Airea Share Discussion Threads

[mesquida] 14/11/2018 16:22

Definitely something stirring here ? No company news timetabled for November, so what on earth could it be ?

[mesquida] 12/11/2018 13:05

Interesting move today, is another bid coming ?

[gucci] 08/11/2018 16:01

nice tick up today - MM not keen to part with shares - tried to add

[pireric] 13/9/2018 19:06

Appreciate the discussion :0). Thanks for taking the time

[illiswilgig] 13/9/2018 16:29

BrileyLoucan - Yes you are right. My last post crossed with yours.

But even taking the figures at 65 there is still quite a gap with the pension assumptions which the recently slowing rate of rising life expectancy won't fill in the next 10 years - resulting in considerable reduction in payments required from the pension fund and/or considerable surplus assets arising in a few years time?

cheers

[illiswilgig] 13/9/2018 16:24

OK - perhaps 'wildly' was me getting carried away. Or maybe not.

And as I said I am not an actuary so its just an opinion.

No - I think that Airea is different for three main reasons.

*The fund is small, has been closed for almost 15 years and the average length of remaining payments is only around 10 years.

*The company was only located in Yorkshire

*The primary occupation is mill worker.

For other funds I think it would depend upon how far into the future the payments extend, as until recently life expectancy would have been forecast to continue rising at quite a rate. Then there is location and occupation. Different for national employers from small regional employers and for service and industrial work.


Having looked a little more closely at the ONS figures I see that they give a life expectancy for 65 year olds of 83.5 (male) and 85.9 (female) which is a lot closer to the pension assumptions of 87 (male) and 89 (female)

- BUT is still out by 3 - 4 years which to my mind gives quite a lot of scope for surplus assets.

Applying the difference in mortality to the expected average remaining lifetime of the fund means that payments will be down around 40% in 7 years rather than 10 years (from memory - I don't have the report up in front of me at the moment).

The average UK statistics for life expectancy vary significantly for location and occupation. There is a north-south difference which may reflect the different occupations.

A small industrial company based in the north of England can't really expect to achieve average life expectancy based upon the industrial working (and living) conditions in the latter part of the last century? I'd put a finger in the air and say - deduct another couple of years for mill-workers in Ossett?

All of which would put the pension benefit payments poised to fall significantly in the next few years?

All of which means, going back to the original point, that Maynard Paton's simple assumption of constant earnings yield is not appropriate for a fund which expects rapidly falling benefit payments?

cheers

[brileyloucan] 13/9/2018 16:04

More relevant is life expectancy at age 65:

In England, life expectancy for men aged 65 years in 2012 to 2014 was 18.8 years, while women at this age could expect to live for an additional 21.2 years. This means that a 65-year-old man could expect to live to almost 84 years, while a woman of the same age could expect to reach her 86th birthday.

[pireric] 13/9/2018 15:03

Thanks - just based on the mortality assumptions, does that mean that all pension deficits are wildly conservative? If I look at Alumasc and Norcros's for example, they use similarly high mortality ages

[illiswilgig] 13/9/2018 14:00

pireric - thanks for the link to the paton blog and article. Very useful.

In response to your question Maynard Paton has performed a quick and dirty estimate of the income yield on the pension fund based upon last years benefits paid.

This is simplistic and would be ok if the pension fund commitments extended well into the future without much change to the annual payments. But this is the old Sirdar fund which closed to future accruals in 2005 and it seems that the benefits were already being reduced well before then.

So its a pension fund in run-down and Maynard's approximation will become less useful the closer to end of life the fund becomes (ie death of the last pensioner).

The figures in the annual report are quite detailed. So here are a few points:

The pension fund split is approximately 70% pensions in payment to 30% deferred (not yet payable). So most pensioners are already over 65, and some will be well over 65.

The average end of life for the fund is projected to be 13years - but thats based upon an average of 20years for the 30% not yet in payment and 11 years for the 75% already in payment.

So it's reasonable to assume that the benefit payments will start to fall rapidly in the next few years.

This is aided by the mortality assumptions. The fund assumes 87years (male) and 89years (female) for the deferred pensions and not much less for those already in payment. BUT the current ONS figures for those born today are only 79(male) and 82(female) - the demographic adjustment for Yorkshire mill workers won't help much either.

Now I'm not an actuary - but based upon the age profile of the fund and the wildly optimistic mortality assuptions I can see that the benefits being paid will fall rapidly in the next few years and the fund is more than likely to end up with a large surplus based upon current performance?

cheers

[rhomboid] 13/9/2018 11:08

Eric
I’ve tweeted a DM reply but it’s fair to say mgt have been innovative 🙂

[pireric] 13/9/2018 07:11

Question; Maynard Payton raises a good point around the pension deficit here and whether contributions need to be ratcheted higher. They could definitely afford higher payments but wondering if we are missing something. Interest rates slightly rising will help but any sustained fall in equities could see a sharper jump in the deficit on the face of it given the required return rate to offset the high benefit payments

hxxps://maynardpaton.com/2018/05/25/initial-reviews-airea-octagonal-and-richoux/

[mesquida] 17/8/2018 08:20

Wonder what the annual payment might be. If interim really is only one third of total then the yield projection looks tasty, almost too good to be true.

[impvesta] 17/8/2018 08:14

Yes, nothing spectacular but a very confident sounding chairman's statement and a maintained interim dividend which is worth 3.2% of the opening share price

[irenekent] 17/8/2018 08:07

Good results. Nice and solid. Div maintained. Been here since Sirdar days and happy to remain!

[illiswilgig] 06/8/2018 11:16

Thank you 305020 for that very useful perspective and feedback from the AGM.

Good to have my thoughts confirmed by others, so to confirmation bias and blind optimism I can now add group-think!

Very impressed by management progress in the last few years and the company is now more obviously undervalued than it was at 10p. However the risks in such a tiny illiquid microcap fully exposed to the construction/commercial market are such that undervaluing is likely a permanent feature. Not a share for the risk averse or for anyone hoping for a quick rerating - except through a buyout and we now know that would need deeper pockets than Halstead - but over the medium term it looks likely to reward the patient investor with hefty dividends, special dividends, buybacks and growth.

cheers

[thirty fifty twenty] 05/8/2018 23:05

when the mgt took over the share price was c.10p,
so I think they deserve to be given credit for their track record.
I also have met and decided that the mgt are trustable and have done a good job.

At the AGM they saw that the new product development would give them opportunities in Europe. But they can say what they want - none of us know how Brexit will impact trading, so personally I don't see this risk as specific to AIEA but part of my overall portfolio management. As I see it the bigger risk is a downturn in construction activity in the North of the UK.

it is not a share for those that are very risk adverse,
but am I happy with an investment in this company with its asset backing and good mgt - well that's obviously a yes from me but that may just be holder bias!

[dan_the_epic] 05/8/2018 20:42

Helpful perspective though Im not sure Aeria really put enough information out into the market. They have not been splitting out their commercial and residential over time and so you have to have near blind faith in management in what they are saying. I cannot verify what they are saying is true from the numbers. Brexit risk is a bit of an issue here for me as well given much of their upturn is into Europe. Any comment at the AGM to ease that if it was asked?

[thirty fifty twenty] 05/8/2018 20:28

hi Dan the Epic

I think if you analyse a little more deeply into the company you can see the attraction. The company and directors were very frank and informative at the AGM so i feel it is actually relatively easy to see the potential under-valuation.

For my analysis I see...3m ongoing EBITDA
(with overseas sales growth helping further),
c.3m in net CASH,
and 3.4m (I think) in an investment property with steady rental income.
In addition for the longer term the excessive acreage at their sites have potential for housing zonal permissions (this is a 5 or 10 year horizon),
the recent comments from Victoria PLC indicate they are back interested in UK businesses to consolidate the market.


the pension is protected and will cost c.200k a year, with upside or downside effectively. the admin costs to run will be halved in the next two years due to the Pension Compensation Fee reducing.

so net of CASH, investment property and pension (none of which effectively appear in the forecast EPS) - that is a MV of 14m which produces 3m of EBITDA with little need for Cap Ex as machinery expansion already done in last 2 years. I think a rating of 7t EBIDTA would be possible vs the current 4.7times
(with 5/10 year property development in for free)
there are of course also risks.....

a downturn in trade would hurt them

but what I also like is that they are shareholder friendly,
they pay special divis with surplus CASH and buy back shares,
that is rare in a small cap and I think worth paying a premium for.


All IMHO, DYOR + BoL
AIEA is in my portfolio

[dan_the_epic] 05/8/2018 20:12

I dont get the attraction. They made 1.5mill GBP of profit before tax in the 12 months until last year June. In the 18 months to December they made a 1.5mill GBP loss. That means they lost 3mill GBP in the last reported period June to December 2017. Something does not stack up. Ryalux will be blamed I think but isnt it that accelerated losses prompted closure? Secondly in the 18 months to December they made 4.3mill GBP of operating profit in Burmtex. 3.3mill GBP in profit before tax so 2.6mill GBP taxed at the UK statutory rate. in 18 months and must be before some allocated central costs from Ryulux costs get shoved into Burmatex. Too many unknowns and too little information.

[rhomboid] 04/8/2018 14:24

Ironmc

Re divi I’m expecting (guessing) of the order of 5p split 1/3 interim 2/3 final , the last ‘interim dividend’ paid November was really a final dividend based on the old accounting period so not a clear indication going forward..plus they are now far more profitable so all in the air really ...but with a risk bias to the upside , there are no broker notes available & it wasn’t discussed at the AGM ..or if was I didn’t notice it!

[ironmc] 04/8/2018 12:06

Rhomboid (or anyone else), I’m not a holder, but I’ve been researching the company as a potential investment. Assuming there are no shocks, and the business progresses at least reasonably well, have you any guesstimate as to what the dividends are going to be over the next year?

I’m finding it difficult to analyse mainly because of the 5p special dividend due to the sale of Ryalux. I’ve had this situation with other companies before, and they usually declare a final/interim dividend and an additional special dividend due to the sale (or what ever it is). Doing it that way means you can analyse the dividend stream without the special situation, and then try to estimate the future dividends. I’ve searched through the annual report, and can’t find any reference to how the 5p special dividend is split. Does anyone know whether this has been covered elsewhere – AGM, broker notes, etc.

[rhomboid] 03/8/2018 22:15

I bought quite a few more today..the lack of forecasts, the change of y’end, the closure of Ryalux have all created a perfect smokescreen for what is now a high growth/high margin/high yield biz on a dead as a door nail rating

[illiswilgig] 03/8/2018 22:09

Yep, me as well. I sold a few at 64p and am keen to buy them back so I'll be watching for the opportunity.....very tempted now.....

cheers

[mmc71] 03/8/2018 13:57

Same here. Price moving on little volume so holding off for now.

[tiswas] 03/8/2018 11:36

Normally I would have a little top up here but small caps very volatile at the mo so sitting and watching.