SIF Folio: I'm Struggling With Alumasc

14th Apr '21 by Roland Head

10 comments 3466 reads

Next week will mark the fifth anniversary of the SIF portfolio. It’s fair to say that when I started out in April 2016, I didn’t foresee Brexit, Trump or Covid-19. Despite these challenges - or perhaps because of the market opportunities they created - SIF is currently trading at all-time highs.

I’ll look at the performance numbers next week and discuss the lessons I’ve learned so far.

This week I’m going to look at a possible addition to the portfolio, building products manufacturer Alumasc (LON:ALU).

Alumasc has been in business in various forms since the mid-20th century. In the 1980s and 90s the group made aluminium beer barrels and precision engineering components. The focus then shifted to aluminium rainwater and drainage products.Today, Alumasc produces three main lines of building products, sold under a number of different brands:

Water management: rainwater drainage and floor drainage systems for industrial, commercial and residential applications
Building envelope: roofing, balconies and solar shading
Housebuilding products: Sold under the timloc brand, these include a range of technical products with a focus on ventilation and insulation. For example, air bricks, roofline vents and cavity wall closers.

As far as I can tell, Alumasc has some decent products and brands. The company says that almost 80% of sales are driven by architects and structural engineers. This is due to the performance characteristics of the firm’s products, which help meet modern building regulations.

Another factor which looks positive to me is that export sales are significant (13% of revenue) and growing (up 23% in H1). I’d tend to see this as evidence the firm’s products have some degree of competitive advantage, and are not simply commoditised building materials.

I’m also encouraged by insider ownership. Alumasc is still chaired by John McCall, who took the company private in 1984 and floated it in 1986. Mr McCall has a 12% shareholding, which should align his interests with those of shareholders.

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A good time to buy?

This £70m firm is a company I’ve followed on and off over the years, without ever owning. There are a couple of reasons for this. One is that Alumasc’s results haven’t always been consistent. The firm has been through some difficult patches over the last decade, as the dividend history suggests:

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However, after a rough patch in 2019, performance seems…

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The Phoenix

14th Apr '21

Another great write up Roland out of interest when it comes to price to book what is the maximum figure you feel comfortable with before the red flag alert kicks in ?

Thanks Andy

xerxes

Although I missed last week's rise, I recently sold out at a good % profit on the basis that I couldn't see why the share price would/should keep rising as the current financials are just getting back to where they were in 2015.

Good to see a detailed analysis to support my decision!

Rusty2

I did ask you about it, some weeks ago, when it was on your scene, I feel you have rather missed the boat and probably right not to buy now. The spread is around 500bps so does not pass all your rules?

Another one to consider is Tyman (LON:TYMN) passes all your rules, apart from earnings but is close at 6.39%. Much tighter spread as well.

WarrantStar

I looked at this company last week. The big pension deficit & illiquid shares put me off. I sort of sat on the fence for a bit with it. But in the end it would have been a low conviction buy, and I decided not to go ahead with it.

Priteshp9

Alumasc brand in the industry is a strong one. Often the first name on a specification or a challenger to Genuit (LON:GEN) (ex-Polypipe)

mortimer

roland i think your right. i have been the same over the years i just looked at it again i would wait until a new person with ambitious drive takes the helm then thats the time to take a chance

Roland Head

15th Apr '21

Hi herbie47,

The spread changes from day-to-day, but I agree - Alumasc (LON:ALU) isn't the most liquid stock and sometimes the spread is over my limit. When I wrote about the shares, it wasn't.

Tyman (LON:TYMN) has drifted in and out of my screen on a number of occasions. I've never managed to cover it but may do so if another opportunity arises.

Roland

Andy,

I wouldn't necessarily say the price/book ratio was a red flag at £ALU. It was more just a warning that I should look at the balance sheet more closely and understand the different moving parts.

I don't have a hard limit on P/B, as what's appropriate can vary widely between businesses.

For example, companies with lots of fixed assets and few acquisitions will tend to have a low P/B. Property is the obvious example.

In contrast, companies that have developed valuable brands may have very high P/B ratios. For example, Unilever (LON:ULVR) (I hold) trades at 8x book value, but I wouldn't say it was outrageously expensive.

The reason for this is that the value of brands developed in house isn't reflected on the balance sheet. (Brands that have been acquired show up as goodwill/intangibles).

Understanding a company's balance sheet is always important, in my view, but it needs to be viewed in context.

Regards,

Thanks Roland

rk71

16th Apr '21

Thanks for this detailed overview Roland, it's very interesting (and helpful) to see another person's take on a research process I've also gone through with this company.

I've held since mid February, so have benefitted from the latest price movement up to 200. There's a lot of positives about the business, that hit my assessment criteria at the time which I think still stand.

SIF Folio: I'm struggling with Alumasc

A good time to buy?

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Roland Head

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