The Artisanal Spirits Share Discussion Threads

[gjabrj] 20/1/2007 10:37

Steve did you get to the EGM ?

[lionelh] 19/1/2007 17:09

You too, Steve. Perhaps we'll meet on another thread where we might agree!

[sll] 18/1/2007 16:59

Thanks Lionel, and best of luck for the future, steve

[lionelh] 18/1/2007 16:51

We'll have to wait and see, Steve, I agree. I'm not going to long or short any property stocks as I believe their bull run is over. I don't want to gamble on what is going to happen. They've had a great time over the last two to three years. Affordability is so stretched I think a downturn is not only inevitable but essential for the long term health of the housing market. Afore I go I will repeat my prediction that I think this company will either be swallowed up like another small regional house-building player I had shares in called Propan Homes (subsequently Honeygrove)or it will be taken private at the behest of Aspen who have already shown that they are trying to build a controlling stake in the company as cheaply as possible. In either case don't expect a generous price for your shares. If it is Aspen they will want to buy as cheaply as possible; if another suitor Aspen will have a dispropotionate amount of say because as the only major shareholder the suitor will have to make it sweet for them to cooperate. Share price is ticking up a bit at the moment. Let's see what happens after it goes ex-div.

Good Luck one and All.

[sll] 18/1/2007 15:55

gj - quite difficult to read this. but it looks to me as if they (MMs) are hoovering up the last of the stragglers at between 4.1p and 4.2p (and might have to go higher on the bid) to 'fund' another sale to Mr T at around 4.5p to 4.75p. If not that, then I might expect it to settle back in the 4.25p to 4.50p range tonight with tomorrow's EGM to come. Once that is out of the way, the smoke should clear next week. steve

[shawzie] 18/1/2007 12:16

sll
thankyou

[gjabrj] 18/1/2007 10:48

Need to narrow the spread here I think.

[sll] 17/1/2007 19:25

shawzie - 0.03p per old share or 1.2p per new share after the de facto consolidation 1 new for 40 old (or divide by 6000 multiply by 150) - steve

[shawzie] 17/1/2007 19:01

Announcement Date 12 December 2006 - Dividend Amount ??????
Ex Date 24/01/07 - Record Date 26/01/2007 - Payment Date 02/02/2007

Can anyone remind me if the interim dividend is 1.20p or 0.12p per share?

[gjabrj] 17/1/2007 17:10

Maybe Mr T is accumulating before making a bid.

Fair takeover value 6.5p imho

We shall see.

[crowmann] 17/1/2007 16:29

Is a bid for this outfit coming?

Been a while since it was over 4p and holding.

My guess is yes this is on its way.........

The Crow.

[gjabrj] 17/1/2007 11:59

I wonder to what price Mr T is willing to pay and how much he has to spend?

[sll] 17/1/2007 11:52

Thanks Lionel, guess we'll have to wait and see.

Possibly, it all comes down to one's view of (eg) scale, risk, management, relativities, land bank exposure & gearing, relative market share, local market factors, discount/premium to TNAV and forward PE + divs and div/cover. To illustrate my point, please take a quick look at (eg) Persimmon [one of the largest] v Artisan [one of the smallest] and then re-review both stocks and their ratings in light of the content/forecasts of your last 3 or 4 posts. If you really believe that ART may have a significant problem coping with what you perceive to be a post-tipping-point downturn scenario, there may be quite large money to be made from shorting Persimmon, now.

One can only deduce from the bid raise (from 4p to 4.1p), and the unchanged offer price, that the MMs are quite short of ART stock and are trying to fill yet another one of the recent series of large-ish buys by enticing a further trickle of small sellers.

[lionelh] 16/1/2007 12:42

Not sure I'm understanding you there, Steve. I worked in a conveyancing department recently with a portfolio of buy-to-lets so have a fair grasp of the sort of people doing it and their motivation as well as the mechanics. Stripped down to its bones, buy-to-let investors buy the freehold (long-lease in flats which are always leasehold because of the problem of positive covenants) and then carve out a smaller lease for X number of years for tenants who then pay them rent. Typically, Investors pay no capital back on interest only mortgages. It is simplistic to think the investor can bail out by selling to the current tenant. The mortgage provider has a big stake here so there are all sorts of clauses in the mortgage agreement (on the terms of which the loan is dependent)which would prevent the investor from selling to the tenant (not least of all the need to obtain the lender's consent). Any property with a "sitting tenant" who qualifies for the right to buy will lessen the value of the property and therefore the lender's security which is why they ensure that it is let on assured tenancies only where security of tenure and pre-emption can be prevented. There is also the not insignificant question of affordability. Most people in buy-to-let are in it because they cannot at the moment buy themselves though they have reasonable jobs. If they could afford to, they would, not rent.That the landlord is bailing out will make no difference to that. How far prices have to fall to make a great difference to affordability for the majority in that position is moot. We might be about to find out!

I repeat that I do not see migrants making any significant increase in demand for purchase of property. It will be virtually impossible for them. There only alternative is to rent which in the South East/West is going to be £600-700 per month for a flat or house which would make staying here permanently on even an average wage wholly uneconomic. That's why I think many will go back after earning what for them is good money for a few years. Meanwhile they will live in HMO's which employers like First Group provide in inner cities. The whole exercise would be totally uneconomic if they did not. They'd be on the first EasyJet out again. I have also lived in Poland for a while recently. All Poles see is the prospective salary (£18,000 pa say + 90,000 Zlota to them, an absolute fortune). Nobody tells them about the standard of living over here. They have no idea when they come! Recent EU entrants Bulgaria and Romania are significantly poorer than Poland!

I think we are at the top of the cycle at this moment. We may even have gently dipped over the brow. Many are heading for negative equity, especially on 100 or 125% (lunacy) mortgages. The only question for me is the size of the correction necessary to make property affordable to first time buyers again (they are important for people moving up the chain. Their properties by and large are not bought by investors who tend to to buy new flats off-plan at a discount). With two or so years of near double digit growth I think many will "take-profits" soon as people do on the stock-market. Most I dealt with don't even live in Britain but are ex-pat professionals abroad. Some are serial investors with dozens of properties. I think a lot of that money will find its way back into the Stock Market: it's happening to good quality stocks already. Good news for most investors I'd say, though possibly not Art who have rather missed the boat in my view. They were there but failed to capitalise on the property bull run in my view at least.

Good luck all again.

[sll] 15/1/2007 18:02

Lionel - thanks again, some v quick points in response. The people renting buy-to-let accommodation still need to live somewhere in a price crash. In that scenario, they are the logical buyers for B2L investors ducking out. Next, the people coming into the country also need to live 'somewhere' - whether in HMO (house in multiple occupation) or B&B or whatever. As they arrive they 'grow' the economy, even if they don't buy property. Every bed-space taken [however taken] pinches on the available supply. Last, in a price crash - the erstwhile 'could not afford to buy' first timers will come out 'in droves' to get on the ladder while/when they can - for fear of missing out yet again. What goes up, comes back down (a bit) and what comes back down, goes back up (a bit) too. Its called a cycle. I will naturally be asking the ART board about their own plans to weather the rigours of the next cycle, once the EGM is out of the way. steve

[lionelh] 15/1/2007 16:52

Thanks, Steve. You are right, we all need to be challenged as you say and perhaps on BB's is a nice painless way of doing it. As you say, it is a perhaps
a question of risk/reward and deciding which in your own view is the right balance. That risk/reward, Steve, for buy-to-letters, is changing for the worse as interest rates rise. They are really feeling it at the moment: you may or may not know that "commercial" mortgages include small scale buy-to-letters and their interest rate is typically 1-2% higher than domestic ones. There comes a tipping point we are getting ever closer to when the interest they are paying
(most borrow 75% of value for several practical reasons)is no longer covered by rent received on their mortgaged property. That is when they will all head for the exits and increase supply which will result in a correction in house prices. That might actually be good news for first time buys but probably not ART!

I also read something over the weekend that shocked me. 750,000 people in Britain are currently in arrears with their mortgages: the number of repos last year doubled on the previous year. If lenders harden their line that will also increase the supply of houses resulting in a fall in prices. Many people are severely stretched after being allowed to borrow five or six times their earnings: for them a half point raise in rates is purgatory!

I do not read too much into demographic trends as far as demand for buying houses goes. There is an increasing demand for accommodation as you say but most Eastern Europeans coming here are coming from countries where the average wage is little more than £50 per week (Poland for example). Quite where they are going to find £20,000 for a deposit on an average house I don't know: nigh on impossible I would say as that is a small fortune in heir own countries. To even get a mortgage if lent five times of their salary they would have to be earning nearly 40K a year! The number of Eastern Eurpopeans earning that, looking at the type of jobs they are largely doing here, is so few as to be just about statistically irrelevant. They are largely being accommodated in HMO's. I know British people who have been living and working here for 20 years who haven't got a hope of getting on the property ladder even on average earnings (23K). Grim! Points only one way to me, a correction!

Good luck all.

[sll] 14/1/2007 17:18

nick - many thanks, and you make a very fair point indeed, re the Commercial Division, that was entirely missing from my conversation with Lionel. steve

[swiftnick] 14/1/2007 13:19

Good post, Steve. I would add that whilst Artisan is to some extent exposed to a downturn in the housing market, it also has a sizable commercial division, which spreads the risk. To quote Michael Stevens' concluding remarks in the interim results statement:

Whilst we have faced difficult market conditions in the residential division,
the complementary performance of the commercial division supports my confidence
that Artisan will deliver strong results relative to these conditions for the 15
months to 30 June 2007.

[sll] 14/1/2007 13:15

Lionel, Many thanks, good post! - but also some points I need to come back on, too. Before doing so, I should very much like to see you continue to contribute on here. Frankly, your 'content quality' merits such - as I believe others would agree. We all need to be challenged!
Taking your 3 paras/points in turn:
1 Aspen do have a seat on the board - Michael Stevens. His role, presence and funding have (arguably) stabilised ART and (in turn) repositioned it for growth. There are risks inherent to any such situation, not least for Mr Stevens himself, but there are also rewards (hopefully for him and for us all). In my view, the latter outweigh the former here.
2 Your circa 26% control/block point is also very well made. Again risks v rewards apply, and I again favour the latter, as it seems do RBS and the large equity buyers we have seen coming on board of late, all of whom will have 'taken a view' on Artisan, Aspen & Michael Stevens - as well as the housing market. I would generally much rather see a (de facto) 'control hierarchy' applying (within all the market rules and audit/governance checks etc) rather than have a small stock like this owned by 100 investors each with a 1% stake.
3 Houses are not fashion items. We all need at least one. If we get divorced, we need at least two (smaller ones). This market may cool. It may even crash. There may be a big 'asset value shift' from the lessors to the erstwhile lessees, when tenancies come up for review, and the buy-to-let brigade bottle it (if they are over-borrowed). Even so, the number of people in the country requiring accommodation to 'call their own' is unlikely to greatly reduce, in my view. Demographic & social forces within the UK and the EU (as it enlarges) will drive people here, for some time to come - in my view. Some of us may migrate around the country - as we have done in the past - to find more peace, less congestion, a better school, or whatever. But we will still need 'somewhere to live'. Your key question is - what will we have to, or be prepared to, or be able to afford to, pay for that? The answer today - is that we can't be sure. Hence a modicum of discount to TNAV is warranted here. As the smoke clears, that discount will move up and/or down - by a bit. steve

[lionelh] 13/1/2007 12:51

OK, Steve, points well made, with thanks.

I am not suggesting that ART will in any way be exempted from the normal rules of dislosure when there are substantial shareholdings which are being increased. All I am saying to you is that Aspen are showing all the signs of wanting to acquire a controlling stake on the cheap. If they intend to take it private they are likely to pay existing shareholders as little as they can get away with, ie below market value. It will be take it or leave it. GJ thinks an MBO is possible too in his post above. That seems to me to be most likely come from Aspen. With their shareholding I would certainly think they would have a seat on the board.

You might like to note that in one respect Aspen do already have control of ART in that with 22% of the voting rights it would now be practically impossible for disgruntled shareholders to call an EGM to censure or remove directors for example (75% vote required for an extraordinry resolution). That is a measure of control, the first one. Numerically it could still be done but in practical terms with a proportion of the equity tied up in nominee accounts (no voting rights)and the fact (ask any company secretary)that a very significant proportion of shareholders never bother to vote, it would be impossible. Their holding is such that they can even make life difficult for the passing of an ordinary resolutions (20-30% is a big block on a required 51% majority - same reasons as above).

The housing market is overheated everywhere, Steve, though it is worst in the South East. That ART is not exposed like others to buy-to-let is irrelevant as it will still be affected by any downdraught in the housing market, which is and has been at for sometime, repeat, wholly unsustainable levels. That Rippon Homes traditionally relies on first time buyers is a bit of a problem too as they have all but disappeared, currently the lowest proportion ever recorded!

Good Luck one and all.

[sll] 12/1/2007 17:20

p.s. - There it is again, the late 500k T/buy at 4.25p. I too must now close till post EGM.

[sll] 12/1/2007 17:18

Thanks LionelH, and the very best of good luck to you. Just a couple of points re your final note and, again, hopefully in the 'thread spirit' that you rightly have applauded.

If Aspen were to find itself with 30%+ it would be obliged under market rules to make an offer for the rest - from a minority position. This point is addressed in the recent EGM circular which debars Aspen from breaching the 30% rule. It can't simply cruise up to 51% mark unnoticed and then attempt to buy out an (in effect) minority (49%) on the cheap.

Next, the property market may well correct downwards at some future point - maybe as early as in 2007. ART is however much less exposed (arguably, not at all) to the seriously over-heated (e.g. London and South East) areas, so there is 'some' buffer/comfort there, given its dispersed and 'north of Watford' geography.

It may well be, however, that pain would be felt (by us all, and notably us shareholders) in a really sharp and sustained downturn. Arguably, the wheels could come off the entire UK economy in a fairly material way, if that were to happen, due to the consumer 'shutting up shop' as a result of negative equity et al.

Lastly, ART has often pointed out (and a review of its website & homes for sale etc tends to confirm this view) that it has not been materialy exposed to the 'buy to let' sector. Many of the (e.g.) residential flats developers of course have. The Rippon Homes market is far more traditional for 1st time buyers, or for people 'moving up' (but slowly). That said, the present land bank might become less of a short-term asset in a prolonged downturn.

My above points apart, you do make a central & serious point. In any very sharp and prolonged downturn, ART would 'hurt' along with others - although maybe to a slightly lesser extent than the more exposed/larger & over-rated (in PE terms) players. Whether we will get a recession in 2007 remains a matter for debate, of course. Those of us who operated in, and through, past recessions (I have fought in several, and right at the very sharp end) would never say 'never again'. It will come at some point - just a question of when, how deep and how long. With hindsight, why did the MPC cut rates from 4.75% to 4.5% last year? Their job was (amongst others) to keep the lid on asset prices. Since that ill-fated move they have acted swiftly 3 times and most recently against most forecasts to stick at 5% for a bit. I tend to the view that this latest hike is a shot over all of our bows to 'back off' spending - and therefore to not cause them to impose a further hike. If that is the case, and if it works, we may yet see a softer landing than some of us have seen in the past when economic activity and interest rate levels were much more volatile than we have seen of late. Again, Lionel, many thanks and good luck.

[gizzimodo] 12/1/2007 17:01

Surely at 30% they must make an offer to all shareholders

[sll] 12/1/2007 15:39

gj - now you're talking! me too on all counts, but just since 2004.