Alumasc Share Discussion Threads

[wilmdav] 11/9/2017 14:11

Hi PVB

I did look at Lemon Fool after the demise of TMF as we knew it but decided ADVFN was adequate for my needs at present.

[pvb] 09/9/2017 18:30

DukeofYork - Now the TMF boards are no more, have you considered joining LMF?



BTW, thanks for link to your site and interesting data and charts on ALU. Pity it's the only share we have in common!

[wilmdav] 08/9/2017 19:51

I've just updated the ALU pages on my website to include triennial pension deficits and deficit reduction payments in the "funds" chart.

[wilmdav] 06/9/2017 23:41

I did indeed. Thanks, Dan.

[dan_the_epic] 06/9/2017 20:42

FWIW, I re-estimate a 5 bps swing in gilts (10 yr investment grade corporate sterling a useful benchmark) is about £0.75m swing in the deficit, or a couple of pence on the share price.

Looking at the multiple attached to Alumasc, it certainly looks correlated to the pension deficit size. This used to trade at 12-13x earnings a couple of years ago. Now its on 7.2x cash adjusted 2018e.

Of course, you can't just ignore the deficit, but one would have thought gilts are at the bottom of their cycle, and we all know that this is quality outfit. I fully expect long-term investors to be duly rewarded here in time. Finncap report out yesterday (Who are the most bearish brokers in terms of PT) and they have a retained 225p PT which is based off a multiple improvement to 9.4x on the back of stronger 2018e EPS of over 21p.

They expect revenue to come in at £106m next year (remember to adj for scaffolding sale on the top line but not profitability as breaks even). I take a very sceptical view to any commissioned small cap research, but hard to fault any of their applied logic.

Even adjusting that deficit into the EV calc and you get 9.6x adjusted PE on my calculations, again below the range from a couple of years ago, despite the business fundamentally having made great strides. Easy to forget the CEO bought a very decent chunk of stock (£90k IIRC) at around these prices earlier in the year.

Happy to let this chug along for a merry while yet!

P.S. Wilmdav - think you typo'd; you mean a reduction of 35%

[westcountryboy] 06/9/2017 18:44

Hi Wilmdav

Nice to see you here! And a compelling calculation - very clearly stated. I fear we are stuck in this range for a little while yet.

cheers
WCB

[wilmdav] 06/9/2017 17:32

Hi WCB

I also hold.

£20.6m is the yearly IAS19 deficit which has little relevance other than an effect on reported profit. Much more important is the triennial valuation of the scheme which now shows a deficit of £33m, requiring yearly supplementary contributions of £3.2m until the next such valuation.

I deduct the supplementary contribution from pre-tax profit and recalculate an adjusted eps from there. In this case adjusted PTP is reduced from £9m to £5.8m, a reduction of 35%. Prospective eps for 2018 is currently 21.3p. If this is reduced by the same percentage it becomes 13.9p, thereby increasing the prospective p/e from 7.9 to 12.2, which would seem about right for company of ALU's credentials without a pension deficit.

The share price was 169p when I did the calculation.

My expectation is for Brexit worries to increase and gilt yields to remain low for a long time as a consequence. However the £3.2m contributions are virtually set for the next 2 years regardless.

08/09/17 Corrected PTP reduction to 35%. Previously shown incorrectly as 65%.

[westcountryboy] 06/9/2017 10:13

Hi Dan

Thanks. I am not a bear here at all and in fact am weighing up whether to buy more, so thanks for your take on prospects. But the pension thing does bug me. It may just be that ALU are caught by the rules for calculating deficit at a time of low gilt prices, but the amount is now half of NAV and it is the size of the annual payments that annoys me most. The whole deficit was only £2.85m in 2012 but in the last three years they have paid £8.2m to reduce the size of it and it has responded by rising from £17.9m to £20.6m! To put it in context, they have only paid £6.5m in dividends in that time.

cheers
WCB

[samdb] 06/9/2017 09:34

Bought in here on the nice little dip.

[dan_the_epic] 05/9/2017 20:46

Fair comment WCB - One point I'd say as per previous posts is that, in my opinion, ALU has been unfairly bucketed with a lot of consumer-facing, poor quality floats by Zeus Capital, which have imploded. That certainly hasn't helped the price multiple here, yet this is clearly a much higher quality business. Not sure of any Brexit discount - housebuilders certainly have had their initial multiple compression largely retracted, and the likes of Kingspan have shaken it off.

Fundamentally, it's investing substantially ahead of growth, so hardly sitting on its laurels, both on the people-side and on the facilities/factory side, so a good pipeline of internal improvements to mesh with international expansion. It's encouraging to note that, for example, they expect Levolux to maintain its revenue base from this year (despite large wins last year, just on an underlying basis, so any large contract wins drop through above that.

Pensions deficits are an interesting one. There a few names, such as NXR, that I have entirely avoided because, although the stocks are cheap, the pension deficits are sizeable and there are no catalysts for a rerating (growth is mixed). Clearly gilts aren't helping the cause with reducing those deficits, but I'd expect that to start to correct over time (I'd be surprised if gilts fell lower). Fundamentally, the pension deficit here isn't actually that big, and as noted before, is certainly not terminal. Which, in my opinion, increasingly makes ALU a tempting morsel to larger building products companies, or construction companies in general.

Still get a yield of 4%+ on a forward basis just to hold and management here are very credible in my view. Think this is one of the most interesting value plays on the market at the moment, and expect that to correct over time. Whether that correction comes from the market waking up, or an industry peer/player looking at ALU, I'm not too sure, but the business is now streamlined and growing well.

[westcountryboy] 05/9/2017 16:34

There are two interesting issues (for me) with a stock like this, which I have now held for neatly two years to no benefit whatsoever despite strong figures.

The first (which I have raised on another thread) is how much Brexit doom and gloom is now priced into domestic construction/materials stocks of this sort. I was told off for this generalisation but it does seem valid to me because otherwise it's difficult to make sense of the continued lowly rating.

Except for...

the second, which is that here I broke a rule which I have tried to apply wherever possible: not to invest in a company with a substantial pensions payments overhang. I have broken it with other companies too (DWHA, LTHM), and sometimes it is a sign of a responsible family enterprise which looks after its employees. However the size of ALU's pension payment this year was large enough to wipe out the cashflow gains. Moreover the ballooning pension deficit has meant no net asset growth since 2012, which is not normally a good sign. On the other hand the cashflow turnaround since 2012 is still extremely healthy even with these payments, and a lot of the deficit is arguably just a paper figure. So I will carry on holding....

cheers
WCB

[dan_the_epic] 05/9/2017 08:34

Would rather it didn't but definitely has been some overhang. Would be surprised if it doesn't start to pick up a bit

[royaloak] 05/9/2017 08:20

Big sellers about still, I will be adding, so if it drops more will suit me.

[dan_the_epic] 05/9/2017 07:32

Tasty :). And outlook very impressive given the backdrop. Moreover, good series of internal investment schemes (Timloc factory, significant spend in new people, AWMS facility) which will drive improvements in margins and growth.

Super management. Reckon this is a long term winner.

[rcturner2] 05/9/2017 07:21

Excellent results, I can see 200p coming here soon.

[dan_the_epic] 04/9/2017 20:05

Fingers crossed for some decent numbers - extremely high volumes pretty much from the off today. Expect some citation of gross margin pressure into H1 next year, but plenty of scope for material growth here, and new bolt-on balconies sales looks to be doing very well based on anecdotal internet evidence.

Hopefully today's movement was something of a leak!

[junior21] 04/9/2017 19:16

Results tomorrow.

[krobertson878] 04/9/2017 18:31

Nice move in the right direction again today.

[prospective investor] 25/8/2017 19:23

EPWN forecast lower than expected! People worried about the health of the construction industry. Any concerns for ALU? I hold

[dan_the_epic] 16/8/2017 07:18

Walked into that one!

Luckily that's only the triennial valuation. I pen the actual deficit size at around £20m. Expect deficits to fall over the next few years across the board of listed companies, but in any case, this one is very manageable and certainly nowhere near a terminal impact. - think this could be a LT takeover target fwiw

Could do with UK gilts propping up a bit! showing some flatlining over the past 6 months though a bit of a decline again recently (evening out the previous bump up) shame our Fiscal and monetary policy is screwed!

[tudes100] 16/8/2017 01:28

£33m pension deficit, well you did ask !! :)

[dan_the_epic] 15/8/2017 21:21

Nice one guys. FWIW, some lurkers might be slightly concerned about the pipe up in the Aluminium price recently. I've done some calcs and estimate about 15-18% of finished goods here are aluminium, so not particularly troublesome given the growth backdrop (ahead of estimates) in Levolux etc that I'm expecting.

Has been a slight tailwind from Forex over the last few months (sequentially) - would be nice if that held up though UK economy and politics in a bit of a mess atm!

Quality management, good organic growth prospects, great moat (as demonstrated by return metrics), CEO bought a solid amount recently at a higher price. What's not to like.

[valhamos] 15/8/2017 15:29

I've topped up. On a P/E of 8 based on existing current year forecasts which looks cheap imo. The strategy of concentrating on profitable growth niches in the construction sector seems sound.