Hayward Tyl Share Discussion Threads

[davebowler] 09/8/2017 11:06

IC comment;
Engineering a cheap entry point

As expected, Avingtrans (AVG:223p), a maker of critical components and services to energy, medical and industrial sectors, has launched a recommended takeover bid for specialist engineer Hayward Tyler (HAYT:44p). I highlighted this possibility a month ago when I rated shares in Avingtrans a buy at 218p (‘A trio of small-cap buys’, 27 June 2017).

At the time, I believed there was scope for Avingtrans' shrewd management team to replicate their success on previous turnaround situations and create significant value for shareholders by exploiting the recovery potential of the indebted bid target. Under the terms of the All-Share acquisition, Hayward Tyler’s shareholders receive one new Avingtrans share for every 4.755 shares held, which means that Avingtrans will issue 11.53m new shares to give Hayward Tyler’s shareholders 37.6 per cent of the enlarged share capital. On completion of the takeover, the company will have a market value of £68.5m. The terms being offered seem sensible to me and to the 45 per cent of Hayward Tyler’s shareholders who have already decided to back it. That’s understandable as there are justifiable reasons why this deal should be value-accretive to shareholders of both the companies.

Firstly, Hayward Tyler is heavily indebted with net borrowings of £22.1m, implying balance sheet gearing of 100 per cent of shareholders funds at the end of March 2017, a level of indebtedness that is also significant in relation to the £25.8m equity value of the All-Share bid. In stark contrast, Avingtrans’ finances are in a rude state of health as the company has net funds of £26.2m on its balance sheet. Therefore, the combined entity will have modest levels of gross borrowings in relation to pro forma combined net assets of £67.2m, and retain cash in the bank and ample headroom on existing banking facilities to pursue growth opportunities, both organically and through further acquisitions. Removing duplicated costs will result in a slimmer cost base, too.

Secondly, both businesses enjoy strong positions in their respective energy market niches, in particular the nuclear sector, so there is a healthy crossover of business activities. Moreover, in the power sector, Hayward Tyler’s core business should see the benefits from the increased scale resulting from being part of an enlarged entity, not to mention funding is on a better footing to enable its management to target investment. In addition, the enhanced scale of the business and greater access to the Chinese energy market should enable the enlarged group to make inroads into the Chinese nuclear energy market and achieve critical mass.

I also feel there is a great opportunity for Avingtrans’ management to work their magic and build up margins on Hayward Tyler’s record order book of just shy of £50m, and return that business to sustained profitability following mixed trading last financial year when it reported cash break-even on revenues of £62.7m following a difficult first half.

It’s the type of deal I was hoping Avingtrans’ shrewd directors would pull off when I recommended buying the shares at 200p in my 2017 Bargain share portfolio, and still believe that the share price should be trading at a decent premium to the combined group’s pro forma book value of 219p. In fact, I have a conservative-looking target price of 275p. Interestingly, it’s possible to buy Avingtrans shares on the cheap by purchasing Hayward Tyler’s around 44p in the market, and then accept the All-Share offer, to give an entry point of 209p, or 14p lower than Avingtrans current offer price. I would recommend doing just that given that earnings upgrades look firmly on the cards after the deal completes at the end of next month, after which the embargo on analysts publishing forecasts will be lifted.

[cockerhoop] 30/6/2017 15:48

No the opposite, Harwood have removed the caveat that a 10% higher bid would release them from their undertaking.

[boystown] 30/6/2017 15:15

So Chris Mills thinks there may be a higher bid possibility?

[rogerrail] 30/6/2017 12:50

lignum

part of the delay no doubt has been down to due diligence on behalf of AVG in particular whether they were getting into deep water taking on PB. If HAYT BOD had displayed the same caution they would not have ended up in the mess they did.
Secondly they reticence of Mr Critchley , no doubt he wanted out with an all cash option which would have been to the huge detriment of the combined business going forward.

[tini5] 30/6/2017 10:54

Indeed Pavey.

It's a shame we didn't have any other potential suitors waiting in the wings.

[pavey ark] 30/6/2017 10:25

Just had a look at the results and compared them with H1.
There is no doubt the AVG have got themselves a bargain and the HAYT board have given the business away (albeit from a very weak position of their own making).

[lignum] 30/6/2017 09:55

The falling AVG price is partly due to arbitrage surely. I think the HAYT board have played this very badly and deserve to go - how can 0 ebitda support 20m of debt? They should have accepted AVG with open arms months ago and not wasted 3 months on protecting their own jobs (which they must have known were on the line).

HAYT state that one of the reasons for supporting the bid was that without it they would have needed a heavily discounted rights issue which would have been hugely dilutive and which might not have been successful. This must have been blindingly obvious 3 months ago as soon as they knew their year end debt position. And yet they hung on for another 3 months. Very poor IMO.

I would love to see AVG's model of how much cost they expect to take out of the combined business. Free from debt and focusing on protecting their jobs, I would expect a number of customers to sign up orders they were holding back as soon as the board changes kick in. AVG will be preparing their week 1 action plan over the next few weeks and will move very quickly once they take control. This has to be a win-win for HAYT and AVG shareholders.

[pavey ark] 30/6/2017 09:34

steve3sandal, almost to the word the comment I was going to post.
It looks like we are in with the metal box makers but their board does seem focused on making money and some may actually reach the shareholders.

[buywell3] 30/6/2017 08:46

AVG is now falling

I wonder if the market might think it has acquired a problem that will take a chunk of cash to solve.

I think they might have a bigger job than what is after all a smallish company , to sort out in a struggling OIL and GAS sector

I shall watch developments with interest

[steve3sandal] 30/6/2017 08:36

I am not unhappy with the out-turn, despite hoping for as much as 60p. Terms give me more AVG shares at the equivalent of c180something. I can live with that.
What I do find remarkable is that despite the gags on all insiders here, the share price of HAYT moved ever closer to the exact terms of the eventual offer. I guess just coincidental? Hmmm.

[cerrito] 30/6/2017 08:35

Once AVG sells PB that will mean that PB will have had 5 owners this century; how long people giving ELB on the AVG Board..2 years?
I have much more in HAYT than AVG; at first glance seems a pretty fair deal for both although I would have strongly preferred a cash element. Am finding it difficult to gt excited one way or the other

[buywell3] 30/6/2017 08:23

You don't hold AVT ganthorpe do you ?

ganthorpe26 Jun '17 - 10:36 - 1658 of 1660 1 0
I can't see AVG offering all cash - they will probably want to offer 50% or so in AVG shares. As for sacking half the Board - I think the lot could go - there seems to have been some showboating with royal visitors and high spending on the Centre of Excellence when they were either in breach of covenants or close to it.
I don't have shares in HAYT but I do hold AVT so maybe I'm biased.

[caradog] 30/6/2017 08:10

All share deal, recommended but with one dissenting director, Maurice Critchley. ELB becomes non-exec in enlarged group, other directors leaving.

[topvest] 30/6/2017 08:00

Deal announced then. All share. HAYT lives on under a new name. Good outcome for holders given the companies empty tank.

[ganthorpe] 26/6/2017 10:36

I can't see AVG offering all cash - they will probably want to offer 50% or so in AVG shares. As for sacking half the Board - I think the lot could go - there seems to have been some showboating with royal visitors and high spending on the Centre of Excellence when they were either in breach of covenants or close to it.
I don't have shares in HAYT but I do hold AVT so maybe I'm biased.

[pavey ark] 23/6/2017 11:26

A cash offer of 60p would be an absolute steal as this would mean that HAYT was priced at £33m. Throw in £7m to bring debt to a very manageable and efficient level and you've got a company which has a recent history of producing an EBITDA of £7m/£8m, an order book of over £60m and a high recurring revenue,all for £40m.

If the metal box makers do manage to pull this off I may have to look at them again.

All this being said a 60p price would give me a very nice return as I bought for 38p.
I do think that there will be a deal here but I'd certainly be happy to see HAYT going it alone.

[rhomboid] 23/6/2017 09:17

I'm not sure it'll be anything like as much as 60p but obviously I'm biased as I hold AVG not HAYT. My guess is it'll be a non conventional structure with a mix of cash and warrants or even a merger with asymmetrically more of the pie retained by AVG holders.

Today's RNS wording makes a deal much more likely imho, I'm intrigued as to what transpires either way🤔

[varies] 23/6/2017 09:16

It is a relief to see that this latest extension is for one week only and that results for the year to 31 March 2017 will be announced on the same day. I hope these are not encumbered by nasty provisions.
The long wait must have softened resistance to any bid but I still believe that a combination of AVG and HAYT might produce a well-funded group with sound prospects and would prefer an offer in AVG shares to cash.

[steve3sandal] 23/6/2017 08:18

I think an offer is likely given the language chosen. 60p is my guess.

[buywell3] 21/6/2017 08:15

If a previous poster was correct the OIL related revenues account for around over 30% for HAYT

I believe this might be a fairly new event, please correct me if I am wrong

The OPEC and RUSSIA attempt to push up the price has failed

Many Fund managers who bought their story have and are unwinding their positions but fast, thus this today makes sobering reading

''The Bank of Russia offered a sobering outlook on oil in its latest monetary-policy report, saying output growth in those three countries--along with a slowing economy in China and general ebbing demand for energy--could result in prices hitting $25 a barrel by mid-2018. Crude hasn't been that low since 2003.''

I may be wrong, but it seems to me that OIL is hurting this

dyor

[lignum] 07/6/2017 20:43

The directors are in the driving seat but:
- even a discounted rights will mean they have to stump up a large amount of cash - I can't see any rights issue getting away without the directors personally putting cash on the line
- even if there is a discounted rights why would instis support laying out more cash versus a premium to current share price and new management under an AVG bid?
This feels to me like a board of directors who are fighting for their own survival, probably out of pride, but trying to avoid putting their own cash on the line. It might work but the longer it drags on the more their credibility falls.
My money is (only just) on a bid at 60p followed by the departure of half the board.
Failing that a rights at 30p in which case I'm out - I'm not supporting a board that puts its own survival ahead of shareholder interests.

[varies] 07/6/2017 19:52

Having taken so long to get nowhere with its tentative offer, AVG might as well wait a few more days to see the result of the General Election.

[cerrito] 07/6/2017 13:22

While volume yesterday at 87K and today to date at 55k has been greater than the 10/30k per day since May 19 it has not been big enough to accommodate any major institutional selling

[buywell3] 07/6/2017 12:46

RBS are an accident waiting to happen I am afraid

They have just spent £1BILLION of taxpayers monies on legal costs fighting to keep Sir Fred from facing the music he wrote the tune for

[cockerhoop] 07/6/2017 11:21

I think RBS have been supportive, they have continued to roll over the outstanding debt and extended the covenants that HAYT are in breach of. HAYT are being giving every opportunity by RBS to generate the cashflow required to pay back the £2.4m.