Hayward Tyl Share Discussion Threads

[dozey3] 20/4/2017 10:30

Pity they couldn't spell out what the non-repeating capital expenditure amount was included in the £22m. That just about sums up their attitude to shareholders, but I still think there is a good company in there struggling to get out. Come on AVG, make a sensible offer and let's go.

[p1nkfish] 20/4/2017 10:23

but it is telling the bank is playing ball, a good sign.

[nearlythere] 20/4/2017 10:19

Still concerned that it is taking so long to get some stablility on the banking front.

[cockerhoop] 20/4/2017 10:00

Pavey Ark

'and it is totally disingenuous to imply that the RBS destined cash was used to keep the lights on.'


:-)

[lignum] 20/4/2017 09:55

Pavey - I like the 'ghost at the feast' - not heard that before. The debt is not surprising as working capital must have increased if they were to have achieved revenues - I assume a large part of the revenue is in work in progress or goods just delivered.

The problem is working out what a normalised level of working capital is for their revenue projections. It still feels to me that a rights issue is needed - part of their debt is structural and that needs to be filled by equity with the bank debt used to fund working capital fluctuations.

[p1nkfish] 20/4/2017 09:18

HAYT ready to clamber upwards over the next 2-3 years. Not finished.
Statement also lays out how AVG better be serious or walk away soon.
Longer before they walk the probably more serious they are.

[pavey ark] 20/4/2017 07:34

An almost 40% increase in the order book and a solid EBITDA figure for H2 are the obvious highlights here but the ghost at the feast is :-
"Net debt at GBP22.1m (at 30 September 2016: GBP18.3m, at 31 March 2016: GBP8.6m) mainly reflects increased working capital as a result of a significant increase in activity during the final quarter and capital expenditure."

I must admit I was a bit taken aback when I scanned through and the £22m jumped out at me but it does suggest a major increase in production in the final quarter.
Some customer payment is upfront but the company will be in a position of expenditure that is not covered by these payments.
If this is the case then orders being completed should be converted into cash but a major increase in production will/does require initial outlay.

The £50m order book, ongoing order wins and the support revenue does suggest that a t/o of over £80m is very likely and I would expect an EBITDA over £8m-£10m this year.

As far as the AVG bid is concerned I have actually no idea but if my figures are close to accurate they will have to dig deep.
It really all depends if they were taking a punt to get HAYT on the cheap or they are prepared to pay.

[p1nkfish] 13/4/2017 23:22

MTIOC, I don't see aftermarket going far from HAYT if that market needs operation in awful environments at high reliability. There are not many vendors able to do what HAYT do. Hence my own interest as a med-long investment.

[pavey ark] 13/4/2017 22:19

Just had a look at the most recent results , Six months to 30th sept.

Revenue £23.1m
Order intake £25.4m
Order book at start of period £36m (31st March)

Now wait for it you arithmetical wizards ...is the closing order book ... ££38.3m?

No by golly it's £48m

£10m of revenue did not come from the order book but came from the repair and maintenance service provided by HAYT or so it seems to me.

Another interesting point is that in this six months period no order awards were announced yet the order intake was £25m.
I suspect that the company does not announce orders below a certain value and I suspect this is below £1m or so.

If my target of revenue of over £80m next year is achieved it can comfortably be achieved without announcing c.£7m of new contracts every month.
Indeed with an order book approaching £60m and a very healthy maintenance revenue anything like £7m a month of announced ,new orders would put them into another league

[mtioc] 13/4/2017 10:34

Question re percentage of aftermarket captured by original equipment manufacturer (OEM) is a good one. I suspect That HAYT gets a reasonable % of aftermarket in developed countries (US and Europe) but lower in developing countries (India and China) where third party providers are much cheaper. Has the company commented on this before?

Agree re currency should be positive driver for sales and margins.

Usually acquirer's bank would bank the combined group (and acquirer would have underwritten package). Most UK banks do not like to "hold" more than £25m in exposure to one business. In this case, it is likely that RBS and HSBC would "club" together to provide banking (which they do regularly).

[lignum] 13/4/2017 10:14

P1inkfish - I agree the service revenues should be very profitable as no-one else should be able to do it. Longterm warranties must be conditional on having scheduled servicing.
Pavey - I also agree that the recent currency movements should help HAYT's export business. With regard to banking if AVG buy HAYT I imagine HSBC will replace RBS. AVG probably already have a indicative letter of support from HSBC to allow them to provide certainty to any offer they make.

[p1nkfish] 13/4/2017 09:52

Don't have time to search for service contract details but from 2015:

"HT Colchester continues to service significant installed base
75% of 438 operational reactors worldwide are over 25 years old"

They don't do that for free and have 5 global local service centres.

Longterm warranties are usually sold as an addendum and give some future revenue cushion post standard warranty periods. The gift that keeps on giving.

It can be lucrative business if the kit is reliable in the field and also lead to follow-on sales.

[pavey ark] 13/4/2017 09:52

Heading out for the day but just a few observation about posts.

£3.7m .... small beer...2/3 week required order intake ???
This suggests £65m to £96m turnover before maintenance revenue !!

The house broker is predicting a loss of £4m for the year but the H1 loss was £5.5m so a profitable H2.....possibly.
The EBITDA was c. £4.5m in H2 and the company aim to convert at least 85% to cash (a figure they regularly beat).
Even if the conversion rate falls to 65% they will have generated £3m in H2 but these are perhaps not normal times.

I agree that cash generation is the key and also agree that overheads have risen but have the efficiencies compensated ?

A point missed though is the currency effect which since the Brexit result has given HAYT a major advantage over German and Japanese competition.

I have always thought that RBS would have to tread very lightly here and interesting that AVG's banker is HSBC.
Don't know a lot about banking on this scale but if AVG takes over do RBS lose this account ?

To paraphrase the ancient Chinese curse ....we live in interesting times.

[p1nkfish] 13/4/2017 09:41

True about the banks, supporting a customer to become reliable is the order of the day rather than taking on assets. It's also more politically correct currently to be seen fully supporting UK. I also don't see the amount outstanding as a show stopper - just an incovenient fly in the ointment right now.

Don't forget - AVG act as a down side safety net too.

The risk (down-side) to reward (upside) doesn't look off putting to me.

I already hold at a good price (eased in) when others were paniced and don't need to buy more. Just waiting for the story to unfold.

Jumpiness is understandable but this company has real product, real demand, high sales prices, service contracts that can run for years and real premises. It aint bad at all and this type of company is desperately needed by the UK - it's a real unique enterprise.

It's one that should be supported by the Industrial Strategy and protected from overseas take-over.

We need the likes of HAYT is we are to make a way in the world as an exporter of real, unique, critical, high-end engineering products.

[meijiman] 13/4/2017 09:32

Excellent posts-well argued for bull and bear case. So many permutations. You would have to be a brave man to take a strong position ahead of the 20th but clearly that's where the value bet is. Once news is out these will be marked accordingly and very quickly.

[lignum] 13/4/2017 09:30

It would be useful for the company to clarify the extent to which service revenues are included in the order book. Their products are performance critical so I would expect them to come with mandatory maintenance contracts - over and above any guarantees or warranties on initial sale. These contracts would be multi year and I would expect them to be in the order book. Also one of their KPIs is Order Intake v Total Revenue - this is meaningless unless order intake includes service revenues. Anyway the company should be more specific to remove any confusion.

I agree RBS will not want to push the company over edge. However I expect they will have told management that they need to find a new bank. The company may find this easier on the back of their new orders. If they get new finance they can dismiss AVG but discussions with lenders won't be easy over Easter. Interesting and I'm glad I'm not in the CFO's shoes.

[mtioc] 13/4/2017 08:58

Interesting to see divergent positions.

I wonder if in normal circumstances the company would have announced £3.7m of order wins. Seem relatively small beer at c. 2/3 weeks required order intake (albeit we should not ignore maintenance revenues - which have traditionally been c. 50% of sales).

Not sure revenue numbers are particularly informative. Operating cost base has risen yoy (e.g. PB sale and leaseback added £0.5m to overheads). I suspect new Luton facility is more efficient per unit, but at higher overall volumes. Also, always the risk in these circumstances that the business is "buying" work at lower margins.

Cash generation is the key and we should find out more in a week or so. Hopefully, CFO has been hammering his working capital.

A number of posters predict that RBS will take dire action and see this as a catalyst for a takeover or equity raise. I take nearly the opposite view. Distressed debt teams at all banks (particularly at RBS and Lloyds) will be treading very carefully at the moment. Unless there is a significant "cash hole", I believe RBS will be supportive and restructure the timing of existing facilities at a relatively small cost.

In the absence of cash information, I am neither brave enough to short nor to buy more, but rather am sitting on the fence nursing a small loss on a small holding. If I was forced to do one or other, I'd sell. (There is a decent chance cash generation will be poor, which would create a funding need that could have serious consequences.)

[cockerhoop] 13/4/2017 08:54

Certainly agree lots of moving parts in the next couple of weeks:

Trading Statement 20th April

AVG have to 'Put up or Shut Up' by 28th April

Banking negotiations by 30th April

[cockerhoop] 13/4/2017 08:10

ELB - talking to BRR Media

[pavey ark] 13/4/2017 08:02

scantrader,thanks for that, it's nice to see someone open about their position/motives.

My view is that the only reason that these talk have taken place is because of RBS so we agree in that respect but the amount in question is only about £2.4m. The finncap figures show that the company made a profit in H2 and looks like making quite a serious profit this year so a market cap of £21m ( at the time of my purchase) did/does look like an over reaction.

Anyway,each to his own and if you shorted at c. 50p and AVG are sent packing we could both be happy.
(My time scale here is probably different from yours)

[scantrader] 13/4/2017 00:51

The company is in default so at the mercy of its lenders,re both any new financial loan terms and any low ball predator offer, and its house broker finnCap
has forecast a £4m loss for the year.

Pretty serious stuff so I wouldn't say the market has overreacted. I've taken a small short position here.

[pavey ark] 12/4/2017 22:56

The point being made was that the NEW orders were only keeping pace with reported revenue when obviously reported revenue also includes repair and maintenance work.
HAYT have been supplying clients with hardware for many years and this would long have passed out of any original guarantee or original planned maintenance.
Replacement units would appear on the order book but not repairs and maintenance.

I've been over this ground before with TPG and my holding there is certainly enough to make me pay attention.

Anyway, I was moved to look at revenue figures for last year and they were £49m so c. £62m this year is obviously moving in the right direction and so is my projected £80m next year.
I dare say old timers here are well aware of this but £49m last year produced an EBITDA of almost £7m but obviously the H1 losses put the tin lid on good results this year but £4.5m in H2 was good so my £80m should give us an EBITDA of over £8m next year especially with the efficiencies the new facilities should provide.

If people look at the company announcement they will see that the company has an internal debt limit of 2 X EBITDA and an EBITDA to cash conversion target of 85%.
I don't think they are happy at this upper limit of debt ratio but unless the debt has really ballooned then they should produce enough cash this year to bring it under control.
These are the consider points and calculations I made when I bought and then increased my shareholding to give me an average of a smidge under 39p.
I didn't try to talk the company down when I was buying nor to I have shares in AVG so I like to think I am being fairly objective.
The point missed (ignored) by most of the negative posters here is that the market over reacted , as it usually does , and presented what I considered a bargain.
Time will tell if I'm right.

[grahamwales] 12/4/2017 22:01

How could they include it in order book when they would have no idea of the quantity of r&m required. Installation costs perhaps but not maintenance.

[lignum] 12/4/2017 21:43

In my experience service revenues are included in order book numbers.