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

[Snoopy]

I doubt I will buy back in while the controlling shareholder remains in control.

Simon Hull indicated in his re-election to the board spiel that his family trust that controls the company may sell down at some point in the future. But he will continue to maintain a close personal interest in the company nevertheless.

SNOOPY

[Snoopy]

I keep wondering whether the controlling shareholder keeps holding the company back.?

You might be interested in what chairman Ross Keenan said about Simon Hull, before Simon gave his own re-election spiel Percy.

Fast forwards to 45 minutes into the presentation.

http://www.awfmadison.co.nz/video-aw...ting-july-2017

"...but I always admire Simon for not dominating the boardroom as often in the early days people suggested that he did, but he didn't. Always being supportive but questioning too and certainly a major contributor to the board of the group."

Of course you might argue that Ross Keenan would say that!

SNOOPY

[Snoopy]

Net Profit Margin = Net Profit/Sales

2013: $5.076m /($138.852m - $8.375m)= 3.89%
2014: $4.180m /$148.691m = 2.81%
2015: $5.447m/$197.514m = 2.76%
2016: $5.210m/ $214.589m = 2.43%
2017: $6.324m/ $256.428m = 2.47%

Note: For FY2013 I have removed the since sold healthcare unit profit and the associated turnover.

One uptick in the data in FY2017 is so far a welcome blip rather than a trend.

Generally clipping is done on a % basis. So there is a compounding effect when costs go up - which makes labour hire less attractive.

You can keep clicking the ticket until costs get so high automation or process redesign becomes economic.

Minimoke may have a reputation on this thread as a portent of AWF doom. But I wouldn't agree with the point that increasing wages and automation will do away with the role the likes of AWF has in finding and hiring good people. That said, the sliding net profit margin does look to be an unwelcome trend. I don't really understand the nuts and bolts of the business enough to figure out why as the business gets apparently more sophisticated, AWF cannot earn the same margin by recovering their costs.

I agree with Percy to the extent that AWF is now a dividend play rather than a growth play. But the prospect of al 40% capital gain, while enjoying an 8% gross dividend yield at the end of it, certainly has my attention!

SNOOPY

[percy]

Simon Hull indicated in his re-election to the board spiel that his family trust that controls the company may sell down at some point in the future. But he will continue to maintain a close personal interest in the company nevertheless.

SNOOPY

At that time,so long as the present chairman is replaced,it may be worth re analysising the business.
Currently the share price is back to where it was 4 or 5 years ago,with the dividend under threat.
As an aside, it appears to me the way this sector operates has changed, and AWF, instead of being at the forefront of change, have been left behind.

[minimoke]

Minimoke may have a reputation on this thread as a portent of AWF doom.

Shall we just let teh charts do teh talking.

(not sure what the fuss with Census is - it was mainly on -line and a much smaller pool of people this year than previously. Watch for news on construction industry exposure and check they (Madison) haven't been hit by latest scam)

[winner69]

You may be confusing the two Simons Winner. The controlling shareholder is Simon Hull with a 51.7% stake. Simon Hull is on the board, but has no day to day role in the company any more. The CEO is Simon Bennett. It is easy to confuse the two because although they are unrelated, at a casual glance they look quite similar!

SNOOPY

I was mislead by Hull’s profile on their website where it says he is Managing Director

Annual Report says he was MD ......and he only gets Director fees and no wages so I presume he doesn’t have much to do with day to day stuff leaving that to the CEO

[winner69]

Snoops - where do you get your NPAT and EPS numbers from ....they seem to be different from what is in the Annual Report

[Snoopy]

The exercise of trying to normalise results is not always easy, as there are always 'judgement issues' to consider. And whatever numerical tools you think you have to assist with your investment decisions, you must still use judgement to assess the validity of those tools.

Management in AR2016 and AR2017 have gone on about this 'one off' bad debt, but haven't adjusted for it in AR2016 (when they still produced their own 'underlying earnings' figure). While a big account going wrong like this is unusual, is it unusual enough to distort the normal earnings of the business? I am forced to conclude that while management have put in extra checks and will no doubt learn from the experience, there is still a good chance it will all happen again. In this instance I have taken my queue from management, and not made any 'underlying adjustments' for this account gone bad. Doing nothing in this instance is also the more conservative thing to do. Conservatism, when valuing an investment, gives you an extra safety factor.

By contrast I have now decided to adjust my 'normalised results' for property, plant and equipment sales under the broader concept of adjusting for asset sales. Once an asset it sold, it cannot be sold again. So it seems right to remove property plant and equipment sales to give a better picture of operating results. However the actual adjustments in relation to profit are quite small (for example in FY2017, $50,000 on a $6.324m normalised profit is less than 1%). So doing this breaks my other rule of 'keeping things as simple as possible' and not being distracted by minutiae. However I decided to do it anyway, because not all asset sales are trivial. And if I am going to include the non-trivial asset sales when they occur, I need to include the trivial ones of today to be consistent.

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.

2013: ($4.952m+$0.124m)/ 25.805m = 19.7cps
2014: ($3.952m-$0.025m+0.72x($0.095m+$0.257m) )/ 25.805m = 16.2cps
2015: ($5.416m+$0.031m)/ 32.463m = 16.8cps
2016: ($5.202m+$0.008m)/ 32.463m = 16.0cps
2017: ($5.867m-$0.050m+0.72x($0.262m+$0.442m) )/ 32.463m = 19.5cps

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

Snoops - where do you get your NPAT and EPS numbers from ....they seem to be different from what is in the Annual Report

I have normalised the NPAT earnings Winner as above. The figures above in bold should be those that appear in the annual report and my normalising adjustments follow. As for the 'eps' figures, these are simply the normalized earnings divided by the shares on issue at the end of the financial year. When new shares are issued during the year, I don't attempt to do a 'weighted average' adjustment because:

1/ Those extra shares will all be with us in the future, and it is the future 'eps' earning potential of AWF, while using like with like comparison metrics, that is of most interest to me.
2/ It is conservative from an 'eps' perspective to assume all shares issued during the year were on issue for the whole year.
3/ I am lazy.

SNOOPY

[winner69]

Snoops - that naughty debtor whoever it is owes $1.4m and is in liquidation

AWF have only provided $0.8m of this as being bad ...they reckon they’ll get the other $0.6m

Be a bugger if they don’t eh ...another $0.6m off the bottom line (be abnormal item eh Snoops)

Auditors believed the story that was spun last year ..even though the amount provided increased from $0.3m to $0.8m

Might not be too believing this year .....then again it might even be paid in full by mow and AWF can writeback the $0.8m to profit. That be good

[minimoke]

I don't really understand the nuts and bolts of the business enough to figure out why as the business gets apparently more sophisticated, AWF cannot earn the same margin by recovering their costs.

Its one of the simplest businesses around. You simply hire out worker labour to hiring employers at a rate higher than your all up costs.

Two common reasons for business failure, aligned with cashflow:
- not enough worker labour to meet employer demand
- not enough employers demanding available working labour.