Ab Dynamics Share Discussion Threads

[albie two shoes] 16/11/2017 09:28

Like Alphabet, I am no accountant - ask my accountant! However my view of the options is more in line with the second half of jg's post above.

I believe an engaged and motivated workforce is worth the money, far and above any bottom line.

Back in the 1970's when Sainsbury's first floated they were a paternalistic company under John Sainsbury. Workers were encouraged to become shareholders and as a result the company grew and grew. There was a trust and bond between management and workforce. When in the 80's the accountants took over and much of that paternalism was destroyed, the company started to suffer as a direct result.

In this phase of a company growing in a highly specialised area, having employees sharing in the fruits of their specialism keeps them not only motivated but away from their competitors.

Good luck all.

[alphabeta4] 16/11/2017 08:49

Hi EC

I don't profess to be a chartered accountant but I'm sure within their two recent RNS statements (either the post year update or the finals) I read it making reference to it reducing revenue by £1m but with no impact on EPS.

Just working on something but will try to dig it out later.

[effortless cool] 15/11/2017 20:43

jg,

No, I am not overlooking anything.

The value of your shares is reduced by the dilution and increased by the cash paid when the options are exercised. These options are exercisable at 395p per share and the weighted fair value (based on Black-Scholes)of each option at the date of issue was 197.17p. That gives rise to an notional "cost" of £2.6m for the options (1,337,122 options x 197.19p fair value), of which about £1.7m has already gone through the income statement.

As stated, this is just a notional estimate of the value of the options. The charge made on the income statement is credited back to retained earnings in its entirety. The real economic cost is determined by the gap between the true underlying value of the shares (or ones estimate of it, in practice), including the value of the cash raised from exercising the options, and the exercise price of the options. Thus, the adverse effect of the dilution from the options increases the cheaper the exercise price.

We do agree that the issue of these options was a negative. However, at least they were unusually democratic about it, with all staff benefitting, it is not just a get rich(er) quick scheme for the directors.

[jg88721] 15/11/2017 18:38

Hi Mr Cool

there are two impacts: first, as you note, the dilution (our pie is being shared among more shares, after the options are exercised). Second, which you seem to overlook, the price paid by the new holders. They got their options on favourable terms - the disclosure is not full enough to see how many options and how generous the terms are. But the cost which GAAP requires the company to expense in the P&L is an estimate of that cost. It is a very significant increase on the cost last year. So either a lot more options, or much more generous terms, or a mix of both. (we'll know more from the annual report). By adjusting for this cost, ABDP Board/mgmt try to ignore that. But as an existing shareholder not getting such a sweet deal, I wear the cost: the value of my stake is reduced for the generous issues terms (and the dilution).

I fully accept that happy and motivated employees are a v. good thing, and esp. for a small smart company like ABDP. The challenge is how you do this at a reasonable cost. BVXP seem to have been able to achieve it at remarkably low employee cost. ABDP seem to have found an expensive way of doing so. It seems to be an ongoing feature of their employee remuneration policy. from memory, it cost 300k last year, and 1.3m this year!

the generous option/rem policy was the biggest negative in last year's result for me, and this year it is worse. GLAH

[effortless cool] 15/11/2017 16:16

I'm updating my model now, but it will take a couple of days to complete. I was pleased with the results, which were ahead of my expectations except with regard to net cash.

Are you able to shed any more light on the impact of IFRS 15. The results say that £1m of revenue was deferred. The segmental analysis would suggest that this deferral related to revenue form construction contracts, rather than revenue from sale of goods. Would this make sense in the context of IFRS 15?

Also, you seem to suggest that revenue was £1m lower than it would have been otherwise, with no impact on profits? If that is so, what would have been the counter-entries in the accounts to take contribution of that £1m of revenue out of profits?

[alphabeta4] 15/11/2017 16:01

What's people's general thoughts around these results? Mine are they're good but with a background of a lot to live up to give the recent c25% share price rise.

Morningstar had an average eps estimate of 25.4p for 2017 and revenue of £24m. On this basis the £24.6m and 28.28p would look a decent beat if calculated on same basis. This does have to be factored against Cantor's 675p though which has clearly been exceeded. Personally I'm more focused on the 28.28p as the IFRS change lopped £1m off the revenue without an impact on profit so it could be argued the revenue grew around 6% ahead of forecasts.

I've got a couple of crude calculations which make a couple of tweaks to this, they're quite hard to explain briefly but I come out with targets of £7.21 or £7.29.

IMHO these represent good long term value around here. I've got eps running at 25%pa and would expect analysts to adjust forward eps to a minimum of 31.7p+ (which is below mine) for a cautious cash adjusted forward of 21.4 based on £7.30 and a PEG well under 1.

[tratante] 15/11/2017 12:38

I see, thanks.

[linhur] 15/11/2017 11:18

tratante

I expect jg was referring to the paragraph in the final results issued today.

CEO statement



"Adjusted profit before tax increased by over 25% to £5.9m (2016: £4.7m) and is adjusted to exclude a £1.5m (2016: £0.3m) non-cash charge made in respect of share based payments, which provides a more accurate reflection of the underlying performance of the business. Profit before tax increased from £4.45m to £4.47m."

Linhur

[effortless cool] 15/11/2017 10:39

jg,

I have a somewhat different view. Yes, the options costs are real, but the charge for them made against the income statement is most certainly not real, and is actually added back into retained earnings on the balance sheet.

The real cost of the options is the dilution and, thus, the adjusted diluted earnings per share (adjusting profits by adding back the share-based payment costs and adjusting number of shares by adding on the shares from the options) is an appropriate valuation metric. You should also take credit for the cash raised on exercise of the options.

The adjusted diluted EPS went up 22.5%.

[tratante] 15/11/2017 10:09

jg. Not sure I understand, isn't increase in profits and div, growth? Could you amplify your comment? Thx

[jg88721] 15/11/2017 08:33

hhmmm
the company can crow all it likes about adjusted earnings growth, but the options costs are real ! factor them in and there is no growth.

the company has great technology, but unless it can grow earnings and returns to the benefit of shareholders its not a great investment. I'm a holder, but not a happy one!

[sharesoc] 14/11/2017 14:20

There is a recording of the AB Dynamics presentation at ShareSoc Growth Company Seminar, 11th October 2017 available here:

[tomps2] 13/11/2017 10:07

Tim Rogers presentation at October ShareSoc



c 35 mins

Great overview of the company, and what they do.

Video: track testing and lab testing – 00:44
Track testing – 01:45
Advanced Vehicle Driving Simulator – 02:19
ABDP The business – 04:22
What ABDP do – 04:55
What we really do IP – 05:39
Our capabilities – 06:35
Our products – 07:05
Market size – 08:27
Our customers – 09:00
Geographical split – 10:06
Story of growth – 12:25
On-going growth drivers – 13:45
The new facility – 17:16
Q&A – 18:00
What’s the effect of Brexit? – 18:03
Is there a market to offer testing as a service? – 19:25
Is there a market outside of auto? – 21:13
Tim Roger’s departure – 22:40
Who are the largest shareholders? – 24:45
Are Tesler a client? – 26:36
Do you see yourself moving from testing before sales to testing after sales?
– 27:50
Employee share scheme – 28:30
Competitors – 30:35
The new factory, headway to grow – 32:00
Will the new factory save costs? – 33:25
CAPEX – 34:09

[pride23s] 10/11/2017 20:57

Love this company..........but IC tips tread carefully !!!!

[jurgenklopp] 08/11/2017 09:39

Some momentum now.

Well done EC.

[jurgenklopp] 03/11/2017 09:42

Aaah. That explains the rise.

Thanks EC

[effortless cool] 03/11/2017 07:34

Featured 'buy' tip in the IC today, mainly on the back of the opportunities in China.

[effortless cool] 21/10/2017 11:47

ABDP got a broker upgrade this week. Consensus EPS for 2017 is now 24.7p and for 2018 is 28.6p.

[sharesoc] 19/10/2017 19:29

There is a detailed report on our recent London seminar where AB Dynamics recently presented which can be found in our members area here:

To access the report, you'll need to be a full member of ShareSoc, which is a not-for-profit organisation that supports individual shareholders and campaigns for shareholder rights. If you're not already a member you can join here:

Once you've joined, you'll receive an invitation to register for our "members network" private social network, from where you'll be able to access the report (and reports on 100s of other meetings). If you're already a member and have any difficulty accessing the report, please do not hesitate to contact us here:

For our future seminars you may want to see here:

[tratante] 17/10/2017 15:29

Thanks for you comments EC, really gives one confidence that this is a well run company that benefits everyone working in it. Often goes hand in hand with commercial/ financial success.

[jurgenklopp] 17/10/2017 09:22

New highs.

:o)

[alter ego] 14/10/2017 22:11

Thank you E C

[effortless cool] 14/10/2017 19:29

A few random points from the ShareSoc presentations:

1) China is a big growth area for new business but comes through resellers, so not building direct customer relationships.

2) Building an international network to provide local support to overseas customers (almost all of them).

3) Only three employees have left of their own volition in last five years. Option scheme benefits all staff, so this helps. 40% of staff have retained shares from first option scheme.

4)Unfortunately, Tim Rogers (CEO) will be a fourth voluntary leaver at the end of 2017. Recruitment of replacement going well. Different skill set needed. Sounds like they are preparing to grow, possibly through acquisitions, and want someone with relevant experience, rather than a pure engineer.

5) Current order book is £31m (more than one year's revenue).

6) New factory will not release pent up demand, but will support planned growth over the next five years.

7) Increasing spend on R&D, mainly in robotics. Will lead to more capitalised intangibles going forward.

[alter ego] 13/10/2017 17:11

Interesting article and well balanced argument. As an investor who has made the conscious decision to invest in AIM stocks like ABDP that qualify for BPR (as well as being investable for me), I would be very unhappy to see a major change in the rules. A government of a different colour might be less interested in people who have bothered to provide for themselves and their families but I would be appalled if this government went down a similar path.

Whilst I understand the points made in relation to where operations are based and where taxes are paid, the risk of tinkering with rules is the unintended consequences of doing so.

I agree it is hard to see how any change could be retrospectively applied. Apart from the threat to family controlled companies as a result of death duties, investors who have taken the risk of long term investing in order to qualify for BPR should not suffer the withdrawal of the benefit years later.