Airbath Share Discussion Threads

[chrisg] 20/8/2001 16:23

Hmmm... Looks like the price moved while I was typing the above post. Oh well, better to miss something going up than to buy something that goes down! At this rate, I won't need to bother on Friday!

[chrisg] 20/8/2001 16:20

Hi Bruce

No I haven't, because, frustratingly, the chap I need to speak to is out of the office until Friday. Bother!

The main thing that exercises me is that unlike that other recent underpriced new issue, Send Group, Airbath is, it seems, substantially dependent on the consumer market, and the "entirely discretionary" end of it at that. If recession hits consumer confidence, demand could fall of the edge of a cliff. I do say "if" to recession, but consumer confidence is very high at present, and what is as certain as anything can be is that confidence will weaken at some point. A number of commentators have expressed surprise that it hasn't already happened, and for sure, it could be some time yet before it does, but when it does happen, it will directly hit sales.

The other issue which seems to have had little exposure at present, is fashion. Bathrooms are subject to fashion changes, and the management at Airbath/Aquarius has made bad acquisitions before now. Even within the bathroom industry, two of its acquisitions have gone wrong. Pine Design went so badly wrong (fashion change) it was finally closed down in February this year, and the other bad part of the bathroom business, the bath mats activity, was kept behind as one of the problem businesses within the residual Aquarius company when Airbath was demerged. So the present Airbath company only has the good bits and hides the previous errors made by the management team which stays in place within Airbath.

I won’t suggest that the management is accident-prone, but of the five bathroom businesses accumulated prior to the demerger, only three were ultimately good enough to be part of the new company. The other two were closed down or held as a lame duck. A 40% failure rate looks very high to me, especially when one of the stated objectives of Airbath is acquisitions.

Having said all of that, everything has its price, and a p/e of 4 looks low, especially if lessons have been learned. But the upside is probably less than some have speculated. There are a number of somewhat safer AIM-quoted companies which exist on a current year p/e of about 6 or 6-point-something, all of which have growing profits and an absence of consumer fashion risks. So the justifiable upside is perhaps 50% from here. My endeavour is to work out the risk/reward ratio at the present price. Reward can be reasonably quantified. Risk is harder. So I’m staying out until I get answers, and if the price moves up before Friday, so be it. There’s always another opportunity elsewhere coming along.

By the way, the growing companies on a current year p/e of 6 or so? HYL, NWF, CFT, HTH. All, I suggest, less risky than ATU, hence the limit of 50% on the upside of ATU.

All IMHO of course, and always DYOR.

Regards

[bruce the goldfish] 18/8/2001 20:30

A couple of weekend market reports from the national press.


The Times, 18th August 2001

Aquarius Group leapt 2½p at 11p on the demerger of its jacuzzi and spa bath division into Airbath Group, which bubbled up 5p to 10p in debut dealings on AIM after raising £300,000. Four directors, including Clive Gilham, executive chairman, and John Parkinson, non-executive director, yesterday declared the purchase of 520,000 shares at 10p.

Airbath is the second demerger from Aquarius, which last month spun off the upmarket sofa maker Collins & Hayes Group, 1p better at 46½p, on to the junior market at 60p. Aquarius is now left with its more lowly rated soft furnishings and lighting arm.


Financial Times, 17th August 2001

Share buying by directors helped Airbath, the bathroom products company spun off from Aquarius Group, to rise 5 to 15p on its first day of trading on Aim.


Bruce GF

[chrisg] 18/8/2001 00:25

I don't actually know, but debt and preference shares comes to just over £4.5m. I'm assuming that most of that is debt (because Aquarius had a lot of it) and taking the amount of the dividend on a minority of £4.5m produces a result that can't be significantly out from a figure giving attributable earnings to ordinary shareholders of, give or take, £1.04m. I'm working on the basis that even if I'm out by as much as 50%(!), it only makes the attributable earnings £1.0m or £1.08m, which is still close enough in my book to give a p/e of almost exactly 4.

Regards

[chrisg] 17/8/2001 17:07

Bruce - it means I haven't yet fully finished my research. Last time a share came to market at the wrong price (Send Group) I got in on the third day of dealings, because I hadn't finished the research. Yes, in that case it meant I paid some 15p per share more than I could have paid by jumping in earlier, but I did then KNOW it would be a good purchase at the prices I paid (got three blocks of shares), and, boy, am I happy with them now! (Up 50% on my cost in three months.)

On Airbath, I want to try and work out the effect of a downturn in consumer confidence, and relate that to operational gearing, to see how resilient the bottom line would be when sales become tougher. In other words, how reliable is that p/e ratio of 4 beyond the current year.

Regards

[bruce the goldfish] 17/8/2001 16:20

ChrisG

I would get in ASAP, or you could be left kicking yourself if you miss the boat.


Bruce GF

P.S - when you say not yet!, does that mean you intend to get in or are you just an observer.

[chrisg] 17/8/2001 16:18

cossie - Not yet...

[bruce the goldfish] 17/8/2001 15:42

With such a great 'debut day' on the market today for Airbath (up 50% at time of writing) I am sure that the positive press bandwagon will be on the case over the weekend, which should lead to another good day on Monday. All this small-cap company needs now is for a decent amount of press coverage so that market investors can become aware of its existence and the value that is currently hidden within the share.

Bruce GF

[cossie] 17/8/2001 13:21

cheers Chris, are you a buyer??

[cossie] 17/8/2001 11:32

how many prefs are there??

C.

[chrisg] 17/8/2001 11:26

Don't forget, folks, that the p/e ratio is based on after-tax profits, not pre-tax. The pre-tax estimate of £1.6m equates to an after-tax of £1.12m. There are also some preference shares in issue, so not all of that after-tax figure is attributable to the ordinaries. At the current buy price of 16p, the market cap is £4.16m so allowing for the prefs, the current year p/e is almost exactly 4 to a buyer at present. Still good value, IMHO, but not the same as the 1.5 or 2.5 figures mentioned.

The risks are twofold, as I see it. One, the future is somewhat dependent on the new ranges just launched, where the impact will only be seen in future years, and secondly, there is a risk in the very small market cap, where the shares could (just could) go to sleep after the initial excitement. Just thoughts, but on balance, I do like these.

[cb7] 17/8/2001 10:48

bruce, check out posts on AQG nos 13 onwards....a quick resume....Finals on 30/5 for a 14 month period the baths division made 3m on 19.5m sales....on 6/7 announced demerger and Sharecast reported expected profits of 1.6m and sales of 17m, today they quote op profits of 1.9m, so maybe the 1.6 is pre tax, however the figure they used was published in the placing document, although I didnt see it....again todays forecast seems to be verifyable as it is made alongside an interview with the ceo, Gilham......the decline in profits/sales should not be seen as a trend as they have restructured, as mentioned earlier

[bruce the goldfish] 17/8/2001 10:24

CB7 I thought you said Sharecast forecast profits for ATU were £1.6m, not £1.9m, or is the £1.9m a revised forecast?


Cheers

Bruce GF

P.S - mad4IT (maybe I should change my name to Bruce Fishes for Gold with after my ATU investment)

[cossie] 17/8/2001 10:23

thanks CB7, picked up 15k so far

[cb7] 17/8/2001 10:17

article on Sharecast gives GWB holding in Airbath at 54%, expected op profits of 1.9m.....plus a hint that there could be future growth due improvement of margins from 11 to 15%,(as expected, due exit from low margin mass produced baths and concentration on high value specialist products)

[mad4it] 17/8/2001 09:53

Cheers Bruce, very interesting, though how a Goldfish, with memory retention of 2-3 seconds, can remember all that info is beyond me!? :o)

[bruce the goldfish] 17/8/2001 09:41

I posted this a couple of days ago on the AQG board, thought the info might prive useful to some.

So Aquarius (AQG) have today announced that they have received
applications for 1.9m shares in Airbath of the 2.5m that were being made
available through the priority subscription offer. I must admit I am more
than surprised that the offer was not actually oversubscribed, but I
expect that with market conditions as they are at present certain
investors are reluctant to put any additional money into the stock
market.

When a company comes to float on the markets, the general rule of thumb
is that if a placing is oversubscribed, then the market debut of the
company will be successful (i.e. the price will rise). However, if a
placing is not fully subscribed then there is the likely chance that the
'debut day' will prove disappointing (i.e. the price will fall below the
floatation issue price) as there would be insufficent demand for the
shares at this issue price.

However, the Airbath demerger is a totally different kettle of fish than
the usual floatation scenario. The company has raised circa £188k from
the priority subscription offer (i.e. 1.9m shares purchased via the
placing of upto 2.5m). This might make one inclined to think that there
is an overhang of 600k shares that were not taken up in the offer, this
is not the case. AQG announced on 30.07.01 that:

"Airbath will also raise up to £250,000 by way of a priority subscription
offer of up to 2,500,000 ordinary shares to Aquarius shareholders at the
issue price (10p)"

The key words in that statement are "up to". So 1.9m shares have been
subscribed for, out of the 2.5m shares made available. Therefore, over
75% of the shares being made available through the offer have been
subscribed for, which is a significant achievement in itself with market
conditions as they are at present and the apparant unappetite from the
markets to raise non-vital capital (i.e. those sums of money that are
raised through the market and that are not used to avoid a company
becoming insolvent). However, there will be no overhang of 600k shares as
these shares will now not be contrary to the issued share capital of
Airbath, as AQG used the priority subscription offer as a means of
raising capital to enhance growth, and I believe as an opportunity to
reward long-term shareholders by issuing the shares at such a low price.

The Airbath demerger should also not be classified in the same context as
the Collins & Hayes (C&H) demerger from AQG at the end of July. There are
a number of different factors that led to C&H having an indifferent
'debut day', these include:

i. When announced the C&H demerger price was 60p per share, valuing the
company at circa £15.6m (26million shares in issue), with profits last
year of approx £3.5m. The price at the time of the announcement was 52.5p
per share. Offering upside to the punter pre-demerger.

ii. There was very little take-up in the C&H share placing @ 60p per
share to existing shareholders, as interested parties sensibly bought in
either below 60p in AQG on the day of the demerger announcment, or not
excessively above the anticpated C&H issue price (i.e. 60-70p) in the
preceding couple of weeks, as the holder recieved shares in C&H for the
60p and the residual AQG business (including the bathroom division) for
whatever they paid above the 60p C&H demerger price. This offered very
limited short-term upside for C&H post floatation.

iii. At 60p per share C&H would have a historical PE for the year ending
31 March 2001 of 4.6 (i.e £15.6m market capitalisation / £3.5m 2001
profit), and EPS of approx 13.5p, which in my books still makes the C&H
business a good buy at its current level (45p mid-price, 15.08.01).

However, I believe that the Airbath demerger offers significantly greater
upside for the private investor than C&H at present. At 10p per share
Airbath Group plc, compromising the Airbath International, Aquarius
Bathrooms and Brampton Housewares businesses, would have a market
capitalisation of £2.6m (i.e. approx 26million shares @ 10p per share).
This is set against the fact that the company made a profit before
exceptionals of £2.5m for the 12 month period ended 31 March 2001, which
puts the company on a historical PE of 1 and EPS of approx 9.5p.
Sharecast have forecast that profit for Airbath will come in at around
£1.6m for the year ended 31 March 2002, on a slightly reduced turnover
from the 2001 Finals, due to the fact that the company has undergone
certain re-organisation within the business to put the company in a
better position to increase shareholder value in the future. Even £1.6m
2002 profit results in EPS of approx 6.5p and puts Airbath on a forward
2002 PE of 1.5. Need I say an more!

As always DYOR and I will see you lot on the new Airbath BB from now on
(the race to make the first post), as I believe that the residual AQG
business after the Airbath demerger will be worth next to nothing. I
would suggest switching the capital into the Airbath business, which in
my books has the greatest prospective upside of the 3 constituent parts
of the old AQG business. I very much doubt that if GWB were to make an
offer for the rest of AQG it will be no more than a couple of pence per
share, after all the remaining businesses (Welwyn Lighting and Turner
Bros.) only made £300k profit in the 12 month period ended 31 March 2001
and still face troubled times ahead, whereas Airbath and C&H can now
specifically focus on their respective market niches and Airbath
particularly is in a prime position to significantly enhance shareholder
value.


Bruce GF


P.S - The directors have brought 240,000 shares between them as part of
the placing, valued at £24k, so they have certainly more than proved
their faith in the company.

[cb7] 17/8/2001 09:36

cossie, approx 63% of AQG was declarable, ie holdings above 3%, with GWB having nearly 59%...though this was reduced slightly with the offer......so say 40%, minus any holdings below 3% not disclosed......

[cossie] 17/8/2001 09:17

thanks guys, only 2 MM's on this one, both on the bid for stock. Should see this one moving forward.

offering NMS 5000 shares.

CB7 any idea what proportion of the 26 MM is free float in the market??, quite a tight market.

cheers
C.

[cb7] 17/8/2001 09:01

guys there are 26m approx

[mad4it] 17/8/2001 08:49

cossie, 1 for 1, I believe, not sure how many are in issue.

[cossie] 17/8/2001 08:40

what was the share split with AQG, how many shares in issue for ATU??

cheers
C.

[cb7] 17/8/2001 08:24

Airbath off the marks today, up 50% thus far, for the uninitiated it now has a mkt cap of 4m, with anticipated profit of 1.6m, giving a p/e around 2.5............