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-websit...215/343655.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options and 66,000 forfeited options (AR2022 p63), and we get a grand total of: 150,000+81,000+66,000=297,000 options withdrawn.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/BU22...-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/nqRblNs4jmN5...0IALwSk3zq4ecw

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/fa...ent-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-websit...182/381935.pdf

[Snoopy]

	eps	dps (imputed)
FY2018	15.8	8.2 + 8.0
FY2019	6.2	8.2 + 8.0
FY2020	9.4	8.2 + 8.0
FY2021	18.1	0.0 + 0.0
FY2022	10.4	8.2 + 6.5
FY2023	?	5.6 + ?
Total	59.9	60.7
5 year Average		12.1

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.

	eps	dps (imputed)
FY2018	? + -0.001	Not Applicable
FY2019	6.2	8.2 + 8.0
FY2020	9.4	8.2 + 8.0
FY2021	18.1	0.0 + 0.0
FY2022	10.4	8.2 + 6.5
FY2023	6.1 + ?	5.6 + 6.5
Total	50.2	59.2
5 year Average		11.8

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:

	HY2022	2HY2022	HY2023
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/pol...nd-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