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

[Snoopy]

	FY2015	FY2016	FY2017	FY2018	FY2019	FY2020
Significant Event	First full year owning Madison			First full year owning AbsoluteIT		JacksonStone Acquired
Cash & Cash Equivalents: {A}	$3.151m	$0.0m	$1.225m	$6.269m	$6.357m	$6.178m
Non Current Borrowings:	$0.0m	$18.500m	$18.500m	$36.000m	$33.000m	$36.000m
add Current Borrowings:	$21.759m	$2.500m	$0.0m	$0.0m	$0.0m	$0.0m
add Overdraft:	$0.0m	$0.870m	$0.108m	$0.0m	$0.0m	$0.0m
equals Total Borrowings: {B}	$21.759m	$21.870m	$18.608m	$36.000m	$33.000m	$36.000m
Total Net Borrowings: {B} - {A}	$18.608m	$21.870m	$17.323m	$29.731m	$26.643m	$29.822m
Net profit declared {C}	$5.416m	$5.202m	$5.867m	$5.048m	$2.013m	$2.677m
MDRT ({B} - {A}) / (C}	3.4 years	4.2 years	3.0 years	5.8 years	13.2 years	11.1 years

The construction industry problems appear to have taken the wind out of what was this company's main driving sail. But the end result of going from a strong performing one cylinder motorbike five years ago to a 'flaccid four' today is more weight (overheads) and less performance (profit). It is enough for shareholders to think nostalgically about Simon Hull standing on the side of an Auckland Street loading the workers into a bus with a megaphone. But 'the Hullsters' approach is now history.

Today , under 'the Bennster', profitability has halved. So net debt should really be no more than half of what it was in 2015. That means we are looking at a cash issue of around $10m to fix the debt problem. Current market capitalisation is $50m, with the share price at $1.45. A 1:1 cash issue at $1 would raise approximately $30m. A 1:1 cash issue at $1.30 would raise approximately $40m. A 1:4 cash issue at $1.30 would raise approximately $10m. That's my pick on the way out.

Our Chairman, Ross Kennan, has had a couple of bites of the equity pie in the last few weeks. A 2nd July disclosure showed he bought 10,000 shares for $13,600. That works out at $1.36 per share. That follows on from the purchase of 14,016 shares declared on 30th June for $20,320.20 at an average buy price of $1.45. These purchases have not inspired the market though. The share price closed at $1.29 on Friday. The chances of getting a cash issue away at $1.30 to strengthen the balance sheet look slim now.

I am now picking a 1 for 2 cash issue at $1 to raise $15m. Some of that might be wiped out immediately by, I am picking, a writedown of the 'Madison' white collar goodwill.

	Madison	AbsoluteIT	AWF	JacksonStone	Total
Brand value	$7.465m	$1.980m	$0m	$1.029m	$10.474m
Goodwill	$20.223m	$7.836m	$11.212m	$5.797m	$45.068m
Grand Total					$55.452m
Revenue	$71.1m (1)	$67.5m (2)	$97.448m	$33.025m

Calculation Notes

(1) Estimated Apportioned revenue for Madison $138.569m x 51.3% = $71.1m.
(2) Estimated Apportioned revenue for AbsoluteIT $138.569m x 48.7% = $67.5m

Before Madison joined the group in FY2014, it generated a net profit of $2.513m. This year (FY2020) the whole group net profit was $2.677m. The lions share of that was from 'JacksonStone' ($1.943m, ref AR2020 p69) with the remaining three divisions (AbsoluteIT, Madison and Allied Workforce) contributing $0.743m combined. That $20m in Madison goodwill in particular is starting to look ridiculous with such a consistent record of shrinking profits over many years. $15m raised would wipe out half the group debt and allow a consummate $15m to be written off Madison goodwill without affecting overall debt equity ratios. Even with that kind of cash injection, AWF Madison would not necessarily be out of the woods. Lot's of pain for shareholders on the horizon, I fear, from a dilutive cash issue. But properly capitalised, I still believe the 'AWF Madison' business model is good.

SNOOPY

discl: hold AWF, but have too many to sell, so I will be sticking with them and supporting any heavily discounted share issue. Roll on the cash issue!