Avingtrans Share Discussion Threads

[dgwinterbottom] 25/11/2014 07:44

FinnCap has downgraded its recommendation on precision engineering group Avingtrans [LON:AVG] to 'hold' from 'buy' following today's negative trading update, which the company put down to difficult conditions in its Aerospace and Energy & Medical divisions.

The company also announced that, as a consequence, it is accelerating plans to consolidate its facilities, including the closure of Derby and moving production to Swadlincote.

The broker said: "The group has announced a profit warning, which follows recent negative statements from Rolls-Royce and the growing evidence that oil-related projects are being rescheduled due to the low oil price.

"We are downgrading our EPS forecasts for the current year by 19.5% and next year by 11%."

Analysts have also reduced their price target from 155 pence a share to 130 pence.

Separately, Numis cut its rating to 'hold' from 'buy', setting a price target of 145 pence, on the back of today's announcement.

Nevertheless, the broker said: "Management has taken swift action and we expect the group’s recent positive earnings momentum to be re-established, a view supported by c.60% exposure to aerospace.

[asturius101] 24/11/2014 20:58

Target buy in around 70p imo

[dgwinterbottom] 24/11/2014 20:35

There was talk at the AGM of there being short term issues with regard to a major customer. It was suggested by the Board that the Rolls Royce issues were specifically down to RR and not the market generally, indeed they have an order backlog of 5700 engines not incl the Delta order of last week. When the takeover of RMDG was announced it crossed my mind that the two operations in the Derby locality would be amalgamated at some point. I also notice there is no mention of any changes to the China operations.

The low oil price and its implications were also discussed at the AGM with the expectation of delayed orders by the oil/gas industry. The fact they say the relocation of Maloney is already in hand implies to me that this was in hand as part of the main reorganisation, perhaps even the outsourcing of manufacture may be part of the overall plan at the time of acquisition.

I feel the Board is taking measures to be prudent and safeguard cashflow in the short term should the market uncertainties last longer than envisaged.

Paul Scott on Stock o has an interesting and far from gloomy appraisal

Just a few thoughts!!

[jopper74] 24/11/2014 17:12

wow......this has been hammered. Not sure this sort of drop is justified. Hope there is a small bounce tomorrow?

[cerrito] 24/11/2014 17:11

Thanks nw1234

[toffeeman] 24/11/2014 16:30

Pretty strong reaction.

[nw1234] 24/11/2014 09:57

Cerrito,

See note 24 of statutory accounts (can be downloaded from company website). The £1.428m and £2.689m are net of the overdraft element of borrowings (but do not include loans). Hope this helps.

[cerrito] 24/11/2014 08:51

Have not held these for some time but always have liked decisive actions management take as we have seen today.
Had a look through the financials and cannot understand the following as at May 31. The balance sheet says cash was ££7.204 down from £8.881 the year before whereas ending cash as per the cash flow was £1.428m down from £2.689 ie not only amounts different but also the decline in 13/14.
Anyone have an explanation??
Thanks

[puffintickler] 24/11/2014 08:00

How does that compare with the view given at the AGM? It looks in line with the current share price but the board certainly seems to be managing expectations down compared to before.

[dgwinterbottom] 24/11/2014 07:08

Trading Update -

[dgwinterbottom] 17/11/2014 15:00

Roger - my pleasure old chap!

I do not see the fact they did not supply the fuel pipes as an issue, as I said there is probasbly keen competition from many companies to provide those.The crux is in the more complicated joints / couplings etc that are still metallic because no-one has figured a way to provide them in compsoite as yet , the very thing the group are exploiting. No IPR/Patents in lengths of composite pipe but certyainly is in a complex union etc. The fact they now have an "entreprenurial" General Manager recentlly appointed will make a difference, I gaioned the impression this had been delayed whilst finding the right individual.

Totally agree with your seconfd paragraph, it was emphasised however the bid pipeline is good, just a matter of getting successful tenders accepted andf the name/reputation in the domain!!

[rogerrail] 17/11/2014 13:41

thanks DGW

pity if thats correct about the pipes ,the composites business needs sales to aerospace despite the cleansky project to establish itself in that market so the sooner that happns the better.

also the problem with buying distressed compnaies is that they can look cheap but it is difficult to put a cap on actual aquisition costs when they are in effect the accumulated losses to the point when business is turned round - which I think is why the share price is where it is now. We need some guidance as to when this will happen before the share price will move.

[dgwinterbottom] 14/11/2014 14:41

Hi Roger - I gained the impression that the fuel lines were not supplied by Sigma, this in my eyes is what any companies could do. The "golden egg" is making the connections in comoposite, therein lies the skill and unique creation and of course higher margins.

No timescale given in respect of Maloney other than progress is being made, and the issues were expected "when one buys distressed companies" hence the dowry that came with it. The low oil price may well delay things but at least gives them time to get themselves round all the main contractors for when the major tenders are issued so hopefully as a subcontractor they would win business irrespective of whom the main contractor was.

Sorry I cannot be more specific

[rogerrail] 14/11/2014 10:36

DGW.

Thanks again

A couple of questions

-regarding the A350 fuel lines, are they supplied by Sigma ?
-did they give any idea when Maloney will become profitable or even how far off profitability they are? This is the key issue that is holding back the share price

[glaws2] 13/11/2014 14:18

Thanks for the report DGW

[dgwinterbottom] 12/11/2014 19:03

AGM Report as follows:


As always a short but interesting AGM today with about six shareholders present including myself though sadly neither of the two Divisional MD’s (Austen Adams & Mark Johnson) were present. Their presence usually reveals good detail in the q & a.

The Chairman opened the meeting by reading the voting figures for the various resolutions listed before asking those shareholders present for any questions. As always the answers given were in good detail and I did not feel any reluctance to furnish quality answers.

Sigma Aerospace – China was rolling along nicely and continuing to manufacture the pipes and tubes for the likes of Rolls Royce etc not only in the UK but also at plants in the Far East. The Board are keen to widen their customer base in this respect and are making efforts in targeting other engine manufacturers such as Pratt & Whitney and GE, this may well have to be done by an acquisition in the US but such companies do not come cheap! A question was asked about recent events at Rolls Royce and the feeling was this is an internal problem with Rolls rather than the wider market in general. Indeed it could mean they outsource future production that Avingtrans may benefit from. The redundancies announced at Rolls probably eminate from the fact that development of two engines have come to an end, but they delivered 2700 engines over the last twelve months with an order backlog currently for the future of 5700!it is thought there may be a short term dip but nothing more.

In terms of Sigma Composites this is making progress especially as each new aircraft has more composite content especially the A350, the fuel lines for example are composite but pipe fittings metal and Sigma is looking to develop these fittings in composite material. Such developments do bring IPR/Patent rights and whilst this is not in itself significant it does raise the barriers to entry somewhat for competitors. The recent appointment of a General Manager at Sigma Composites has heralded the arrival of someone from outside the Company with wide industry experience and an entrepreneurial mind, something that was seen to be needed as progress evolved following acquisition, the results of which are already beginning to show.

The recent acquisition of RMDG Aerospace from Tricorn PLC will take as expected about 12 months to fully bed in. When Avingtrans took their Rolls Royce business from them it took their critical mass and so to make up the shortfall they entered into low margin work that the Board will either wish to exit from or continue but under better pricing arrangements. In addition there is the usual upgrading and harmonising of systems in line with the rest of the Group.


Looking to Energy & Medical Division the Board for see that in the medium future time span the nuclear decommissioning programme at
Sellafield & Magnox will rise considerably as low to medium nuclear waste will need “re-packaging” and Maloney has the experience and background to undertake such work that not many have. The challenging issue at the current time with Maloney as stated in the Report, and last year, is building the Sales and Marketing base within the unit. This is because the previous owner Exterran totally dismantled the sales department some years ago as they made Maloney into a manufacturing unit solely for Exterran companies and did not see the need for a Sales force as all business would be internal. Therefore all contacts, agency agreements and other lines of business outside of the Company were lost. Whilst work is coming in there has been nothing of significance enough to shout about in value terms to issue an RNS along the likes of the Porvair contract. One thing that has been done, is to manufacture spares for Maloney equipment supplied in the past (10 – 20 years ago) a lot of which is in service and a good demand is being seen that is proving to be quite lucrative. From the Oil & Gas side of things the new Director – Les Thomas – stated that the reduction in oil price whilst being good for the overall economy means the Oil & Gas companies then get less revenue and therefore tend to delay orders for equipment etc to preserve their cash flows. Personally I see this as a good thing because it gives Maloney a bit more time to get themselves together for when such orders start to appear, also such projects from signing to commissioning can be up to five years. They are also visiting the various big players in the industry who bid for the large elements of such contracts who would then subcontract specific work to Maloney. Recently they had been in line for a sizeable contract from a main contractor who were favourites but were not in the end successful. Broadly speaking nothing at all wrong with the manufacturing side of the business a good and enthusiastic workforce with skilled development engineers. The Board accept that such issues come with buying distressed Companies but they are seeing progress it’s a matter of getting the name out there and known in the business.

An issue over the last couple of years has been the roll out of Siemens MRI Scanner programme, this it was said was due to two issues, one being the usual delays and snags with new equipment development, the other is that they are experiencing significant competition from the other main players in the field namely GE & Phillips. Initially a part of the Siemens agreement was that Avingtrans could not manufacture for any other MRI company in order to preserve their capacity, the fact they cannot make use of that capacity has meant this caveat has now been withdrawn and so approaches have been made towards Siemens competitors. GE has now opened an MRI manufacturing facility in China and Avingtrans are hosting soon a visit by GE to Chengdu with a view to perhaps supplying equipment from there.

In conclusion it has to be said, as expected a lot of reorganisation has been done and to some extent is still ongoing. Capital expenditure over the next two years will be significant but not to the extent of the last two years, but as the Chairman said investment is the lifeblood of the future, something British industry has woefully neglected over the past years. When Capex ceases that is the time to worry!!

Overall the Board remain confident and enthusiastic about the future

[marben100] 26/10/2014 20:03

I will try to get there this year, so if I make it, look forward to seeing you there.

Cheers,

Mark

[dgwinterbottom] 26/10/2014 08:48

Anyone else intending to attend the AGM on the 12th? It is my intention to do so at the mo. The Chairman tends to restrict the number of questions each person asks but I intend to query the continual problem with the Siemens order roll out that seems to have been an issue over the last 2-3 years and also find out was the "challenging" issues were with the Maloney integration. If anyone has any other questions let me know and I will do my best to find answers!

[dgwinterbottom] 12/10/2014 08:09

In this weeks edition of Chronic Investor, their review of the year end results completes with a "Buy" rating

[dgwinterbottom] 08/10/2014 10:32

Anyone intending to go to the AGM on 12th November?

[dgwinterbottom] 05/10/2014 16:14

Discussion with CEO & CFO on final results - [...]

[dgwinterbottom] 03/10/2014 07:34

I notice Paul Scott has commented on AVG for the first time on St-ock-o-p

[dgwinterbottom] 02/10/2014 07:58

Cisk: Ref my post 1799 (AGM Report 2103) I made the following comment: "The Board is conscious that over the years many good companies have grown rapidly and terminally, having ceased to exist when things have got out of hand and they are very careful to ensure that they grow internally, quicker than they intend to operationally, in terms of growth and expansion."

The dangers of expanding too quickly were understood loud and clear by the board.

[cisk] 01/10/2014 11:26

RR, I hope you're being pessimistic ;-)

In all seriousness, I can see AVG becoming a mini GKN on a 5yr+ view. I think the real danger is that they try to expand too quickly.

From the tone of the chairman's statement, they seem fully aware of this and I think the current year will be one of consolidation rather than further acquisitions.