Debt {D}$32.383m$29.731m$26.643m
$29.822m$13.205m$13.028m$21.546m


Leverage ratio {D}/{B} (target <3)2.5
2.53.5
3.4
0.931.653.25



Notes

1/ Historically (up to and including FY2019), I have calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA.

2/ Following the introduction of IFRS16, which had the effect of turning what were 'rent expenses' into a 'right of use asset depreciation' with an associated 'interest on lease liabilities', I have had to adjust the 'annual interest change' and 'annual depreciation charge' to remove this effect.

FY2020: EBITDA = NPBT + I + DA = $3.897m+($2.084m-$0.582m)+($6.194m-$2.798m) = $8.795m (with I=$1.502m)

FY2021: EBITDA = NPBT + I + DA = $10.929m+($1.228m-$0.505m)+($5.286m-$2.702m) = $14.230m (with I=$0.723m)

FY2022: EBITDA = NPBT + I + DA = $4.705m+($1.095m-$0.411m)+($4.941m-$2.429m) = $7.901m (with I=$0.684m)

FY2023: EBITDA = NPBT + I + DA = $3.077m+($1.683m-$0.318m)+($4.628m-$2.443m) = $6.627m (with I=$1.343m)

--------------------------

The 'interest rate cover' covenant is now feeling the pressure of higher interest rates and higher debt, but is still easily met. The 'leverage ratio' has returned to Covid problem levels by my calculations. This is in contrast to the company's own statements that it is in compliance with all of its covenants. Perhaps the company has removed from its costs, the $5.750m cash payment used as part of the Hobson Leavy purchase? I am not sure. But for consistency of presentation I am sticking with my figures.

Either way, if the auditors have not pulled them up, I have no real concerns with the financial position of the company as it stands. Going forwards into FY2024 is another matter.

SNOOPY

[Snoopy]

Without full disclosure being available (because disclosure of certain details of the half year financial position do not match that of the full year), I have managed to cobble together the half year position of Accordant, so that I can keep an eye on those banking covenants. Specifically there is no break down of the depreciation and amortisation charges in the half year results. So I am using the depreciation and amortisation charges for FY2023 as a proxy for the combination of 2HY2023 and HY2024. I have called this 'cobbled together year of halves', year 2023.5.



Financial Year
2023.5


EBITDA (Snoopy produced) {B} (2)
$6.038m


Finance Cost {C}
$2.124m

]
Interest Coverage {B}/{C} (target >3)
2.84


Net Bank Debt {D}
$21.140m


Leverage ratio {D}/{B} (target <3)
3.50



Notes

1/ Following the introduction of IFRS16, which had the effect of turning what were 'rent expenses' into a 'right of use asset depreciation' with an associated 'interest on lease liabilities', I have had to adjust the 'annual interest change' and 'annual depreciation charge' to remove this effect.

2/ EDITDA for FY2023.5:

EBITDA = NPBT + I + DA
= [$1.629m + ($3.077m - $2.977m) + ([$1.370m-$0.130m]+[($1.683m-$0.318m)-($0.651m-$0.170m)]) + $2.185m] = $6.038m (with I=$2.124m)

Bank Interest charge, I = ([$1.370m-$0.130m]+[($1.683m-$0.318m)-($0.651m-$0.170m)]) = $1.240m+$0.884m = $2.124m

--------------------------

By my calculations this is a 'double fail' on the banking covenants at the HY2024 balance date - albeit not by much. I don't know exactly how the banks adjust these numbers around the edges. So it could be that with one or two small tweaks the covenants sneak through. But, looking out to the FY2024 results, we have to remember that net profit for FY2024 will be materially lower than last years full year result of $2m. To further exasperate things the interest bill will not be dropping as another $1.086m of dividend payments (likely borrowed money) has gone out of the accounts since this half year balance date.

What will Accordant's bankers, ASB Bank, do about this? Demand a cash issue to fix things? Or will they give AGL some extra time to sort things out? I think the next dividend is a goner on these numbers. We might have to wait for the full year results announcement date in mid-April to see what tweaks the financial engineering spanners need to make?

SNOOPY

[Nor]

So.......
Is it a buy at these levels?

[Snoopy]

looks doomed with massive govt cuts coming soon


So.......Is it a buy at these levels?

Good question Nor. I have a general investment philosophy. That is to look for companies with a proven track record that hit a 'rough patch' which causes the market to mark down their shares. At that point I 'buy in' and wait for the recovery.

Accordant may be a minnow on the NZX. But it is the largest job agency in New Zealand. They are recognised as one of a few 'preferred suppliers' to the government in that space for the medium term. So IMO bull's assessment is exactly that (bull), as jobs continue to roll over whatever the environment (those out of work government employees will be looking for work somewhere else and Accordant can help). While the country is now under the stewardship of 'Chris Lux-in', Accordant may have to wait for the return of the other guy, 'Chris Lux-out', to be seen at its best. Yet Accordant does not necessarily have to be operating at its best to make a good investment return from here.

As the country sputters towards an economic recovery, this is potentially a good earning time for Accordant (if you believe what management say). AWF, the blue collar labour arm is already showing 'green shoots' after the tough labour lockout years. Jackson Stone and Hobson Leavy seem to be 'holding position' as the senior executive market shrinks (temporarily) around them. But Madison and AbsoluteIT seem to be on a steady decline. And current CEO Jason Cherrington, has rolled out the excuses and now taken action by revamping the structure of AbsoluteIT. My problem is, if I invest for the recovery, I have to believe the recovery is possible. Over recent years Management have been quick to point out the merits of their senior executive chasing 'Jackson Stone' and 'Hobson Leavy', while Madison and AbsoluteIT are left on a ski slope trajectory that sees the overall white collar business arm of Accordant going nowhere.

The 'spanner in the works', as I see it, are those banking covenants. While I may be prepared to 'ride out the downtimes', bankers are not so forgiving. Accordant does have an advantage of being very agile. Most of their assets are their people. And if the market contracts, then they can let a few people go. But then you have a smaller 'matched to market' earnings base, while the debt remains the same. I remain unclear exactly what the banks are going to suggest, and just how agile Accordant can be. Until I can get some more insight into this, I am not investing any more into AGL. But the good news is, insight is on the horizon. Accordant should be reporting their annual result in May. I expect some more forward looking commentary then.

SNOOPY

[Nor]

Guess I'll wait too. I have difficultly understanding why some white collar employment agencies should be doing ok and others not. Seems to me that desks and computers and office space should be easy to reconfigure. Not as if they have special purpose machinery with only certain uses.

[nztx]

Someone thinks it's a buy - up 2c today :)

If they crack out another Div then she could be away off the blocks :)

seem to recollect that happened a few moons ago

[Snoopy]

epsdps (imputed)


FY20196.28.2 + 8.0


FY20209.48.2 + 8.0


FY202118.10.0 + 0.0


FY202210.48.2 + 6.5


FY20239.65.6 + 6.5


FY2024?3.0 + ?


Total53.754.0


5 year Average10.8



Note

1/ Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (10.8c / 0.72) / 0.08 = $1.875

-------------

Higher historical dividends roll off the historical calculation feed, to be replaced by today's lower dividends. This is why the capitalised dividend valuation of the company has reduced by 17.5c from six months ago. The closing price of $1.70 today is a chart resistance point. With a shortage of job applicants in AbsoluteIT and AWF, I don't see the shares going much higher until members of that 'Double A' team shows signs of life.

The shares closed today at $1.70 and even with the slashed final dividend, the share price is still flirting in that band of keeping Accordant in the 8% yield club (actual historical gross yield 7.8%).

The share price was largely sinking for six months to date, but recovered sharply just before results day . The support line kissed $1.50 a couple of times. But that looked like Shaz trading on near zero volume, so not really real.

Cashflow from operating activities ($4.715m, 13.7cps) exceeded adjusted profit ($3.297m, 9.6cps), even if it was only the cashflow that exceeded the dividend paid during the financial year twelve months totalling 12.1cps.

Long term debt has blown out from $15m at the half year to $23.5m today But $5.87m of that is the cash paid out for acquisition Hobson Leavy. Add in the $0.835m to sort out the ACC medical account balance and you have most of the explanation.

The little game of cashflows exceeding profits has been extended with the purchase of Hobson Leavy. This purchase has fed the 'historical customer relationships' intangible asset pot to the tune of $1.072m. Amortisation of this balance will produce future cashflow ahead of earnings to the tune of a few hundred thousand dollars a year at least.

AGL has in the past paid out 100% of their underlying earnings as dividends over time. So if dividends are to be restored or even increase above historical high levels, then so must earnings.


An ominous close to my equivalent report from six months ago. With the March 2024 profit downgrade, I would say there is no chance of earnings bouncing back to pre-Covid levels for the foreseeable future. But my capitalised dividend valuation technique relies entirely on figures, not feelings. So what do the (albeit historical) figures say?




epsdps (imputed)


FY20209.48.2 + 8.0


FY202118.10.0 + 0.0


FY202210.48.2 + 6.5


FY20239.65.6 + 6.5


FY2024loss?3.0 + 3.0


Total47.5-?49.0


5 year Average9.8



Note

1/ Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (9.8c / 0.72) / 0.08 = $1.70

-------------

Higher historical dividends roll off the historical calculation feed, to be replaced by today's lower dividends. This is why the capitalised dividend valuation of the company has reduced by another 17.5c from six months ago. The closing price of just 58c on minuscule volume is uncharted territory for AGL shares since they listed. AGL have not yet admitted their banking covenants are going to be reported as 'broken'. But at a share price 58c, I believe that Mr Market has already made that judgement.

I don't like to speculate using this technique. But if the banks (actually ASB bank) were to decree 'no dividend payments over FY2025') to shore up that balance sheet, then the five year dividend sum would drop to 32.8cps, or an annual average of 6.56cps. Curiously this is not too far removed from the actual FY2024 dividend payment rate of 6.0cps.

=> (6.56c / 0.72) / 0.08 = $1.14

I think we have to forget the days when the share price was over $2 now. That is ancient history. But dependent on exactly what sort of straight jacket the ASB banks chooses to impose on Accordant, and we find that out at the end of May, there could be a good money making opportunity going forwards. But buying at 58c today I believe is a gamble, because IMO the threat of a heavily discounted capital raising, as an alternative to to shoring up the balance sheet, remains.

SNOOPY

[winner69]

Snoops …’acceptable yield’ of 8% pretty low …doesn’t seem to reflect perceived risks

I’d want 12% which would give target of 76 cents

Take of the safety margin of 20% you often use buy around 60 cents …not far from current price ….spooky eh …maybe market thinks like me lol

[Snoopy]

Snoops …’acceptable yield’ of 8% pretty low …doesn’t seem to reflect perceived risks

I’d want 12% which would give target of 76 cents

Take of the safety margin of 20% you often use buy around 60 cents …not far from current price ….spooky eh …maybe market thinks like me lol


Thanks for the feedback Winner. Your post is certainly dogfood for thought. I raised eyebrows at your required return of 12%. But it is easy to kick the dog when he is down isn't it? I guess I am influenced the other way. When I bought into AGL way back in 2015, he was a fine looking hound with a shiny coat. And as you know, once a dog joins the family an awful lot can be forgiven! Your effective comment when you saw me walking my dog Accordant that he is actually a 'flea ridden mangy mutt' has taken me aback! So perhaps I can walk you back those years to when I bought what is now Accordant as a pup all those years ago, so you can see the attraction?

Accordant was very good at playing 'fetch'. I used to say 'fetch' and in that first year he brought me back a dividends of 7.2cps and 8.0cps. I was very happy with that. And he even brought back slightly bigger dividends in the following years. He was also a very efficient hound having a high ROE or 'Return on Energy'. It was consistently nudging or above 15% between 2014 and 2018. I only had to feed him 2 or 3 pedigree dog biscuits a day and it was amazing what he was able to do on that. Granted I did catch him sniffing around the trash cans at the bank down the road. He may have got an energy boost by cleaning up leftover employees lunches. But if he can use the bank's output to substantially 'fuel his chores' rather than my own 'equity biscuits', then who is complaining?

The games of fetch dried up over those Covid years. During that time he even got a government food parcel which fattened him up no end. We got back to our walks and games after that. But all the fetching and foraging wasn't quite as good. He only retrieved 6.5c and 5.6c dividends for that year. Oh well I thought. Covid was a real disturbance. Accordant is just taking time to stretch back to his foraging peak. A new vet came to town, a chap called Jason Cherrington. I took my Accordant in to see him and Jason promised to keep my dog under his watch. Jason was beaming and bullish. He saw a bright future for Accordant! One thing I did notice though was that I was having to feed Accordant more of those gourmet dog biscuits. An early warning sign?

Instead of a 'fetching recovery' Accordants fetching got a lot worse. He was down to two 3cps dividends last year. Then in early March I got a shock call from vet Jason. He had just given Accordant the once over and wasn't happy. He even hinted that Accordant might have to give up these fetching games completely! What, as a dog guy, do you reckon Winner? How can we get Accordant out of his rut? And please take those jack boots off!

SNOOPY

[Snoopy]

Snoops …’acceptable yield’ of 8% pretty low …doesn’t seem to reflect perceived risks

I’d want 12% which would give target of 76 cents

Take of the safety margin of 20% you often use buy around 60 cents …not far from current price ….spooky eh …maybe market thinks like me lol


After telling you my 'dog tail' of how Accordant is a capitally un-intensive (efficient) company with a good track record of generating cash, and how they are not going to be knocked off their perch as 'king of the job placements in NZ' any time soon, there is one factor that I have not allowed for in my valuation - incompetence. Competence is a relative measure. My new theory is that all of the business units within Accordant were founded by people with incredible self belief and drive: Simon Hull, Wynnis Armour etc.etc. Failure was a word not in the vocabulary of these people. Take the founder out of the driving seat, and replace them with a corporate manager who is merely 'excellent' at their job, and the down sliding of results becomes inevitable. Don't get me wrong, I am not saying the people at the top of Madison and AbsoluteIT today are twats. On the contrary I suspect they are excellent at what they do, but lack that entrepreneurial vision to oversee the change in direction a dynamic job marketplace requires at times.

When reviewing Accordant's earnings and dividends over the years, I noted that dividends were cut reluctantly. My interpretation of that board behavior being that any earnings decline was seen as temporary and that earnings would bounce back. It was only when earnings did not bounce back that 'reality hit' and the dividend was chopped back. Yet I am not suggesting that dividends should always follow earnings down. Management are certainly in a better position than shareholders to know what is a temporary hurdle to peak performance. But it appears that in the board's quest to be a 'one stop agency for all levels of jobs' that they have taken their eye off the operational detail. Going from a business that was 'brilliantly run' to one with 'merely excellent managers' is a downgrade, which seems inherent in Accordant's business model. I am now bumping up my required return rate to 8.5% gross, with that extra 0.5% 'incompetence adjustment' to be permanently baked into my investment expectations

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (9.8c / 0.72) / 0.085 = $1.60

So 10c lopped off my previous valuation to allow for 'perpetual built in incompetence'. I think that is fair. A 12% expected return, as Winner suggested, is IMO way too high for a market leading company like this. And as for taking an extra 20% off such a valuation you get, I think that is 'double counting' or in this case 'double discounting'. The discount in the valuation of this company is reflected in the high return interest rate I select. It is too harsh, I think, to impose a further discount factor requirement on top of that.

SNOOPY

P.S. I don't like to speculate using this technique. But if the banks (actually ASB bank) were to decree 'no dividend payments over FY2025') to shore up that balance sheet, then the five year dividend sum would drop to 32.8cps, or an annual average of 6.56cps. Curiously this is not too far removed from the actual FY2024 dividend payment rate of 6.0cps.

=> (6.56c / 0.72) / 0.085 = $1.07

[Snoopy]

Of more interest than the absolute value of derived cashflow profits is the forecast change from FY2023 to FY2024: ($9.692m) - ($0.595m) = ($9.907m). Transfer that across to the declared profits and you are looking at a NPAT loss of:

FY2023 Normalised net profit = $1.977m + 0.72($1.406m+$0.379m+$0.109m) - $0.044m = $3,297m
Where$1.406m represents a one off ACC scheme adjustment, $0.379m represents an earn out payment for the Hobson Leavy Acquisition, $0.109m a one off impairment, and $0.044m money from a Property Plant and Equipment sale.

$3.297m + ($9.907m) = ($6.610m). Ouch!

And on top of this we have the $13.223m of Madison goodwill and $7.836m in AbsoluteIT goodwill that will/may need trimming. Double ouch! No wonder the Accordant share price has taken a hammering in recent times. But the bankers are still happy - apparently.


OK the FY2024 results are not out yet. But there are a few clues we can put together to assess what the FY2024 balance sheet might look like. Madison and AbsoluteIT are two divisions roughly equivalent in size and profitability. We know that Madison goodwill is going to be trimmed. Given that AbsooluteIT has also been restructured, I think goodwill there will need a trim too. I think goodwill for each will be reduced to $6.000m. That makes for a total goodwiil 'haircut' of:

($13.223m-$6.000m) + ($7.836m-$6.000m) m= $9.059m

We need to remember that his is not cash. But it was cash - once. There is no way to sugar coat this: Accordant has overpaid and overpaid significantly for both Madison and AbsoluteIT.

Unfortunately the $6.610m loss for the year I am projecting is cash, and that comes on top of the 2x $1.987m = $3.974m of dividends paid out this financial year: a total of: $10.584m So what does this do to the balance sheet at EOFY2024?



FY2024 forecastFY2023



Assets



Cash and cash equivalents$1.954m$1.954m



Other current assets$23.994m$23.994m


Intangible assets - goodwill$33.494m$42.553m


Intangible assets - other$16.612m$16.612m


Other non-current assets$9.768m$9.768m



Total assets (A)$85.822m$94.879m



Liabilities


Current Liabilities$25.842m$25.842m


Borrowings$34.084m$23.500m


Other non-current liabilities$10.981m$10.981m



Total liabilities (B)$70.907m$60.293m



Shareholder Equity (A)-(B)$14.915m$34.586m









Debt Ratio (B)/(A)83%64%


Shares on issue34.326m34.326m



Net asset backing43.5cps100.8cps


Net tangible asset backing-102.5cps-71.6cps





Now banks consider leverage as a cashflow issue, rather than a balance sheet issue. But my projected blow out in the debt ratio must raise eyebrows nevertheless. This is not a new problem I am highlighting. It is merely the result of the blowout in the leverage ratio that I have already highlighted in post 1065. But if you are struggling with profitability on top of high debt, this is not a good look.

If it was not obvious before, this is why I am not mopping up AGL shares at the 'apparent bargain price' in the 60c range in the market today. A discounted cash issue could fix this. 1:1 at 50c would raise just over $17m. But could majority 53.01% shareholder Simon Hull afford this? I am guessing no. So the company is really dependent on the business turning around to climb out of their debt hole. Accordant have been fairly agile in the past, and know how to 'make the right market noises', but.......

SNOOPY

discl: Shareholder who has too big a position to sell out. So I am buckled up for the ride. Roll on the end of May

[winner69]

Snoops …your incompetence theory interesting viewpoint and aligns with my thinking why I’d want a 12% expected v your 8.5%

I say 12% because of the recent declining cash lows and dividends which along with the current issues impacting the business I’d want a decent risk margin and 8.5% doesn’t reflect that.

I see execution risk as key here …..especially if you say the current team is not as competent as in the past lol

Interesting times eh …might look back in a years times with a $1.75 share price and say well that was a lost opportunity

[Perky]

Ok…time to fess up…I own some of this dog of a share. I’ve wanted out for a while but got greedy…should of sold when it sat around $1.50 -$1.70 for a while and taken a very small loss…now I’m sitting on a moderate loss.

This share reminds me of FBU…they can’t seem to make it work when it’s full employment, mid employment or low employment…lol

I consider my financial loss as an investment in my share investing education..lesson learnt.


It’s a dog. Admit it ,own it and move on

[Perky]

Edit: someone just kicked the dog….up 12% today.

Dont worry it’s still a dog…you will wake up tmrw and their will be a **** in the hallway

[nztx]

Edit: someone just kicked the dog….up 12% today.

Dont worry it’s still a dog…you will wake up tmrw and their will be a **** in the hallway



Hey - it's a got a curious habit of spitting out unexpected chips when most think the chips are down :)

[Perky]

The days of good divies are long gone now for a while in my opinion

In last few years…
We had a construction boom
We had a labour govt employing any consultant they could find…boom boom
We had a technology boom

Just like FBU…they can’t make consistent repeatable earnings.

Its a dog

A few years ago they talked about getting into healthcare sector..ie nursing and care
That would be a good growth sector for an ageing population like nz…better to stick with its blue collar heritage and not the consultants and it sector…the robots and AI will replace them

[Snoopy]

A few years ago they talked about getting into healthcare sector..ie nursing and care
That would be a good growth sector for an ageing population like nz…


It was a bit more than talk. They did get into healthcare by purchasing a company called 'Panacea Healthcare Limited' in 2010
https://www.nzx.com/companies/AWF/announcements/200868
Talked up by then MD Simon Hull no less. But two years later it was all over.

https://www.nzx.com/announcements/225338
"AWF Chairman Ross Keenan states that the Group has over recent times reviewed its progress in the Health sector and has decided that its resources can be better utilized in sectors more aligned with the existing AWF operations. Mr. Keenan commented"

This was before my time on the share register, so I don't recall what caused the backflip. But it might suggest that competing in the health sector against established players like like Healthcare of New Zealand Ltd is not as easy as keyboard strategists might suggest?

SNOOPY

[Snoopy]

Snoops …your incompetence theory interesting viewpoint and aligns with my thinking why I’d want a 12% expected v your 8.5%

I say 12% because of the recent declining cash lows and dividends which along with the current issues impacting the business I’d want a decent risk margin and 8.5% doesn’t reflect that.

I see execution risk as key here …..especially if you say the current team is not as competent as in the past lol

Interesting times eh …might look back in a years times with a $1.75 share price and say well that was a lost opportunity


Winner, that comment of yours that I have highlighted in bold. You have absolutely nailed it. Execution, execution, execution. And if they fail, the result could be (drum roll) execution, (in a job retaining sense this time). If things go well we might get back to $1.75, although I would be looking at a time-frame of two years to get there, not one. Nevertheless that would still be a fantastic return on today's sharemarket price of 67c (+12% today).

Still, I think until the full year result is announced at the end of next month AGL remains a gamble. We know the result will be bad. But how many are seeing what I see: A $15.6m loss, - including goodwill write downs, and no dividend, maybe even a cash issue? I think results day will be 'hammer time'. So if you are nervous, this uptrend might be something to sell into. Myself, unless this uptrend goes wild (above 85c), I intend to sit tight and 'see what happens'. Positive and negative outlooks are finely balanced.

SNOOPY

[Snoopy]

The days of good divies are long gone now for a while in my opinion


Sadly I agree with you here :(



In last few years…
We had a construction boom
We had a labour govt employing any consultant they could find…boom boom
We had a technology boom

Just like FBU…they can’t make consistent repeatable earnings.

Its a dog


Let's not get too hazy eyed. AWF embraced construction with gusto but it backfired on them. Plenty of work was done. But when the employers go broke, they don't pay their bills. Accordant have learned their lesson about supplying labour to the construction industry.

On your second point, Jackson Stone did get their pound of flesh from the NZ government. The problem was with the borders closed, AWF couldn't source their usual brigade of temp workers for seasonal harvesting. You can;'t really give AWF dog status for that. Madison lost the census contract (or rather didn't gain it, as it was a one off), which would have had a big effect on their 'project' revenue.

The Seek job website award for a 'large agency' in 2023 went to a tech recruiter called 'Potentia'. In February 2024 Potentia announced they were merging with 'Crew Technology' to form 'Aotearoa’s largest locally-owned tech recruitment business with 50+ people.' That will give Accordant's 'AbsoluteIT' some food for thought. I fear 'AbsoluteIT' have had their separate id, subsumed into Madison, and they are no longer the automatic point of call if you want candidates for a 'tech job'.

So events happen, things come and things go. I think you would have to be completely insensitive to the difficulties of the job market since Covid-19 arrived to call Accordant 'a dog' for operational reasons. Personally the problem I see with Accordant is their debt levels. How they handle that will determine the level of woofling at the next AGM.

SNOOPY

[nztx]

But all's not lost with AGL .. the more indepth research appearing here keeping the thread towards the top seems to make a few eager punters even more determined to grab their fill and inflate things up further pegs on NZX in the process :)

What's not to like about that ?

Writing off intangibles might be seen as a non cash measure

The balloon hasn't gone up just yet on the nature of the collateral damage .. based on past performances
the unwashed who manage to scratch together a small pile of these still may be believing 3 pennies
might be going rate to be tossed out ahead ;)

It maybe only won't happen until after the fat lady has finished singing and the piano player has put the lid down after the final number for the next expected porformance ;)

[Snoopy]

Writing off intangibles might be seen as a non cash measure


Writing off intangibles is[ a non cash measure. No doubt about it. But what punters - and I use that word deliberately - must keep in mind is that goodwill is only written off when there is no way the implied growth targets that this goodwill represents will be met. At EOFY2023, (AR2023 p56), revenue growth for all of the white collar business units was assumed to be 2.5% ad infinitum (up from the 1.5% expectation of the previous year). In order to maintain that level of goodwill on the books when sales decrease, that growth assumption would have to be ramped up yet again at EOFY2024.

At some point the auditors would step in and say to the board:
"Folks we admire your optimism. But your forecast of getting an ever increasing revenue cheque needs a reality check."

I should add that just because a company suffers a drop in sales, that does not automatically mean the goodwill on the books gets written down. If businesses are purchased at sensible multiples, then the 'meanderings of the operating market' more often than not, will not affect goodwill. Writing down goodwill is the last thing a board wants to do, because it amounts to them saying: "We screwed up."

So Jason announcing that Madison goodwill will need to be written down at EOFY2024 is a major admission of failure (although not his failure as he wasn't with the company when Madison was acquired.) Jason did not announce that AbsoluteIT will be getting a goodwill haircut as well. But I am speculating that Jason will do this as he is a relatively new CEO, and he will want to 'clear the decks' so he is not judged in the future by the past mistakes of others.

Writing off goodwill, is another way of saying: "Things will never get back to 'normal'. "



The balloon hasn't gone up just yet on the nature of the collateral damage .. based on past performances
the unwashed who manage to scratch together a small pile of these still may be believing 3 pennies
might be going rate to be tossed out ahead ;)


This is where assuming past dividends will continue as future dividends can get investors into trouble. Over the years, Accordant has paid out all of their net profit as dividends. A board my look through a 'down patch' and keep dividends steady, in expectation of a profit recovery. But the earnings progression from AGL since Covid-19 arrived has been more akin to a ski slope, culminating I believe in what will be an operational loss for this year. Despite that, 6cps in dividends has been paid in the last twelve months. It is all very well thinking the board will find another 3 cents down the back of the couch. But have you seen the couch? The back cushions have already been sold off to pay for that last divvy, and the board are now sitting precariously on their bums, wondering if they will -in future- be perched on the wooden frame if that is all that is left next year.



It maybe only won't happen until after the fat lady has finished singing and the piano player has put the lid down after the final number for the next expected poorformance ;)

I had to scramble to my business dictionary, as happens when I encounter a new bit of lingo that I have not seen before. And here is the wanton definition:

"poorformance" a subset of 'performance', used when you know the performance has been or will be 'less than satisfactory'.

After the 'poorformance' to be announced at the end of May, I am not counting on any more shekels coming my way soon, and nor should any other shareholder.

SNOOPY

discl: frustrated Accordant shareholder

[Nor]

I suffered for many years as a Fairfax shareholder through many write downs but still came out a bit ahead in the NEC merger. So write downs don't scare me. Bankruptcy does.