Facilities By Adf Share Discussion Threads

[adamb1978] 02/5/2023 11:48

Hi Florence

Many thanks for the compliments! When I look at that normalisation I look at the 5.1m vs the 2.5m so including right to use assets and PPE in both the spend and depreciation. Its a bit of a fudge but if you think that they're in a growing market and if you trust management to invest capital well, then that increased spend vs the depreciation should yield increased profits. I would say that my starting point is cashflow without this adjustment but then I try to take a step back to understand what the drivers of the bottom line are. Not sure tht there is a right or wrong answer...
Hope that helps

Adam

[rivaldo] 02/5/2023 11:27

Cenkos have raised their forecasts for this year.

They now see £6.1m PAT this year (increased from £5.0m).

They also now see 7.6p EPS this year (raised from 6.3p EPS), with tax benefits of cap.ex continuing.

Their new forecast for next year is £7.6m PAT and 9.6p EPS.

That's a P/E of 7.9 falling to 6.25.

The dividend is also forecast to rise to 2.3p and then 2.9p. So a pretty decent divi yield too.

They see £10.6m cash generated from operations, rising to £12.6m.

OT : cheers Adam, appreciated.

[dunns_river_falls] 02/5/2023 11:21

ADF was covered by stocko SCVR this morning.

"Estimates from Cenkos are upgraded due to a tax boost relating to depreciation and FY 2023 after-tax profit is now estimated at £6m (up by £1m). However the estimated capex bill has also increased by £1.5m.
New forecasts are released for 2024, suggesting after-tax profits of £7.5m"

Rated as amber leaning towards green.

[florence141414] 02/5/2023 10:48

Ignore the 2.9m line please. Too many numbers!

I think the question makes sense without that bit.

Thanks

[florence141414] 02/5/2023 10:42

Very good and interesting points Adam. I have certainly learned from that post so thank you.

May I ask, when you are normalising depreciation vs capex/PPE in your numbers…

Are you normalising total depreciation of 2.5m vs 4.1m of PPE expenditure, giving you 1.6m to add back for your FCF yield?

Or

Are you using just the 0.6m of depreciation that is attributable to PPE which gives back 3.5m? Leaving 2.9m to reconcile.

Would that be the correct way to do it as the majority of depreciation is the 1.9m attributable to right of use assets?

Thanks for your help

[adamb1978] 02/5/2023 10:35

Hi Eezy - that 4% should grow - just need to work through the numbers to understand where it might get to over the next 12-24 months, though unfortunately am stuck in meetings most of the day.

I wont comment on others' comments on this board as I dont know some of the people, other than to say that I know Rivaldo and without wanting to flatter him, he's a very thoughtful, active and helpful participant on these boards rather than one of the people who detract from the place

[eezymunny] 02/5/2023 10:02

Exactly the right way to do it, Adam. Sadly, like me, you're beating your head against a wall being so intelligent and helpful.

You can look at the numbers in different ways and there will never be enough info, but your 4% normalised free cash flow yield looks in the same ball park as my £1.5-£2m.

You can get a return like that in a 2 yr gilt right now. No growth, obviously, but no competitors, no big customer risk, no execution risk etc etc.

ADF is a whatever of an investment here IMO.

[adamb1978] 02/5/2023 09:50

Cashflow is imperative to look at for this one given the lease payments, and I think you need to look all the way down the CF statement given the £3.5m lease payments in the financing activities section. Operating cashflow misses this large amount so can't stop at that level.

The way which I tend to look at the cashflow is to look at it pre-dividends, post lease costs, pre M&A and then also normalise for working cap fluctuations (unless a company is working cap intensive business). On this last point, ADF historically had w/cap inflows but had a large outflow this year so you need to add that back IMO otherwise its overly negative nad not reflective of the run-rate cash generation.

To Florence's point above, if a business is investing heavily, I then sometimes look to normalise the capex vs D&A to understand how much that impacts the yield and to prevent ruling out a growth business as a result of it investing for growth.

If I do all that I get to a 2022 historic FCF yield of around 4% post normalisation for investing exceeding D&A which is 'ok'. Now need to roll that forwards for 2023.

However that comes out, all this discussion though I think is the right discussion on ADF and similar companies. EBITDA is certainly the wrong basis for valuation, and even EPS is questionable given it misses some lease payments

[eezymunny] 02/5/2023 09:50

Ah, the old "filter anyone who doesn't simply write rampy nonsense", Lennonsalive. Of course you haven't filtered me! I'm here to inform all those too thick or lazy to read the cash flow statement!

[eezymunny] 02/5/2023 09:47

I think you're both omitting, amongst other things, lease payments (£3.5m). The laughable IFRS 16 is clouding your judgement IMO. Operating cash flow, EBITDA etc, are more or less useless as all the lease payments are excluded.

[rivaldo] 02/5/2023 09:31

In the prior year ADF generated £8.6m net cash inflows from operations.

Last year's lower £4.3m was largely due to a £3.7m working capital outflow, itself mainly due to a large rise in year end receivables because of an unusually high level of filming activity in November/December.

So Florences's cash inflow figure of around £6m looks reasonable, and should increase nicely this year given the growth in the core business, receipts from prior year debtors and the late 2022 acquisition of LocationOne.

[florence141414] 02/5/2023 09:16

Hi Eezy, I’m annualising H2 PBT of 3m+, intentionally leaving out extra profits from acquisition being mid period to be conservative and discounting that current trading is in line with management expectations for growth.

[eezymunny] 02/5/2023 09:10

Florence you say "If they stopped investing right now you’d get your cash flows to the tune of about 6m" but the company says "Operating cash flow before movements in working capital was £4.6M in FY22 (FY21 - £2.8M). Cash generated from operations was £4.3M in 2022 (2021 - £8.6M)"

I think you need to itemise elements from the cash flow statement in your posts, otherwise your comments simply aren't credible IMO.

We can't say exactly how much cash would be generated if they stopped expansionary capex (the numbers aren't there) but I reckon £1.5-£2m much more like it (and that's with ZERO cash outflow for tax.

[florence141414] 02/5/2023 08:52

It would be cash flow if they stopped re-investing in more equipment and acquisitions though. There are really two things going on here. An operationally profitable and cash generative operation and the investment to achieve greater profits/cash flows in the future.

If they stopped investing right now you’d get your cash flows to the tune of about 6m. PPE purchases would fall in line with depreciation and no more 3m+ on acquisitions. Then the only way to increase profits would be more jobs with the same fleet or improved margins.

That would be fine by me as a value investor. Paying 50m for 6, 7 or 8m of consistent profits annually.

I’m also happy for them to keep investing the proceeds from the IPO and cash generated from the operations to meet the perceived market demand. More risk but more reward.

Really hard to find anything to dislike in today’s numbers if you ask me

[adamb1978] 02/5/2023 08:46

After bleating about their investor comms above, I should say that its good that they say what they think that market expectations are, rather than leaving people guessing. I think more companies are going that, but still a minority

[eezymunny] 02/5/2023 08:35

A few mug punters this morning by the looks :)

Lennonsalive. You're quoting every useless metric and nothing about cash flow. Which is why, I would guess, you never make any money?

[adamb1978] 02/5/2023 08:33

Not currently a holder but have ADF on the watchlist, having previously owned them. Small point but the way which they set out their results is very unusual - first of all the years going left to right, but also a small-cap rounding numbers to the nearest 100k.

Obviously doesnt mean the numbers are wrong, but its poor investor communications/relations. One basic is to not look different to the norm otherwise you get people wondering what you are trying to hide...

Now to try to look at the actual numbers!

[gswredland] 02/5/2023 08:25

Looking very good

[eezymunny] 02/5/2023 08:22

Would I be correct in thinking you never get as far down as the cash flow statement?

Just listen to yourself. Do you want to EXCLUDE the huge pile of leases from the debt number, but think an FD quoting EBITDA, which excludes the cash costs of servicing those leases, is OK?

Is that right?

[lennonsalive] 02/5/2023 08:16

Look at the growth of this company year by year, that is the bottom line for me as an investor

GBPM's 31 Dec 2022 31 Dec 2021 31 Dec 2020
------------------ ------------ ------------ ------------
Group revenue 31.4 27.8 8.0
*Adjusted EBITDA 8.0 7.7 0.8
*Adjusted EBITDA
% 25% 28% 10%
Profit/(loss)
before tax 4.6 2.8 (0.5)
E arnings per
share 6.1p 3.2p (0.1)p

[rivaldo] 02/5/2023 08:11

The 6.1p EPS - almost doubled from last year - is based on PAT, not EBITDA.

And the £4.6m PBT is 64% up on last year's £2.8m.

The main narrative today barely mentions EBITDA prior to the CFO's review.

ADF have almost £10m of cash still to deploy for further acquisitions and/or equipment, especially as net debt excluding leases following the IPO proceeds has fallen to an extremely low £3.4m.

[eezymunny] 02/5/2023 08:02

And the company harping about adjusted EBITDA which omits big cash outflow items. Should be illegal IMO.

[eezymunny] 02/5/2023 07:58

As usual no comment on the cash flow statement. The one that matters. And it's very very unexciting IMVHO.

[hastings] 02/5/2023 07:43

Yes, looking good, happy with that and prospects ahead.