Facilities By Adf Share Discussion Threads

[adamb1978] 07/8/2022 18:52

Disco

I posted the methodology above. The primary differences between your and my figures are:
- you include IPO costs, I think they're a one-off
- I take year average capital employed, you take year end
- You include lease liabilities and deferred tax. I dont. As I mentioned, I think including lease liabilities in the denominator isnt appropriate as the costs have been deducted in the numerator, so to have the liabilities sitting in the denominator is a mis-match

In terms of numbers its 4.5 / (((5.4+0.3)+(2.9+.95))/2)

As I said, I think the actual number is largely irrelevant. The message is they generate strong returns from the capital which they put to work.

Adam

[disc0dave45] 07/8/2022 17:55

Been enjoyable, but this debate started because I challenged your comment:"As at end of last year, ROCE was 94% for them. "Websites agree with me, that their ROCE is 17%, that's what I'm using and have posted up how it's been derived. if you could post up how you achieved 94% I'd be keen to see the workings but not wishing to offend but it seems completely unrealistic at such a high level. This is not a capital light business. I'm always happy to take on board other views, but not if they can't be supported by facts and data.

[disc0dave45] 07/8/2022 17:45

Yes my apols about total assets, misinterpreted what you’d said.
Their ROCE is 17.7% (25% excl IPO costs), agree 25% is decent all said and done.

[adamb1978] 07/8/2022 17:26

Hi Disco

Sorry, one other point whilst I'm thinking about it. For me personally (and all investors are different), if a company's ROCE is over 20% then I'm largely not bothered how far over it is...for example, I kind of view 20.1% as the same as 200.1%.

Might sound odd but for me personally looking at ROCE (and over several years rather than just 1 year) its more about whether the company has an acceptable record of investing capital well to generate returns, rather than the absolute value created from it. Its only of the early metrics which I look at for a company and I like to see 20%. For some companies, particularly smaller ones, you get sometimes get odd results, which is why I thne look at incremental ROCE from year to year.

For ADF therefore whether my figure is appropriate or yours is, it still rules ADF 'in' for me as your 17% definition becomes 24% when you strip out the listing costs which meets what I want.

We all have different styles and methods though so each to his own!

Adam

[saucepan] 07/8/2022 15:27

Interesting discussion.

[adamb1978] 07/8/2022 15:07

Hi Disco

"I can’t see how you can use average CE for a newly listed business that is growing it’s capital spend annually by a considerable amount"

Whether a company is private or listed is irrelevant IMO. And also the growth of the business is reflected over the year in the income statement, as it will be in the assets

"I didn’t use long term lease liabilities or deferred tax, but as I posted I used what everyone (well the majority) use and that’s current liabilities and EBIT (as per their income statement and balance sheet)."

well you implicitly did! You said you used Total Assets minus current liabs. Total Assets = S/h equity + long-term liabs + current liabs...given that by definition the balance sheet balances. So you've taken S/h equity + long-term liabs which therefore includes leases and tax liabs.

Your call on how you define thigs and what you use though!

Adam

[disc0dave45] 07/8/2022 14:50

Thanks Adam, I'm on phone so apologies for quick response, appreciate your feedback.First off though I can't see how you can use average CE for a newly listed business that is growing it's capital spend annually by a considerable amount.Sorry Adam but I didn't use long term lease liabilities or deferred tax, but as I posted I used what everyone (well the majority) use and that's current liabilities and EBIT (as per their income statement and balance sheet).Agree stripping out IPO cost, seems reasonable, at first glance though your approach is not the norm in determining ROCE, plus you mentioned 94% and I still can't see how you did actually get that - would imagine only franchise models can boast of such a return, and this is a highly capital intensive business (relative speaking).

[adamb1978] 07/8/2022 14:23

Hi disco

For the numerator, the difference in our figures is that I strip out exceptionals, which for their 2021 year was their listing/advisory costs of £1.3m (note that I look at ROCE post share based payments so dont strip out a lot of stuff which some might) but listing costs are genuinely non-recurring so I think its right to strip that out. So your £3.2m is my £4.5m

For the denominator I take average capital employed (so average of Dec-20 and Dec-21 levels). I feel that the average level is right given that earnings are over the year so take ave CE is more like for like.

For capital employed definition I take Equity + LT debt so the difference here is that you include lease liabilities and deferred tax as well whereas I don't. Ignoring the tax point for now, my earnings figure in the numerator is post the lease payments so I dont think that the lease liabilities should be included in denominator. This effectively treats it the same as debt - EV/EBITDA multiples include payments/liabilities to all capital providers in numerator and denominator whereas for P/E you're looking at earnings to equity holders so just the market cap in the numerator and not debt. Therefore I look at ROCE the same way and kind of like leases are debt.

The alternative to my approach would be to add back lease payments to the numerator
and include liabilities in the denominator like you do.

All that said, 17% isn't a bad ROCE either and if you strip out the one-offs your nearer 25%!

Adam

[disc0dave45] 07/8/2022 13:41

Ps for FY19 (can't use FY20 as they had a negative EBIT) their ROCE was 21%, so a declining return on capital since FY19 means their liabilities have increased at a greater rate than their assets and EBIT.

[disc0dave45] 07/8/2022 13:30

Just for those premium chaps who clearly don't like what I post, here's what Morningstar have for their ROCE (17.42%):HTTPS://tools.morningstar.co.uk/uk/stockreport/default.aspx?Site=uk&id=0P0001O8IK&LanguageId=en-GB&SecurityToken=0P0001O8IK%5D3%5D0%5DE0WWE$$ALL

[disc0dave45] 07/8/2022 13:21

Hi Adam
Thanks for that but I guess it’s how you determine ROCE.
Using FY21 numbers I get their ROCE of only 17% as follows:
EBIT £3.2m / (total assets £25.9m minus current liabilities £7.9m) = 0.177 (17%)

How did you get 94%?

[disc0dave45] 06/8/2022 17:49

Lease and hp costs for 2021 £12.3m.
I may be over focussing on their order book but it’s planted a seed of doubt. Which is treated as I’d expect by some on here, some (not you Adam) who can’t even be bothered to read their admission Doc, their recent accounts, and what they’ve said about pre-bookings for all ordered new vehicles. Oh well.

[adamb1978] 06/8/2022 17:33

In terms of the asset ownership thing, I think its worth looking at their ROCE. Of all metrics, its one which has one of the stronger links with shareholder value creation.

Owning assets would increase the denominator in ROCE. Leasing would reduce the numerator. Either way, both impact ROCE in the same direction.

As at end of last year, ROCE was 94% for them. So however they are financing their assets, they're making a great returns.

If you alternatively look at incremental returns (i.e. increase in EBIT) on incremental capital employed (i.e. so take a shorter term measure) and ignore the past), they're still making great returns.

I shy away from asset intensive industries as you often find sub 10% ROCEs but here thats not the case.

[disc0dave45] 06/8/2022 11:18

Filter away and remain ignorant of any negative views.
Think you will find that on hp they are the registered keeper and become the owner once final payment is made. However, believe leasehold is slightly different in that the lender remains the registered keeper during the term of the lease.
Can’t believe you haven’t even read their finals for 2021 but choose to believe what a PR person says - check their numbers: lease and hire purchase costs £12.3 million, what’s that for then?, unbelievable.
Whether you wish to depend on semantics regarding the legal definition of “ownershipR21; is your choice but the simple truth is they are investing £7m this year (£6.2m next) in leasing / financing vehicles that won’t be at their normal 3%-4% interest rate, of that you can be certain, wouldn’t be surprised if it’s 15%-20% given inflation is set to peak at 13%…..and yes they will hopefully have budgeted for this (but will IR confirm or detail the finance terms, nope).
They have already placed orders with DAF (100% financed via PACCAR) and 41 vehicles ordered via General Coach. They’ve already stated that circa £13m will be invested over the next two years in upscaling their fleet, they have not purchased these vehicles outright via the placing / IPO (£13m net), they are on finance (deposit & lease / hp / loans whatever you want to call it) as they also state that they wish to grow inorganically (acquisitions).
Folks on here should check out a stock (VLG) that was also constantly ramped by certain posters on here who also refused to take on board my concerns as a holder……newbies beware of rampy boards.
All the best
Ps meant to add, they have stated that all of their new vehicles are pre booked out in advance, so the order book percentage full should be 100% by now (6 months into their FY) irrespective of vehicle deliveries / order dates. Some posters seem to think otherwise, only time will tell I guess but what they’ve said hasn’t encouraged me to invest atm if at all.

[johndoe23] 06/8/2022 10:22

Great work!

[melody9999] 06/8/2022 00:03

I have disco / eezy filtered - from another BB I think - not because I do not want to hear the bear case, but because I do not believe some of their claims.

The cost of vehicle leasing was mentioned to support the bear case - so today I asked Alma, ADF's PR advisers if ADF owned all its vehicles. I promptly received this response:

==
ADF does own its vehicles. It is the only high-volume, UK-based operator to provide a fully managed, 24/7 service. By the end of 2022 we expect ADF’s fleet size to reach 600 and 700 by the end of 2023.
==

So for clarity, ADF are not subject to any vehicle leasing costs.

[rivaldo] 05/8/2022 11:55

Good to see the bounce continuing today.

Cenkos have just released an update and reiterate their forecasts, summarising that ADF are "materially undervalued" on a forward P/E of 10.8 and an FCF yield of 15%.

They believe ADF should trade closer to a P/E of 15, i.e a share price of around 89p.

In addition, they note that ADF have over £15m of cash available for acquisitions etc, giving rise to further "significant upside".

[saj3] 05/8/2022 11:54

I have a colleague who works in the tv/film industry and he's never been busier

[disc0dave45] 05/8/2022 10:28

“So you are trying to talk down the price”
Jeez you’ve confirmed what i posted, do you seriously believe anything posted on here influences the share price!, omg. The classic retort from a holder that can’t accept anything but ramps.

[melton john] 05/8/2022 10:22

Glad you aren't thick, neither am I. Fair question though. I take it as you aren't arrogant that you mean "One must be really thick if one thinks etc..." . So you are trying to talk down the price. Bye, over and out.

[disc0dave45] 05/8/2022 10:09

Melton
Fair points arrogantly delivered - I’m not thick.
£7m of new vehicles sitting in the yard doing sweet fa because zero order change in 6 months. Paying minimum 4% (probably more like 10% apr now) / lease costs, not to mention labour costs to maintain these idle assets.
There’s at least 7 months (up to 15 months) lead time on production orders so this should be filling the book for 2023 not struggling to fill for this year.
Do you know if their order book is correlated to what they’ve forecast for the FY, namely 600 vehicles?, or what?, either way given lead time on orders the book should be full IMO….they didn’t state how much orders they’ve had for 2023 just that it’s growing!, another £6m in vehicles with no visibility on orders given to the market……but then I know sweet fa and you know it all eh!
You must be really thick if you think posting anything on here influences the share price

[eezymunny] 05/8/2022 09:49

It'll be interesting to see how much their lease costs (for the vehicles) will be increasing. Inflation, rising interest rates etc!

Lease payments were £3.1m last FY. Could this double, treble, or worse, as leases end and new vehicles are required?

[melton john] 05/8/2022 09:25

What a load of nonsense from some posts. The order book was full, they raised cash, capacity increased then it wasn't full any more. Now it's a bigger order book which is filling up. Are some posters thick or just trying to talk the price down.

[masurenguy] 05/8/2022 09:10

Good post kannerwas. This obsession by some over the histrorical order book status fails to take into account the expansion of the fleet and the fact that sales have almost doubled over the pre-Covid year.

[kannerwas] 04/8/2022 22:02

Yes, the Admission Document says that the order hook for 2022 'has been completely filled and currently stands at approximately £20m'.

Yes, today's update says that 2022 is only 'almost fully booked', but it also says that the company is in line to meet market expectations of £31.8m revenue for the full year.

Clearly add-ons of various kinds (fuel, labour charges, etc) bump up the revenue beyond the order book figure. There has also been fleet expansion during the year; no doubt ADF tries to match delivery of new units with demand for them, but can't be expected to do it to perfection. So there may be some new kit awaiting its first outing.

Therefore I would not obsess too much about the difference between 'completely filled' and 'almost fully booked'.