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

[stoploss]

GENERAL: AWF: AWF Group expects to announce results on 15 May 2013





The Board of AWF Group Ltd has advised its intention to announce the company


results for the year ended 31st March 2013 on or around 15th May 2013.





Simon Hull, Managing Director noted that the strong performance has continued


as per the guidance given earlier with sales of $130million exceeded for the


first time, and EBITDA and underlying earnings lifting satisfactorily.





As previously reported the profit from the sale of Panacea Healthcare has


further strengthened the Group's position.





For the Board





Ross B Keenan


Chairman

[zigzag]

Sounds good to me!

[percy]

Looks as though we find ourselves "well positioned."

[stoploss]

caught the DIL/XRO bug.....2.80 traded

[percy]

Looks as though we find ourselves "well positioned."

With the SP finishing at over $3.00 for the first time we have moved to "poised."

[stoploss]

With the SP finishing at over $3.00 for the first time we have moved to "poised."
Hi Percy, market cap $ 80 mio, looking forward to the full year result . I suppose when we hit 100 mio mkt cap the sharebrokers might start to cover this ....Prob be time to get out then ....

[percy]

Hi Percy, market cap $ 80 mio, looking forward to the full year result . I suppose when we hit 100 mio mkt cap the sharebrokers might start to cover this ....Prob be time to get out then ....

Think you are right.
I too am looking forward to the full year result.

[stoploss]

Think you are right.
I too am looking forward to the full year result.

Did I miss something ?

[percy]

Did I miss something ?

After I saw the SP I thought the result must be out.!!!!!
No, still tomorrow,
Looking forward to tomorrow.!!!

[stoploss]

FLLYR: AWF: AWF RECORDS STRONG FULL YEAR RESULT





AWF Group is celebrating a strong lift in revenue and earnings and further


lifts dividend.


The Board of AWF Group has advised that turnover lifted by 24% to $130


million ($105 million in 2012) and net profit after tax (NPAT) rose to $6.9


million up from $2.6 million in 2012.


After removing the net one off impact of the sale of Panacea Healthcare (as


advised to shareholders in August 2012). Underlying Earnings were $5.4


million ($4.6 million 2012) an increase of 17.5% for the year.


Chief Executive, Mike Huddleston reported that all sectors of the business


continued to show strong growth and profitability in an economy receptive to


the provision of quality temporary staff.


"Throughout the entire year all divisions of the business continued to


experience solid growth in an increasingly positive employment market. Whilst


the predominantly rural regions of the country have shown slower growth due


undoubtedly to the drought conditions, Wellington has witnessed a degree of


recovery and Christchurch and Auckland have shown particular strength from


growth in construction, infrastructure development and manufacturing" he


said.





For the Board, Chairman Ross Keenan expressed Directors' desire to recognise


the Group's on-going


shareholder support by declaring the following dividends:


A final dividend of 9.2 cps (interim 6.4 cps) to total 15.6cps for the year,


an increase of 20%


(previous year 13 cps).


A one off special dividend of 3 cps reflecting approximately 75% of the cash


profit on sale of Panacea Healthcare.


Total dividend for the year to 31/3/13 therefore 18.6 cps (13 cps last year)


All dividends are fully imputed and the final dividend will be payable on 28


June to shareholders on the register as at 21 June 2013.


For the Board Ross B Keenan Chairman

[percy]

A lovely day here in Christchurch just turned into a cracker of a day.
Stoploss.Thanks for posting the result.Wonderful,divie up and a "special" divie.Record this,record that.!!
Can't ask for a better result.

[noodles]

It is a great result.

I think the the NZX should be questioning the company about the recent share price movement. Very fishy. It does not reflect well on our market.

[Lawt]

Brilliant, and isn't it amazing how the market just seemd to predict this result so well just a month out? Markets really are quite intuitive after all.

[stoploss]

Brilliant, and isn't it amazing how the market just seemd to predict this result so well just a month out? Markets really are quite intuitive after all.

They kind of told you here it was going to be a good one ........
AWF Group expects to announce results on 15 May 20131:27pm, 24 Apr 2013 | GENERAL
The Board of AWF Group Ltd has advised its intention to announce the company results for the year ended 31st March 2013 on or around 15th May 2013.
Simon Hull, Managing Director noted that the strong performance has continued as per the guidance given earlier with sales of $130million exceeded for the first time, and EBITDA and underlying earnings lifting satisfactorily.
As previously reported the profit from the sale of Panacea Healthcare has further strengthened the Group's position.

For the Board
Ross B Keenan
Chairman

[zigzag]

It is a great result.

I think the the NZX should be questioning the company about the recent share price movement. Very fishy. It does not reflect well on our market.

Rubbish. There is absolutely nothing fishy about this. It was well signaled. Just enjoy it, and stop looking for problems where they don't exist.

[janner]

Percy is a good example of a " One Man Band " ..

He has been playing the AWF tune .. the POT tune.. the HNZ tune.. along with a few other tunes....

All at the same time.. For quite some time !!!..

I am interested to hear his next melody .. :-)

[percy]

Percy is a good example of a " One Man Band " ..

He has been playing the AWF tune .. the POT tune.. the HNZ tune.. along with a few other tunes....

All at the same time.. For quite some time !!!..

I am interested to hear his next melody .. :-)

Yes it certainly has been the year of "the percy".Add RYM and SUM and I may start to think I know what I am doing.Usually the market kicks me up the backside when I think I am clever.
Working on the next melody for you.

[noodles]

They kind of told you here it was going to be a good one ........
AWF Group expects to announce results on 15 May 2013

1:27pm, 24 Apr 2013 | GENERAL


The Board of AWF Group Ltd has advised its intention to announce the company results for the year ended 31st March 2013 on or around 15th May 2013.
Simon Hull, Managing Director noted that the strong performance has continued as per the guidance given earlier with sales of $130million exceeded for the first time, and EBITDA and underlying earnings lifting satisfactorily.
As previously reported the profit from the sale of Panacea Healthcare has further strengthened the Group's position.

For the Board
Ross B Keenan
Chairman

I stand corrected. Thankyou

[h2so4]

Yes it certainly has been the year of "the percy".Add RYM and SUM and I may start to think I know what I am doing.Usually the market kicks me up the backside when I think I am clever.
Working on the next melody for you.

Ha! Do Aussie shareholders get a special meeting with "the percy" at Travinos?

[percy]

Ha! Do Aussie shareholders get a special meeting with "the percy" at Travinos?

I am really looking forward to the get together.
Bermuda is brilliant on oil and coal-seam gas stocks.
Dellow is brilliant on tech stocks.
KW. is brilliant on small cap Aussie stocks.
You have a pretty brilliant portfolio.
So I think I will be asking a lot of questions.
Are you really coming along to the get together? I hope so.

[h2so4]

Yes me and mrs h2. Its ok she does all the buying and selling. I'm looking forward to it.

[percy]

Yes me and mrs h2. Its ok she does all the buying and selling. I'm looking forward to it.

Great.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[stoploss]

http://www.radionz.co.nz/news/business/135201/warning-of-labour-market-shortages

Good article but I think the final divvy bit at the bottom is wrong.

[percy]

Percy is a good example of a " One Man Band " ..

He has been playing the AWF tune .. the POT tune.. the HNZ tune.. along with a few other tunes....

All at the same time.. For quite some time !!!..

I am interested to hear his next melody .. :-)

The next melody has been chosen.
It is www.estaronline.com/investor-relations I have added to our holdings recently at 10cents.The market cap at present is just over $8mil.Very impressive list of clients.Been profitable for a number of years.
I expect a very positive announcement on the afternoon of the 7th June.
I hope they will announce;
a] a profitable year.
b] a dividend fully imputed.
c] they will list either on NZAX or Unlisted.[NZAX would be better].

[SCOTTY]

The next melody has been chosen.
It is www.estaronline.com/investor-relations I have added to our holdings recently at 10cents.The market cap at present is just over $8mil.Very impressive list of clients.Been profitable for a number of years.
I expect a very positive announcement on the afternoon of the 7th June.
I hope they will announce;
a] a profitable year.
b] a dividend fully imputed.
c] they will list either on NZAX or Unlisted.[NZAX would be better].

Well spotted Percy. This melody is constantly in my head as well. :)

[stoploss]

Some good quotes in this press release.

http://www.awf.co.nz/files/AWFReleaseResultto31032013.pdf (http://www.awf.co.nz/files/AWFReleaseResultto31032013.pdf)

[percy]

I see Simon Hull sold 2.5mil shares at $2.90 to help liquidity.Craigs placed the shares in 39minutes last night.Cum the divies.

[stoploss]

I see Simon Hull sold 2.5mil shares at $2.90 to help liquidity.Craigs placed the shares in 39minutes last night.Cum the divies.

Hopefully Craigs will start researching them.......

[percy]

Is any one going to the AGM at Barrycourt Hotel on Wednesday 24th July at 11am?

[forest]

Is any one going to the AGM at Barrycourt Hotel on Wednesday 24th July at 11am?

Percy, I am planning to be there. Why you asking ?

[percy]

Could I ask you to give a report of what happens please ?.
I wish I was going.Bit disappointed as I will be in Auckland for the day on 1st of August.Had I known earlier I could have made my plans around the meeting. I have spoken to Mike Huddleston on the phone,and would really like to met him.

[zigzag]

Percy, I am planning to be there. Why you asking ?

Yo Forest. I am planning on being there too. I met you at the Dilligent meeting, along with Dellow, Roadrunner and the lady with the shiny shoes. ZZ.

[forest]

Zigzag I will look out for you, will be good to see you again.

Percy I will post some comments of the agm for you, but remember always do you own research. :)

[percy]

Zigzag I will look out for you, will be good to see you again.

Percy I will post some comments of the agm for you, but remember always do you own research. :)

Have just read the annual report.Very pleased with how they are performing.They did say they would give an update at the agm.
My problem is the newspaper reporters often seem to miss what is important.
However having you and ZZ there, I feel you will not miss anything>!!!!!

[stoploss]

Zigzag I will look out for you, will be good to see you again.

Percy I will post some comments of the agm for you, but remember always do you own research. :)

Thanks guys , appreciate it. seems they are making quite a big deal out of the "25" years, hopefully they have something special up the sleeve to celebrate.....

[stoploss]

Looks pretty positive, with just a little note of caution "headwinds"
https://www.nzx.com/files/attachments/178675.pdf

[Toulouse - Luzern]

Classic.

Exceptional results.
Debt free.
Capital for expansion.

Exceptional debtor; asset; project; brand; resource; risk; finance; and overall general management.

Excelsior.

[zigzag]

Last page of the report, second to the right of the donkey. :cool:

Yeah. They showed the full commercial at the meeting. Unfortunately she didn't get her T-shirt wet.

[stoploss]

good to see them get some press....

http://www.stuff.co.nz/business/industries/8958558/There-are-jobs-there-every-day (http://www.stuff.co.nz/business/industries/8958558/There-are-jobs-there-every-day)

[forest]

Could I ask you to give a report of what happens please ?.
I wish I was going.Bit disappointed as I will be in Auckland for the day on 1st of August.Had I known earlier I could have made my plans around the meeting. I have spoken to Mike Huddleston on the phone,and would really like to met him.

Not much to report Percy, AWF is doing nicely. This company seem to understand the changes in their market (employment hire) well and are clever enough to make changes to their business model when required.
There were no contentious questions asked.

Percy you can leave those AWF shares in the bottom of your drawer a while longer.

[percy]

Thanks Forest.Maybe I will get there next year.!?

[Lizard]

good to see them get some press....

http://www.stuff.co.nz/business/industries/8958558/There-are-jobs-there-every-day (http://www.stuff.co.nz/business/industries/8958558/There-are-jobs-there-every-day)




"Unfortunately, Wellington and construction are not really synonymous."
On the money there...but who needs a major earthquake or rampant house price inflation. :eek2:

[stoploss]

From todays announcement a slight variation on the "well positioned "-Anyway I like it that they are positive ...
DISC: Holding
"

Keenan noted that following recent strong profit and dividend years, the


Group's current position of zero debt meant that AWF was now well placed to


consider further growth opportunities. "

[percy]

Definitions explained:: !!!!!
Well positioned,; New Tea lady is happy in her job,so all is well.
Well placed ; New Tea lady is talking of replacing the arrowroot biscuits at morning tea time with chocolate creams.
Poised;,New Tea lady has replaced the chocolate creams with scones at morning tea.Staff now ready for anything and everything.!!!!

[percy]

Definitions explained:: !!!!!
Well positioned,; New Tea lady is happy in her job,so all is well.
Well placed ; New Tea lady is talking of replacing the arrowroot biscuits at morning tea time with chocolate creams.
Poised;,New Tea lady has replaced the chocolate creams with scones at morning tea.Staff now ready for anything and everything.!!!!

[percy]

Sorry I don't know how I posted it twice.!!

[stoploss]

Definitions explained:: !!!!!
Well positioned,; New Tea lady is happy in her job,so all is well.
Well placed ; New Tea lady is talking of replacing the arrowroot biscuits at morning tea time with chocolate creams.
Poised;,New Tea lady has replaced the chocolate creams with scones at morning tea.Staff now ready for anything and everything.!!!!

One would assume at AWF they would have many a tea lady to choose from .......

[zigzag]

Definitions explained:: !!!!!
Well positioned,; New Tea lady is happy in her job,so all is well.
Well placed ; New Tea lady is talking of replacing the arrowroot biscuits at morning tea time with chocolate creams.
Poised;,New Tea lady has replaced the chocolate creams with scones at morning tea.Staff now ready for anything and everything.!!!!

Just what is your relationship with the tea-lady. Do you need to disclose something? Disclosure - Holding ( the company - not the tea-lady)

[percy]

Chief scone taster.

[stoploss]

Percy "well positioned for expected growth in the second six months "

https://www.nzx.com/companies/AWF/announcements/241880

Not too sure what to make of this I suppose not the best news now ...however a positive outlook.....

[noodles]

Wow, that's awesome, paying $36M for a company with $56M turnover p/a! Diversification into white collar business as well, within an industry they already know. Zero debt as well. These guys are a definite buy after last years performance and when CHCH kicks in to gear!

Wow, they just announced a 20% DROP in profit.

[noodles]

I calculate 2014/15 profit to be:

2013 Profit from continuing operations $5.4mil
+50% increase (as stated in annoucement) of $2.7
TOTAL $8.1 mil

That's an eps of .341

Puts AWF on a pe < 10

So the acquisition certainly makes sense.

However, the amount of debt($36 mil) on the BS and recent poor(profit) performance certainly means the stock doesn't justify the high pe that it once had. Remember, this is a cyclical stock

[BlackCross]

The market seems to like it - up 9% at the open.

[noodles]

The market seems to like it - up 9% at the open.

Sure is. Guess what the spread is ... 9%

Another risk... liquidity.

DISC: Do not hold, but seriously considering buying some

[percy]

Percy "well positioned for expected growth in the second six months "

https://www.nzx.com/companies/AWF/announcements/241880

Not too sure what to make of this I suppose not the best news now ...however a positive outlook.....
Certainly is a very positive announcement.The acquisition is of a good size and will be good for AWF .
Certainly gives AWF much needed growth/bulk.
Pleased there is a sizeable earn out fee.

[percy]

From the notice of meeting;"AWF's underlying EPS could exceed 30 cents for the 2014/15 financial year. This compares with EPS of 20.7 cents reported by AWF in the 2012/13 financial year.Such an increase in earnings would allow significant headroom for a steady lift in dividends while providing for the Company to adopt an appropriate debt programme."
"The new opportunities which are expected to be created as a result of the Madison acquisition and the wider sector involvement available to the integrated AWF/Madison group is expected to significantly lift the AWF Group's attractiveness to clients.Any financial benefits in this respect have not been quantified in the above forecasts."
Very positive.Use of the word "significant" twice in the announcement is a very strong buy signal.!! lol.

[stoploss]

https://www.nzx.com/companies/AWF/announcements/243804

[percy]

Bit of a wake up call for us.

[psychic]

Yup. Simon may have to park the boat for a spell and crack the whip back at the mill.
disc. out today but disappointed nonetheless.

[Lizard]

Interesting comments, snapiti.

I halved my remaining holding on the announcement to reduce the risk. I still like the yield, but seemed like one for the chop as I re-balance the portfolio to "neutral" after recent price moves across the market.

[stoploss]

It is amazing what you can learn off the street.
A good friend of mine has a teenage son who was employed through Allied workforce until recently.
I got to catch up with him in the weekend and asked what happened to your job I know the very large contracters that he worked for had so much work on and I was surprised to hear he had lost his job.
He replied the contractor got sick of all the muppets AWF were supplying as workers they told everyone employed through AWF dont come monday.
Could this be a case of all care no responcibility.

Not too often you get a teenager admitting they are a total muppet !!!

[percy]

Not too often you get a teenager admitting they are a total muppet !!!

I think it is the nature of the beast that AWF have trouble attracting the best trades-people.[as do all temp agencies]
They are recruiting overseas to improve their pool of trades people.
Also the Madison acquisition will help drive stable earnings by moving into the white collar market.
Great ROE,strong balance sheet,good management make the outlook " of interest."

[stoploss]

The talk is pretty bullish on Madison , supppose they could go gangbusters and the rest of the group could drag them down ....

https://www.nzx.com/files/attachments/185387.pdf

[percy]

Nice to see Milford have joined us as shareholders.
Will we see a stampede of Milford coat-tail hanger-oners following them?

[stoploss]

Nice to see Milford have joined us as shareholders.
Will we see a stampede of Milford coat-tail hanger-oners following them?

Hi Percy, Think he got the initial lot in the 5 % placement . Since the last update have sold a few ( by the looks of things to him !! ) to get into PEB amongst others ....
Happy holding the balance , positioned for the upturn in earnings when Madison kicks in .....

[percy]

Hi Percy, Think he got the initial lot in the 5 % placement . Since the last update have sold a few ( by the looks of things to him !! ) to get into PEB amongst others ....
Happy holding the balance , positioned for the upturn in earnings when Madison kicks in .....

The disclosure did say "beginning to have substantial holding",however you have refreshed my memory,and I think they did indeed get some of the placement.
I agree we are "well positioned" for the upturn when Madison kicks in.Maybe later on this year.

[psychic]

Yeah - kinda surprised when I saw this as hadn't seen any vol recently? But pleasing for Holders no less

[percy]

As expected a "challenging year" for labour hire.
I think the coming year will be more rewarding going from statements in the announcement.;
"The AWF Group is winning SIGNIFICANT new business as a direct result of the combined AWF and Madison business proposition."
"The new opportunities Madison is providing in the permanent recruitment sector have countered the challenges of the light labour supply and the business should provide balance for the AWF Group in the future."
"Mr Huddleston said at this early stage of the 2015 year the Group was performing well and to plan."
PSI [percy significant index] With the word significant only used the once in the announcement,AWF rates as a strong hold.!

[stoploss]

Percy , just wondering did you have a hand in the annual report ? Seems to be an abundance of " well positioned " in the first few pages .......

https://www.nzx.com/files/attachments/196069.pdf

[percy]

Percy , just wondering did you have a hand in the annual report ? Seems to be an abundance of " well positioned " in the first few pages .......

https://www.nzx.com/files/attachments/196069.pdf

Who ever wrote it thankfully must never look at sharetrader..!!!! I could not stop laughing.!!!! lol.
Right.Now we talk Turkey,well The PSI.The PSI is offcourse The Percy Significant Index.With the use of the word "significant" twice in the Letter from the Board we have moved onto Red Alert.Strong Buy signal has been given!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[percy]

From the notice of meeting;"AWF's underlying EPS could exceed 30 cents for the 2014/15 financial year. This compares with EPS of 20.7 cents reported by AWF in the 2012/13 financial year.Such an increase in earnings would allow significant headroom for a steady lift in dividends while providing for the Company to adopt an appropriate debt programme."
"The new opportunities which are expected to be created as a result of the Madison acquisition and the wider sector involvement available to the integrated AWF/Madison group is expected to significantly lift the AWF Group's attractiveness to clients.Any financial benefits in this respect have not been quantified in the above forecasts."
Very positive.Use of the word "significant" twice in the announcement is a very strong buy signal.!! lol.

I note the AWF agm is tomorrow.
I will again miss it.May I ask for a report from those of you who will be attending it.
Would one of you please ask whether they are on track to deliver the eps of 30 cents they referred to above. [notice of meeting to approve Maddison acquisition].
thanks in advance.

[stoploss]

I note the AWF agm is tomorrow.
I will again miss it.May I ask for a report from those of you who will be attending it.
Would one of you please ask whether they are on track to deliver the eps of 30 cents they referred to above. [notice of meeting to approve Maddison acquisition].
thanks in advance.

http://news.media.mdgms.com.s3.amazonaws.com/f16bc3bfc96e6e7bd47ebe981a9edfad

[BlackCross]

Not much depth if I wanted out....In fact no depth whatsoever now the two small buyers have gone..

[macduffy]

http://news.media.mdgms.com.s3.amazonaws.com/f16bc3bfc96e6e7bd47ebe981a9edfad

It's to be hoped that the Basin Reserve flyover wasn't one of the big infrastructure projects that AWF was looking to for its Wellington business revival.

[noodles]

I went to the AGM today. I think there were 2 keys themes:
1. The company is on target for underlying NPAT of $8mill. This is the target they set last year.
2. A capital raising of 8-10 million will be undertaken around October. Shareholders made it clear that they wished to participate.

Without a capital raising, the FY15 eps= 31c. At today's close of 2.40, it puts it on a pe of 7.84

If we include the additional shares issued as part of the capital raising, it would obviously change the pe. So lets assume $9mill raised at $2.20. This would equate to an extra 4090909 shares
.

Now the pe = 9.06

This is a HUGE discount to the average pe on the NZ market (16???)

[winner69]

even more huge than you think noodles .... some have the NZX PE at 18 to 19

[percy]

I went to the AGM today. I think there were 2 keys themes:
1. The company is on target for underlying NPAT of $8mill. This is the target they set last year.
2. A capital raising of 8-10 million will be undertaken around October. Shareholders made it clear that they wished to participate.

Without a capital raising, the FY15 eps= 31c. At today's close of 2.40, it puts it on a pe of 7.84

If we include the additional shares issued as part of the capital raising, it would obviously change the pe. So lets assume $9mill raised at $2.20. This would equate to an extra 4090909 shares
.

Now the pe = 9.06

This is a HUGE discount to the average pe on the NZ market (16???)

Thanks for your post.
I found the presentation very confusing.
Thought it was written by someone suffering bipolar disorder.
Talk of tough times,then set for record result.Increasing the dividend,then needing a capital raising??
Thanks for working through the eps.At 31cents they will beat the 30 cents target when Maddison acquisition was voted on.
Whatever way we look at it the fundamentals are very modest.ie low PE with high dividend yield.

[winner69]

Seems ridiculously cheap eh noodles

Market stupid? or does the historical baggage still hand around its neck

haven't really followed lately so don't know much

[noodles]

The CEO of Maddison also spoke. He said that usually temp is strong and perm is weak (or vice versa). However, both are currently strong. This has never been experienced by Maddison before.

So clearly the Maddison business is doing very well.

[zigzag]

I went to the AGM today. I think there were 2 keys themes:
1. The company is on target for underlying NPAT of $8mill. This is the target they set last year.
2. A capital raising of 8-10 million will be undertaken around October. Shareholders made it clear that they wished to participate.

Without a capital raising, the FY15 eps= 31c. At today's close of 2.40, it puts it on a pe of 7.84

If we include the additional shares issued as part of the capital raising, it would obviously change the pe. So lets assume $9mill raised at $2.20. This would equate to an extra 4090909 shares
.

Now the pe = 9.06

This is a HUGE discount to the average pe on the NZ market (16???)

The extra capital raised would be used to retire debt, so less interest to pay in the second half. This would also affect the PE. However I can't see the share price moving to much until the debt and capital raising issues are worked through. Capital raisings generally put downward pressure on the share price, so buyers will mostly hang off until there is more clarity.

[zigzag]

Thanks for your post.
I found the presentation very confusing.
Thought it was written by someone suffering bipolar disorder.
Talk of tough times,then set for record result.Increasing the dividend,then needing a capital raising??
Thanks for working through the eps.At 31cents they will beat the 30 cents target when Maddison acquisition was voted on.
Whatever way we look at it the fundamentals are very modest.ie low PE with high dividend yield.

Percy. This is a topic that Mr Gaynor touched on. i.e. You can't increase the dividend, raise capital,retire debt, and be a growth company all at the same time. Focus on one thing at a time and stop trying to be all things to all people.

[zigzag]

In general I got the impression that the outlook was good, once these immediate issues have been dealt with.

[percy]

Percy. This is a topic that Mr Gaynor touched on. i.e. You can't increase the dividend, raise capital,retire debt, and be a growth company all at the same time. Focus on one thing at a time and stop trying to be all things to all people.

Thanks Zigzag.
I had been waiting for the presentation.[Had hoped to go the the agm].Had a very quick read of the presentation,then went for a walk and had lunch,then read it again.Still did not make sense.Thanks to Noodles' and your posts, I coming to see I was "not alone" it thinking it was a very messy presentation.I share Brian Gaynor's concerns.

[percy]

In general I got the impression that the outlook was good, once these immediate issues had been dealt with.

I think the Maddison acquisition is turning out to be a cracker.
I wonder whether they would like a stronger balance sheet so as they can grow Maddison faster ?

[noodles]

Thinking about the capital raising. They could avoid it if they had a fully underwritten dividend reinvestment plan. This means that the company can declare a dividend, but not have any cashflow impact. They could probably raise the amount they need in a couple of years of dividends.

I remember CLH.AX employed this strategy.

[zigzag]

Thinking about the capital raising. They could avoid it if they had a fully underwritten dividend reinvestment plan. This means that the company can declare a dividend, but not have any cashflow impact. They could probably raise the amount they need in a couple of years of dividends.

I remember CLH.AX employed this strategy.

ABA also uses a DRP to manage capital ratios. My impression is that the major shareholder, Simon Hull, who owns 60% of the company, likes to get the dividend and at the same time does not want his holding diluted through a DRP. The fact that Simon owns such a large proportion of the shares also restricts liquidity and complicates capital raisings.

[zigzag]

I think the Maddison acquisition is turning out to be a cracker.
I wonder whether they would like a stronger balance sheet so as they can grow Maddison faster ?

I believe that Madison can grow organically. The debt is being retired as a matter of prudence, and they also noted that analysts preferred that they improve the debt ratio. They said they were coping comfortably in the present environment, but if the economic situation changed, then the debt would become more of a burden.

[noodles]

ABA also uses a DRP to manage capital ratios. My impression is that the major shareholder, Simon Hull, who owns 60% of the company, likes to get the dividend and at the same time does not want his holding diluted through a DRP. The fact that Simon owns such a large proportion of the shares also restricts liquidity and complicates capital raisings.

He was happy to flick a few off last year.

[percy]

Spoke to Mike Huddlestone this morning.Really do enjoy talking to him.A real straight shooter who is on top of his game.
Yes, they are carrying too much debt.Rather than muck around for years bringing it down,do the figures and sort it out,which they will do September/October.He noted from the agm shareholders want to be involved.No need for extra money for future acquisitions, as there are plenty of opportunities to grow the business organically,which will also include more services for customers .
Trading well and all targets will be met.

[percy]

Update confirms they are trading well and all targets will be met.
Can't ask for more!! Result for half year ending 30th september will be announced 30th October,and details of capital raising before the end of the year.

[Hawkeye]

The update mentioned above
https://www.nzx.com/companies/AWF/announcements/254916

[percy]

Half year result out.
CRACKER.
Sales up 58%.
Net profit up 54%
interim dividend increased 12.5% to 7.2cents.
Underlying earnings ?? rose 78% and the dividend was 54% of the underlying earnings.
Still looking at balance sheet options; "In the meantime the excellent operating cashflow is permitting debt reduction to be commenced and continued on an ongoing basis."

[bunter]

Seem to find myself sitting on a lot of the same shares as you Mr Percy!
Agree with your earlier comments on Madison (and acted on them).
Value increased from 3.21 to 3.98 in my model. Been a long wait.

[percy]

While we are waiting for details and timing of the capital raising it is pleasing to see the appointment of Wynnis Armour to the AWF board.Winnis is one of the vendors of Madison Group recently acquired by AWF.

[DarkHorse]

Funny the share price is below where it was at the time of the Madison deal - with the uncertainties that surround any acquisition; Madison has proven to add to both profitability and stability of earnings through labour market cycles (permanent recruiting does better in a tight labour market and temporary in a loose one). Looks like very good value right now.

[stoploss]

Funny the share price is below where it was at the time of the Madison deal - with the uncertainties that surround any acquisition; Madison has proven to add to both profitability and stability of earnings through labour market cycles (permanent recruiting does better in a tight labour market and temporary in a loose one). Looks like very good value right now.

The possibility of a cash issue been hanging over this for a while . I know the economic cycle is different but Skilled group ( SKE.AX ) has been smashed recently .......

[DarkHorse]

I agree the likely cash issue is having an impact. Haven't held SKE for a few years but I see they are on very low multiples - do you see this as being due to exposure to the mining sector, or some broader trend which may be relevant here?

[stoploss]

I agree the likely cash issue is having an impact. Haven't held SKE for a few years but I see they are on very low multiples - do you see this as being due to exposure to the mining sector, or some broader trend which may be relevant here?
Mostly due to exposure to mining , however they are exposed to the general economy through manufacturing which is in a big downtrend .... The CEO is departing which was a telegraphed move not a surprise, probably didn't help that he sold some shares 3 months ago , but it was probably his retirement fund . Anyway one to watch for when the mining sector bottoms out ( who knows when ) They are particularly exposed to the Gas sector these days , which has been hammered due to the oil price . Just like with AWF companies will probably take on temp labour first when coming out of recession , so think there is a future here ...it's just a matter of timing .

[stoploss]

AWF


29/01/2015 17:14


FORECAST


PRICE SENSITIVE


REL: 1714 HRS AWF Group Limited





FORECAST: AWF: Steady Performance Expected From AWF Group





AWF Group Ltd (AWF) has advised that the Group expects a steady finish to its


31.3.15 financial year.


CEO Mike Huddleston noted:





- that turnover was likely to be in the vicinity of $196m - $198m


- net profit after tax expected to exceed $5m (+circa 31%)*


- EBITDA** is likely to be in the range of $12m-13m (+ circa 50%)*


- Underlying earnings*** per share after tax are expected to lift by over 39%


to approximately 26 cents per share.


"As we move towards the new financial year, we are encouraged by the outlook


and expect to see continued growth in all of our business units, driven from


strong activity in the main centres" Mike Huddleston said.

[h2so4]

Looking the goods

[bunter]

No mention of the capital raise they've been talking about, this announcement or last.

Debt is 32.6m, or 40% of total assets of 40.6m (estimates allowing for Madison second payment of $6m and repayment of some debt from current period surplus.)

With strong trading figures, maybe they're planning to repay debt from earnings now instead of a capital raise?

[percy]

Yes I would like to see an announcement on the capital raise.
Either do it, and move on,or say they will repay debt out of earnings.
It has been hanging over the share price for too long.

[h2so4]

I think they did mention they were comfortable paying it from cashflow but no official announcement .

[bunter]

Yes I would like to see an announcement on the capital raise.
Either do it, and move on,or say they will repay debt out of earnings.
It has been hanging over the share price for too long.

I'd like to see them lock in some cheap long-term debt and chip away at the debt over the next few years, aiming to reduce debt to a third of assets, and applying what's left to dividends.

Getting debt down to a third of assets would take thee years by my calculations.

'What's left' , at current profit levels and recent growth, should still be enough to boost dividends by around 12% each year.

My system value is $4.29, but it probably deserves a decent discount for small size, and illiquidity.

[percy]

I'd like to see them lock in some cheap long-term debt and chip away at the debt over the next few years, aiming to reduce debt to a third of assets, and applying what's left to dividends.

Getting debt down to a third of assets would take thee years by my calculations.

'What's left' , at current profit levels and recent growth, should still be enough to boost dividends by around 12% each year.

My system value is $4.29, but it probably deserves a decent discount for small size, and illiquidity.

I do not really have a strong view on the possible cap raising.
Just wish they would make up their minds and move on..
Liquidity is a problem,but so is the board's dithering !!
In fact it may not be the board,more likely the major shareholder.

[bunter]

I do not really have a strong view on the possible cap raising.

Debt is relatively cheap just now - so why not use it instead of raising equity?

Say they lock in some debt now.
There's a chance interest rates could go a little lower - no great harm done.
There's also a chance they could go a lot higher - possible big gains.
AWF aren't in the business of interest rate speculation but all the same debt seems better than equity just now.


OTOH - if they did a small cap raise - they'd be free to increase the div payout a lot, which these days should be very good for the SP.

So after all that, I have to agree with you! Either decision is good, indecision isn't.

[percy]

Debt is relatively cheap just now - so why not use it instead of raising equity?

Say they lock in some debt now.
There's a chance interest rates could go a little lower - no great harm done.
There's also a chance they could go a lot higher - possible big gains.
AWF aren't in the business of interest rate speculation but all the same debt seems better than equity just now.


OTOH - if they did a small cap raise - they'd be free to increase the div payout a lot, which these days should be very good for the SP.

So after all that, I have to agree with you! Either decision is good, indecision isn't.

We are in agreement.
"After all said and done,there's more said than done."!!!!!!!!!!!!!!!!! lol.

[stoploss]

1:4 rights issue @ $ 2.10 ,
Also an update out if anyone has missed it .

[percy]

1:4 rights issue @ $ 2.10 ,
Also an update out if anyone has missed it .

I will be pleased to get it done and dusted.Been hanging over our heads for too long...

[minimoke]

You may have missed the retirement of huddleston. Simon Bennett will take over and as I recall he was a madison hire charged with getting madison on the nzx. I disliked MH so will now take more notice of awf

[stoploss]

Well positioned .... and another name change !!!


28 May 2015


AWF Group (AWF) has delivered a significant lift in earnings for the year


ended 31 March 2015 in line with guidance provided.


Revenue rose 33% to $197.5 million and net profit lifted 37% to $5.4 million.





Underlying earnings after tax - which, in the opinion of the Board, more


clearly reflect the operating performance of the business - lifted 45% to


$6.8 million (25.8 cents per share)


As a consequence of the strong earnings achieved the company has declared a


final dividend of 8 cents per share (up 5% on last year) payable on July 1 to


shareholders registered as at 24 June. Directors noted that total dividend


for the year at 15.2 cents (fully imputed) represents an 8.6% increase


overall, and that this steady lift in dividend was consistent with earlier


indications given.

[Snoopy]

Looking the goods


Hi All,

I have looked at AWF Limited before. But it always looked a bit expensive to my superficial analysis. I was also concerned about liquidity and how I might have to bid up the share price just to get a modest stake.

However, during the rights issue period I got a call from my broker. A shareholder with a decent stake wanted to sell up and move to Australia. Was I interested in picking up a decent sized parcel of shares? A back of the envelope calculation and I was in. I have been a bit distracted with other life matters since. So I haven't had a chance to have a closer look at AWF until now. I hope you fellow (and potential shareholders) will find my AWF 'snoopshot' treatment interesting!

SNOOPY

[Snoopy]

I hope you fellow (and potential shareholders) will find my AWF 'snoopshot' treatment interesting!


The Annual Report for FY2014 says that: (AWF Limited) is New Zealand's largest recruitment company. This is a position achieved through 27 years of growth from modest beginnings.

The company mission statement is:
"To be the leading provider of quality recruitment and staffing solutions to NZ business."

Measured by their own standard, AWF have already fulfilled their vision as they are 'number 1' already. The scale requirement for the business is therefore satisfied.

Conclusion: Pass Test

SNOOPY

[minimoke]

Snoopy. Buying into a down trending stock - thats brave.

I must have a closer look at the numbers but a quick glance at sales I didn't think they looked too flash.

1/2 year September = $98.6m in sales. Full year should at least be double so they have manged to tread water in second half.

Also need to account for maddison revenue. In 2013 that was around $50m. Not sure what it is now but worth looking at.

First glance rosy picture seems to be helped by maddison acquisition rather than actual growth in sales.

[minimoke]

Test one. A top three player.
Conclusion: Pass Test

SNOOPY
interesting test snoopy. It's the only player listed on the local market. So comparative numbers hard to come by.

And we don't have a definition of your "top" or awf's "largest".

But credit it where it's due: awf is big so in your context and back of an envelope analysis I'd probably give it a pass on this test as well

[Biscuit]

Snoopy. Buying into a down trending stock - thats brave.

I must have a closer look at the numbers but a quick glance at sales I didn't think they looked too flash.

1/2 year September = $98.6m in sales. Full year should at least be double so they have manged to tread water in second half.

Also need to account for maddison revenue. In 2013 that was around $50m. Not sure what it is now but worth looking at.

First glance rosy picture seems to be helped by maddison acquisition rather than actual growth in sales.


Looks like much of the extra revenue this year was swallowed up by increased employee benefits. Maybe those Madison White Collar employees are more expensive commodities to trade.

[Snoopy]

I hope you fellow (and potential shareholders) will find my AWF 'snoopshot' treatment interesting!


For this exercise I have removed the group's foray into the healthcare sector. I am referring here to the groups purchase of Panacea Healthcare on 04-10-2010, the additional purchase of Nursing NZ on 19th March 2012 and the subsequent sale of the lot on 31-08-2012.

Earnings figures calculated are adjusted net profit after tax.

2010: $2.002m/26.125m= 7.7cps
2011: ($3.212m - $0.003m +0.7x($0.465m) )/26.125m = 13.5cps
2012: ($2.877m +0.72x($0.167m+$1.100m) )/26.125m = 14.5cps
2013: $4.952m/25.805m = 19.2cps
2014: ($3.952m+0.72x(0.095m+0.257m) )/25.804m = 16.3cps
2015(*): $5.416m/ 32.463m =16.7cps

Notes:

1/ Panacea Healthcare NPAT (an non continuing business stream) removed from results for FY2011, not included in FY2012 and FY2013.
2/ Business acquisition costs removed from FY2011, FY2012 and FY2014.
3/ Goodwill impairment removed from FY2012.
4/ Due diligence cost removed from FY2014
(*) FY2015 results based on abbreviated results released. When full result becomes available it may require adjustment.

There was one dip in the underlying earnings trend following FY2013, but apart from that the eps path is steadily upwards.

Conclusion: Pass test

[Snoopy]

Snoopy. Buying into a down trending stock - thats brave.


The eps trend is solidly upwards. Not that this in itself is sufficient reason to buy in. But it is sufficient reason to look a little deeper.



I must have a closer look at the numbers but a quick glance at sales I didn't think they looked too flash.

1/2 year September = $98.6m in sales. Full year should at least be double so they have managed to tread water in second half.

Also need to account for Madison revenue. In 2013 that was around $50m. Not sure what it is now but worth looking at.

First glance rosy picture seems to be helped by Madison acquisition rather than actual growth in sales.


I am not too worried myself about what has happened in the last half year. I intend to hold my AWF shares for many years.

The eps trend is still improving despite all of the extra shares issued in the recent rights issue. I have not looked at whether the previous business or the Madison acquisition has contributed to this growth. IMO it is unfair to judge that until Madison is bedded down. But everything is all one happy family now. So to some extent trying to discern what part of the business is doing the growing is less important than finding out if the overall business is still growing, which it is.

SNOOPY

[Snoopy]

I hope you fellow (and potential shareholders) will find my AWF 'snoopshot' treatment interesting!


ROE= (Net Profit)/(EOFY Shareholders Funds)


2010: $2.002m /$18.588m= 10.8%
2011: $3.535m /$19.913m = 17.7%
2012: $3.789m /$19.201m = 19.7%
2013: $4.952m /$21.607m = 22.3%
2014: $4.205m /$20.763m = 20.3%
2015(*): $5.416m/$35.931m =15.1%

The big improvement from FY2010 has been sustained. A significant drop in the FY2015 is because of the newly enlarged equity base. But even with this, AWF is earning well above its cost of capital.

Conclusion: Pass test

SNOOPY

[Snoopy]

I hope you fellow (and potential shareholders) will find my AWF 'snoopshot' treatment interesting!


Margin = Net Profit/Sales

2010: $2.002m /$70.329m = 2.85%
2011: $3.535m /($95.800m - $7.000m) = 3.98%
2012: $3.789m /($119.264m-$14.349m)= 3.61%
2013: $4.952m /($138.852m - $8.375m)= 3.79%
2014: $4.205m /$148.691m = 2.83%
2015(*): $5.416m/$197.5m = 2.74%

Note: For FY2011, FY2012 and FY2013 I have removed the healthcare unit profit and the associated turnover.

Margins were certainly raised above inflation between the base year FY2010 in comparison with the next subsequent three years. The last two years have seen a decline back to FY2010 margin levels. Is this because Madison is inherently 'lower margin'? AWF have already shown they are prepared to deal with below par margin businesses. That is why they sold their healthcare assets. So I am prepared to back AWF management and let them work some margin magic going forwards, as they have done before.

Conclusion: Pass Test

SNOOPY

[minimoke]

Is this because Madison is inherently 'lower margin'?
Conclusion: Pass Test

SNOOPY
I can answer that for you. Awf is a very simple business. There are only two ways to make money. High volume and Low margin or low volume high margin. Madison ought to be the later. If it isn't then the business is in trouble. Awf labour hire will be lower margin. If Madison is propping up awf labour hire them that's a problem

[Penfold]

I sold a small parcel on Friday... somehow got 2.45 a share. Held for just over a year and walk away with a small gain.

Reason I sold was the stock is just not liquid enough. Founder holds over half the company. Never seems to realise its full value. In saying that seems pretty fully priced at the moment based on its result. When Chch winds down things could get a lot worse...

[stoploss]

Hi All,

I have looked at AWF Limited before. But it always looked a bit expensive to my superficial analysis. I was also concerned about liquidity and how I might have to bid up the share price just to get a modest stake.

However, during the rights issue period I got a call from my broker. A shareholder with a decent stake wanted to sell up and move to Australia. Was I interested in picking up a decent sized parcel of shares? A back of the envelope calculation and I was in. I have been a bit distracted with other life matters since. So I haven't had a chance to have a closer look at AWF until now. I hope you fellow (and potential shareholders) will find my AWF 'snoopshot' treatment interesting!

SNOOPY

Welcome aboard Snoopy . Surely with all your analysis on this you would have read the major shareholder ( S Hull 66 % ) was going down to around 50 % from memory . So maybe he has gone to Australia ? There were some big parcels of rights crossed through the market which I presumed was him selling. Been a bit frustrating this , a lot of promise ( CHCH rebuild ) no delivery . I am still a long term believer . I have been trading SKE.ax , not for the feint hearted , my reasoning was more people go to part time work hire in a downturn such as the Aussie mining sector . Been a bumpy ride, on the positive side for now :)

[Snoopy]

I can answer that for you. Awf is a very simple business. There are only two ways to make money. High volume and Low margin or low volume high margin. Madison ought to be the later. If it isn't then the business is in trouble. Awf labour hire will be lower margin. If Madison is propping up awf labour hire them that's a problem.


Minimoke, I think you sum up the two driving forces for the future direction of AWF very well. It isn't clear to me that AWF will choose to 'segment out' Madison from the legacy business so that shareholders can get a feel for the margin of 'Madison' and 'Everything Else'.

Prior to the Madison acquisition, the following rather strange statement appeared in the FY2012 annual report

"Shareholders may have noted the Groups reference to the additional reporting of ‘UNDERLYING EARNINGS’. This is because now that some borrowings are being committed as part of the growth programme, given the nature of the acquisition targets (in accounting terms), containing high levels of identifiable intangible asset components (and requiring amortisation according to NZ IFRS requirements), the AWF Board considers that the resulting non cash adjustments distort true performance. Underlying earnings adjust for non cash items and in the opinion of the Board more correctly reflects the operating performance of the Group."

I am unclear if that was written with Madison (acquired November 2013) on the investment horizon. But I have never heard of any NZ IFRS requirement that means that intangible assets must be written off upon acquisition. Indeed I thought the law had been changed so that exactly the opposite happened. I.E. intangible assets were only to be written off if they were impaired. If intangible assets are forced to be written off on acquisition, doesn't that mean the acquirer paid too much for those assets? I certainly hope that all the cash spent on Madison so recently is not being written off already!

SNOOPY

[minimoke]

Firstly Snoopy, thnask for sharing yoru tests. I think it always great as to see how others arrive at theri decisosns and is useful for learign.

And in hte intersts of healthy debate I hope you dont mind if I add a few observations
Test 4: Ability to raise margins (above inflation).Margin = Net Profit/Sales

2010: $2.002m /$70.329m = 2.85%
2011: $3.535m /($95.800m - $7.000m) = 3.98%
2012: $3.789m /($119.264m-$14.349m)= 3.61%
2013: $4.952m /($138.852m - $8.375m)= 3.79%
2014: $4.205m /$148.691m = 2.83%
2015(*): $5.416m/$197.5m = 2.74%

Note: For FY2011, FY2012 and FY2013 I have removed the healthcare unit profit and the associated turnover.

Margins were certainly raised above inflation between the base year FY2010 in comparison with the next subsequent three years. The last two years have seen a decline back to FY2010 margin levels. Is this because Madison is inherently 'lower margin'? AWF have already shown they are prepared to deal with below par margin businesses. That is why they sold their healthcare assets. So I am prepared to back AWF management and let them work some margin magic going forwards, as they have done before.

Conclusion: Pass Test

SNOOPY
I think this test raises a huge red flag (ie a SELL, not BUY) for three reasons.

Firstly I'm wondering if you are setting your sights too low. Inflation is just above zero and we are facing the prospect of deflation. To pass this test a company only has to make the teeniest of profits to pass. Perhaps the threshold should be a bit higher. Maybe the OCR rate, or 1 year Fixed term interest rate. Obviously its your test but I'd be looking for something a bit more aspirational.

Secondly, the trend is our friend. Margin shrinkage consistently over the past four years - despite an environment where there should have been opportunity.

Thirdly 2.74%!!!. So a company has all its capital tied up with a large branch network, loads of staff, product / service diversity, IP in a market where business confidence is high (meaning companies will spend on temp workers) and the best it can do after all that effort and angst is generate 2.74% margin.. That is seriously low and the best thing that can be said, is at least it is profitable. This leaves them very vunerable to a new player with resources to come in and undercut their market, or for the market to shift very slightly and all of a sudden you are facing a loss.

So its a Fail. Yet you are stil prepared to back a management that has overseen disastrous acquisition in healthcare (and lets not go to their previous disasters) and falling margins. I'd have a vote of no confidence in management.

So its stil a fail for me on this test.

[winner69]

Minimoke, raising margins above the rate of inflation means consistently improving margins (above rate of inflation), not a margin higher than the rate of inflation as you outlined.

My understanding of Buffett's view on margins is a company's profitability depends not only on having a good profit margin (generally above industry averages) but also on consistently increasing it and make that assessment after looking at 5 years plus numbers. A high profit margin indicates a company is executing its business well .....but increasing margins means management has been extremely efficient and successful at controlling price and more importantly expenses.

I would think Buffett wouldn't be too impressed with Allied's margin of 2.7% and Snoopy's numbers don't really show they are improving it. Like you minimoke a fail on this test (Allied does have returns on capital though even though margins are razor thin)

Note: the 'snoopshot' is based on Buffett methodology, at least it was years ago. Probably served Snoopy well over the years

[Snoopy]

Firstly Snoopy, thnask for sharing your tests. I think it always great as to see how others arrive at their decisions and is useful for learning.


I should add that these four tests are 'indicators'. Passing these four tests means that I can apply my 'growth model' to check the fair value of this share. You will note that none of these tests say anything about fair market value. It is fair market value that determines if AWF is a buy, not passing these four tests!



And in the intersts of healthy debate I hope you dont mind if I add a few observations
I think this test raises a huge red flag (ie a SELL, not BUY) for three reasons.

Firstly I'm wondering if you are setting your sights too low. Inflation is just above zero and we are facing the prospect of deflation. To pass this test a company only has to make the teeniest of profits to pass. Perhaps the threshold should be a bit higher. Maybe the OCR rate, or 1 year Fixed term interest rate. Obviously its your test but I'd be looking for something a bit more aspirational.


A fair criticism.

What I am looking for in test 4 is some indication that in a company's relatively recent history they have been able to increase margins. Going from 2.85% (FY2010) to 3.98% (FY2011) is a ratio of:

3.98/2.85 = 1.40

That represents a 40% increase in margin, way, way in excess of inflation. Granted all that margin expansion has been undone in subsequent years. But the point of the test is can management increase their margins? Is there any evidence at all that they can? If they can do it once, then maybe they can do it again? In a competitive market, I think it is too much for any company to expect an increase in margin year on year.

I do take your point though that 'Test 4' may be the weakest of the four indicator tests.



Secondly, the trend is our friend. Margin shrinkage consistently over the past four years - despite an environment where there should have been opportunity.


I would say that should margin shrink again in FY2016, then the argument that management is still capable of increasing margins going forwards would be looking shakey.



Thirdly 2.74%!!!. So a company has all its capital tied up with a large branch network, loads of staff, product / service diversity, IP in a market where business confidence is high (meaning companies will spend on temp workers) and the best it can do after all that effort and angst is generate 2.74% margin.. That is seriously low and the best thing that can be said, is at least it is profitable. This leaves them very vulnerable to a new player with resources to come in and undercut their market, or for the market to shift very slightly and all of a sudden you are facing a loss.


2.74% as a margin? Yes I would like to see it higher. But this is, IMO, likely an industry margin parameter, rather than something specific to AWF.

All businesses in a competitive market are vulnerable to competition. But I don't think the largest player in the market will be dangerously damaged within a ten year timeframe (addressing this issue is the reason for Test 1).



So its a Fail. Yet you are stil prepared to back a management that has overseen disastrous acquisition in healthcare (and lets not go to their previous disasters) and falling margins. I'd have a vote of no confidence in management.


To give management their due, they got out of healthcare quickly and made a nice (one off) profit on the way through.



So its stil a fail for me on this test.


Events are open to different interpretations. I respect that your interpretation of events has lead to a somewhat different conclusion to mine. I am prepared to say that you may end up being right and I may end up being wrong. I haven't said the investment case for AWF is clear cut. For the moment though there are enough positives, to my way of viewing things, to keep me invested in the AWF game.

SNOOPY

[minimoke]

For this exercise I have removed the group's foray into the healthcare sector. I am referring here to the groups purchase of Panacea Healthcare on 04-10-2010, the additional purchase of Nursing NZ on 19th March 2012 and the subsequent sale of the lot on 31-08-2012.

Earnings figures calculated are adjusted net profit after tax.

2010: $2.002m/26.125m= 7.7cps
2011: ($3.212m - $0.003m +0.7x($0.465m) )/26.125m = 13.5cps
2012: ($2.877m +0.72x($0.167m+$1.100m) )/26.125m = 14.5cps
2013: $4.952m/25.805m = 19.2cps
2014: ($3.952m+0.72x(0.095m+0.257m) )/25.804m = 16.3cps
2015(*): $5.416m/ 32.463m =16.7cps

Notes:

1/ Panacea Healthcare NPAT (an non continuing business stream) removed from results for FY2011, not included in FY2012 and FY2013.
2/ Business acquisition costs removed from FY2011, FY2012 and FY2014.
3/ Goodwill impairment removed from FY2012.
4/ Due diligence cost removed from FY2014
(*) FY2015 results based on abbreviated results released. When full result becomes available it may require adjustment.

There was one dip in the underlying earnings trend following FY2013, but apart from that the eps path is steadily upwards.

Conclusion: Pass testOK, I kinda get this test. But if we have faith in management (which we must surely do) shouldn't we be looking at numbers warts and all. If you are cherry picking bits to take out shouldn't you also therfore remove the Madison acquisition from latest years results?

[Snoopy]

Welcome aboard Snoopy . Surely with all your analysis on this you would have read the major shareholder ( S Hull 66 % ) was going down to around 50 % from memory . So maybe he has gone to Australia ?


From the number of shares quoted to me, I don't think the shareholder selling down was Hull. From memory the number of shares being quit in total was some 200,000. A lot of shares for most people, but only a drop in the bucket of Simon Hull's shareholding.

SNOOPY

[minimoke]

ROE= (Net Profit)/(EOFY Shareholders Funds)


2010: $2.002m /$18.588m= 10.8%
2011: $3.535m /$19.913m = 17.7%
2012: $3.789m /$19.201m = 19.7%
2013: $4.952m /$21.607m = 22.3%
2014: $4.205m /$20.763m = 20.3%
2015(*): $5.416m/$35.931m =15.1%

The big improvement from FY2010 has been sustained. A significant drop in the FY2015 is because of the newly enlarged equity base. But even with this, AWF is earning well above its cost of capital.

Conclusion: Pass test

SNOOPY
I quite like this test. But again look at the trend. Currently heading down and lowest in 5 years and just on the cusp of your threshold. A pass is a pass but by the slimest of margins.

[Snoopy]

OK, I kinda get this test. But if we have faith in management (which we must surely do) shouldn't we be looking at numbers warts and all. If you are cherry picking bits to take out shouldn't you also therfore remove the Madison acquisition from latest years results?


I took out the healthcare results because there is no indication that 'healthcare' will form part of the business going forwards. 'Healthcare' sounded like a good expansion path at the time, but proved not to be so. We investors today have the benefit of that hindsight, and so should look forwards with that hindsight.

By contrast Madison is at the core of 'AWF Madison' going forwards. To remove it would be tantamount to saying that Madison will not be a significant part of the business going forwards. Management is still backing Madison. So I think that looking forwards, you have to regard Madison and the rest of the legacy business as one investment package.

SNOOPY

[minimoke]

Minimoke, raising margins above the rate of inflation means consistently improving margins (above rate of inflation), not a margin higher than the rate of inflation as you outlined. If we are talking about "raising" margins shouldn't the margin actually be raised. So say we have a margin of 10% and inflation is running at 3% shouldn't we be seeing a new margin of 13%. Other wise all we are doing is looking at a margin greater than inflation.

[minimoke]

I took out the healthcare results because there is no indication that 'healthcare' will form part of the business going forwards. 'Healthcare' sounded like a good expansion path at the time, but proved not to be so. We investors today have the benefit of that hindsight, and so should look forwards with that hindsight.

By contrast Madison is at the core of 'AWF Madison' going forwards. To remove it would be tantamount to saying that Madison will not be a significant part of the business going forwards. Management is still backing Madison. So I think that looking forwards, you have to regard Madison and the rest of the legacy business as one investment package.

SNOOPY
That makes sense. Except at the moment Madison is consolidated into the accounts so you have no way of knowing the impact and drain / gain it has on the overall business.

[Snoopy]

I quite like this test. But again look at the trend. Currently heading down and lowest in 5 years and just on the cusp of your threshold. A pass is a pass but by the slimest of margins.


Minimoke, the ROE test is a strong pass. Even if the FY2015 ROE result had dipped below 15%, the test is a pass.

The FY2015 ROE is significantly lower than last year because I am using the end of year capital to judge the return on capital for the whole year. AWF I am sure would use some weighted average capital measure and produce a higher ROE figure for FY2015. AWF didn't even receive the cash issue capital until just before the end of the year. The fact that they couldn't make a serious return on this capital for the single day they had it (cash issue closed 31st March, the EOFY balance date) comes as no surprise. To see how well AWF can utilise this new capital, shareholders will have to wait until FY2016.

In summary, while the drop in ROE for 2015 looks shocking, it is really a quirk in the calculation method, caused by the timing of the capital raising, that has produced this figure. For that reason I wouldn't read too much into that 15.1% value.

SNOOPY

[Snoopy]

That makes sense. Except at the moment Madison is consolidated into the accounts so you have no way of knowing the impact and drain / gain it has on the overall business.


I might guess that AWF would say that you cannot separate Madison from the legacy business going forwards anyway. Madison was bought so that customers could go to AWF as a one stop employment solution. If you want a combination of white and blue collared shirts to do the job, now AWF can do it. Such a job may have been lost to AWF before. You are assuming that the Madison acquisition would create a series 1+1=2 jobs for AWF. AWF is telling you that acquiring Madison will create profit using the formula 1+1=3. AWF is getting incremental business that neither Madison nor the old AWF would have got if they were still separate stand alone entities.

That's the story. Whether 1+1 really does equal 3, I guess we will find out in due course.

SNOOPY

[Baa_Baa]

I love it when the FA's get the abacus out, us minions can pull up a chart and check out the SP entry/exit capital risks. Thanks Snoopy, you're a Legend.

This is a weekly chart, it looks pretty anaemic for the past couple of years, has no respect for the 200day EMA (39EMA on the weekly chart), but has developed a very symmetrical trading pattern, and is poised to test the 39EMA weekly / 200EMA daily, again, right now. A break out above the 39EMA, then the descending trend line would give confidence, but a rise above $2.54 would suggest a breakout has some legs.
7386

Thanks,
BAA

[minimoke]

That's the story. Whether 1+1 really does equal 3, I guess we will find out in due course.

SNOOPY
That is the obvious and logical formula / question. Though another way of looking at is "Oil" + "Water" = ?

[Snoopy]

ROE= (Net Profit)/(EOFY Shareholders Funds)

2010: $2.002m /$18.588m= 10.8%
2011: $3.535m /$19.913m = 17.7%
2012: $3.789m /$19.201m = 19.7%
2013: $4.952m /$21.607m = 22.3%
2014: $4.205m /$20.763m = 20.3%
2015(*): $5.416m/$35.931m =15.1%

The big improvement from FY2010 has been sustained. A significant drop in the FY2015 is because of the newly enlarged equity base. But even with this, AWF is earning well above its cost of capital.

Conclusion: Pass test


AWF Limited is showing a strong return on equity profile. One way to do this is to borrow heaps. Unfortunately this method of increasing ROE usually comes back to bite shareholders. So has AWF currently leveraged their balance sheet to help make this important statistic look good?

My preferred method of answering this question is to look at what happens if all profits are redirected to repaying debt. In reality this is unlikely to happen. Shareholders like their dividends, and businesses must invest for the future. Also a debt free company may not be 'capital efficient'. Nevertheless 'MDRP' does provide a gauge of just how quickly a company could eliminate their debt should they (or their bankers decree!) that they do so. A figure over 10 years I regard as suspect. A figure under three years I regard as very good. So how does AWF measure up in 2015?

Bank debt in the FY2015 results announcement is as follows:



Cash & Cash Equivalents: {A}$3.151m


Non Current Borrowings: $0


Current Borrowings:$21.759m


Total Borrowings: {B}$21.759m


Total Net Borrowings: {B}{A}$18.608m



Net profit after tax: $5.416m

MDRT = $18.608m/ $5.416m = 3.4 years

This I regard as quite acceptable. AWF are not overleveraged, and considering their cash issue had just been banked on this balance date, probably close to their targeted leverage.

SNOOPY

[Snoopy]

You are assuming that the Madison acquisition would create a series 1+1=2 jobs for AWF. AWF is telling you that acquiring Madison will create profit using the formula 1+1=3. AWF is getting incremental business that neither Madison nor the old AWF would have got if they were still separate stand alone entities.

That's the story. Whether 1+1 really does equal 3, I guess we will find out in due course.


They say history is no guarantee of future results. But I have created the following table, charting earnings per share in a calendar year verses dividends per share in a calendar year. This is representative of AWFs cash flow position for the respective years. This differs from the companies declared results because the final dividend is always paid in the subsequent year. I am more comfortable using actual cash flow though, which is why I choose to present the eps/dps results in this way.

I have left out the one off dividend of 3cps paid in FY2014 as a result of the capital gain made on the sale of the healthcare business. One off sales do not represent repeatable sustainable dividends from ongoing operations.



epsdps


20077.08.93


20087.25.8


20098.26.5


20107.74.5


201113.58.3


201214.511.4


201318.714.4


201416.415.6


201516.714.8


Total109.990.23



Over the last nine years, AWF have paid out 82% of their ongoing earnings as dividends. The 18% of earnings retained (together with the cash issue earlier in 2015) have been used to grow the business. ROE has been maintained at good levels from FY2011 to FY2014 inclusive. This indicates retained earnings have been used wisely. This bolsters my case for AWF Limited to be regarded as a 'growth company' for financial modelling purposes.

SNOOPY

[Snoopy]

Over the last nine years, AWF have paid out 82% of their ongoing earnings as dividends. The 18% of earnings retained (together with the cash issue earlier in 2015) have been used to grow the business. ROE has been maintained at good levels from FY2011 to FY2014 inclusive. This indicates retained earnings have been used wisely. This bolsters my case for AWF Limited to be regarded as a 'growth company' for financial modelling purposes.


Using

1/the 82% payout ratio and
2/ an historical average PE of 13.0 (as at 31st March, just before results are announced, taken over 9 years) THEN

the Mary Buffett style 'Growth Model' calculation looks like this:



YearAssets SOFYepsdpsRetained Earnings


2016$1.1116.7c14.8c1.9c


2017$1.1320.0c16.4c3.6c


2018$1.1620.6c16.9c3.7c


2019$1.2021.3c17.4c3.8c


2020$1.2422.0c18.0c4.0c


2021$1.2822.7c18.6c4.1c


2022$1.3223.4c19.2c4.2c


2023$1.3624.1c19.8c4.3c


2024$1.4124.9c20.4c4.5c


2025$1.4525.7c21.1c4.6c


2026$1.5026.5c


Sum$1.83



Using a PE of 13.0 at the start of FY2016 the projected AWF share price is:

P/E x E = 13.0 x $0.265 = $3.44

Based on an acquisition price of $2.30 (where I bought in during the rights issue) the ten year compounding net annual return 'i' is projected as:

$2.30(1+i)^10 = ($3.44+$1.83) => i= 8.6%

That looks decent, if not mortgage your house compelling. But sometimes the numbers do not tell the whole story.

The above projection assumes that the Madison acquisition works. IOW the 1+1=3 formula for generating new business can be cashed up. Yes this is what management plans. But from an investor perspective AWF are sailing into new territory. There is an execution risk here that falls outside what AWF have done before. So I am calling AWF only as 'fair value' based on this calculation. I can see better investment options in other shares in the market right now. I will be following how AWF use the funds from their recent capital raising. But I won't be actively chasing more shares until I can see the forward strategy bedding down. If the share price were to weaken below $2, then I will definitely be looking to buy more.

SNOOPY

[Snoopy]

I love it when the FA's get the abacus out, us minions can pull up a chart and check out the SP entry/exit capital risks. Thanks Snoopy, you're a Legend.

This is a weekly chart, it looks pretty anaemic for the past couple of years, has no respect for the 200day EMA (39EMA on the weekly chart), but has developed a very symmetrical trading pattern, and is poised to test the 39EMA weekly / 200EMA daily, again, right now. A break out above the 39EMA, then the descending trend line would give confidence, but a rise above $2.54 would suggest a breakout has some legs.



$2.54(1+i)^10 = ($3.44+$1.83) => i= 7.6%

That is 100 base points worse than the return I would be getting (per annum). This is the reason I wouldn't use charts to 'enhance' my return on an investment such as this. Another point: The dividend is a relatively high percentage of the overall return both historically and in the forward projections. So the chart data is not complete.

Of course as a chartist there is no need to make any assumption about the 'legs' of any break out. You simply ride it and exit once the trend ends. With this share though, I have a pretty good idea of the breakout potential. The underlying drivers of share price improvement are earnings improvement and valuation multiple improvement. The current valuation multiple is not out of line with the history of this share. So there is unlikely to be a boost in share price from that perspective. Long term earnings growth is something like 3.3% compounding per year. So it is unlikely we will see big leaps in the share price. More like sensibly sized steps from small legs.

With investment it is always a good idea to grab the low hanging fruit. My strategy is to grab an extra 24c of value before the likes of Baa would jump in. So Baa would give away the easy profit, and enter at significantly higher level? I am sorry, but none of that makes any sense to me as part of an investment strategy with AWF Limited.

SNOOPY

[winner69]

Well done snoops, I like it

One question - is the jump in ROE in 2017 to 17.7% related to your 1+1=3 discussion? (Forgive for not checking back)

You seem to have short changed yourself on the dividends or is there a reason for not including 2026?

She a pretty smart gal that Mary, Warren owes a lot to you I reckon

So from many years posts Warren wouldn't be buying AWF ....his 15% pa hurdle.

Good work

[Baa_Baa]

Far be it for me to take on a guru and FA expert, however being alerted to this company by Snoopy whom I have great respect for, I pulled up a chart and saw to my surprise that it is in a pattern of sustained capital erosion over the past two years.

Roughly 33% of capital from the May17'2013 high has been lost, which if the trend continued would make it unwise imho to enter now with a new holding, or increase an existing holding, as the risk is further loss of capital and thus erosion of dividends. There's nothing right now that suggests the trend has changed.

My usual 10/14 weekly EMA would be unreliable on this chart as the stock is not strongly trending. Even the 200EMA is unreliable as that the price has reverted quickly after each breakout during the past two years.

My point I thought was simple, it is not about enhancing ROI it is about whether the trend of capital loss reverts to capital gains and at what price would give confidence to take a position, enjoying capital growth and dividends. The chart is just a timing tool, it helps I think with better understanding the market sentiment around AWF.

Respectfully,
BAA

[Baa_Baa]

Sorry, I retracted my questions from previous post after re-reading Snoopy's posts, that a price below $2 is a good entry. That implies the downtrend may continue, which will of course bring down the EMA's as well. I'd still prefer buying a confirmed breakout of the descending pennant though, with the risk being that I miss the easy profit, assuming the price rises from a $2 entry and does breakout of the trading range.

[winner69]

BaaBaa, Snoopy says $2.might interest him.

From that May 13 high of 321 AWF is down ....all of 85 cents. You could say one reason is eps being down but market sentiment has played a part as well with the PE falling from 17 to 14

Lower earnings impact 34 cents and the market sentiment (PE down) impact is 51 cents

Double whammy and the chart shows it.

I think Snoops hypothesis is earnings have recovered and will grow and that in 10 years time it will deserve a PE of 13. Reading snoops mind I don't think he gives a stuff how the share price gets to his model value of $3.45 in 2026, as long as it that price then. But isn't it spooky,really spooky, that his target of $3.45 is about what it was 2 years ago. Just shows how wrong / stupid the market was 2 years ago. That change of sentiment reflected in your charts.

So I'd watch that chart .....once it turns and snoops hypothesis turns into reality good gains to be made.

Often when sentiment changes like it has for AWF over the last 2 years the rerating will overshoot on the underside - like go to a PE of 10, ouch a share price of 170. Sometimes they become a pariah of the market and languish at low PEs. Sometimes something excites the market and a downtrend can eeverse quiet quickly.

Your charts will tell what eventuates won't it BaaBaa.

Like you I would be buying just now either

But Mary a smart lady. She be telling Warren over a cuppa don't buy above 136 'remember that 15% pa hurdle dear"

[noodles]

I will be following how AWF use the funds from their recent capital raising.
SNOOPY

They are paying down debt.

[Baa_Baa]

Thanks winner, nice mediation, bringing together varying perspectives all looking for a bright future through differing lenses. Hopefully the sum of the parts equals more clarity.

[Snoopy]

I pulled up a chart and saw to my surprise that it is in a pattern of sustained capital erosion over the past two years.

Roughly 33% of capital from the May17'2013 high has been lost, which if the trend continued would make it unwise imho to enter now with a new holding, or increase an existing holding, as the risk is further loss of capital and thus erosion of dividends. There's nothing right now that suggests the trend has changed.


Baa, I don't think that pulling up a chart and looking at it without further thought has produced a true picture of what has been happening at AWF over the last couple of years.

From FY2013 the following dividends have been declared and paid:

8, 6.4, 12.2, 6.4, 7.6, 7.2 (all cps)

I am not including the most recently declared dividend of 8cps, as we are not yet past the ex dividend date for that one.

So total dividends paid over your 'period of concern' amount to 47.8cps (fully imputed).

There has also been a one for four rights issue at $2.10 declared on 4th March 2015. On 4th March 2015, the AWF share price was $2.40. For every four of those shares held, shareholders got the right to subscribe for a new share at $2.10.

This means the theoretical ex-rights issue share price at the ex-rights date was:

(4($2.40) + $2.10)/5 = $2.34.

That means 6c of 'value' that you might deem lost is solely due to shareholders being able to buy new shares at a discount. This discounted share offer was a good thing for shareholders, not a bad thing.

In summary, the total value transferred to shareholders, after tax, over your 'period of concern' was:

47.8c + 6c = 53.8c

I put it to you that the capital loss that you think you see in the chart has actually been transferred to shareholders pockets. Returning capital to shareholders is good, because it gives them the choice as to whether to reinvest that capital or not. The capital loss that you thought you saw is only there because you didn't take into account the other transfers of capital not shown in your chart. Thus I submit there is no pattern of capital erosion as you claim, and no pattern of capital loss to avoid.

Your suggestion that dividends may erode is spurious too as the earnings per share trend is steadily increasing not decreasing. In short by not doing your homework fully, your chart has painted a picture which is the exact opposite of what is really happening with AWF.

SNOOPY

[Snoopy]

Sorry, I retracted my questions from previous post after re-reading Snoopy's posts, that a price below $2 is a good entry. That implies the downtrend may continue, which will of course bring down the EMA's as well. I'd still prefer buying a confirmed breakout of the descending pennant though, with the risk being that I miss the easy profit, assuming the price rises from a $2 entry and does breakout of the trading range.


Baa, just to be clear I am not forecasting a share price decline to $2. What I said was IF the share price declined to $2, then I would be interested in buying - a rather different thing.

SNOOPY

[Snoopy]

Well done snoops, I like it

One question - is the jump in ROE in 2017 to 17.7% related to your 1+1=3 discussion? (Forgive for not checking back)


Winner the first line in my earnings table, relating to FY2016 refers to the current year which includes the dividemd of 8c declared but not yet received. I have assumed the second dividend payment for this year does not change (is 7.2cps) as no forecast of a dividend increase has been made.

The jump you noted, in the FY2017 year, is because I am assuming an ROE of 17.7% in that year and all subsequent years. The 17.7% comes from the actual ROE figures from FY2010 to FY2015 inclusive that have been averaged. The actual ROE figures for each year that I have used to generate 17.7% were:

10.8%, 17.8%, 19.7%, 22.3%, 20.4%, 15.1%

It is only since FY2011 that AWF has been generating decent ROE returns. One could argue I should leave the FY2010 data point -at 10.8%- out. But I have included it because all businesses do occasionally have bad years. The 15.1% ROE for FY2015 is probably artificially low because it includes the capital raised by the company on 31st March from the rights issue. The company was not able to use this new capital at all during FY2015, even though it is there at the end of year balance date. All things considered, I believe my 17.7% ROE figure is reasonable, maybe a bit conservative. But then again I have made now allowance for any Madison execution strategy risk.



You seem to have short changed yourself on the dividends or is there a reason for not including 2026?


I have always included 10 years worth of dividends Winner, not 11. This is the way Mary Buffett does it. I guess you could devise an alternative method using say 9 or 11 years of dividends. I'll have to give it some thought.



She a pretty smart gal that Mary, Warren owes a lot to you I reckon

So from many years posts Warren wouldn't be buying AWF ....his 15% pa hurdle.


For those who don't know, Mary Buffett is Warren's estranged daughter in law and author of the 'Buffetology' series of books. So I don't think Warren himself will be worrying too much about Mary these days.

I must admit have relaxed that 15% return hurdle for myself in recent years. It is hard to be that staunch when the alternative is earning 3.5% at call!

SNOOPY

[Baa_Baa]

Thanks Snoopy, most enlightening.

[minimoke]

Snoopy.
One analytic missing: impact of new CEO. Culture change from Awf flavour to madison flavour so far unquantified.
= risk

[Snoopy]

Snoopy.
One analytic missing: impact of new CEO. Culture change from Awf flavour to madison flavour so far unquantified.
= risk

I agree Minimoke. New strategy, new culture, new head: how to measure that? I would like to say there is a fudge factor to cover that contingency, but of course there isn't. For those who want to watch from the sidelines for a bit to see what happens, well, I wouldn't call them foolish. Myself, I am comfortable watching from the inside. But each to their own....

SNOOPY

[Snoopy]

They are paying down debt.


You are 100% technically correct Noodles.

However, taking one step backwards, if AWF had first raised the new capital (the same amount) then bought Madison would your answer not be that they raised the new capital to buy Madison? I don't think it is any secret that if AWF had not bought Madison they would not have needed their recent capital raising. IOW the new capital structure, after debt is paid down, has been 'right sized' for the Madison acquisition to be bedded in.

Perhaps I should have worded my previous post more carefully. What I meant to say was it will be interesting to see how the acquisition of Madison and the accompanying new debt structure compares in ROE terms with the sort of ROE figures that AWF were generating in the five years prior to the acquisition of Madison.

SNOOPY

[Snoopy]

Thanks Snoopy, most enlightening.

Thats OK Baa. I should add that it would have been nicer for existing shareholders if their capital invested in AWF had been revalued upwards by the market rather than crabbing sideways. But then again, the sideways crabbing 'value' while the underlying business performance improved opened up the opportunity for new shareholders to join the AWF share register at a reasonable price.

SNOOPY

[Snoopy]

I think Snoops hypothesis is earnings have recovered and will grow and that in 10 years time it will deserve a PE of 13. Reading snoops mind I don't think he gives a stuff how the share price gets to his model value of $3.45 in 2026, as long as it that price then. But isn't it spooky,really spooky, that his target of $3.45 is about what it was 2 years ago. Just shows how wrong / stupid the market was 2 years ago. That change of sentiment reflected in your charts.


As you well know Winner the market can become wildly exhuberant or drown in the troughs of despair. In between are bouts of rationality.

I am not saying that AWF deserves a PE of 13. I am saying that over the last five years that is somewhere near the average where Mr Market has priced it. On average I am not going to say that Mr Market is wrong, even if at odd times he may be.

Come 2026, there is a very good chance the PE won't be 13. And yes just because my modelling shows a big leap in profitability for FY2017 and more modest gains in the years after, that doesn't mean this is the way the improved profitability that I am forecasting will actually pan out. How it gets there is less important than getting there!

If I needed the money in 'about' ten years, then I would start looking at the market again in say eight years. Mr Market might have got ahead of himself? So it could be a good time to exit? OTOH maybe Madison had just lost an important client and the AWF share price has plunged? In that case perhaps I might need to hold for twelve years to get my 'ten' year return. In markets nothing is that tightly pinned down. You have to be a bit flexible in your exit strategy.

Best guess is still a share price of $3.44 in 2026 though, even though that precise figure forecast will almost certainly be wrong at the 'cash in' date. I am not really sure why the share price spiked to near $3.44 two years ago. Perhaps an even larger dividend was expected from the sale of the healthcare operations than the 3c bonus dividend that shareholders ended up with?

SNOOPY

[percy]

I sold our holdings in AWF a few days ago.
Felt the labour hire business was at maturity, and was doubtful of the growth prospects for Madison.
Had held for a number of years.

[stoploss]

I sold our holdings in AWF a few days ago.
Felt the labour hire business was at maturity, and was doubtful of the growth prospects for Madison.
Had held for a number of years.

Percy sorry to see you go ......Madison hopefully have 500 ex Fonterra employees to place .... :)

[percy]

Percy sorry to see you go ......Madison hopefully have 500 ex Fonterra employees to place .... :)

Yes I am sorry to leave.AWF has been very kind to me.I think I brought in around $1.03/$1.05.Then added more.Then sold some just over $3,and recently took up the cash issue.
From what I can understand, there is little to stop new entrants to the labour hire sector,and I think in fact, AWF cut back on their low margin business,so to really to stay in business ,or expand they needed Madison.The projections made on the Madison acquisition have not been achieved.
So where to with Madison?.Well I am not sure.From what I am told "social media" is altering the whole sector.Employers are going, via social media, direct to the people they wish to recruit,by passing agencies,such as Madison.

[winner69]

Everybody happy after the ASM by the looks of it, especially the directors eh. Chairman gets a decent pay rise.

At least profits look like ahead of last year

[noodles]

They came out with a strong first quarter. EBITDA up 250%. If they continue at this rate, we could see eps=30c.
I have taken the last year EBITDA, multiplied by 1.20. Reduced interest cost (because they have paid down debt), and removed amortization of the Maddison acquisition
.

Ebitda
15120


Depn
1000


ebit
14120


Interest
1110


NPBTA
13010


tax
3642.8


NPATA (underlying)
9367.2


underlying earnings
0.289


pe
8.0



EDIT: Changed profit uplift from 25 to 20%

[DarkHorse]

I've been interesting to see Percy's comments (being a fan of your wisdom) and now Noodles'. I don't think they've ever had protection from new entrants or high margins. The other side of the coin is low PS (one man's meat...). They certainly do look cheap even with no or low growth. Would be interested to hear any thoughts on how cyclical their revenues are in present form, and where margins are likely to go.

[percy]

I wish I had gone to the meeting,then I would have been confident to have made informed comments.
Did anyone go?
If so what was the body language, and mood of the meeting.?

[stoploss]

Here are the presentations from the meeting if you haven't seen them .

http://news.media.mdgms.com.s3.amazonaws.com/2ca0327a20feb9e6712bb1608ed9d350

[noodles]

I've been interesting to see Percy's comments (being a fan of your wisdom) and now Noodles'. I don't think they've ever had protection from new entrants or high margins. The other side of the coin is low PS (one man's meat...). They certainly do look cheap even with no or low growth. Would be interested to hear any thoughts on how cyclical their revenues are in present form, and where margins are likely to go.
There is no doubt that they are cyclical. During the GFC, revenues dropped by 20%

Their labor hire business has performed very poorly in the last couple of years. This is mainly due to competition. Overall profitability has been masked to an extent by the Maddison acquisition. Share price performance has been bogged down by poor communications over the capital raise and then the actual capital raise.

All these headwinds may now be behind the company. The 20% increase in EBITDA may be a catalyst for a rerate back to an average pe=13. That would be a 60% gain.

DISC: HOLDING

[winner69]

Noodles, you say first quarter ebitda up 25% - report says up 20%

[noodles]

Noodles, you say first quarter ebitda up 25% - report says up 20%
Just checking that you were paying attention.
I have updated the table.

[noodles]

Percy, have a listen to this!

http://podcast.radionz.co.nz/business/bus-mnr-20150723-0655-awf-madison_bullish_about_current_year_prospects-048.mp3

[percy]

Yes I am sorry to leave.AWF has been very kind to me.I think I brought in around $1.03/$1.05.Then added more.Then sold some just over $3,and recently took up the cash issue.
From what I can understand, there is little to stop new entrants to the labour hire sector,and I think in fact, AWF cut back on their low margin business,so to really to stay in business ,or expand they needed Madison.The projections made on the Madison acquisition have not been achieved.
So where to with Madison?.Well I am not sure.From what I am told "social media" is altering the whole sector.Employers are going, via social media, direct to the people they wish to recruit,by passing agencies,such as Madison.

I have just reread the agm presentation.Reading it yesterday I thought it was a bit glib.
So although my reasons for selling remain, there were a lot more positives in the agm presentation for shareholders,that I missed yesterday;
1] Growth has been a lot higher than I thought.If this continues I was wrong to sell.
2]The business is now fully focussed.Focus was lost with the on/off again capital raise.
3]The balance sheet is again very strong with the debt reduction,and will be even stronger with further debt reduction from earnings,The ratios are now very modest and the divie is excellent.
4]The new CEO,Simon Benntt coming from such a successful career at Maddison,will see where the opportunities are,and the company is in the position to take up those opportunities.
5]Left a little uncertain about the need to "strengthen the board".
So for shareholders,your company is sound,well run and looks "well positioned", and you should only sell if you see something a lot better [difficult!] or growth does not eventuate.

[winner69]

Be interested in Roger's view of his practice of eliminating amortisation to come to a normalised earnings number

Why not eliminate depreciation as well?

Answer would probably say using multiples like PE ratios is cheating - do the hard yakka and generate proper cash flows

[winner69]

Board quite diverse eh Percy

Really pleased to see they have taken on somebody from the Future Director program. Good stuff

(She only gets 50% of fees, but plenty of experience)

[percy]

Board quite diverse eh Percy

Really pleased to see they have taken on somebody from the Future Director program. Good stuff

(She only gets 50% of fees, but plenty of experience)

Agreed,it was the other two new board appointments I was meaning.
Wish we had comments from some one who attended the meeting.

[Snoopy]

They came out with a strong first quarter. EBITDA up 250%. If they continue at this rate, we could see eps=30c.
I have taken the last year EBITDA, multiplied by 1.20. Reduced interest cost (because they have paid down debt), and removed amortization of the Maddison acquisition
.

Ebitda
15120


Depn
1000


ebit
14120


Interest
1110


NPBTA
13010


tax
3642.8


NPATA (underlying)
9367.2


underlying earnings
0.289


pe
8.0



EDIT: Changed profit uplift from 25 to 20%

The share price was $2.30 when Noodles wrote the above. It is now down to $2.10. An excellent opportunity for the small investor to top up at $2.10. I just did!

SNOOPY

[stoploss]

The share price was $2.30 when Noodles wrote the above. It is now down to $2.10. An excellent opportunity for the small investor to top up at $2.10. I just did!

SNOOPY

Snoopy , I have no trades showing in AWF today , is my machine wrong or how did you top up ?

[Snoopy]

Snoopy , I have no trades showing in AWF today , is my machine wrong or how did you top up ?


I put my buy order in more than a week ago. I got the purchase note in the mail today. But you are right, there were no trades today. With a thinly traded share such as this you have to take your opportunities.

SNOOPY

[stoploss]

http://stocknessmonster.com/news-item?S=AWF&E=NZSE&N=273024

[stoploss]

http://news.media.mdgms.com.s3.amazonaws.com/b676be7b4cf171cad7ebe01e5437a575

[percy]

Maybe I am a little negative as I sold my AWF shares,but I do note the extra shares issued in the capital raise,means the eps are lower than previously,although the business is in better shape with the lower debt.However there was nothing in the presentation to cause me regret for selling my shares. I will keep any eye on AWF as I did do very well with them.

[Snoopy]

Maybe I am a little negative as I sold my AWF shares,but I do note the extra shares issued in the capital raise,means the eps are lower than previously,although the business is in better shape with the lower debt.However there was nothing in the presentation to cause me regret for selling my shares. I will keep any eye on AWF as I did do very well with them.

Quite right percy. If the net profit lifts 20% but the numbere of shares has gone up by 20% that means shareholders are going nowhere. It is the gain in earnings per share, not the gain in earnings, that is the statistic to look for (half year eps were 10.5cps, down from 11.1cps). This is why the dividend per share has only held steady, despite the increase in profit

Unlike you, I am a recent addition to the share register. I may have even bought your shares when you sold out! Acqusitions , like Madison, always take some time to bed down and integrate before all those synergy benefits start coming through. So while I am always disappointed to see 'eps' dip, I am not entirely surprised. All the signs ('Decline in Margin halted') are that the Madison acquisition is bedding in well. But time as always will be the ultimate judge.

SNOOPY

[percy]

Snoopy I do wish you every success with AWF.
I was just thinking that you are following in the footsteps of a great investor, Ian Urquhart,whose two largest investments were AWF and SCT.
He would be proud of you.!
Most probably would have enjoyed the tucka at RBD's agm too.!!

[Snoopy]

Snoopy I do wish you every success with AWF.
I was just thinking that you are following in the footsteps of a great investor, Ian Urquhart,whose two largest investments were AWF and SCT.
He would be proud of you.!
Most probably would have enjoyed the tucka at RBD's agm too.!!

Thanks Percy. Being a latecomer I didn't realise Ian Urquhart was an investor in AWF. I fear however, despite his death, Ian is very much an active investor again right now. He must be spinning in his grave, given what the trustees of his estate are now doing to his holding there!

SNOOPY

[percy]

Thanks Percy. Being a latecomer I didn't realise Ian Urquhart was an investor in AWF. I fear however, despite his death, Ian is very much an active investor again right now. He must be spinning in his grave, given what the trustees of his estate are now doing to his holding there!

SNOOPY

He did make things rather difficult for them by having overweight positions in illiquid stocks.
Yet that is how he made his fortune.Was a large investor in EBO in the early 1990s.He worked at the National Bank for a number of years,rode a bike to work,made his own lunch and was an early investor in BIL.[and was a hard case.]

[Snoopy]

He did make things rather difficult for them by having overweight positions in illiquid stocks.


I think this illustrates the difficulties of being a lawyer and managing an estate prudently. The lawyers I am sure are working within accepted practice guidelines for managing such an estate. But the problem is such an approach will never make you rich, but neither will it make you go broke. It's what you call a clash of investment culture.

SNOOPY

[h2so4]

He did make things rather difficult for them by having overweight positions in illiquid stocks.
Yet that is how he made his fortune.Was a large investor in EBO in the early 1990s.He worked at the National Bank for a number of years,rode a bike to work,made his own lunch and was an early investor in BIL.[and was a hard case.]

http://2.bp.blogspot.com/_Rw5aZBvCCvU/TRhevzM5HmI/AAAAAAAAAkA/XWySD5zgv4w/s1600/George+Shannon+001.jpg

[percy]

http://2.bp.blogspot.com/_Rw5aZBvCCvU/TRhevzM5HmI/AAAAAAAAAkA/XWySD5zgv4w/s1600/George+Shannon+001.jpg

Must be one of the last photos of him.
Note he is not wearing his usual Jandals or woolie pulley,but shoes and a jacket,his formal wear.Maybe he was on his way home from another agm.Note the "water" bottle in his hand, and his "doggie" bag full of "goodies."

[h2so4]

Ha! Certainly a character Percy.
I remember him coming into the courthouse after having just walked through the Avon River. Poor bugger he was on bail at the time. Sitting down he rolled up his trouser legs and removed his shoes and socks. The stench!,, He proceeded to wring out his socks on the courthouse floor and then put his shoes and socks back on.

[minimoke]

Is it just me whose head is muddled by flag debate. It seems to me AWF's logo is remarkedly similar to the new Department of Labour logo.

[Buffett Jr]

How well would a company such as AWF do in a downturn?

I would imagine the labour, manufacturing and supply chain roles they focus on would dry up? Also the competition in the recruitment space from my own personal job search recently shows there is so many to choose from.

[stoploss]

How well would a company such as AWF do in a downturn?

I would imagine the labour, manufacturing and supply chain roles they focus on would dry up? Also the competition in the recruitment space from my own personal job search recently shows there is so many to choose from.

Traditionally in a downturn employers will not take on new ( or as many) full-time employees as they are just not too sure how they will get on . However on the flip side they are happy to take on a heap of temps , contractors, etc
So this is positive for AWF imo, in a downturn . The Madison side may not do as well on the Full time placements, but probably go gangbusters on temps .

DISC: Holding

[Snoopy]

How well would a company such as AWF do in a downturn?

I would imagine the labour, manufacturing and supply chain roles they focus on would dry up?


I would look at it the other way. The HR department of a company under pressure is likley to be downsized. Hence more work will be outsourced to 3rd party contractors like AWF.

Also I think the view that AWF Madison focus on "labour, manufacturing and supply chain roles" is outdated. The Madison acquisition means there is just as much focus on white collar jobs these days.



Also the competition in the recruitment space from my own personal job search recently shows there is so many to choose from.


There is always competition out there. But there are economies of scale in being one of the very largest players in teh industry.

SNOOPY

discl: AWF Shareholder

[Buffett Jr]

So in summary, AWF you both feel would not just survive a recession but potentially thrive in one?

[stoploss]

So in summary, AWF you both feel would not just survive a recession but potentially thrive in one?

If not thrive maybe outperform most of the market ......

[Snoopy]

So in summary, AWF you both feel would not just survive a recession but potentially thrive in one?


Not saying a recession is good for AWF. Even if business goes up, margins could be squeezed. Just saying the picture may noy be quite as cut and dry bad as you suggest Buffett Jr!

SNOOPY

[minimoke]

In a downturn what will typically happen is the number of paying employers reduces and the supply of job candidates increases. This inevitably leads to margin pressure between agencies.

Hiring companies also look at reducing hiring costs so the HR department goes but operational managers do the hiring from an increasing pool of easily available people.

Downturns dont last forever so it becomes a battle of attrition : who can best control costs relative to margin and who has the cash/ banking facilities to keep the payroll ticking over without dipping into IRD reserves.

[Snoopy]

Not saying a recession is good for AWF. Even if business goes up, margins could be squeezed. Just saying the picture may noy be quite as cut and dry bad as you suggest Buffett Jr!


Results out and management claim they are disappointed but really things are better than they appear. Dividend maintained.

There is a $1.3m 'one off' adjustment mentioned in the Chairman's address. Later is mentioned a $0.3m provision due to a 'Christchurch problem'. This came about because of 'significant growth in key infrastructure projects' (!??!*!). The head contractor is not approving payment to a subcontractor and AWF is owed by the sub-contractor or something like that. Actual amount in dispute is $1.3m, but AWF says only $0.3m of that is the provision at risk. I am not clear if the $0.3m 'Christchurch Provision' is included in the $1.3m 'one off' provision or not.

Some other odd things going on in the books too. There is an intangible asset, not related to goodwill, described as 'Customer Relationships'. Well, I thought that was the kind of thing that goodwill covered. So I am surprised to see 'Customer Relationships' listed as a separate intangible asset. Apparently this asset is typically amortised over 4-6 years. I would be very interested to find out from those who have a longer history with the company than I do, just how 'Customer Relationships' got onto the balance sheet in the first place. AWF thinks the after tax effect of amortising 'Customer Relationships' should be added back to get 'underlying earnings'.

It does appear that 'underlying earnings' are indeed better than the GAAP mandated numbers indicate. But how much of this hidden earnings pie should really be counted? This is a question I am struggling with.

SNOOPY

[Snoopy]

Some other odd things going on in the books too. There is an intangible asset, not related to goodwill, described as 'Customer Relationships'. Well, I thought that was the kind of thing that goodwill covered. So I am surprised to see 'Customer Relationships' listed as a separate intangible asset. Apparently this asset is typically amortised over 4-6 years. I would be very interested to find out from those who have a longer history with the company than I do, just how 'Customer Relationships' got onto the balance sheet in the first place. AWF thinks the after tax effect of amortising 'Customer Relationships' should be added back to get 'underlying earnings'.


The following extract is from note 16.5 in AR2012. This may go some way to answering my own question.

-----

Goodwill arose in the acquisition of Tradeforce Recruitment as the consideration paid included amounts in relation to the benefit of future market development and the assembled client base and workforce of Skilled NZ Limited. The portion of these benefits that relates to contracts with major clients has been valued separately as an intangible asset. The remaining benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured and they do not meet the definition of intangible assets.

------

What AWF seem to be saying here is that if they have a 'large customer', and the benefit of future work 'down the pipeline' is forseeable and measurable, then whatever they pay for that future pipline of work is not goodwill. Yet the same kind of contract made with a smaller customer over the same future period is goodwill, because the future work is less certain because the customer is small (?).

This strikes me as odd to have different treatment of a customer base, made only becasue of the size of the customer. The former seems subject to an annual write off policy, yet the latter does not?

SNOOPY

[percy]

Take care.
Today AWF's sp was $2.30 which is below the 50 day EMA $2.35,the 100 day EMA $2.34,and the 200 day EMA $2.32.
Not looking very healthy.

[Snoopy]

Take care.
Today AWF's sp was $2.30 which is below the 50 day EMA $2.35,the 100 day EMA $2.34,and the 200 day EMA $2.32.
Not looking very healthy.

We shed a decent dividend not too long ago Percy.

Today's trading totalled just $14k. AWF is a small relatively illiquid share. One small shareholder can push this share price around by getting a 25th anniversary gift for their spouse. Doesn't really say much about the underlying company if you did that.

There has been no compelling reason to buy or sell over the last year IMO. Madison is still 'bedding in' (apparently). Dividend looks sustainable.

SNOOPY

[percy]

Agree with you the dividend is sustainable and the stock is very illiquid.
With the ex ceo of Madison running AWF the "bedding in" should be well done and dusted.
The sp in July 2014 was $2.34,and in July 2015 $2.30,the same as today.

[Snoopy]

Some other odd things going on in the books too. There is an intangible asset, not related to goodwill, described as 'Customer Relationships'. Well, I thought that was the kind of thing that goodwill covered. So I am surprised to see 'Customer Relationships' listed as a separate intangible asset. Apparently this asset is typically amortised over 4-6 years.

AWF thinks the after tax effect of amortising 'Customer Relationships' should be added back to get 'underlying earnings'.


Some more thoughts on AWF's 'underlying earnings' calculation. Transforming a 'Customer Relations' intangible asset into hard cash is good news for shareholders. From a cashflow perspective it makes quite a difference to the 'overall' underlying result, in the most general sense. Nevertheless IMO, 'cashflow' and 'underlying profit' are different things. If a shareholder wants to know about cashflow, what is wrong with looking at the cashflow statement? Does this fancy 'underlying earnings' that AWF has created add anything?

When managing the business, yes. Having an intangible asset on the book that you expect to change into cash, is great. But this transformation will only happen if trained staff do a good job. And this is the kind of thing that should be of great interest to the middle management of AWF. From a shareholders perspective though, I find 'underlying earnings', calculated by adding back amortised 'customer relations', is less useful.

The problem is, the 'Customer Relations' intangible asset was originally created by shareholder cash, when that shareholder cash was used to buy an acquisition. So turning 'Customer Relations' back into cash is really just giving shareholders back the cash they had to start with. From a shareholder perspective, I think the particular brand of 'underlying earnings' that AWF is quoting is 'double counting' an 'already on the books' benefit.

IFRS accounting rules can be pigs when trying to understand the underlying business. In this case though, I am siding with the IFRS guys. AWF's 'underlying earnings' are useful to shareholders in the sense that it provides more cash to secure payment of dividends when cashflow drops from other sources. But IMO shareholders need to foucus on the old fashioned NPAT figure. That's the one that IFRS says gives the true picture, and I agree.

SNOOPY

[Snoopy]

Results out and management claim they are disappointed but really things are better than they appear. Dividend maintained.

There is a $1.3m 'one off' adjustment mentioned in the Chairman's address. Later is mentioned a $0.3m provision due to a 'Christchurch problem'. This came about because of 'significant growth in key infrastructure projects' (!??!*!). The head contractor is not approving payment to a subcontractor and AWF is owed by the sub-contractor or something like that. Actual amount in dispute is $1.3m, but AWF says only $0.3m of that is the provision at risk. I am not clear if the $0.3m 'Christchurch Provision' is included in the $1.3m 'one off' provision or not.


I have searched through the Annual Report for FY2016. There is no further mention of the $1.3m adjustment referred to in the Chairman's address. I hope he is right and the benefits of this adjustment flow thorough to future years. But in the absence of further information, as an investor, I believe I should treat this as a 'normal business expense' that does not distort the result for this year.

The most disappointing sentence in AR2016, I think is in the strategy section (p11).

"While most staff, client and candidate experiences remain distinct between AWF and Madison...."

I'm sorry, what was the purpose of this merger again? Was 'zero synergies' one of those bullet points?

Also disappointing was the hint dropped on raising the final dividend at half year result time which didn't happen becasuse of the disappointing second half.

Nevertheless eps was 16cps (let's forget about this 'underlying profit' that management like to speak about). dps was 15.2cps.

At $2.30 I get a net yield of 6.6%, and a gross yield of 9.2%. You would have to be in some sort of financial trouble to want to sell out at those levels I would have thought. This still looks like a good 'bottom drawer keeper' for the income investor. I could make an argument for adding a few at $2.30, even if I hadn't bought most of my comfortable little holding at that price already!

SNOOPY

[percy]

The announced AWF Madison acquisition of Absolute IT appears to be a step in the right direction.
$15.3 mil for a business with revenue of nearly $65mil ,without knowing its profitablity, seems to be OK to me.
Well Snoopy I hope the AWF shares you brought from me start performing.!!..lol.

[BlackCross]

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...

[Joshuatree]

Pretty well at a 2 year high on very good (for AWF) vol.

[percy]

I note AWF's CEO,Simon Bennett will be presenting at NZ Shareholders' Auckland meeting on Wednesday 26th April.

[noodles]

I note AWF's CEO,Simon Bennett will be presenting at NZ Shareholders' Auckland meeting on Wednesday 26th April.

Details here:
http://www.sharetrader.co.nz/showthread.php?10844-NZSA-Auckland-Meetings-and-Events&p=663250&viewfull=1#post663250

[percy]

I note AWF's CEO,Simon Bennett will be presenting at NZ Shareholders' Auckland meeting on Wednesday 26th April.

Come on NZSA sharetraders.I sat up late last night waiting for reports.Up early this morning.Not a one.!!
Didn't Simon turn up at your meeting last night?
And if he did,did he have laryngitis.?
And then this morning a speeding ticket.!!!!.????????????????????

[forest]

Hi Percy, Simon did turn up. He started his presentation explaining that being so close to the result announcement he was unable to talk about resent trading/profits. He then went on to say that the aim for the foreseeable future is double digit growth. He said all this with a big smile on his face. The rest of the presentation was an overview of the 3 business units AWF operates.
So here you have it, he was unlikely smiling and thinking about a bad result at the same time. :)

[percy]

Hi Percy, Simon did turn up. He started his presentation explaining that being so close to the result announcement he was unable to talk about resent trading/profits. He then went on to say that the aim for the foreseeable future is double digit growth. He said all this with a big smile on his face. The rest of the presentation was an overview of the 3 business units AWF operates.
So here you have it, he was unlikely smiling and thinking about a bad result at the same time. :)

Thanks Forest.
Big smile on his face and aim for "double digit growth" "for the foreseeable future",goes a long way to explaining the speeding ticket.!
Must say I think shareholders are "well positioned" "for the foreseeable future".

[Joshuatree]

Thanks Forest, percy and noodles. AWF performing like this keeps me out of a job:t_up:

[Elles]

When is the results announce due? And where do you find this information if not published as an announcement on the NZX? Thanks.

[Joshuatree]

One way if they don't announce that date is to check the previous years date which was 25th may 16 and 28th May for years 2014-15. .

[minimoke]

2 CFO resignations. Coincidence or a reflection of debtor management?

[percy]

2 CFO resignations. Coincidence or a reflection of debtor management?

Not a good sign.
The result was not what I was expecting,therefore I sold 75% of my holding this morning.

[Snoopy]

Prior to the Madison acquisition, the following rather strange statement appeared in the FY2012 annual report

"Shareholders may have noted the Groups reference to the additional reporting of ‘UNDERLYING EARNINGS’. This is because now that some borrowings are being committed as part of the growth programme, given the nature of the acquisition targets (in accounting terms), containing high levels of identifiable intangible asset components (and requiring amortisation according to NZ IFRS requirements), the AWF Board considers that the resulting non cash adjustments distort true performance. Underlying earnings adjust for non cash items and in the opinion of the Board more correctly reflects the operating performance of the Group."

I am unclear if that was written with Madison (acquired November 2013) on the investment horizon. But I have never heard of any NZ IFRS requirement that means that intangible assets must be written off upon acquisition. Indeed I thought the law had been changed so that exactly the opposite happened. I.E. intangible assets were only to be written off if they were impaired. If intangible assets are forced to be written off on acquisition, doesn't that mean the acquirer paid too much for those assets? I certainly hope that all the cash spent on Madison so recently is not being written off already!


I wrote the above comments in June 2015. Hindsight has shown that the Madison acquisition may not have delivered the synergy benefits envisaged.

I am always interested when the reporting on a business suddenly changes format with no real explanation.

One point I noted in AR2017 was that all references to 'underlying earnings' have been dropped. Personally I think this is a good call. Adding back intangible write offs because they were not cash expenses does not cut it with me, particularly when those same intangibles were real cash in the not too distant past.

SNOOPY

discl: hold AWF

[minimoke]

I wrote the above comments in June 2015. Hindsight has shown that the Madison acquisition may not have delivered the synergy benefits envisaged.
F
No hind sight required. simon hull is your typical blue collar bloke done good and awf reflected this in their culture.

The two women who owned Madison at other end of scale and so was Madison.

Trying to join the two would be like trying to mate a mongeral with a lap dog.

[Snoopy]

Does this fancy 'underlying earnings' that AWF has created add anything?

<snip>

The problem is, the 'Customer Relations' intangible asset was originally created by shareholder cash, when that shareholder cash was used to buy an acquisition. So turning 'Customer Relations' back into cash is really just giving shareholders back the cash they had to start with. From a shareholder perspective, I think the particular brand of 'underlying earnings' that AWF is quoting is 'double counting' an 'already on the books' benefit.


The above is taken from a July 2016 comment that I made.

This is the comment that AWF management obviously read and decided it made great sense before deciding to ditch their reporting of their in company fabricated 'underlying earnings' for the FY2017 year ;-).

However, on a tangential matter, I may have been a bit harsh with my previous comment on the AWF treatment of amortising intangible assets in my June 2015 comments.

Why does it matter? Because the amortisation of customer relationships over FY2017 was $1.746m. And $1.746m represents 20% of gross profits for FY2017. So this represents a very large opportunity window for the possible manipulation of annual results.

SNOOPY

[Snoopy]

Why does it matter? Because the amortisation of customer relationships over FY2017 was $1.746m. And $1.746m represents 20% of gross profits for FY2017. So this represents a very large opportunity window for the possible manipulation of annual results.


My June 2015 comments are listed below.



the following rather strange statement appeared in the FY2012 annual report

"Shareholders may have noted the Groups reference to the additional reporting of ‘UNDERLYING EARNINGS’. This is because now that some borrowings are being committed as part of the growth programme, given the nature of the acquisition targets (in accounting terms), containing high levels of identifiable intangible asset components (and requiring amortisation according to NZ IFRS requirements), the AWF Board considers that the resulting non cash adjustments distort true performance. Underlying earnings adjust for non cash items and in the opinion of the Board more correctly reflects the operating performance of the Group."

I have never heard of any NZ IFRS requirement that means that intangible assets must be written off upon acquisition. Indeed I thought the law had been changed so that exactly the opposite happened. I.E. intangible assets were only to be written off if they were impaired.


I notice that when Westpac took over 'St George Bank' and created a lot of new 'intangible assets' (in a way loosely analogous to Allied Work Force taking over Madison). As a result they (Westpac) had the following to say in their Westpac FY2013 annual report (from p94).

------

7. Amortisation of intangible assets comprises:
– the merger with St.George resulted in the recognition of core deposit intangibles and customer relationships intangible assets that are amortised over their useful lives, ranging between five and nine years. The amortisation of intangible assets (excluding capitalised software) is a Cash Earnings adjustment because it is a non-cash flow item and does not affect cash distributions available to shareholders; <snip>

------

If intangible assets do have useful lives, then I can see that writing them off over that useful life makes sense. But my question is this. How do you determine the useful life of a 'customer relationship intangible asset'?

Going back to AWF, I can see that a company who has hired staff via Madison are likely to continue doing so if:

1/ the people they are dealing with are the same AND
2/ the business model remains the same,

despite the ultimate change in Madison company ownership.

If, say, a construction company was building the new Justice and Emergency Precinct in Christchurch (for example), then those white collar engineers hired would lose their positions once this project is complete. The finite time frame of a project therefore means the intangible asset representing workers likely to be hired for that project also has a finite time frame.

Yet once one construction is complete there is always the next construction project. So is it reasonable to say that the Construction company hiring the workers via Madison will not use Madison again? The problem that I have is envisaging the boundary between a 'finite intangible asset' and an 'enduring intangible asset'.

The comment in the FY2017 AWF annual report, p36 on this subject:

"The useful lives of customer relationships used in the calculation of amortization ranges from four to six years based on the directors views of asset life."

does not provide any insight into the decision making process.

If there is no boundary between 'finite' and 'enduring', then I don't think such intangible assets should be written off in a planned way.

SNOOPY

[Snoopy]

Not a good sign.
The result was not what I was expecting,therefore I sold 75% of my holding this morning.

Percy, I have noticed, is quick to head for the exit when a company disappoints, although perhaps not with full conviction here because he has retained 25% of his AWF shares



"For the Board, Chairman Ross Keenan noted that whilst strong performance was delivered in most areas, the significant lift in outstanding debtor balance at Year End put increased pressure on the organisation; and, accordingly, a further lift in bad debt provisions has been deemed appropriate."


The bad debt announcement wasn't good news. But it wasn't 'new news' either.

From AR2016 p39.

"One large overdue debtor owes the group $1.3m due to significant growth in key infrastructure projects. The payment to the group is dependent on variation payments in the debtor being approved and paid by head contractors in the projects. Due to the length of time the debt has been outstanding and the lack of certainty surrounding the variation invoices, the group has taken steps to ensure that it receives the debt it is owed by appointing a liquidator. The group has also provisioned $0.3m against this debt in case the variations are not all approved by the head contractor."

My first reading of that paragraph, suggests that whoever wrote it should be given an 'A' for gobbledegook. But by a process of elimination, AWF has tipped the subcontractor into receivership, because the head contractor won't pay up. But why the sub-contractor should be tipped into receivership when it appears they had too much work and should have hired even more staff (should have been good for AWF) to do the extra work remains a mystery to me.

Roll around to AR2017 p41, and we find the overall debt on this contract has blown out another $100k to $1.4m, but the bad debt provision on that has blown out to $0.8m.

The real question here though is, how bad is all of this when looking at the big picture?

SNOOPY

[Snoopy]

The real question here though is, how bad is all of this when looking at the big picture?


Note figures in italics in table below are estimates



Doubtful Debt Provisions {A} Current Trade and Other Receivables (before provisioning)less Other Receivables (Estimates comes from FY2016)equals Current Trade Receivables {B}]{A}/{B}


EOFY2014$0.377m$24.677m$3.637m$21.040m]1.79%


EOFY2015$0.342m$27.996m$3.637m$24.349m]1.40%


EOFY2016$0.589m$33.706m$3.637m$30.069m]1.96%


EOFY2017$0.897m$46.430m$5.332m$41.098m]2.18%



Notwithstanding that an EOFY2017 provision of $0.897m is just over 10% of FY2017 gross profit, in percentage terms I don't believe the 'bad debt provision' to 'total debt' ratio is a matter for concern. Hopefully the bad debt is now dealt with and we shareholders can move forward from here.

To some extent the 'Absolute IT' acquisition has got AWF out of jail. 'Absolute IT' is reflected in the end of year book position. So that means existing problems within AWF are diminished in relative terms by being part of a larger total. I am prepared to take a 'glass half full' approach to the bad debt position at this time. I won't be selling any of my AWF shares because of the bad debt issue.

SNOOPY

[Snoopy]

I have searched through the Annual Report for FY2016. There is no further mention of the $1.3m adjustment referred to in the Chairman's address. I hope he is right and the benefits of this adjustment flow thorough to future years. But in the absence of further information, as an investor, I believe I should treat this as a 'normal business expense' that does not distort the result for this year.


That wasn't very diligent of me.

Further detail of this $1.3m debt does appear on p39 of AR2016, with a note that $0.3m of provisioning has been taken on the books against it. Fast forward one year to AR2017 p41 and the debt has grown to $1.4m (not sure how as the company owing the debt was put into receivership by AWF: Could the difference be receivership fees?). Total provisioning against this debt has jumped to $0.8m, and that means an extra $0.5m in provisioning provided over FY2017.

Now I have this extra information I will have to decide if the debt incurred was part of normal operations or a significant 'one off'. Hmmmm?

SNOOPY

[percy]

Hopefully a significant "one off".
Does seem to be a lot higher debt than I would expect from normal operations.
Maybe lessons learnt.
Selling off 75% of my holding in both AWF and EVO was because both results were well under what I expected.Had I had a high conviction stock I wanted to buy, I would have sold out completely.The result is I have lowered my average price.I was also sitting on more cash than I wanted.Both stocks now have PE ratios higher than their growth rate,however their yields are satisfactory.

[Snoopy]

The Annual Report for FY2014 says that: (AWF Limited) is New Zealand's largest recruitment company. This is a position achieved through 27 years of growth from modest beginnings.

The company mission statement is:
"To be the leading provider of quality recruitment and staffing solutions to NZ business."

Measured by their own standard, AWF have already fulfilled their vision as they are 'number 1' already. The scale requirement for the business is therefore satisfied.

Conclusion: Pass Test


A lot has happened over the last couple of years. So time for an update.

AWF Madison is in the business of recruitment and provision of people. The company operates in both the white collar and blue collar market place. AWF are the largest recruiter and labour provider in New Zealand providing the full spectrum of temporary and permanent recruitment services to industry and commerce.

The prime mission of the AWF (formerly Allied Work Force) sub-brand, founded in 1988, is "the provision of blue collar temporary labour", both semi-skilled and skilled. Industry sectors covered include construction, infrastructure, manufacturing, food processing, timber processing and waste management. AWF have 30 branches nationwide with 124 staff who supply up to 3,500 people per day on deployment.

The Madison sub brand, founded in 1998, acquired by AWF in 2nd December 2013, both recruits outright (5,615 placements last year) and deploys on their own behalf (up to 1,100 people per day) white collar staff through 5 offices and 98 support staff.

Absolute IT, founded in 2000, acquired by AWF on 1st November 2016, is also a 'white collar' recruitment business, but is an Information and Communication Technology (ICT) recruitment specialist (complimentary to Madison). Absolute IT has 4 offices with a total of 48 support staff deploying around 450 people daily.

"Madison" and "Absolute IT" report as one operating segment.

The combined group is New Zealand's largest recruitment company in terms of placements and the only NZX listed company in this market sector.

Conclusion: Pass Test

SNOOPY

[percy]

Divie in my bank.

[Snoopy]

For this exercise I have removed the group's foray into the healthcare sector. I am referring here to the groups purchase of Panacea Healthcare on 04-10-2010, the additional purchase of Nursing NZ on 19th March 2012 and the subsequent sale of the lot on 31-08-2012.

Earnings figures calculated are adjusted net profit after tax.

2010: $2.002m/26.125m= 7.7cps
2011: ($3.212m - $0.003m +0.7x($0.465m) )/26.125m = 13.5cps
2012: ($2.877m +0.72x($0.167m+$1.100m) )/26.125m = 14.5cps
2013: $4.952m/25.805m = 19.2cps
2014: ($3.952m+0.72x(0.095m+0.257m) )/25.804m = 16.3cps
2015(*): $5.416m/ 32.463m =16.7cps

Notes:

1/ Panacea Healthcare NPAT (an non continuing business stream) removed from results for FY2011, not included in FY2012 and FY2013.
2/ Business acquisition costs removed from FY2011, FY2012 and FY2014.
3/ Goodwill impairment removed from FY2012.
4/ Due diligence cost removed from FY2014
(*) FY2015 results based on abbreviated results released. When full result becomes available it may require adjustment.

There was one dip in the underlying earnings trend following FY2013, but apart from that the eps path is steadily upwards.

Conclusion: Pass test

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

Conclusion: Fail Test

[Snoopy]

ROE= (Net Profit)/(EOFY Shareholders Funds)


2010: $2.002m /$18.588m= 10.8%
2011: $3.535m /$19.913m = 17.7%
2012: $3.789m /$19.201m = 19.7%
2013: $4.952m /$21.607m = 22.3%
2014: $4.205m /$20.763m = 20.3%
2015 (*): $5.416m/$35.931m =15.1%

The big improvement from FY2010 has been sustained. A significant drop in the FY2015 is because of the newly enlarged equity base. But even with this, AWF is earning well above its cost of capital.

Conclusion: Pass test


ROE= (Net Profit)/(EOFY Shareholders Funds)

2013: $5.076m / $21.607m = 23.5%
2014: $4.180m / $20.763m = 20.1%
2015: $5.447m/ $35.931m = 15.2%
2016: $5.210m/ $36.274m = 14.4%
2017: $6.324m/ $36.935m = 17.1%

Conclusion: Pass test

SNOOPY

[Snoopy]

Margin = Net Profit/Sales

2010: $2.002m /$70.329m = 2.85%
2011: $3.535m /($95.800m - $7.000m) = 3.98%
2012: $3.789m /($119.264m-$14.349m)= 3.61%
2013: $4.952m /($138.852m - $8.375m)= 3.79%
2014: $4.205m /$148.691m = 2.83%
2015(*): $5.416m/$197.5m = 2.74%

Note: For FY2011, FY2012 and FY2013 I have removed the healthcare unit profit and the associated turnover.

Margins were certainly raised above inflation between the base year FY2010 in comparison with the next subsequent three years. The last two years have seen a decline back to FY2010 margin levels. Is this because Madison is inherently 'lower margin'? AWF have already shown they are prepared to deal with below par margin businesses. That is why they sold their healthcare assets. So I am prepared to back AWF management and let them work some margin magic going forwards, as they have done before.

Conclusion: Pass Test


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.

Conclusion: Fail Test

SNOOPY

[Snoopy]

That wasn't very diligent of me.

Further detail of this $1.3m debt does appear on p39 of AR2016, with a note that $0.3m of provisioning has been taken on the books against it. Fast forward one year to AR2017 p41 and the debt has grown to $1.4m (not sure how as the company owing the debt was put into receivership by AWF: Could the difference be receivership fees?). Total provisioning against this debt has jumped to $0.8m, and that means an extra $0.5m in provisioning provided over FY2017.

Now I have this extra information I will have to decide if the debt incurred was part of normal operations or a significant 'one off'. Hmmmm?


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.

SNOOPY

[Snoopy]

AWF Limited is showing a strong return on equity profile. One way to do this is to borrow heaps. Unfortunately this method of increasing ROE usually comes back to bite shareholders. So has AWF currently leveraged their balance sheet to help make this important statistic look good?

My preferred method of answering this question is to look at what happens if all profits are redirected to repaying debt. In reality this is unlikely to happen. Shareholders like their dividends, and businesses must invest for the future. Also a debt free company may not be 'capital efficient'. Nevertheless 'MDRP' does provide a gauge of just how quickly a company could eliminate their debt should they (or their bankers decree!) that they do so. A figure over 10 years I regard as suspect. A figure under three years I regard as very good. So how does AWF measure up in 2015?

Bank debt in the FY2015 results announcement is as follows:



Cash & Cash Equivalents: {A}$3.151m


Non Current Borrowings: $0


Current Borrowings:$21.759m


Total Borrowings: {B}$21.759m


Total Net Borrowings: {B}{A}$18.608m



Net profit after tax: $5.416m

MDRT = $18.608m/ $5.416m = 3.4 years

This I regard as quite acceptable. AWF are not overleveraged, and considering their cash issue had just been banked on this balance date, probably close to their targeted leverage.


Bank debt in the FY2017 results announcement is as follows:



Cash & Cash Equivalents: {A}$1.225m


Non Current Borrowings:$33.500m


Current Borrowings:$0.0m


Overdraft:$0.108m


Total Borrowings: {B}$33.608m


Total Net Borrowings: {B}{A}$32.383m



Net profit after tax: $6.324m

MDRT = $32.383m/ $6.324m = 5.1 years

Quite a large increase in leverage at AWF in the last couple of years. The acquisition of "Absolute IT" last November funded by bank debt would have something to do with that. However going from and MDRT of 3.4 at EOFY2015 to 5.1 today I would see as a move up, but still within, the medium debt spectrum. Not too much to worry about here, but the debt situation deserves monitoring.

SNOOPY

[Snoopy]

I should add that these four tests are 'indicators'. Passing these four tests means that I can apply my 'growth model' to check the fair value of this share. You will note that none of these tests say anything about fair market value. It is fair market value that determines if AWF is a buy, not passing these four tests!

<snip>

I would say that should margin shrink again in FY2016, then the argument that management is still capable of increasing margins going forwards would be looking shakey.


Fast forward a couple of years and much has changed. What was a clean pass on all tests at EOFY2015, has now morphed into a couple of failed tests. The net profit margin in FY2016 did shrink again and the recovery in FY2017 is still below FY2015 levels.

Next we have the somewhat sorry 'earnings per share story'. Five years on from the first corporate move and two acquisitions ('Madison Recruitment' and 'Absolute IT') have joined the AWF family. So we now have a much bigger company in revenue terms. But what has happened to 'eps' over that time period?

2013: ($4.952m+$0.124m)/ 25.805m = 19.7cps
<snip>
2017: ($5.867m-$0.050m+0.72x($0.262m+$0.442m) )/ 32.463m = 19.5cps

That's right. 'Eps' has gone down! OK the latest acquisition of Absolute IT is still bedding in, and I do expect 'eps' will rise in FY2018. But right at this point, shareholders who have held for five years (I haven't) must be disappointed. Sadly this means the 'Buffett Growth ' model is currently not suitable for checking out the value of this share :-(. Time to bring out the alternative 'Capitalised Dividend Valuation Model', and see what sort of valuation figures I get!

SNOOPY

[Snoopy]

They say history is no guarantee of future results. But I have created the following table, charting earnings per share in a calendar year verses dividends per share in a calendar year. This is representative of AWFs cash flow position for the respective years. This differs from the companies declared results because the final dividend is always paid in the subsequent year. I am more comfortable using actual cash flow though, which is why I choose to present the eps/dps results in this way.

I have left out the one off dividend of 3cps paid in FY2014 as a result of the capital gain made on the sale of the healthcare business. One off sales do not represent repeatable sustainable dividends from ongoing operations.



epsdps


20077.08.93


20087.25.8


20098.26.5


20107.74.5


201113.58.3


201214.511.4


201318.714.4


201416.415.6


201516.714.8


Total109.990.23



Over the last nine years, AWF have paid out 82% of their 'ongoing earnings' as dividends. The 18% of earnings retained (together with the cash issue earlier in 2015) have been used to grow the business. ROE has been maintained at good levels from FY2011 to FY2014 inclusive. This indicates retained earnings have been used wisely. This bolsters my case for AWF Limited to be regarded as a 'growth company' for financial modelling purposes.


I am in favour of using data that goes back up to ten years, to get a view across the 'business cycle'. In the case of AWF Madison though, I feel that would be misleading today. With the addition of 'Madison Recruitment' and 'Absolute IT' to the fold, I think there is an argument for dropping all indicative data outside of a minimum five year window.

I have left out the one off dividend of 3cps paid in FY2014 as a result of the capital gain made on the sale of the healthcare business. One off sales do not represent repeatable sustainable dividends from ongoing operations.



epsdps


201319.714.4


201416.215.6


201516.814.8


201616.015.2


201719.616.0


Total88.376.0



This represents an average dividend payout ratio over the last five years of:

76.0 / 88.3 = 86%

SNOOPY

P.S. Just noticed on p15 of AR2017 that AWF have a policy of paying out 65-70% of 'underlying earnings'. 'Underlying earnings' is a unique construction of AWF management which allows for the 'amortization of intangible assets' (a non cash item) to be added back in, less a deferred tax effect based on the 28% tax rate. 'Underlying Earnings' calculated this way is a proxy for cashflow, and cashflow is what dividends are paid from. However, I still contend that 'underlying earnings' is a misleading measure to assess AWF performance. That's because real shareholder cash was used to create the now 'intangible assets' that are being amortised. Just because the cash was paid 'up front', does not mean it should be ignored from an earnings perspective.

The amortization expense was $2.272m for FY2017 (p36, AR2017)

So 'Underlying earnings' for FY2017, based on the declared NPAT of $5.867m would be:

$5.867m + (1-0.28)x $2.272m = $7.503m

65-70% of that figure, the projected dividend payout for FY2017 is:

(0.65 to -0.7) x $7.503m = $4.877m to $5.252m {A}

The actual dividend declared for FY2017 is 8.0c (interim) and 8.2c (final). There are 32.463m AWF shares on issue. So the amount declared as a dividend for FY2017 is:

($0.08+$0.082) x 32.463m = $5.259m {B}

Comparing {A} and {B}, we can see that the declared dividend, which is actually paid over FY2017 (interim bit) and FY2018 (final bit) is right at the top end of policy guidance (70% of underlying earnings).

Yet the actual dividend paid as a percentage of net profit during FY2017 is 16c/19.6c = 82% of NPAT.

Shareholders should be aware that paying out 70% of 'Underlying Earnings' is the same as paying out 82% of 'Net Profit After tax'. But let's not get too picky with management. What difference does 12 percentage of net profit really make between shareholder friends ;-)?

[percy]

I have not checked your figures,but really my investment comes down to eps growth.
Using your figures we see eps went from 18.7cps in 2013,to 19.6 cps in 2017.ie an increase over those years of only 4.8%.or on average just over 1% pa.
This proves AWF is no longer a growth stock,and the PE of 14.69, using your figures ,is not warranted.
The yield ,again using your figures is 5.55% which is healthy,which makes AWF a yield stock..

[Snoopy]

I am in favour of using data that goes back up to ten years, to get a view across the 'business cycle'. In the case of AWF Madison though, I feel that would be misleading today. With the addition of 'Madison Recruitment' and 'Absolute IT' to the fold, I think there is an argument for dropping all indicative data outside of a minimum five year window.





epsdps (imputed)


201319.714.4


201416.215.6


201516.814.8


201616.015.2


201719.616.0


Total88.376.0


5 year Average15.2



For a leading market player in a nevertheless fragmented service profession I would accept a 7.5% gross dividend yield.

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

= (15.2c / 0.72) / 0.075 = $2.81

With no sales in the market today as I write this, but a bid price of $2.75 and an offer price $2.85, in these days of highly prized dividends I think AWF is trading where it should.

SNOOPY

[BlackPeter]

epsdps (imputed)


201318.714.4


201416.415.6


201516.714.8


201616.015.2


201719.616.0


Total87.476.0


5 year Average15.2



Are you sure you are not over-analysing? This looks at the first view like a pretty stagnant (though profitable) company to me.

[Snoopy]

Are you sure you are not over-analysing? This looks at the first view like a pretty stagnant (though profitable) company to me.


The 'Capitalised Dividend Valuation Model' assumes a mature business that will tend to repeat earnings over the business cycle. Management might not like themselves being described as 'stagnant', but I think your comment is 'spot on' BP. If you believe that management can grow the business, then buying at the 'Capitalised Dividend Valuation' means you get any such growth 'for free'. As an investor getting something for nothing has an appeal. But if there is no growth, then you are likely 'stuck' with a business cycle gross dividend yield of 7.5%. Either way I think I can cope!

The moral is, if you are looking for some go go outfit that will lift earnings markedly, then maybe you should look elsewhere. I think this is something that both Percy and I can agree on!

SNOOPY

discl: hold AWF

[percy]

The bonus offcourse being when your yield stock comes up with a big [susstainable] lift in earnings.
This is what I had expected from AWF,but the latest results proved me wrong.

[Snoopy]

The bonus of course being when your yield stock comes up with a big [sustainable] lift in earnings.
This is what I had expected from AWF, but the latest results proved me wrong.

Don't give up on AWF yet Percy. The "Absolute IT" acquisition has only four months of trading in the FY2017 result. The winning of the census contract should benefit 'Madison Recruitment' in FY2018. Meanwhile, the AWF division, where it all started, keeps performing. I think 'step growth' is definitely still possible (I hope for the best). But if growth doesn't happen, then there is that 7.5% , or thereabouts, gross yield to look forward to (I plan for the worst).

SNOOPY

[percy]

Totally agree,and that's why I retained some of my holding.
Maybe,just may be,we are "well positioned," to take advantage of any "surprise" earnings upgrade?

[Snoopy]

The talk is pretty bullish on Madison , supppose they could go gangbusters and the rest of the group could drag them down ....

https://www.nzx.com/files/attachments/185387.pdf

It is interesting to reflect with hindsight on some comments in the: above address by then CEO Mike Huddleston on 18th November 2013

-----

"Let me give you an example: In 2010 we lost the business of a substantial national Government SOE to whom we had been providing blue collar staff across the entire country for many years.
We lost this business not because of our service delivery but because we could not also provide this business with customer service focused staff; with call centre staff and with white collar recruitment services, together with our existing offering."

"This loss reinforced for us the need for this expansion. I can tell you today that since we announced our intention to acquire Madison there has been a significant level of excitement within our clients and prospects about the opportunities the one stop shop will create. We have already been asked to jointly present to one of the country’s major businesses."

<snip>

"The cultures of AWF and Madison are not the same. The difference between delivering blue collar and delivering white collar are quite pronounced. For this reason we have no intention of merging the operations of Madison and AWF. In our evaluation of the business and of the price we should pay we never saw the acquisition as one which would create synergies and generate quick gains. We saw it
instead as a strongly performing business and a leader in its market with substantial opportunity for growth."

-----

So even close to four years ago the game was to catch more business, but there would be no merged company cost savings to create more profit? It looks like Huddleston's prediction came true. More business has been generated but net profit margins have declined.

SNOOPY

[Snoopy]

this looks at the first view like a pretty stagnant (though profitable) company to me.




Divisional ProfitFY2014FY2015FY2016FY2017


AWF Profit after tax {A}$3.632m$3.558m$3.410m$4.716m


Madison Profit after tax {B}$0.414m (*1)$2.564m$2.091m$0.649m


Absolute IT Profit after tax {C}$0.809m (*2)


Total Modelled Profits {A}+{B}+{C}$4.046m$5.416m$5.202m$6.174m


Total Declared Profits$3.952m$6.122m$5.501m$5.867m


Profit Error: Modelled vs Declared+2.38%-11.5%-5.44%+5.23%










Divisional TurnoverFY2014FY2015FY2016FY2017


AWF Turnover {D}$125.536m$127.705m$145.803m$157.714m


Madison Turnover {E}$23.155m (*1)$69.809m$68.786m$71.114m


Absolute IT Turnover {F}$27.6m (*2)


Total Modelled Turnover {D}+{E}+{F}$186.300m$197.514m$214.589m$256.428m


Total Declared Turnover$148.691m$197.514m$214.589m$256.428m


Turnover Error: Modelled vs Declared0%0%0%0%



(*1) Part year from November 2013 only
(*2) Part year from November 2016 only












Divisional Net Profit MarginFY2014FY2015FY2016FY2017


AWF Net Margin {A}/{D}2.893%2.706%2.339%2.990%


Madison Net Margin {B}/{E}1.788%3.673%3.040%0.913%


Absolute IT Net Margin {C}/{F}2.931%


Net Margin Error: Modelled vs Derived+2.38%-11.5%-5.44%+5.23%



If shareholders look at what has happened in particular to the profitability of the AWF and Madison sub units over FY2016 and FY2017, a picture different to the 'overall picture' emerges. The AWF division went 'gang busters', while the profitability for Madison fell off the cliff. These two opposite effects nearly cancelled each other out in the overall profit picture. But it does show that if Madison can recover, then the underlying overall picture could be rather brighter than the 'pretty stagnant' 'eps' trend might suggest.

SNOOPY

[Snoopy]

Net Margin Error: Modelled vs Derived+2.38%-11.5%-5.44%+5.23%




I need to answer the obvious question. If I know what the 'net margin error' is, why don't I just fix it? Two reasons:

1/ AWF does not provide 'net profit' figures for divisions. I have derived divisional net profit figures by assigning unallocated costs in proportion to divisional revenues. If this assumption is not entirely accurate (and it probably isn't) then the divisional 'revenues minus expenses' sums will also be inaccurate.

2/ I have assumed that all business units pay tax at 28 cents in the dollar. But this assumes that all expenses are tax deductible, and that might not be true. If I calculate that less tax is paid that is really due, then my calculated after tax profit will be higher than reality.

There is insufficient disclosure in the annual results to quantify the error effects of 1/ and 2/. Except to say that if I:

a/ add up my divisional NPAT for each division AND
b/ if that sum does not equal the NPAT company declared total

THEN there is definitely an error in the assumptions I have made. But exactly where that error is can't be pinpointed. So IMO it is best to accept the divisional results 'as calculated', while bearing in mind that the significance of the figures calculated are suspect by the percentage of the error quoted that was introduced when I did my own calculations.

SNOOPY

[minimoke]

........ We have already been asked to jointly present to one of the country’s major businesses."

<snip>....

So even close to four years ago the game was to catch more business, but there would be no merged company cost savings to create more profit? It looks like Huddleston's prediction came true. More business has been generated but net profit margins have declined.

SNOOPY
The problem worth this "major business" is that it is a sale generator but loss creator.

Its vrry simple. Customer, with their large business ecpects servusr at very low margin. So instantly you can expect margin loss. Next, customer expects rolls royce service - so service costs go up. All the while focus is on this big customer and you loose sight of all the other existing customers (so loose them) and you fail to secure new high margin business.

[winner69]

I take it this is not good news

https://www.nzx.com/files/attachments/265947.pdf

[percy]

I take it this is not good news

https://www.nzx.com/files/attachments/265947.pdf

Definitely not good news.
I was a bit lucky selling the last of mine on Tuesday at $2.56.

[winner69]

Definitely not good news.
I was a bit lucky selling the last of mine on Tuesday at $2.56.

Not lucky percy - just impeccable timing

[minimoke]

Definitely not good news.
I was a bit lucky selling the last of mine on Tuesday at $2.56.
But no surprise. While they keep their eye on the high volume /low margin business they take there eye off the rest of their business

[Hectorplains]

What margin are they achieving in the core business?

[winner69]

Suppose this is not the best of news .....seems to be an never ending story of things that aren't working in their favour

Extract:
As a consequence of the above, profit, as at 31 March 2018, is expected to be behind that of the prior year. However, Cash Flow remains strong, and the operational plans to improve financial performance, implemented during the year, are having the desired effect, albeit at a rate slower than anticipated.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AWF/314921/275470.pdf

[minimoke]

Suppose this is not the best of news .....seems to be an never ending story of things that aren't working in their favour

Extract:
As a consequence of the above, profit, as at 31 March 2018, is expected to be behind that of the prior year. However, Cash Flow remains strong, and the operational plans to improve financial performance, implemented during the year, are having the desired effect, albeit at a rate slower than anticipated.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AWF/314921/275470.pdf
And there was me thinking construction and civil were booming industries. I'm not sure what legislative compliance costs they are referring to - cant think of too many recent changes. Followers of this stock need to follow the Triangular Employment relations bill going through parliament, as well as minimum wage

[Snoopy]

epsdps (imputed)


201319.714.4


201416.215.6


201516.814.8


201616.015.2


201719.616.0


Total88.376.0


5 year Average15.2



For a leading market player in a nevertheless fragmented service profession I would accept a 7.5% gross dividend yield.

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

= (15.2c / 0.72) / 0.075 = $2.81

With no sales in the market today as I write this, but a bid price of $2.75 and an offer price $2.85, in these days of highly prized dividends I think AWF is trading where it should.




epsdps (imputed)


201416.215.6


201516.814.8


201616.015.2


201719.616.0


201821.6 (*)16.2


Total90.277.8


5 year Average15.6



(*) 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