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

[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	2HY2024	HY2024	2HY2023	HY2023	2HY2022	HY2022	2HY2021	HY2021
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	3.0cps	3.0cps	6.5cps	5.6cps	6.5cps	8.2cps	0.0cps	0.0cps

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.

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
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