AIK - Armidale Investment Corporation Limited

[noodles]

Thought a would start a thread on a new purchase of mine.

AIK have 2 main investments. An IT hardware leasing company and a telecommunications distributor and buying group.

There is a good summary of the business in the AGM release.
http://stocknessmonster.com/news-item?S=AIK&E=ASX&N=767494

They are currently trading at 8c. They have a NTA of 15c.

I have already identified 4 items that will increase NTA by around 15% by the end of the year.
1. Revaluation of riverwise to reflect increased profits. The company have moved from a loss-making position to a NPAT of $4.8mil since the last valuation. Forecasted earning are for $6.8mil next year.
2. Profit share of riverwise. They should get up to 10% of profit as shares at the end of the year.
3. Discounted right issue. They acquired shares at a discount to the current valuation.

There are also doing new leasing going at HAL. This should hopefully mean the HAL business is revalued higher. I have not quantified this yet.

The above comments are not a recommendation. DYOR.

[noodles]

Below is a table showing the NTA since the new directors took over.

There is a big jump in June 11 and Feb 13. This is when the company got independent valuations of assets. I'm not sure when the next valuation will occur, but as stated in my previous post, I expect a decent increase.




month
year
nta


11
13
15.1


10
13
15.2


9
13
14.7


8
13
14.7


7
13
14.7


6
13
14.2


5
13
14.0


4
13
13.9


3
13
13.9


2
13
13.9


1
13
9.5


12
12
9.5


11
12
10.0


10
12
10.0


9
12
10.0


8
12
10.0


7
12
10.0


6
12
10.1


5
12
10.1


4
12
10.1


3
12
10.1


2
12
10.0


1
12
10.1


12
11
10.0


11
11
10.0


10
11
10.0


9
11
10.0


8
11
10.0


7
11
10.0


6
11
10.0


5
11
3.1


4
11
3.1


3
11
3.1


2
11
3.1


1
11
2.9


12
10
2.9


11
10
2.0


10
10
2.2


9
10
2.2

[noodles]

Table in chart form
5258

[noodles]

AIK own 28% of Riverwise. They do not equity account for Riverwise, rather add increase in value of their investment to their P&L.

However, it is interesting to work out how much profit Riverwise would add to the AIK P&L if they DID equity account.

For FY14 Riverwise expect to make a NPBT of 6.8 Million. Riverwise have some deferred tax assets so they may not pay the full corporation tax of 29%. But for purposes of this exercise, let assume they do.

All amounts in $millions
NPBT 6.8
Tax 1.972
NPAT 4.828

AIK own 28% of Riverwise. Therefore the share of NPAT is 1.352. AIK has 172474450 shares on issue. Therefore Riverwise would provide .8cps to the AIK P&L. This would put AIK on a pe of 10 for their Riverwise investment alone.

Of course, this excludes the HAL investment and the Profit Share from the Riverwise investment (see announcement http://stocknessmonster.com/news-item?S=AIK&E=ASX&N=767534).

The profit share should see AIK being issued 59110 Riverwise shares if they meet the NPBT of 6.8mil. The current valuation of Riverwise is $7.19 per share. This adds $425,000 to the P&L.

They key to 2014 for AIK Directors should be to get the market to appreciate the value held in Riverwise (and in turn in AIK). This might be via an independent valuation or an IPO.

[noodles]

"Capital Raising Placement Armidale Investment Corporation Limited (AIK) is pleased to announce it has received firm commitments from
institutional and sophisticated investors to raise $2.1 million (before costs).
Funds raised from the capital raising program will be used to fund future strategic investments opportunities,
funding commercial operating leases originated by Hal Data Services Pty Ltd (Hal), an entity in which AIK
currently holds 86% equity, and general working capital.
The placement involves the issue of 30,000,000 fully paid shares at an issue price of $0.07 per share to raise
$2.1 million from sophisticated investors and institutional clients (“Offer”).
The Company will issue a further announcement advising of completion of the Offer in due course.

AIK’s Executive Officer, Mr Andrew Grant, said that “These funds will be used to support the company’s activities
including the expansion of the HDS operating lease book. The support shown by our investors and the capital
markets for the AIK businesses is extremely pleasing.”
"
I see this as a reasonably positive development. It shows that the Hal business requires capital. This means it is writing new business. While there is positive cashflow, the loan book for Hal has been declining. The company only restarted looking for new business last year. No doubt the extent of the new loaning will become evident at the half year result. Obviously for the long term viability of the Hal business, the loan book need to grow or at least stay static.

I'm also hoping that with some institutional interest, we will start to get a bit more liquidity. The depth looks a lot more healthy already.

On the downside, the placement will reduce NTA per share and where the hell is the associated SPP!

[percy]

Keep up the good work Noodles.I saw you picked them in this year's competition.I therefore read up a bit.Owning 87% of one company and 23% of another,and lending one company more money,while managing a company and getting performance fees.and one company raised money,while another did a placement.I got lost!!!
However with you here to guide us I may eventually get there.!!!
Your chart I could understand!!!! lol.

[noodles]

Percy, yes she is a complex beast. This is likely part of the reason they trade at such a discount to nta.

Now I know someone is reading the thread, I will do a bit of a writeup on Hal.

[noodles]

A profit upgrade from Riverwise...

"The business update advises that the management accounts for the 6 months ended 31 December 2013 report a net profit after tax of $3.4m against the forecast for the same period of $2.6m. This follows on from the $4.7m profit
after tax for the full year ended 30 June 2013 released to the ASX on 21 October 2013.
We are further advised that the net assets of the group have improved from $16.8m as at 30 June 2013 to $23.6m as
at 31 December 2013. This is due to the combined effect of the $3.3m rights issue raising advised to the ASX on 16
December 2013 and the year to date profit noted above. "

This is significant to AIK for 2 reasons:
1. It will likely lead to a higher valuation of Riverwise. Riverwise have had 2 profit upgrades since it was last valued in 2013. It is difficult to speculate how much the rise in value will be, but I would be disappointed if it was less than 50%. The increase in value with lead to a jump in NTA for AIK.
2. AIK will be issued more shares under the profit share agreement. (see my Riverwise post)

Liquidity and price have improved today. I've added some more.

[noodles]

I've redone the calculation I did in this post http://www.sharetrader.co.nz/showthread.php?9532-AIK-Armidale-Investment-Corporation-Limited&p=452148&viewfull=1#post452148

This is based on todays revised upgrade.

earnings for AIK portion $1.971mill

eps for AIK portion .09c based on 230mill AIK shares on issue

I reiterate that these earnings are not equity accounted, but it gives an idea of the earnings that Riverwise make. Secondly, this is only the value in Riverwise. I have not assigned any value to HAL.

[noodles]

It will likely lead to a higher valuation of Riverwise. Riverwise have had 2 profit upgrades since it was last valued in 2013. It is difficult to speculate how much the rise in value will be, but I would be disappointed if it was less than 50%

I been thinking about this statement a little more. We can work out the Forecasted FY14 eps for Riverwise.
Current shares on issue:4,302 mill
Forecasted FY14 NPAT: $6.8mill (double 1H14 NPAT)
Forecasted FY14 eps: 1.637
Historic Valuation of Riverwise (Feb 2013): $7.19
Forecasted FY14 pe: 4.39

A pe of 4.39 is usually assigned to a company with negative growth. I think if this company were listed on the ASX, it could easily obtain a pe =12 for an ipo and higher once listed.
If we assigned a pe=12, that would value Riverwise at $19.64 or a market cap of $81.6mill.

AIK owns 29% of Riverwise. Therefore, it could be worth $23.6 mill on AIK's books. That is higher than the current market cap of AIK ($19.5 mill). AIK also has $18.5mill on the books for HAL.

So to summarize, I roughly calculate the value of AIK to be 23.6 + 18.5 = $42.1 mill vs a market cap of $19.5mill. If I am proven correct, that is quite a discount.

EDIT: Riverwise have not been paying tax. Therefore I'm not sure if the NPAT actually includes tax. I suspect not as they have deferred tax assets. Thus, the amounts assigned above do not constitute a normalized valuation. So in summary, the amounts won't be as rosy. I may repeat the exercise assuming no tax has been paid and provide a normalized valuation.