8 Sept 2016 - Sorry, No SCVR Today

8th Sep '16 by Paul Scott

14 comments 10107 reads

Good morning!

This is just a holding page, to say that I'm taking a duvet day today, so sorry no report.

There's nothing much of interest to me in the list of company results & trading updates.

However, I will make a strong book recommendation - I've been reading this fantastic book by Mervyn King - it's utterly brilliant. Trust me on this, it's absorbing, and brilliantly written, in clear & simple terms, which will be hugely educational for everyone, whether a layman, or an expert. I'm somewhere in the middle, and have found this book a brilliant refresher course for the key points that I learned, and have partially forgotten from the economics element of my degree.

Also, you couldn't wish for a more clear summary of everything that is going on in the world right now, financially. He puts it all into marvellous historical perspective too.

If you have an interest in the macro picture, then this is a compelling, very educational, and beautifully written book. You won't regret buying it. It's riveting.

See you tomorrow.

Regards, Paul.

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Trident

8th Sep '16

Hi Paul

I have ordered the Mervyn King book, so look forward to that.

When you have re-surfaced grateful for your overview of Joules (JOUL) which has just reported its maiden AIM results, showing increased revenues and a significant profit increase. It isn't on the Stockopedia radar as yet.

Its right in your area of expertise as a Retailer analyst.

Damien84

Hello Paul

I look forward to reading your book when it comes.

A small company called Parity caught my eye this morning reporting its interims. just looking at the figures its about 9.9M market cap. Hated by the market and has been out of favour for a while, nasty spread but possably an intresting turn around situation? Its reporting today cash flows generated from operations of 1.2M and a tiny profit. I think turnover is around 47M for the h/y.

Im just keen to read your thoughts and i know that you like these potential intresting situations in the market.

Must be nice being a shareholder in BooHoo from 21p ;)

Kind regards.

*Edit scrap what i wrote above the company looks like a real dog have had a bit of a better look at the accounts.

Carcosa

Avation (LON:AVAP) issued their prelims today and as flagged by their all too recent Trading Update, it beat market expectations with an EPS of 34.2c. I would like to add that I see little value in any company issuing a Trading Update within a few days of the prelims release. However AVAP explained that the issue was a technical one forced due to listing rules.

The EPS is flattered by some items; a gain on aircraft sales above book value of some $3.7m and a tax write back realising a gain of $0.2m So all in all I would claim that's an unexpected boost of ~10c/share. Otherwise the EPS would have been around 25.1c which is in the ballpark of the analysts' target. The timing of aircraft sales, which is a normal part of the aircraft leasing business, has a substantial effect on EPS. That's an unpredictable revenue stream in terms of valuation and timing. Currently aircraft values are relatively high so I would anticipate that future aircraft sales will most likely be above book value.

Avation (LON:AVAP) core leasing business produced an EPS of 25.1c against a revenue of $71m ($56.9m)

I have been a shareholder since 2013. I am not so focussed on this years results as I am excited for the 2017 results. The reason is that we have seen a good start with the A320 fleet. Each of these new aircraft bring in about $5m lease revenue per year compared to $2.1m for an ATR72. Aircraft asset values are around $48-58m per A320 (highly variable on who the purchasing customer is) versus $19m for a new ATR 72; (where discounting is less of an issue)

Avation (LON:AVAP) introduced 3x A320's this FY but these aircraft only brought in a fraction of full years revenue as they were delivered into the latter part of the FY. Since FY end a further two A320's were delivered and by end of December a further three A320's are due for delivery. In other words by this time next year AVAP will have an additional $21.5m in revenues from these aircraft alone; that's before any unannounced additional Jet or turbo-prop aircraft. AVAP have indicated a further nine ATR's for delivery between now and 2019. However the ATR market is over-supplied. No new ATR aircraft are expected in 2016/17. AVAP have 27 ATR options but their timing can be changed. At the moment they have two aircraft options for this year and two the following year. If ATR sell ATR's for the first time in China then those options will become very useful.

There will, however, be five ATR's that will contribute a full years lease revenue for the first time.

I note that earlier in the year Virgin Australia announced a fleet rationalisation plan which included the disposal of a number of ATR's. Three aircraft were mentioned. More recently however they appear to have backtracked on that plan at least with respect to their A320's. AVAP do have long term leases with Virgin Australia and they cannot be given back to AVAP. Therefore Virgin Australia may end up sub-leasing them to another airline. Either way it has no impact on AVAP's business.

The additional $21.5m revenue represents a total revenue increase of 30% which drops out by my calculations to be an EPS of 39c or around 55% increase from core leasing activities. Valuing the business on a 7.5 earnings multiple that would give a price target of 208p. Currently AVAP remain on a multiple lower than the industry average.

rhomboid1

There was one interesting RNS this morning, at least it was to me as I hold a position in it , and that was £AIEA finals, this is a remnant (or should that be an offcut?) of what was once a major floorcovering business called Sirdar. a legacy of that is a sizeable pension fund in deficit to the tune of £6.7 m , down from £7.4m last time ;

"Despite the deterioration in the financial climate, we were able to reduce the pension deficit by completing a Pension Increase Exchange exercise. The initiative allowed pensioners to opt for an income stream more aligned to their personal circumstances and preferences, whilst at the same time reducing the cost of past service benefits to the scheme. The gain to profit is highlighted as exceptional in the income statement. In addition, the pension scheme investment strategy is constantly under review, and our liability hedging strategy and increased diversification have performed well."

Average pension liability is some 7.5 years so a very mature scheme .

The core business now consists of 2 high quality & widely distributed Brands http://www.ryalux.com which is domestic oriented and http://www.burmatex.co.uk which is a commercial Brand.

The Airea group results commentary says
"Airea plc is pleased to report an 86% increase in operating profit following an improvement in UK contract sales and operating margins and despite the adverse impact on international sales of the strength of sterling against the Euro during the period.

As reported in the interim announcement, the second half also benefited from a reduced cost base following the consolidation of operations onto two existing sites occupied by the business at Ossett and Wakefield. One of the properties came to the end of the lease period and has been vacated. The other freehold property remains in our ownership and has been leased to a third party. This brings to fruition a process whereby the property footprint has progressively reduced over the last four years, cutting the number of sites occupied from six to two. The move not only delivers considerable cost savings, but enhances our operational capability, reducing lead times and thereby improving customer service."

Which I think captures the major trends;

"· Operating profit up 86% to £2.0m

· Basic earnings per share up 133% to 3.01p

· EBITDA1 before exceptional items up 48% to £2.8m

· Proposed final dividend up 67% to 1.5p"

So after today's 35% rise it is still on a single figure p/e , it has 3m of cash it yields over 5% and is trading well

"Current trading and future prospects

After a number of years of strengthening sterling, we are now enjoying a more competitive exchange rate, which offers potential opportunities to restore growth in our export business, and improve our competitive position against international competition in the home market. Marginal pricing is however common in many of the markets we serve and it is highly unlikely that our competition will change pricing habits completely despite the additional pressure from currency. Of most concern is the threat of depressed market activity within the construction sector generally which has the potential to overwhelm any price and cost advantages we may enjoy.

As ever our plans do not assume any help from the market and whilst the board notes the uncertainty arising from the political and economic changes currently taking place, our focus is on exploiting the expanding opportunities that arise from the repositioning of the business over recent years.

The site consolidation is now almost complete although we are reviewing our position concerning one of our remaining lease properties, and is delivering cost savings and operational improvements significantly ahead of expectations.

New strategic investment in manufacturing technology provides the spring board for extending the product range to new market sectors, and this combined with a lower cost base gives us real cause for optimism for dealing with growing economic uncertainty.

We believe the Group is well positioned for growth .

Given our confidence in the future prospects of the business, the ongoing improvement in the performance of the business, and a robust cash flow, we are once again able to support the progressive dividend policy. If approved, a final dividend of 1.5p per share will be paid on 24th November 2016 to shareholders on the register at close of business on 28th October 2016. The ex dividend date is 27th October 2016."

I hold and think it has great upside, good income and well protected downside, in short a great valuation obscured by a complex, large but manageable pension issue.

Cheers

FREng

Congratulations! a spectacular rise today. What a pity you didn't tell us about it last week!

Hi FREng

I did , on Twitter 5th Sep @rhomboid1MF

AIREA anyone holding?, major cost savings in bag 2.6m cash, £1m+ profits, MCap 8.3m , reporting this month, I hold! stockopedia.com/share-prices/a…"

With a lovely screenshot from stockopedia snapshot!

I'm sure I've mentioned here as well but search is not letting me find it..

Cheers

Cheers

Twitter :-(

Snapchat, WhatsApp, LinkedIn, letters pages, postcards in newsagents' windows.... ... Life's too short for all this. :-)

Never mind. Do you have any current suggestions for DYOR?

DarwenLad

The idea of a central banker like Mervyn King penning an "absorbing and brilliantly written book" makes me wonder whether Paul has been overdoing it on the oozo. Judging by Ed Balls's latest book Mervyn King was not on the ball when it came to anticipating the problems of the run on Northern Rock. As an academic economist he seemed to be much better on economic theory than understanding the markets. Now his predecessor, Eddie George, spent his whole life at the Bank of England and really understood the markets and what makes the City tick. Nevertheless, Paul's comments about King's book make me wonder whether my scepticism might be overdone. His Lordship sounds like he was in favour of Brexit, unlike most of the City establishment, which is rather reassuring given the endless dire warnings by bigwigs such as Gus O'Donnnell, the former head of the civil service, and the IFS's Paul Johnson that the UK economy is going to rue the referendum result on June 23 2016.

Carey Blunt

I too would love to get your thoughts on Joules (LON:JOUL) Paul. I hold and I think it has a lot of exciting potential but it would be good to get your expert rag trade opinion and thoughts on their balance sheet.

9th Sep '16

Pls ignore this post.

FREng... Have a look at Sepura (LON:SEPU) It's a turnaround situation in which the balance sheet issues have now been addressed. The underlying business seems good. I expect a trading update announcement some time next month. Paul Scott has done a few write-ups on this company which are worth reading. Milton Investments are very keen on this company too.

This is a company in which i have been slowly adding to over the past few weeks.

Velo

Thanks for the timely reminder on the Mervyn King book. Saw him being interviewed about his book on the US TV financial channels when the book was launched and thought then hmm sounds interesting.

- Checked with the library's online service and would you Adam and Eve it? - There's a copy on the shelves of a library about 15 miles away!

Decided to reserve it online as very often there isn't "on the shelf" stock by the time I get there.

No doubt I'll do what I always do - read it for free, then if I really like it and can't do without it - I go and buy a copy AFTER I'VE ALREADY READ IT. Doh! :)

Well it makes sense to me - hence you never get a bad book review from me - as any poor books are returned to library and I end up buying and owning only the ones I prefer after reading. Weird or what?

Carcosa: Thanks - I'll DMOR.

All on Twitter in real time I'm afraid, I've chosen that as my main sounding board as it has more active investors exchanging ideas in a timely fashion, most smaller holdings I'm still building but Hurricane Energy (LON:HUR) my largest holding gave an update on drilling today and are up 55% but in my view the longer term view is for a multiple of today's price but you might be best to start here, be warned there's a lot of reading and industry jargon to master;

https://www.hurricaneenergy.com/Investors/CompetentPersonsReport/

PS my HUR position was declared multiple times on Twitter before today ...it is now 15.2 % of my portfolio fwiw

8 Sept 2016 - sorry, no SCVR today

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Paul Scott

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