Airea Share Discussion Threads

[mesquida] 23/11/2019 13:29

Is that a serious question, Arregius, or is it a sarcastic riposte ?

[arregius] 22/11/2019 20:27

And the brand Burmatex is a very well known one?

[rhomboid] 22/11/2019 18:36

I’d rather not guess the split as I really don’t know🙂

My approach to investing is to identify situations where something pivotal has occurred to a business & the market as a whole has missed it...the numbers are a lagging indicator in this process

Here I saw the new ranges enabled by the megaloom as the game changer...along with the closure of Ryalux...I’ve seen nothing to challenge that view in anything I’ve seen since...but an awful lot of evidence that it is playing out as per plan ...with the understandable exception of Brexit putting a crimp in things🙄

[dangersimpson2] 22/11/2019 18:20

Thanks John, what do you estimate for the H1 revenue split between 1 & 2 and the GM for each part of the business? Also, did you get any steer on how much SG&A increased in H1 to impact the op margins?

[rhomboid] 22/11/2019 17:24

Thanks for the detailed response Mark

I think it’s helpful to view this as two businesses

1 Old Burmatex...with a heavy emphasis on education sector etc
2 New Burmatex...megaloom enabled new ranges targeting high end commercial

What has happened is ad hoc ‘supply from stock’ orders in 1 dried up as flooring contractors went into more of a cash conservation mode with all the well publicised issues over large contractors/Brexit ...added to that was the costs associated with Brexit stock build ...important to note there were no cancellations

Reading between the lines re 2 & from various conversations the new ranges have been v positively received but the sales process is completely different...it’;s architect specifiers that are the driving force & the new sales recruits have taken orders..but they are further out in terms of requirements (hence the record order book) and I believe the sales process is far longer too

So cumulatively the impact was a ‘gap’ ...my belief is this is a bump in the road & ultimately the growth will kick in

Incidentally they do not need a new megaloom until turnover rises by 30% or so...the first megaloom was extra...ie they still retain the older machinery

So I’m cautiously optimistic 🙂

[dangersimpson2] 22/11/2019 10:41

You obviously know this in much more detail than me John, so maybe I am missing something, but at the AGM at the beginning of May, I believe they told you that the megaloom had led to month by month sales increasing but then at the half-year to 30th June sales had declined from the previous HY due to uncertainty in the market. This combined with investment into additional SG&A led to a decline in operating margins from 16% to 12% for the HY.

It seems that this uncertainty has likely continued well into H2, so what is a reasonable assumption for H2? Well, typically this is about 10% higher than H1 so if we go for this and assume it generates a 14% operating margin, (since they don't give us CoS & gross margin then this has to be an educated guess), then this would be an EBITDA for the FY of around £2.8m. The pension deficit is a real debt IMO since it is costing them real cash each year, so if we add that to the debt we get a forward EV/EBITDA of 7 @40p which reduces to 6 if you take off the investment property value from the EV.

So not crazy in the current market but a lot of microcap, UK-focussed businesses that are not showing significant growth are trading around 3-4xEBITDA, so not particularly cheap either at the current price.

At some point the market will start to be forward-looking for FY21, but without decent forecasts in the market, and a business that seems to struggle to predict short term demand for their products, I think it will probably require 21H1 results to show some decent growth & improved margins before this would start to look reasonable value (or a further drop in price to the c3-4x EBITDA level.)

How are they going to generate this growth? Well, with megaloom 1 at around 60-70% capacity in H1 it must be around 70-80% capacity in H2, so it is down to adding megaloom 2 - which means further capex & maybe working capital. So although this should drive medium-term growth, it will draw down extra cash, hence why we have seen a recent dividend cut and it may be more prudent to reduce this further in H2. Which again removes one of the reasons to buy and hold rather than wait for the green shoots of recovery. I am aware that this is pretty illiquid though, so may struggle to get stock if the 21H1 results in August next year do show some positive trend.

[rhomboid] 21/11/2019 17:29

Evening Mark

Revenue Growth comes as a direct result of the capabilities of the new megaloom...those ranges designed to take advantage of its capabilities have been v well received & take Burmatex into a whole new sector Category A office...which is dominated by London/SE but also increasingly present in the regions...this is a higher £ margin product too

That is why the company has a record order book..the Brexit nonsense caused a short term slow down in the rate of call off of product for mor run of the mill projects but longer term I’m in no doubt growth will be substantial & sustained

I’m biased as I hold loads but believe I know what I own🙂

[dangersimpson2] 21/11/2019 13:59

Think they are going to struggle to drive any revenue growth in the short term, so unless they can significantly increase operating margin in H2 then they will probably do only about 20% more in seasonally stronger H2 than H1.

This puts them on a fwd EV/EBITDA of around 7. So not that cheap for a microcap with issues.

Obviously, if they can generate revenue growth or improve operating margins in FY20 this multiple will be lower but the risk looks more to the downside than the upside in the short term to me.

[amencorner] 21/11/2019 12:38

To be fair to Neil Rylance, he did nothing illegal. He simply cashed in at an exceedingly good price and one that no other investor could have achieved in the open market. If he bought back significantly, then that would send a positive message to potential investors/investors.

[spooky] 21/11/2019 12:34

How was Neil Rylance allowed to continue as CEO after selling ALL of his shares at an elevated price of 72p? Surely he should be long gone?

[amencorner] 21/11/2019 12:26

I have followed AIEA closely over the last 18 months and have at times considered taking a position. However, the tone of the August interims leaves some doubt in my mind and I half suspect we may see a Trading Update in the next couple of months warning of further “uncertainty” related delays.

The other concern I have is the selling by the CEO back in April of his entire holding to the EBT at a price greater than he could have achieved in the market. If the price and prospects are so good now, then my is the CEO not buying at least some shares back?

So for me, it’s a question of rebuilding of trust with the CEO and hopefully not seeing another warning of delays in customer call-off from the order book.
Once I feel a touch more confident on the above, I will possibly take a position.

[arregius] 21/11/2019 09:56

I am long here

[someuwin] 20/11/2019 15:49

...maybe not?

[bda3490] 28/10/2019 21:02

Fill yer boots at this price

[someuwin] 11/10/2019 14:38

Been buying a few. Good value now imo.

[bda3490] 01/10/2019 13:43

JHD results out

[bda3490] 23/8/2019 17:24

That’s my understanding
The write goes through the p&l
And indeed should have done on those interims. It does not depend on the issue to new employees.

Should make an interesting full year set of accounts if the price doesn’t recover.

[brileyloucan] 06/8/2019 09:01

Hi,

I see the company has made a £2m loan to the EBT (as discussed above) and this is broadly a pass through of an increase in their borrowing under, presumably, their normal banking facility of £1.7m (£150K repaid).

What I'm not clear on is how does the EBT repay the loan to the company? I've spoken to my technical accounting friend and it seems to me that this will get written off as the shares are distributed to employees and will also get written down if the value of shares in the trust don't cover the loan.

Does anyone agree/disagree here?

Thanks
BL

[bda3490] 03/8/2019 13:38

On further reflection, As a shareholder in Airea, I definitely feel that the interim dividend would not have had to be cut, or cut by as much as 54%, had the Company’s cash not been substantially utilised by the CEOs share “buy back”.
The old dividend 1.75p would just about have been covered by profit

[bda3490] 03/8/2019 13:37

On further reflection, As a shareholder in Airea, I definitely feel that the interim dividend would not have had to be cut, or cut by as much as 54%, had the Company’s cash not been substantially utilised by the CEOs share “buy back”.
The old dividend 1.75p would just about have been covered by profit

[cfro] 03/8/2019 10:50

Why speak to the management when all they do is tell you what you want to hear?

I think its pretty obvious now that the director selling at 72p or so a few weeks ago knew what he was doing. Clearly the management cant be trusted. Just blame it all on the old scapegoat Brexit.

[illiswilgig] 02/8/2019 20:37

Rhomboid,

very useful and very well put.

Thank you

[impvesta] 02/8/2019 17:42

That's quality input rhomboid but I bailed out as soon as I could get an online quote to do so this morning. Overall 56% gain, including dividends, in just under 2 years so can't really grumble although not as good as I thought when I took 50% of my initial stake out in March when the price had doubled for me.

[alter ego] 02/8/2019 16:39

Thanks rhomboid. More useful than lots of speculation and name calling.

[rhomboid] 02/8/2019 15:58

No that is not the case

EBT is a separate entity controlled by trustees & managed by RBC ..it is funded by a loan which is guaranteed from the company...the interest expense of which is more than covered by dividends not paid on EBT shares until they vest

The pension scheme is not concerned as it has payments already agreed from the triennial review..pension trustees were fully consulted on the EBT creation & recognised its necessity

Re Halstead & Headlam ...I hoped there�d be a positive read across but they are in different niches..though related. I listened to the conference call for Interface in the US they are the largest carpet tile competitor & they mentioned a recent Brexit related slowdown in the U.K. & soft conditions in Europe

I understand the angst here but am happy to take at face value that this is purely Brexit related...there are so many discretionary refurbishment projects being put on hold until the dust settles

Speak to the company if you want further reassurance I did & I�m totally happy with what I heard