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!

[Snoopy]

I am not going to pretend that he likes of Warren Buffett would find AWF a suitable investment at this time. So we need to use an alternative method for valuation. I choose the 'capitalised dividend valuation' method as appropriate here.

Time for my FY2021 (estimate) update! I am assuming a cash issue in FY2021 and because of the need to preserve capital no dividend over FY2021 either.

	eps	dps (imputed)
FY2017	19.6	16.0
FY2018	15.8	16.2
FY2019	6.2	16.2
FY2020	9.4	16.2
FY2021(e)	?	0.0
Total	51.0	64.6
5 year Average		12.9

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

= (12.9c / 0.72) / 0.08 = $2.23

However as a result of the expected cash issue, I foresee the number of AWF shares on issue to increase by one share for every four in existence right now, or 25%. This will reduce my share price valuation accordingly.

$2.23 / 1.25 = $1.78

This is based on a net dividend per share (dividend declared) of 12.9c/1.25 = = 10.3c

Whether you believe that valuation or not depends on how well you think that AWF Madison will recover compared to pre-Covid-19 earning and dividend levels.

I am re-running this calculation to take into account the higher number of shares that will likely be on issue following my assumed future capital raising.

I am not going to pretend that he likes of Warren Buffett would find AWF a suitable investment at this time. So we need to use an alternative method for valuation. I choose the 'capitalised dividend valuation' method as appropriate here.

Time for my FY2021 (estimate) update! I am assuming a cash issue in FY2021 and because of the need to preserve capital no dividend over FY2021 either.

	eps	dps (imputed)
FY2017	19.6	16.0
FY2018	15.8	16.2
FY2019	6.2	16.2
FY2020	9.4	16.2
FY2021(e)	?	0.0
Total	51.0	64.6
5 year Average		12.9

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

= (12.9c / 0.72) / 0.08 = $2.23

However as a result of the expected cash issue, I foresee the number of AWF shares on issue to increase by one share for every two in existence right now, or 50%. This will reduce my share price valuation accordingly.

$2.23 / 1.5 = $1.49

This is based on a future estimated net dividend per share (dividend declared) of 12.9c/1.5 = = 8.6c

Whether you believe that valuation or not depends on how well you think that AWF Madison will recover compared to pre-Covid-19 earning and dividend levels. I believe my valuation is realistic taking a medium term view of the business. So I am no hurry to sell on the market today at, ouch, $1.27.

SNOOPY

[Snoopy]

As a result of the expected cash issue, I foresee the number of AWF shares on issue to increase by one share for every two in existence right now, or 50%. This will reduce my share price valuation accordingly.

$2.23 / 1.5 = $1.49

This is based on a future estimated net dividend per share (dividend declared) of 12.9c/1.5 = = 8.6c

Whether you believe that valuation or not depends on how well you think that AWF Madison will recover compared to pre-Covid-19 earning and dividend levels. I believe my valuation is realistic taking a medium term view of the business. So I am no hurry to sell on the market today at, ouch, $1.27.

I have been watching my AWF shares over the last four weeks. On the very day of my last post, July 13th, the share price took off again and made it all the way to $1.44. But from that peak it was a steady walk down so that today we close at exactly the same price today as four weeks ago - $1.27. On the day of my last post it was almost as if someone at head office had said -hey- the share price shouldn't be that low. Better get the sharsies gang on the job to cause a price rally. Actually I think the 'someone' was Ross Keenan, who to give him his credit, stood in the market and bought. Once the momentum was established the micro-liquidity push from sharesies was all that was required to keep AWF shares going up. However it hasn't lasted. I still think a cash issue is imminent. The board must be signing it off as we speak if the paperwork is going to be out for the announcement at the AGM on September 30th. As far as the prospects for AWF going forwards, I offer my following 'best practise' analysis. Some have quietly said to me some of my analyses are too complex. But this time I think I can summarise the story in a way that all punters can understand:

"i believe. I believe, I believe, I believe, I believe!"

That's it. Much easier than going through any numbers. Hopefully that will rouse the interest of the sharsies gang and it will be onwards and upwards on Monday.

SNOOPY

[Nor]

Very useful to be alerted to the possibility of a cash issue. Might have bought more at too high a price otherwise.

[Nor]

Ten trades today. Volume 25. At least these buyers stand little chance of losing a bundle. Gotta be a good share medium to long term. I don't see the future of work reverting to full-time permanent for their segment of the work force.

[winner69]

Can't resist keeping an eye on the share price - one day it might be a star

But jeez it's sinking to new lows at the moment

[DarkHorse]

Can't resist keeping an eye on the share price - one day it might be a star

But jeez it's sinking to new lows at the moment

Much prefer PPE on the asx - value AND growth.

[Snoopy]

Much prefer PPE on the asx - value AND growth.

Interesting DarkHorse. I have been looking for some time to find a 'measuring stick' for AWF and PPE might be it. I went over to the ASX forum and couldn't find a thread on PPE. I wondered if you might tell us how PPE came to your attention?

SNOOPY

[jg8512]

Interesting DarkHorse. I have been looking for some time to find a 'measuring stick' for AWF and PPE might be it. I went over to the ASX forum and couldn't find a thread on PPE. I wondered if you might tell us how PPE came to your attention?

SNOOPY

Snoopy, and have a look at HIT.ASX (HiTech Group). best performed recruiter on the ASX, almost pure IT recruiter play (contractors and permanents). Mkt cap of about $55-60m, net cash position of ~$7m (c/w AWF's huge debts), consistent dividend payer, multi-year consecutive eps growth. eps CAGR of 20%+ over last five years. very heavy weighting to govt departments, so low bad debts / less vulnerable to economic slowdown. largest shareholder is founder (Hazouri), who is chair while his brother IIRC is CEO. on a P/e of ~17x. Disc: long-term holder.

[winner69]

Doesn’t say what profit measure they using but this is good news -

Limited: Market Update
AWF Madison Group Limited (NZX:AWF) wishes to update the market on its expected half year financial results, which are likely to show materially higher profit than the FY2020 Half Year result on reduced turnover.

So NPBT > $2m ....not too bad ...even if the wage subsidy did pull them through