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  1. #761
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    Default Updating the banking covenants (FY2018 perspective)

    Quote Originally Posted by Snoopy View Post
    What follows is my recreation of the table presented in slide 8

    Financial Year 2015 2016 2017 2018 (HY Annualised Estimate Scenario) 2018 (Horror Scenario)
    EBITDA (Snoopy produced *) {B} $12.729m $11.945m $12.751m $12.046m $7.728m
    Finance Cost {C} $2.109m $1.333m $1.193m $1.659m $1.659m
    Interest Coverage {B}/{C} (target >3) 6.0 9.0 10.7 7.3 4.7
    Net Bank Debt {D} $18.608m $21.870m $32.383m $23.183 $23.183m
    Leverage ratio {D}/{B} (target <3) 1.5 1.8 2.5 1.9 3.0

    (* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)


    So what does all this mean?

    The situation we don't want is the 'horror scenario' which sees the 'leverage ratio' banking covenant broken (bottom RH corner in bold). Note that even in this 'horror scenario', the interest coverage ratio remains OK. I have made the following assumptions in my FY2018 estimates:

    1/ The net bank debt is unchanged from HY2018 (the latest balance sheet information published).
    2/ My first estimate simply doubles the earnings from an already depressed half year result.
    3/ For my second estimate (the horror scenario), I have reduced EBITDA down to a level so that the banking covenants are broken, without changing my net debt assumption.

    However, AWF does not tend to emphasize the EBITDA figures when announcing their results. They speak in terms of NPAT. So what does an EBITDA of $7.728m imply in terms of NPAT?
    Assuming the interest costs and Depreciation and Amortisation costs carry over from the half year to the full year:

    NPAT = 0.72 x [ EBITDA - I -DA ]
    = 0.72 x [ $7.728m - 2($0.741m) - 2($1.864m)] = $1.813m

    However, a $3.418m profit has already been declared for the half year. So to produce an annual result like that, would require a second half loss of :

    $1.813m - $3.418m = -$1.605m

    We have been told that AbsoluteIT are tracking to budget and Madison will have the benefit of the Census contract to boost their second half result. To produce this 'horror result' will require a massive second half loss to be posted by the AWF division, to drag down the other two (which should be nicely profitable) via the group result into the red. Even writing off the remaining $0.6m outstanding from the much talked about 'bad debtor' won't do it. While such a loss is possible, it just doesn't seem likely. The AWF banking covenants look pretty safe to me.

    SNOOPY

    P.S. Ross and the rest of the board wants the leverage ratio below 2
    Financial Year 2015 2016 2017 2018 2019 (estimate)
    EBITDA (Snoopy produced *) {B} $12.729m $11.945m $12.751m $11.751m $10.304m
    Finance Cost {C} $2.109m $1.333m $1.193m $1.297m $1.274m
    Interest Coverage {B}/{C} (target >3) 6.0 9.0 10.7 9.0 8.1
    Net Bank Debt {D} $18.608m $21.870m $32.383m $29.731m $27.331m
    Leverage ratio {D}/{B} (target <3) 1.5 1.8 2.5 2.5 2.7

    (* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

    The table below has been used to calculate the covenant figures for the composite twelve months made up from the second half year of FY2018 and the first half year of FY2019.

    Financial Year HY2018 2018 2HY2018 {A} HY2019 {B} 2HY2018+HY2019 {A}+{B}
    EBITDA (Snoopy produced *) {B} $7.093m $11.751m $4.652m $5.152m $9.810m
    Finance Cost {C} $0.741m $1.297m $0.556m $0.637m $1.193m
    Interest Coverage {B}/{C} (target >3) NM 9.0 NM NM 8.2
    Net Bank Debt {D} $23.183m $29.731m $29.731m $27.331m $27.331m
    Leverage ratio {D}/{B} (target <3) NM 2.5 NM NM 2.8

    That EBITDA banking debt covenant is still a worry. We are getting close to that bank ceiling of 3 and still well away from the management target of 2. Nevertheless it looks like things have turned the corner!

    SNOOPY
    Last edited by Snoopy; 15-01-2019 at 02:24 PM.
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  2. #762
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    Default Capitalised Dividend Valuation (FY2019 Perspective)

    Quote Originally Posted by Snoopy View Post

    eps dps (imputed)
    2014 16.2 15.6
    2015 16.8 14.8
    2016 16.0 15.2
    2017 19.6 16.0
    2018 21.6 (*) 16.2
    Total 90.2 77.8
    5 year Average 15.6

    (*) Based on projected FY2018 NPAT earnings for the year of $7m.

    For a leading market player in a nevertheless fragmented service profession I would accept a 7.5% gross dividend yield. However, with the vulnerability to weather permissible building projects as evidenced in the first half, I am pushing out my acceptable gross dividend yield to 8%

    Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

    = (15.6c / 0.72) / 0.08 = $2.70

    Last sale on the market was $1.80. Using this valuation model, I think AWF Madison is now trading at a 33% discount to fair value.

    SNOOPY

    discl: holder
    Quote Originally Posted by Snoopy View Post
    Just to show there is more than one way of doing things, I have slightly changed the way I am calculating underlying profit. I am now removing property plant and equipment sales profits/losses from all of my calculated profit figures.

    2014: ($3.952m-$0.025m+0.72x($0.095m+$0.257m) )/ 25.805m = 16.4cps
    2015: ($5.416m+$0.031m)/ 32.463m = 16.7cps
    2016: ($5.202m+$0.008m)/ 32.463m = 16.0cps
    2017: ($5.867m-$0.050m+0.72x($0.262m+$0.443m) )/ 32.463m = 19.6cps
    2018: ($5.048m+$0.2224m-0.72x($0.170m) )/ 32.555m = 15.8cps


    Notes:

    1/ Due diligence cost for "Madison" removed from FY2014. "Madison Business" acquisition costs removed from FY2014.
    2/ "Absolute IT" acquisition costs removed from FY2017. Legacy software write down removed from FY2017.
    3/ Refund from partiual failure of AbsoluteIT earn out provision removed from FY2018 result.

    Conclusion: Fail Test
    Time for my FY2019 update!

    eps dps (imputed)
    FY2015 16.7 14.8
    FY2016 16.0 15.2
    FY2017 19.6 16.0
    FY2018 15.8 16.2
    FY2019 12.8 (e) 16.2
    Total 80.9 78.4
    5 year Average 15.7

    (e) = estimated profit based on doubling the half year result.

    Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

    = (15.7c / 0.72) / 0.08 = $2.73

    However, there is a plot in the planning to increase company capital by increasing the number of shares to reduce debt.

    The main long term 'problem' with AWF is their 'shortage of capital' and how many new shares will need to be issued to overcome it. The more new shares that are issued, the lower the earnings per share. All other things being equal this means a lower share price.

    Estimated Capital Shortage: $27.331m - $20.608m = $6.729m

    New capital is being raised twice a year via the dividend reinvestment scheme. Further cash is injected into the business, over and above the declared profit, as 'Customer Relationships' and 'Restraint of Trade' intangible assets are amortized. This effect of these two phenomena over the last two dividend payments are tabled below:

    Dividend Paid Dividend Money Reinvested {A} Customer Relationship Amortization {B} Restraint of Trade Amortisation {C} Money Available for Debt Repayment {A}+{B}+{C}
    1HY2019 ($2.704m) $0.773m $0.969m $0.109m $1.851m
    2HY2019 ($2.637m) $0.797m $0.969m $0.109m $1.875m
    FY2019 ($5.431m) $1.552m $1.937m $0.217m $3.706m


    Over a couple of years the likely cashflow available for debt repayment is therefore poised to extinguish the excess debt that the board wants retired. The 'dividend money reinvested' part of this equation is $1.552m. If these shares are bought at $1.71, then this will require $1.552m/ $1.71 = 907,600 new shares to be issued. Adding that number to the number of shares on issue today makes the total shares on issue:

    33,423,399 + 907,600 = 34,330,999

    at the end of the debt reduction process.

    At EOFY2018 the number of shares on issue was 32,555,193

    This means that the incremental number of new shares that need to be issued to retire debt is: 34,330,999 / 32,555,193 = 5.5%

    This expected increased number of shares will reduce our fair value target price as follows:

    $2.73 / 1.055 = $2.59

    At a share price of $1.71 (the price that the last DRP shares were issued), I therefore think that AWF is trading at a price 34% below its fair value. This is why I have been scooping up shares via the DRP and buying on market!

    SNOOPY
    Last edited by Snoopy; 16-01-2019 at 05:58 PM.
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  3. #763
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    Good on you Snoops on scooping up those 14,000 shares at 168 today

    Well done
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  4. #764
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    I still haven’t forgotten the illegal employment contracts that were written by this company. To me this indicates that there were and probably still are major underlying problems. A publicly listed employment recruitment company writing illegal contracts. It doesn’t get much worse than that.

  5. #765
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    Quote Originally Posted by winner69 View Post
    Good on you Snoops on scooping up those 14,000 shares at 168 today

    Well done
    Considering the DRP share price was $1.71, that makes $1.68 on market a good price Winner. But not me this time.

    In the absence of 'new news', my instinct is to keep my powder dry and wait for the full year result. Half year result was cashflow positive, buoyed by more diligent collection of debts, the capital injection from the DRP and non cash goodwill write offs that reduced profit but not cashflow. Having said that, not as much cash was generated as the previous pcp half year. Historically cashflows have consistently exceeded profits by a significant margin for the full year. Yet I have noticed a pattern of reduced cashflows in the second half. Reduced to the extent that on occasion the full year cashflow is less than the half year cashflow! I don't really understand why this is. A 'cleansing of the books', as more construction company client troubles are quietly shuffled off the books to make a better platform from which to spring from for the coming year perhaps? But I do feel that the upcoming full year result will be a turning point, one way or the other, for the company.

    SNOOPY
    Last edited by Snoopy; 05-02-2019 at 07:46 AM.
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  6. #766
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    ..........
    Last edited by minimoke; 02-07-2019 at 02:33 PM. Reason: Deleted by Minimoke in response to STMOD censorship of posts

  7. #767
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    Snoopy — Hope you not feeling guilty at stealing those shares at 156
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  8. #768
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    ..........
    Last edited by minimoke; 02-07-2019 at 02:33 PM. Reason: Deleted by Minimoke in response to STMOD censorship of posts

  9. #769
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    Quote Originally Posted by winner69 View Post
    Snoopy — Hope you not feeling guilty at stealing those shares at 156
    Those 27,500 shares traded out of close to 33m on issue you mean? A 2.5% share price drop can happen on a low liquidity share on an insignificant event. Could be 'Dead Fred' getting out, as the family liquidates his estate?

    SNOOPY

    P.S. who nevertheless is secretly hoping the share price drops to 1c. That would allow me to double my holding come the next DRP!
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  10. #770
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    Quote Originally Posted by Snoopy View Post
    As Simon Bennett said in the Interim Report for FY2019:
    "It is clear that there is opportunity in the construction sector and that, well-managed, the opportunity exists to deploy large numbers of migrant workers. We will be conservative in the degree to which we continue to participate for the foreseeable future."

    If so that recovery I am always predicting could be to a lower level than I was thinking. I see that under the latest restricted share scheme, presumably to incentivise the employees, that the 2021 to 2014 'in the money' redemption price only needs to be above $1.90. Probably employees going to work and eating their lunch would achieve this. That isn't much of a 'growth vision' for senior management to grapple with.
    Interesting announcement to the NZX today regarding the wind up of some 'Restricted E' and 'Restricted F' shares. Information on restricted shares can be found on p51 of AR2018.

    I find today's announcement opaque. I -think- a senior employee has left and any 'Restricted Shares' they have held have therefore been cancelled. These restricted shares were issued but paid for by way of an interest free loan, by AWF, to that employee. The redemption price for both classes of Restricted Shares was $2.57. And it seems AWF has had to pay $2.57 to acquire these shares back and then cancel them (?). I assume they have been cancelled, because the press release stated that they are not being held as treasury stock.

    $2.57 is well above the current market price. But AWF have bought the shares anyway, paying money to themselves and then cancelling the shares (?). Is my interpretation of what has happened correct?

    I wonder who the senior employee was who suddenly left?

    SNOOPY
    Last edited by Snoopy; 28-02-2019 at 11:14 AM.
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