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

[Snoopy]

The very strong profit booked for FY2021 must be considered in light of the more that $33m in wage subsidies claimed over FY2021. Receiving the wage subsidy is close to the government endorsing your end of year accounts saying FY2021 was 'business as usual' and paying the company money so that it officially looks that way. With Covid-19 severely disrupting the employment of potential overseas candidates to fill skills shortages within New Zealand (particularly IT), this has to affect the recruitment market going forwards for most of the FY2022 year, and possibly longer. My forecast profit for FY2022 is $6.5m (my post 918). But I have to wonder at the FY2022 effect of pulling out a $33m (five times my modelled profit level) security blanket from a company so that it can 'recover' via 'market forces'.

The July 2021 monthly BNZ/Seek employment survey result is out. I thought it might be interesting to check main centre job advertising in the five main centres where Accordant operate their white collar recruitment offices (especially Madison and AbsoluteIT that have been under pressure) since the March 31st balance date. Finally I thought it worthwhile looking at employment trends in the recruitment industry itself. I have taken the percentage information from the respective categories in each monthly report, the July edition of which is here:

https://www.bnz.co.nz/assets/markets...bd70f9ce7dbd17

and turned each percentage into a multiple: for example 20% growth month on month equals a multiple of 1.2. Lastly I have multiplied each row of multiples together to get a four month picture:

	April 2021	May 2021	June 2021	July 2021	Cumulative Multiple
Auckland	1.13	1.18	1.04	1.01	1.40
Waikato	1.18	1.10	0.97	1.11	1.40
Wellington	1.07	1.10	1.04	0.99	1.21
Canterbury	1.09	1.11	1.02	1.03	1.27
Otago	1.21	1.17	1.00	1.09	1.54
Human Resources & Recruitment	1.20	1.07	1.02	1.14	1.49

I will be interested to see if any of this ties up with comments from the Chair and CEO of the company at the upcoming AGM. What is in the back of my mind is that these are 'advertisements'. But Accordant gets paid for 'job placements'. What happens if you don't fill a job this month? You put the same advert in next month! What I am saying is that increasing advertisements could point to increasing demand for jobs OR increasing difficulty in filling those jobs that are available (or could it be a bit of both?).

Another thing that Accordant have mentioned is that they use their own networking, via 'Facebook' and 'LinkedIn' as well as other more conventional means, rather than placing ads. That is because sometimes the best person for the job doesn't apply for it. These kinds of appointments are not reflected in the above table.

What this table is telling us is that there are a lot of opportunities for job applicants in Auckland/Hamilton and Dunedin. There are also lots of opportunities in the recruitment industry itself. Whether these opportunities are translating to profits for Accordant, and I am thinking about the real problems getting right skilled people from overseas into NZ right now, remains to be seen. As CEO Simon Bennett said in HYR2021 p5, when speaking about the Madison division.

"As a generalist and low to mid level recruiter, there is a tendency for clients to attempt this recruitment themselves in the early stages of a recession."

I read that as saying that some of these advertised HR positions are actually medium size companies deciding to do their own recruitment in direct competition to Madison.

Anyone got another take on this table?

SNOOPY

[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-websit...215/343655.pdf

The July 8th announcement reported 150,000 shares added to the list from an 'off market' trade at $1.64 (that is what Stockness said on the day). I see the subsequent NZX notice states that the transaction was 'on market'. Hmmmm. The treasury stock grand total is now 517,289. So Accordant are more than half way there towards the one million shares that they are after. The question is who did they buy the shares off? There aren't too many on the share register with that many available to sell in one transaction!

SNOOPY

[Snoopy]

AWF divisional earnings can be found on p33 of AR2021 (Note A1 Segment Revenue and Results).

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said

"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

Turnover at AWF over FY2021 was $77.762m, suggesting EBITDA of $3.1m to $4.7m. Take off $1.7m in Depreciation and Amortisation (refer my post 904) off those EBITDA estimates and I get a forecast EBIT of $1.4 to $3.0m.

=> middle forecast EBIT = $2.2m

Division	AWF	Combined White Collar
Average Liabilities	$18.527m	$24.161m
Percentage of Average Liabilities	43.4%	56.6%

Interest bill attributable to AWF I therefore estimate as: $0.707m x 0.434 = $0.307m.

If I go down the middle of my previously estimated EBIT range, the expected baseline NPAT for the AWF division is:

0.72 x ($2.2m - $0.307m) = $1.4m

My white collar 'Net Profit Margin' post is based on historical information on the date the respective business units were acquired.

My total forecast NPAT for FY2022, attributable to the white collar division only, is:

Business Unit	Madison	AbsoluteIT	JacksonStone
Forecast FY2022 Turnover	$62.0m	$80.3m	$33.3m
Modelled Net Profit Margin	0.034	0.034	0.072
Business Unit Net Profit	$2.1m	$2.7m	$2.4m

Business Unit ->	Madison	AbsoluteIT	JacksonStone	AWF	G&A Expenses	Total
Forecast FY2022 Turnover	$62.0m	$80.3m	$33.3m	$77.8m	N.A.	$253.4m
Modelled Net Profit Margin	0.034	0.034	0.072	0.018	N.A.	0.026
Business Unit Net Profit	$2.1m	$2.7m	$2.4m	$1.4m	-0.72x$2.850m	$6.5m

A Net Profit Margin (NPM) of 0.026 is otherwise represented as 2.6%. If we look at NPM figures for FY2014 to FY2017 inclusive, before disruptive events, first customer instability in the construction industry, then Covid-19, disturbed the norm (but crucially before the profit star JackStone was part of the group), then those equivalent figures are: 2.81%, 2.76%, 2.43%, 2.46%. This shows my estimated Net Profit Margin for FY2022 is 'in the ballpark'.

Crucially, on an 'earnings per share' basis, that works out as:

$6.5m / 34.326m = 18.9cps

In recent history the annual dividend has been set at: 8.0cps + 8.2cps = 16.2cps. If you 'believe the story' as I have mapped it out, that means the 'historical dividend' looks sustainable. At the last trading price of $1.61, this means Accordant is trading at a gross dividend yield of:

161 / (16.2)(0.72) = 13.8%

Is that the best prospective dividend yield on the market today? I think it might be, if you could actually buy a decent parcel of shares at $1.61. I managed to top up my holding at that price. But despite only being after a parcel of shares that was -back in the old days (pre Sharsies)- regarded as a minimally sized economic parcel, it took me a month to acquire the said shares!

This hasn't been a great share for me. Despite owning Accordant, or whatever its ancestor was back then, since 2015 - when I bought my first tranche - I am still underwater by 20% in capital terms (my average share purchase price is now $2.04). However, I have been happy to hold for the dividends and the hoped for business recovery. The main risk I see in my modelling is that my divisional net profit margins, (I have largely used pre-Covid-19 values), are too high. There is also a chance that I have modelled the NPMs as too low. But in that scenario, I would imagine a shortage of applicants, which could see less jobs being filled, is the problem. This higher NPM would be a symptom of much lower turnover (the multiplicative product effect being bad for AGL).

$6.5m NPAT = ($6.5m/0.72) + $0.707m = EBIT of $9.7m.

Interest Coverage EBIT/I = $9.7m/$0.707m = 13.7 times. So even if my earnings forecasts are a little out, I don't think the banks will be worried

Computer software amortisation over FY2021 was $0.228m, and deprecation expense was $2.702m. This means underlying EBITDA (excluding goodwill write offs from acquired business units) can be calculated as:

$9.7m + $0.228m + $2.702m = EBITDA of $12.7m

Net debt at balance date was: $15.000m - $1.795m = $13.205m

This gives an 'Net Debt' / EBITDA ratio of $13.205m/ $12.7m = 1.04

Overall I would give Accordant a 'nervous tick of approval' for investment today on the potential of dividend returns.. However, Buffett would require rather more than this. I wouldn't be expecting to find Berkshire Hathaway on the Accordant share register any time soon.

The fact that these two debt covenants are at conservative levels is what gave me the confidence to top up my investment in Accordant. If my earnings outlook for FY2022 proves horribly wrong, then Accordant can try again in FY2023 without fear of the banks closing in, and I don't need to sell out (which for liquidity reasons I can't do even if I wanted to!)

SNOOPY

[glennj]

I appreciate you sharing your work on this one Snoopy. I bought in to this one some years back based on my own research and it hasn't really panned out as expected/hoped and is one of the very few of my stocks in that category. Capital losses have been cancelled out by dividend income. I'm still holding and watching.

[Snoopy]

The very strong profit booked for FY2021 must be considered in light of the more that $33m in wage subsidies claimed over FY2021. Receiving the wage subsidy is close to the government endorsing your end of year accounts saying FY2021 was 'business as usual' and paying the company money so that it officially looks that way. With Covid-19 severely disrupting the employment of potential overseas candidates to fill skills shortages within New Zealand (particularly IT), this has to affect the recruitment market going forwards for most of the FY2022 year, and possibly longer. My forecast profit for FY2022 is $6.5m (my post 918). But I have to wonder at the FY2022 effect of pulling out a $33m (five times my modelled profit level) security blanket from a company so that it can 'recover' via 'market forces'. Furthermore, if my $6.5m profit for FY2022 is achieved, we have to evaluate that that against the net debt burden of some $13m.

$13m/$6.5m gives an MDRT figure of 2.

No announcement from Accordant. But you would have to assume that possibly the greatest wage subsidy recipient on the NZX (in relation to its size anyway) is once again puckering up the government teat, and good on them. They are a labour company after all. And if the government has taken away their people's right to work, it is only fair that the government should look after those people via the wage subsidy.

The 2020 lockdowns actually worked out OK for Accordant. The wage subsidy allowed them to divert what other cashflow the company had towards retiring debt. I am hoping the same might happen again. If so, I believe that Accordant could emerge from CY2021 near to debt free. This will be great for the resilience of the company going forwards. What is not so good is how the effect of this lock down, and possibly other future lock downs, will affect the confidence of the business world going forwards. It could be there is more of a trend towards temporary workers, as a way to manage the corporate cost structure. If this happens, it could signal 'good times' for Accordant. They actually do better when the business climate is just a little off ideal. My big question mark is not that there will cease to be a demand for good workers. But will Accordant be able to source the workers they and their customers need, particularly those island workers, while the travel bubble from the islands for such workers gets pushed back? IOW job advertisements going up is not necessarily a good sign for Accordant, if they can't fill those positions. I am hoping some of the answers to my concerns will spout forth from the mouth of our 'Good Keen(an) Man" Chairman as he fronts up for his last '(Com?)batting Session' at the AGM at the end of the month.

Meanwhile that share price just keeps quietly firming between $1.60 and $1.70. I am feeling quietly confident about this one. But I am not confident enough to buy more shares before learning about 'progress from the pulpit' on September 29th.

SNOOPY

[Snoopy]

No announcement from Accordant. But you would have to assume that possibly the greatest wage subsidy recipient on the NZX (in relation to its size anyway) is once again puckering up the government teat, and good on them. They are a labour company after all. And if the government has taken away their people's right to work, it is only fair that the government should look after those people via the wage subsidy.

The 2020 lockdowns actually worked out OK for Accordant. The wage subsidy allowed them to divert what other cashflow the company had towards retiring debt. I am hoping the same might happen again. If so, I believe that Accordant could emerge from CY2021 near to debt free. This will be great for the resilience of the company going forwards. What is not so good is how the effect of this lock down, and possibly other future lock downs, will affect the confidence of the business world going forwards. It could be there is more of a trend towards temporary workers, as a way to manage the corporate cost structure. If this happens, it could signal 'good times' for Accordant. They actually do better when the business climate is just a little off ideal. My big question mark is not that there will cease to be a demand for good workers. But will Accordant be able to source the workers they and their customers need, particularly those island workers, while the travel bubble from the islands for such workers gets pushed back? IOW job advertisements going up is not necessarily a good sign for Accordant, if they can't fill those positions. I am hoping some of the answers to my concerns will spout forth from the mouth of our 'Good Keen(an) Man" Chairman as he fronts up for his last '(Com?)batting Session' at the AGM at the end of the month.

Meanwhile that share price just keeps quietly firming between $1.60 and $1.70. I am feeling quietly confident about this one. But I am not confident enough to buy more shares before learning about 'progress from the pulpit' on September 29th.

Wow! Accordant on a tear in the market today!

Good news for those seasonal business who use Regional Seasonal Employer workers in recent days.

https://www.nzherald.co.nz/nz/covid-...5BUV3Q4TC6NSQ/

I am not entirely sure if Accordant will benefit from this, although I expect they might. Perhaps this, along with the accumulation of wage subsidy cash, is behind the rise and rise of AGL shares. The price exploded today up 5%, busting through the $1.80 mark, albeit on tiny volume. It has been a tough two years for AGL shareholders. But perhaps we are about to hit that purple patch? Will retiring Chair Ross Keenan, the only director to support the share price in the last two years, be able to go out in a burst of colour after all?

SNOOPY

[nztx]

Wow! Accordant on a tear in the market today!

Good news for those seasonal business who use Regional Seasonal Employer workers in recent days.

https://www.nzherald.co.nz/nz/covid-...5BUV3Q4TC6NSQ/

I am not entirely sure if Accordant will benefit from this, although I expect they might. Perhaps this, along with the accumulation of wage subsidy cash, is behind the rise and rise of AGL shares. The price exploded today up 5%, busting through the $1.80 mark, albeit on tiny volume. It has been a tough two years for AGL shareholders. But perhaps we are about to hit that purple patch? Will retiring Chair Ross Keenan, the only director to support the share price in the last two years, be able to go out in a burst of colour after all?

SNOOPY

Share Register is as tight as - Snoops

Trying to buy this one is like trying to pull teeth and then you only wind up with a few lamp posts at a time

Share BB hasn't helped liquidity either .. but then if well primed & pressure applied, it could take off
like a rocket up the chimney on slightest hint of the right sort of signals

[Snoopy]

Share Register is as tight as - Snoops

Trying to buy this one is like trying to pull teeth and then you only wind up with a few lamp posts at a time

Share BB hasn't helped liquidity either .. but then if well primed & pressure applied, it could take off
like a rocket up the chimney on slightest hint of the right sort of signals

I just had a look at the FY2021 at the gap between the results announcement date (27th May) and when the buying back of shares stopped (7th July). By my reckoning that is exactly six weeks, which may be the window allowed for 'insider buying'? Does anyone know the rules about this? I know there is a window in which directors are allowed to buy and sell. But I was under the impression that if you announced an on market buyback of shares, those same window dressing rules did not apply?

Nevertheless, we might be heading into another window of 'insider buying' once the virtual AGM kicks off on 29th September? If Accordant are getting the wage subsidy, they may elect to cancel the next dividend payment. It wouldn't be a good idea to get the 'grant from Grant' and then spit it back to shareholders in such an immediate and attention grabbing way. However, if that helps reduce the debt burden of the company, then I am OK with this course of action. If others are not O.K. with this, we shareholders with a longer term vision might man the share 'accumulation station' for any discounted top up opportunity.

I see we AGL shareholders are atop the green board today as the shares surge 9c (5%) to $1.85.

SNOOPY

[Nor]

..If Accordant are getting the wage subsidy, they may elect to cancel the next dividend payment. It wouldn't be a good idea to get the 'grant from Grant' and then spit it back to shareholders in such an immediate and attention grabbing way. However, if that helps reduce the debt burden of the company, then I am OK with this course of action. If others are not O.K. with this, we shareholders with a longer term vision might man the share 'accumulation station' for any discounted top up opportunity.

I see we AGL shareholders are atop the green board today as the shares surge 9c (5%) to $1.85.

SNOOPY

Good thinking. Let's hope they skip the dividend.

[nztx]

Good thinking. Let's hope they skip the dividend.

Why would they ?

It's not as if the Wage Subsidy times theoretically should produce anything other than a Loss

If there is a surplus, that would be after offsetting Lockdown week's losses, so stakeholders indirectly
& the company could already be paying for Lockdown conditions imposed on them from the Powers
in their Glass Towers as it is ..

If things were entirely fair - Govt should be fully reimbursing all for 100% of their Losses & Lost
Profits arising from the Govt inflicted Lock Down periods. (in the same way as they expect to extract
the tax dollar on anything looking like a taxable surplus, no exceptions)

There is possibly good reasonings that the most recent Lock-down stems from Negligence & Failure
on one part or another at the hands of those administering MIQ facilities & Containment borders
where the most recent outbreak stemmed from