Superglass Share Discussion Threads

[hosede] 01/7/2011 10:32

DoowIE, Masurenguy
I really have no idea how long these furnaces will last. (you would have to ask the company). I guess the running temperature will be 1000 degrees or so and refractories that are "happy" at that temperature are probably more readily available - also I was involved in the early 70's - no doubt things have changed! the refractories are slowly eroded by the movement of the glass much as moving water erodes soft rocks like limestone. The throat of the E-glass furnace where the glass was hottest and traveling fastest was also made of platinum. As the furnace got near to the end of its lifetime, the glass started to escape through holes it had made, and these were plugged with steel pipes through which cold water was pumped continuously.
One thing is certain - the furnaces run most efficiently at a constant temperature and constant throughput - which is why fluctuating demand is very unhelpful.
The share price is dropping to a level where it might be worth a small punt I feel

[masurenguy] 23/6/2011 13:13

doowlE - as I understand it there are two production lines at Superglass each consisting of a fired furnace, fiberisers, conveyor belts, curing ovens, finishing and packaging equipment. I believe that the cost of replicating an individual production line from scratch could be as much as £35m and would take around 18/24 months to construct and commission.

Therefore there is a considerable overhead to support and depreciate and the ultimate gross margin achieved will be largely determined by capacity utilization. This will not have been helped by the serial sales decline over the past 4 years. I think their current annual capacity is circa 65,000 tonnes but I suspect that actual production last year fell below 40,000 tonnes (I can't find any information to verify last years total production). If capacity utilization is only circa 60% it is easy to see why profit is so severely impacted by declining sales. Another concern must be the capex required to replace the existing furnaces in due course although I have no idea what their active life is. Maybe hosede could provide some input on that issue.

[doowle] 23/6/2011 12:43

Interesting. How much would a furnace like theirs set you back if you wanted to enter this business?

[hosede] 23/6/2011 10:43

DoowIE
This is a great cash generating business, as once you've built your furnace(s)the only real cost is energy. At some point the furnaces collapse and have to replaced. I used to work with E.glass (for GRP). Those furnaces ran at around 1400 degrees C, lasted about 4 years and were built of very expensive refractories (chromium oxide, Zircon etc.)with Platinum bushings. These guys' furnaces will run at much lower temperatures and last much longer I imagine

[doowle] 22/6/2011 18:13

I was never in Romag but was extremely close to buying some shortly before the shares got suspended. You need a bit of luck these days...

My honest opinion is that this will be eventually put into a prepack administration with a large industry player paying the bank off at a discount to par and scooping up the fixed assets. Either that or a deeply discounted equity raising. The assets in this business are basically the plant. Distribution is weak - they supply to no national merchants or DIY chains.

As for CERT, it is clear the insulation market is oversupplied from Superglass' inability to pass on input costs. If I was a utility I'd wait as long as possible and let prices crash before doing anything about my CERT obligations. By that time of course, the banks may have pulled the rug from under SPGH's feet.

[masurenguy] 22/6/2011 17:22

Thanks for your interesting and informed insight - it makes a refreshing change from some of the idiotic responses one tends to get these days from rampers/derampers on so many other threads.

I've been watching this share for some time but have not been tempted to invest yet. Sales have fallen each year since their debut on AIM in 2007 and if they come in at around £29m this year - which seems likely - then their secular decline will have exceeded 34% over the past 4 years. Aside from the declining sales and fundamentals, there is a distinct risk that they could be taken out cheaply either by a PE backed MBO or by a predator, which is a further negative in the risk/reward investment equation where I am concerned. I'll continue to monitor them to see if any subsequent green shoots appear to indicate some form of recovery.
Interesting comparison with Romag. Were you invested there in the past ? I was but fortunately exited at a profit around 18 months ago so avoided the subsequent melt down earlier this year.

[doowle] 22/6/2011 16:15

Also, this statement from the trading update looks v strange:

"Constructive discussions with the Company's bankers continue with a view to ensuring that the facilities remain appropriate to the Company's current operating performance."

Ergo, the bank wants to reduce the facility?

[doowle] 22/6/2011 16:13

Masurenguy #540

I see what you're saying but I'm suspicious of how that debt reduction has been achieved - you can easily manage your working capital to make your debt look favourable at a period end. Look at the payables number at the half year - it's nearly £2.5m higher than August 2010. All they've done is told their creditors "we'll pay you later". What is owed, whether to the bank or to suppliers, has still risen.

A better measure of solvency would be current assets less current liabilities or a current ratio:
Feb 10: £-8.4m
August 10: £-9.6m
Feb 11: £-10.5m

Post #537 makes an interesting point - in the absence of sales, they will need to keep the furnaces running - and to do this they will need more working capital to buy stock, pay the overheads.

This is fairly reminiscent of Romag Holdings, where there was a faint hope that once trading gets back on track the debt would look manageable. Superglass, like Romag, IMHO is a value trap.
Put it this way, even if a miracle takes place and run rate EBITDA shoots up to £5m, net debt/EBITDA will still be over 3x. Still a bit uncomfortable for a small highly operationally leveraged business.
Even Romag said it had a good relationship with the banks - now the shares are suspended.

[masurenguy] 22/6/2011 13:48

doowlE: re #538 - why do you think that their debt is at a "frightening level" ? I believe it is currently around £17m, down from circa £23m some 21 months ago. Whilst it looks as though profits may be heading down towards break-even for the year, they still have a positive cashflow at the operating level. At this point in time, positive cashflow is far more critical to their survival than notional profits.

There is certainly a very big mountain to climb here and at this shareprice - less than 10% of their original IPO - there could be some prospective predators currently running their slide rule over them. Meanwhile, with a positive cashflow and headroom within their existing banking facilities, I can't see any imminent risk of them going under. Whether the shareprice has yet bottomed out, and whether the current risk/reward investment equation is now more attractive, is another question altogether.

[pictureframe] 22/6/2011 13:42

good night

[doowle] 22/6/2011 12:11

That is a frightening level of debt for a business that makes no money and who's fate is out of its control...

[hosede] 22/6/2011 11:44

The problem with glass furnaces is that you light them up and run them 24/7 until they fall to bits (I've done it). Trying to lower output saves precious little, as almost all the direct cost is energy (the raw materials are very cheap). So to run effectively and efficiently you have to keep producing - and therefore to keep selling. Ergo big problem when sales collapse!

[nilip] 22/6/2011 09:19

Agreed jazza. If it is the delay factor then I'd expect to see a late surge in demand being fulfilled by SPGH - I don't see the utility companies being able to get away with dodging the obligation since as you say it is mandated and there are few excuses for them not to deliver.

Hence, I think it's very possible that SPGH could see a sudden belated surge in CERT related volumes.

[daz] 22/6/2011 08:50

Agreed Jazza, I think they may actually be finding it difficult to meet their targets with the marketing spend they have set aside. Most people who qualify, will already have had their loft insulation done and the people left are just not (so) interested.

[jazza] 22/6/2011 08:26

The fact that mandated CERT volumes are not being reached suggests either the utilities want to leave it until the last possible moment to fulfil their obligations...or they hope the targets will be reduced at a late-stage so that they can partially dodge said obligation.

[pugugly] 22/6/2011 08:21

Masurenguy:> Being kept afloat by the banks (imo). With brofits and sales declining and UK plc (public and private) going to be squeezed in a way tnat could make Dennis Healey look generous I canot see volumes picking up. This could be a signal that this is the beginning of the end.

I will have to crunch the implied numbers further to try and see how much the business might be worth in a fire sale.

[dugganjoe] 22/6/2011 08:05

Even at this much reduced level of profitability, Superglass continues to be strongly cash generative at the operating level.

[masurenguy] 22/6/2011 07:28

It would appear that both sales and profits are still in decline at Superglass !
No position - just watching from the sidelines

RNS Number : 8669I
Superglass Holdings PLC
22 June 2011

Trading Update

Superglass Holdings PLC, the UK's leading independent manufacturer of glass wool mineral fibre insulation solutions, today releases a trading update. This statement also comprises the Interim Management Statement for the period from 28 February 2011 to date.

Within the interim results statement released on 28th April 2011, we reported that we had seen an upturn in CERT-related activity since the end of February. However, volatility in CERT-related volumes has had a major influence on the Company's performance since that statement. The Company's assessment of the wider market suggests that there is a significant and continuing aggregate shortfall in CERT-related installations.

Superglass has continued to win market share in other channels, but we continue to experience significant energy related input cost pressures which we are unable to pass on to customers. Together with some reduction in plant efficiency as a result of the variability in CERT-related volumes, these are impacting our margins. Management is taking all appropriate actions to manage controllable costs. Whilst growth is still expected in turnover, we now expect to record only a modest adjusted profit before taxation (PBTA *) for the financial year.

Even at this much reduced level of profitability, Superglass continues to be strongly cash generative at the operating level. As a result, we remain covenant-compliant and continue to trade within the limits of our available bank facilities. Since the end of last year the Company has already agreed, in collaboration with its bankers, relaxations to the covenant structure and repayment profile of its debt facilities. Constructive discussions with the Company's bankers continue with a view to ensuring that the facilities remain appropriate to the Company's current operating performance.

The Government's CERT targets remain in place and a substantial increase in energy suppliers' activity is now required to achieve these targets by December 2012. We have also identified measures which we could take to improve our competitiveness if funding was available to us. However, in the absence of a sustained improvement in CERT-related activity, and resultant profitability and cash generation, it is clear that the Company's current facility structure does not provide the necessary headroom to permit capex investment to increase operating efficiency.

[napoleon 14th] 11/6/2011 12:39

SCSW's write up is interesting indeed; I already hold a few & could add.
eps of 5.1p & a P/E of less than 4.
Gotta be cheap as long as they hold the right course.

[nilip] 03/6/2011 12:39

I bought a new bathroom suite for £895.

The plumber charged me £500 quid to fit it all.

He did the tiling for another £300.


Errrrr... so what's your point again envirovision ???

[envirovision] 26/5/2011 11:51

Well i dont understand why anyone would be hooked into the superdad offer when you can get a choice of two DIY loft insulations from B&Q for £3 per roll:





I understand wicks also do a similar offer

[aishah] 26/5/2011 09:48

Brew Dolphin fcst eps=2.5 for 2011 and 5.1 eps for 2012. Schroders increased holdings post results.

From the results:
"Superglass has made positive progress in the period under review against a backdrop of a CERT market which continues to lag expectations. Management have however taken positive action to increase volume and gain market share. The operational difficulties experienced in the latter part of 2010 are now behind us and we are benefitting from the resulting efficiency gains. The timing and extent of the anticipated upturn in CERT-related volumes remain difficult to predict. At this stage, however, we continue to believe that current market expectations for the year should be achieved."

[masurenguy] 26/5/2011 09:39

Looks like you spoke too soon nilip ! A 25k Sell @ 18.5p, followed by a 9.4k Sell @18p and a 6.7k Sell @17p, triggered almost a 20% drop. Rather strangely, these three sales all occurred suddenly within a
3 minute window ! At the moment you can Buy @17.5p online !

[nilip] 16/5/2011 10:16

Small 5k buy this morning appears to have triggered what could possibly be the beginnings of a significant recovery bounce ...





Looks like the worst has passed and trading's starting to improve for the company.