Facilities By ADF £ADF

10th Feb '22 by Wayneskie

32 comments 1595 reads

Hi,

I have just bought a starter position in this company and was flabbergasted to see that 94% of our community have already bought shares.

TBH Facilities By Adf (LON:ADF) operates in a sector that I know very well - because I also work in that sector (I am a Lighting Gaffer for HETV production).

Every day of television and film production involves working at a real location or a studio 'build'. And every day we have the facility of what we call a unit base. This is where Facilities By Adf (LON:ADF) does their stuff. They provide office space, costume changing and washing space, dining space, makeup space, toilets etc. Every night (depending on schedules) this unit base miraculously moves to a new location ready for tomorrows work.

What I can say is that Facilities By Adf (LON:ADF) is the smartest best presented outfit operating in this industry. I wish them the best of luck, and I can think of several possible acquisitions that they will likely target as they grow.

To date since IPO they have a near 60% uplift from 50P to 80P, which is good going in my book. Let's see what transpires.

If anybody has any queries, I'm quite happy to pass on anything I know about how this company works (seeing it from my perspective). And I hope that the 94% percent of us (if accurate) the best of luck with this stock!

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stehuk

11th Feb '22

The stocko figures don't mean that 94% of the community have bought shares. They mean that over a period, of the shares held (in folios) and traded 94% of them were buys. The period is the last quarter. As this is a recent IPO there were no shares held throughout the period, so stocko just shows buys and sells in the period adding up to 100%.

jonno

A very positive trading update this morning from Facilities By Adf (LON:ADF), completely unexpected. What good fortune to have bought an opening position yesterday, prompted by Wayneskie's post. It is only a small position but nevertheless provides a foothold to add to. It just goes to show it pays to read the admission document, albeit it can be numbingly boring. From small acorns as they say.

Wayneskie

Ah yes, there is so much info on the stockopedia page, that I had not appreciated this fully. Thanks for pointing this out. Ninety-five percent seemed a bit bonkers really and I should have looked closer before raising the point. Although I hope that by raising the point, that a few others have a better appreciation of this aspect as well.

Ponzy Mad-Hoff

12th Feb '22

I was attracted to the story behind Facilities By Adf (LON:ADF) and was impressed to see a long convoy of their vehicles on the motorway recently, but I think there are several bear points which are not being mentioned:

1. The company has few assets, the real estate is owned by the founder who presumably receives rent (a related party arrangement given that he controls a hefty chunk of the company). The trailers and vehicles are subject to sale and leaseback.

2. The valuation multiple is very punchy for a company that rents out trailers (albeit specialised) and does have significant competitors. I don't think the barriers to entry are as high as the IPO prospectus makes out.

3. Insiders cashed out around £3 million at the IPO. I don't see a compelling reason for the IPO (other than owners cashing out) as further financing could easily be raised at low rates secured on the vehicle assets being acquired

4. Netflix, Amazon etc investing in UK studios would seem positive on the face of it but heavy investment in studio estates may reduce the need to carry out expensive on-location shoots - which would be negative for companies like ADF.

5. 2022 is likely to see flattering growth numbers for ADF as the streaming companies scramble to produce content having been constrained by the pandemic 2020-21. I think it unlikely that recent growth rates will be sustained and think the IPO was opportunistically timed to take advantage of this.

psin

19th Feb '22

Re ADF. Page 17 of today's Times (19th February 2022) says it all. Could not have given the company a better boost if it tried.

I’m generally pretty wary of glowing newspaper stock tips, they often seem to be in cahoots with professional investors looking to exit positions that have had a recent good run

WarrantStar

20th Feb '22

Stockopedia say that "Watchlists portfolios are not included in the calculation." Presumably this means that subscribers have to enter a buy transaction in their folio to be counted as buyers. This is as opposed to just adding the share to a portfolio without entering a buy transaction, which is an option which is open to subscribers . However, the reality is that, even if people do enter a buy transaction in their folio, it is still quite possible that the whole folio could be a test folio which could be used to try out an investment approach without actually investing any real hard cash. The only possible way that I could imagine that Stockopedia could have a better handle on whether or not the trades entered into the folio are real or not would be to ask a question such as "Does this transaction correspond to a real trade that you have carried out?" But I can't see them doing that because some subscribers would probably object to it on privacy grounds.

So I don't believe that 94% of Stockopedia subscribers do actually own the shares. However, that doesn't mean that the numbers are meaningless. They do give some idea of the interest that subscribers have in a share. I usually calculate the ratio of buyers to sellers from this data before buying for myself. Also I think it would be very interesting to be able to screen for this ratio. For example I might want to see a list of all shares with a ratio of subscribers buys to sells which is greater than 2:1. But this function is not currently available in the screener.

If we click on the blue question mark by the shareholder activity on the stock report it says for the Community "This bar shows the percentage of our community that are buying, holding or selling the share" I suspect that this is incorrect / misleading. I think what it may actually be referring to is not the percentage of all subscribers, but rather the much smaller subset, of the subscribers who have bought / held / sold the share during the last 3m. I will raise this question with Stockopedia via the green button.

Rusty2

Yes it’s confusing and buying is just adding amounts to a watchlist, most of my folios are full of stocks that I don’t actually hold. Some tinpot mining stock, had very high community buy at one time, I can’t believe around 65% of members, would be buying a penny share miner. I think this feature shoukdvscrapped as seems very misleading to me.

My watchlist do have amounts for each stock, so I can see the gains and losses for each and the folio performance.

I have have discussed this with Stockopedia before but did not get anywhere.

abtan

21st Feb '22

Facilities By Adf (LON:ADF)

Hi Wayneskie

Many thanks for starting this thread. I actually 'enjoyed' reading through the IPO document just now - it seems quite fascinating.

Given your involvement in the industry I hope you don't mind me asking about the competition out there. The IPO document notes 3 other big players; Translux, Movie-Makers Ltd and On-Set Location.

I've checked out Companies House and the first of these looks very good indeed, with European operations alongside their UK ones. I'm surprised that Translux don't have a bigger market share than Facilities By Adf (LON:ADF) given their international presence and therefore implied larger size (unless of course the IPO document is being misleading somehow?)

However, Movie-Makers looks to have been dissolved now and both Movie-Makers and On-Set don't have full accounts on Companies House (only balance sheets), implying that they're quite small. I'm quite surprised by this given the the On-Set is indicated in the IPO document as having 29% market share within HETV.

For reference to any reading the above who have not looked at the IPO document, Facilities By Adf (LON:ADF) claim to have 20-25% of the total market share.

I have a few other points to mention, but to detach from this more direct comment, I will post those separately.

Cheers again

Overall I liked this business and remain intrigued enough to keep an eye on it.

Having said that I remain wary of quite a few things:

Very high customer concentration.
The #1 customer of the group contributed 22%, 17%, 42% and 20% in 2018, 2019, 2020 and 2021-H1 respectively.
That 42% alone scares me a little. What happens if that specific Production Company tries to bring some of ADF's services in-house?
The company does not actually own its own assets.
I'm not sure why they decided to lease everything, but it seems like quite a risk. There are no assets to sell if something goes wrong.
The CEO has split his time between the UK and France since 2014.
Putting aside that I find it strange given the relative size of the company (i.e. I expect it needs a lot of micro management), I'm surprised that no-one realised that he should have been paying taxes in both countries.

This is basic stuff for finance/HR teams and highlights poor administrative controls.
The company disclosed in the IPO that there will be penalties from the French tax authorities, which will be paid by the company, not the CEO.
These will be minor in the whole scheme of things, but I still don't like seeing this.
The company receives a 10% uplift on fuel costs. I don't understand how it's possible to make a gross loss here (2018: £31k - £36k = -£5k) or why the gross margin is <10% in every other year.

I'm sure there's some logical reason, but all they mention in the IPO is the 10% uplift, which doesn't really make sense when I look at the numbers alone.
The IPO doc said that this:
"orderbook has been completely filled for 2022 and currently stands at approximately £20 million."
So the maximum annual revenue is currently £20m then. Or is it?

I was surprised when the 1st trading update came out to show that Revenue for 2021 will be no less than £27.8m.

I see now that the difference primarily comes from labour + fuel, which presumably are pass-through revenues + uplifts for the company.

It would have been interesting to see gross profits split by each of these revenue sources to understand what those presumed uplifts are. It makes it quite tricky to know where the company is making its money from.
I was not a fan of the recent trading update, which stated £7.5m EBITDA would be achieved for FY21.

For such a lease-heavy company, EBITDA is completely meaningless as it ignores one of the biggest costs - the leases being paid for all the trailers and vehicles that generate all of the company's revenues.

To highlight my concern see how £4.17m EBITDA in H1 2021 actually translated into a £2.2m profit.

I appreciate that this is only for a 6 month period, but crudely assuming profit of £4.4m for the full year, this doesn't seem overly cheap for a company worth c£60m, with some big players who could possibly insource the services ADF offers and with what looks to be at least one other big competitor based in the UK (would similar US companies try and set up base over here?)

----

There's a lot of negatives in there - or perhaps I'm just trying too hard to find some - so I'm wary.
I have no position for now, but at the very least it seems like a profitable new listing so it's probably worth keeping an eye on

Cheers

22nd Feb '22

Hi Abtan

Like you, I like the business overall and have taken a small opening position and have re-read the admission document in light of your post.

Leasing of its fleet appears to have been the case thus far. The admission document states that the Group has historically used hire purchase and lease agreements to finance its fleet. The finance period being 4 to 7 years with ownership transferring to Facilities By Adf (LON:ADF) thereafter. It goes on to say that units have an average operational life of 10 years, with older trailers being refurbished and vehicles being maintained in-house. So some of older units will be owned outright.

The admission documents states that purchase plans have already been agreed for 2022 and 2023 with UK-based DAF and General Coach, based in Canada to meet existing demand. This infers that the company is moving towards the purchase of units as opposed to leasing as its preferred option, although it very much depends on ones interpretation of 'purchase'. The extract from the trading update below, if taken at face value also suggest this view,

"The Company raised £15m of gross proceeds on admission to trading on AIM and has already started to invest by expanding orders for additional vehicles and trailers to meet demand"

If this is the case and outright purchase is now preferred to leasing it should over time financially de-risk the company. I would welcome your thoughts on this view as you appear to have a good handle on Facilities By Adf (LON:ADF) and its modus operandi.

In the meantime I will email the company to seek clarification

All the best

BnB

I think there’s a high risk that this year’s boom on the catch-up of content production sets ‘23 up with tough comps. And not only is customer concentration significant but there will be a shakeout in the streaming market that brings a drop in demand at some point.

However I do not share your concern that film production companies might take ADF’s services in-house. They run very asset-light and stick to their knitting, which is creativity.

Hi BnB

The IPO document stated that a number of studios have signed long term contracts in the UK:

"Some of the world’s largest production companies have in recent times begun setting up significant long term operations in the UK.

For example, the world’s largest spender on content, The Walt Disney Company, in 2019 secured a long term lease at London’s Pinewood Studios.

Furthermore, in 2019 Netflix signed a 10 year lease at Shepperton Studios in West London which guarantees Netflix exclusive access to the majority of the facilities. Following this, in September 2021, Netflix signed an additional long term lease at Longcross Film Studios which gives it additional physical production footprint to produce content.

The UK is Netflix’s third biggest production base outside of the USA and Canada and it plans to produce $1 billion worth of film and TV in the territory in 2021."

I don't understand the industry well enough to know whether the studios - especially Netflix, which seems to be ADF's largest customer - having signed these long term contracts, would prefer to take ADF's services in-house. Surely it would make sense for them to do so if they're hanging around?

Hi Jonno

I think you're correct that the leases might not be an issue and that the assets are presumably bought by ADF at the end of their respective leases. Perhaps this isn't as big an issue as I originally thought?

Given low interest rates and the seemingly high usage rates, I guess I would have simply expected them to own them outright.

I'm afraid I can't offer any more thoughts, though I look forward to seeing more detailed updated, which will hopefully make the picture a little clearer.

Yes there is a boom in studio development at the moment. But, as I understand it, the trailers are primarily to support on-location productions, not in-studio.

Yes, I understand the distinction between on location and in-studio and where ADF's services are used.

I am simply assuming that if a production company is investing more in the former, then surely they might choose to invest more in the latter too?

Like I said, I have no idea how the industry works. It would certainly be interesting to hear from someone with insider experience.

23rd Feb '22

It would certainly be interesting to hear from someone with insider experience.

My daughter is a film director and currently works for Sky. My weekly hiking partner is a jobbing director for BBC, C4 and RTE.

They lead me to believe that productions are largely freelance operations assembled by a production team commissioned by the broadcaster to create a film/series. The broadcast organisations are asset light relative to the volume of output. This is evidenced by the fact that hardly anyone that I know in media actually has a full-time job!

I believe if studios wanted to take more in-house, they would start with talent rather than trailers - that’s how the industry thinks.

6th Mar '22

Interesting to read in his column in the weekend FT, that Lord Lee has taken an opening position in £ADF. I hold and despite the present turmoil there is some solace in knowing that I am in good company.

28th Apr '22

Reading the Times today an article regarding the proposed expansion of Warner Bros studios in Herts caught my eye. The article included figures attributed to the British Film Institute (BFI) stating that the combined spend on film and high quality television production in Britain last year was £5.6 billion, a £1.3 billion increase on 2019. The article went on to cite Ben Roberts, Chief Exec of the BFI who is attributed with saying that the country now has more studio space than Hollywood.

Irrespective of the fact that Facilities By Adf (LON:ADF) principally operates on location shoots as opposed to studio and notwithstanding Netflix's fall from grace this level of investment should surely bode well for the company. What can go wrong...famous last words!

Perhaps Wayneski can provide an insight into how busy Film and high end television production currently is.

Facilities By ADF £ADF

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Wayneskie

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