ALF - Allied Farmers Limited

[mfd]

Newly issued shares can now be seen in link accounts - a nice Christmas present with them currently showing a 28% return. I also got quite a few through the over-subscription facility, so it appears quite a few holders did not partake.

Time for the company to get on with the hard work getting NZRLC moving.

[nztx]

Newly issued shares can now be seen in link accounts - a nice Christmas present with them currently showing a 28% return. I also got quite a few through the over-subscription facility, so it appears quite a few holders did not partake.

Time for the company to get on with the hard work getting NZRLC moving.

Similar here .. only complaint -- could have thrown more at the Over Sub, but hindsight is a great thing ..

*Note to Self* must listen more to Golden ..

[kiwimalayalee]

58c not bad...

[nztx]

58c not bad...

and closed @ 0.61

still a smallish company in terms of Cap & available loose shares out there

perhaps investor perception in light of recent visibility is changing ?

[Ferg]

I have been trying to figure out the impact of NZL and the Management Co.

What we know is that ALF invested $2.5m for 50% of the Management Co plus $375k loaned to NZL (to convert to shares) plus an extra $750k in the IPO. What is interesting is that without this extra IPO investment of $750k and the increased investment from the insiders per the NZL thread post #35, the IPO for NZL would not have reached the minimum $ required to list. Total investment for ALF is $3.625m. If the interest free loan is converted to shares, this gives ALF 900k shares in NZL - if it is interest free, then whata is the benefit to ALF of NOT converting that loan to shares?

Per my post #8 in the NZL thread, I reckon the dividend from NZL will be about 1.7c gross per share based on 80% of NPBT. Assuming the $300k loan is converted to shares this will give ALF a gross dividend of circa $15k p.a. on 900k shares.

The Management Co will generate larger fees in the years where it acquires and leases farms. Based on the current funds and aspirations of NZL this equates to about $1.4m revenue per 10 year cycle, or $140k p.a. The ongoing fees based on NAV improvement (I assumed +3% p.a.) and performance incentives could be around $0.9m p.a. Total income to the Management Co (relating to NZL only) will be around $1.04m p.a. (based on spreading the upfront fees) Deduct Management Co operating costs of say $300k p.a. giving NPBT of $740k. 50% of this is $370 before tax for ALF.

Total ongoing gross returns to ALF are $370k from the Management Co + $15k dividends = $385k p.a. on an investment of $3.625m. This is a return of 10.6%, which is not bad considering the cost of funds and shareholder dividends is considerably less. Extra NPBT of $385k p.a. over 28.27m shares is an extra 1.3c per share, after tax is 1c per share. Apply a PE ratio of 10-20 and that implies additional "value" of 10-20c per share for ALF prior to the NZL IPO.

Keep in mind that if there is a surge of farm acquisitions and leases in year 1 then there will be a one-off spike in the revenues of the Management Co in that year. Possibly up to $1.4m with no further acquisition fees until the next round of capital raising in NZL, loan defaults and/or the 10 year cycle renews. I'm not sure of the IFRS treatment of such revenues, whether they would be recognised in the year of activity, of spread over the life of the deal - maybe the lease fees would be spread but the acquisition fees would not..?

[golden city]

I think they have mentioned they will raise money again this year

[golden city]

Imagine if they keep raise money every year for acquisitions that will make huge difference

[Ferg]

Imagine if they keep raise money every year for acquisitions that will make huge difference

Are you referring to NZL? I agree that one off fees are the bread maker, and more offerings are likely given the funds raised represented about 1/3rd of the opportunities identified. However, given the offer was for 60m shares but ALF and the insiders increased their stakes by 600k and 2.87m shares respectively to ensure minimum subscriptions were met, I suspect the appetite for low yielding rural farmland isn't as attractive as they think. So it may be a while before the next offer is on the table, I would say more than 2 years away.

Ongoing capital raising and farm acquisition will see 1.25% of the farm purchase prices go to the Management Co as transactions fees plus another $30k per new lease. This ends up being about 1.8-1.9% of the funds raised (the percentage on equity goes up given there is also debt funding).

Assuming a $75m capital raising and round of farm acquisitions every 4 years changes the numbers like this:

Annual dividends (assuming no new shares are bought by ALF) = $15k
Annual earnings based on 4 yearly raises are $925k, based on ($1.4m/4 + ($0.9m x2) - $0.3m)/2
Total annual pre-tax earnings lift is $940k (26% return on investment)
Per share impact is 3.3c per share before tax, or 2.4c per share after tax.

Annual capital raising will make a bigger difference but I do not see this as being likely. In any case, if ALF want to buy out the other 50% of the Management Co, then I'm guessing they will want to keep the earnings lower for the first 2 years.

Looking at the return on capital:
Dividends of $15k on an investment of $1.125m is a return of 1.3%.
Management fees of $925k on an investment of $2.5m is a return of 37% (or a 10 year cycle is a return of 370/2500 = 14.8% p.a.) - this is once all new leases are in place and NZL has effectively doubled in size, and assuming NZL can maintain NAV increases of 3% p.a. This might be optimistic given some of the initial NAV increases will be due to acquiring farms at a discount which will not be repeated in the quiet years.

Maybe the $375k loan should be repaid and not converted to shares. ALF should be able to get a better return elsewhere with that cash.

[nztx]

Did someone say 50c earlier in here ?

Don't go away .. the SP is coming down to kiss whoever had thoughts at that level ..

[frostyboy]

Did someone say 50c earlier in here ?

Don't go away .. the SP is coming down to kiss whoever had thoughts at that level ..

Probably me

Why 50c, who are the sellers;
- Elevation Capital are selling, they only bought to make deal happen to get their commission. Elevation capital are probably ok with selling down to their purchase price of 50cents.
- People who took up the rights offer are re-balancing their portfolios
- People getting impatient at the time it takes for NZL to buy properties and ALF getting the commissions. I suspect it will take longer than the market expects for a new company to setup their systems and processes, eg. you need to hirer staff