Small Cap Value Report (30 Jan 2015) - BAR, AIP

30th Jan '15 by Paul Scott

19 comments 16448 reads

Good morning! As (almost) dry January draws to a close, I was last night pondering why we invest in AIM shares, over several vodka and lemonades. Alcohol is described (by them) as compulsory when I stay with friends in Islington. The only other occasion this month that any such poison passed my lips was when I remained broadly in line with my alcohol ban on a previously-announced delicious Peroni binge on 19 January at Mello Beckenham.

February will also be alcohol-free, apart from a second-cheapest-wine-on-the-menu binge at the Savoy Grill on 4 February, for a friend's birthday.

So why do we buy shares on AIM? Surely it is akin to walking barefoot through a minefield? Why would any rational person choose to take such enormous risks, voluntarily going into such a dangerous area? The answer is partly that many investors are stupid and over-confident. Or perhaps gullible might be a better description than stupid. Or both actually. People are suckers for a story, so many investors in AIM shares do little to no proper due diligence on the facts & figures. They believe everything that sometimes dodgy management and advisers tell them, and ignore the repeated failure of story stocks on AIM.

Such people are easily parted from their money, by the whole crooked apparatus of the City, but make enough money by getting lucky in bull markets, to keep them interested.

Hopefully here on Stockopedia, with a combination of excellent data-fueled tools, and gritty commentary, we bring enough luminescent spray into the dark and murky depths to AIM. to ensure that readers have a mainly safe passage through this minefield, and pick up the occasional hidden gem along the way.

Looking at the top % fallers for the day, no limbs appear to have been lost today, other than the usual carnage in the junior resource sector, where one-by-one the hopes and dreams of deluded gamblers are being snufffed out. I am hoping that perhaps 200 or more junk companies may de-list soon, leaving AIM a bit clearer for sensible investors, instead of having to waste our time filtering out the joke companies.

Eclectic Bar (LON:BAR)

This company runs bars, and in my view the shares are not worth considering because of the structural problems in this sector - mainly that drinks are too expensive, so customers pre-load at home with cheap vodka from supermarkets, and…

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DLG12

30th Jan '15

Hi Paul. Maybe you are getting around to it, but just wondering any thoughts on Newmark Security's statement this morning? Looks good to me.

Sully8786

Morning DLG,

I had a look at Newmark Security (LON:NWT) this morning - I hold and thought that the results looked OK overall.

The only reason I can see behind the SP bouncing +20-30% is the fact that on the face of it they are too cheap?

Regards,

Sully.

Yes fully agree and still look reasonable value. Best wishes

DGW

Hi Paul - a bit off topic what is your thought about Mr Odey's prediction "we are about to enter a major recession that will be talked about in 100 years time" and now is the time to short everything!!

Ramridge

Re. Air Partner (LON:AIP) The company had £18m cash as at the HY2014 results. On a cash adjusted basis and taking into account todays price of 308p, the forward PE drops to around 6. The story gets better all the time!

MichaelFBS

Hi Paul

I am a holder of Air Partner (LON:AIP) bought at 275p and 500p (waited too long to top up but still). I also topped this morning at 304p, which is verp pleasing, Was expecting that you might comment on sustainability of the divi because though they have grown it for 4 years it is not covered by profits and Stockopedia is showing 36% decrease for 2015 but I am not sure where Stockopedia gets that estimate from. Perhaps Ed can enlighten us or maybe you know.

Damian Cannon

I must say the Air Partner (LON:AIP) looks cheap but I'm not at all tempted even at these levels for a few reasons:

1) The operating margin is absolutely tiny (1-2%) - lots of operational gearing on the profits here!

2) The dividend may be high but it's also uncovered - they should bite the bullet and cut it

3) While they have lots of cash on the balance sheet it's not actually their's is it? Sure it's nice to have cash up front but it's not quite the cushion that it could be

Damian

Hi RandomAmbler - re. Air Partner (LON:AIP) yes you are right a lot of the £18m cash is from their JetCard which is a pre-paid card. Customers can buy flying hours in advance. This cash would help working capital but clearly cannot be used for acquisitions, etc. So your caution in this respect is correct.

Rusty2

@RamdomAmbler, Air Partner is up 17% today so not so cheap now. I have been looking at several of these type of companies lately, Dart, Avation and Gama Av. Maybe someone with the knowledge could do a comparision. To me Gama looks the safest bet.

ExpectingValue

AIP's balance sheet is rock solid in my book. Even stripping out the Jetcard deposits - which is harsh, since they're a genuinely cheap and accessible source of capital - they have £6.1m of cash. The other only two items of note on the balance sheet - 'other liabilities' and trade and receivables - net off. Other liabilities in this case are deferred income, which is simply money received for work not yet provided; not a 'hard' liability in the usual sense of the word.

In 20 years the company has only failed to make an operating profit in one of them, and has created enormous wealth for shareholders. The model is asset-light and cash-generative. Operating margins are understandably low, since the business is basically that of a middle-man, but returns on capital are superb as the business is predominantly self-financing.

Far more in AIP's case than most shares will growth determine their value. If they scale this back up to a £300m revenue business the shares will be worth several multiples of what they are now, in my book. If the group does see a recovery underway, I'd love to see them aggressively buying back their shares.

Disc: no position

Hi purpleski,

Air Partner (LON:AIP) paid a second final dividend at the 18 month YE to 31/1/14......see RNS below.

Regards,

Sully.

http://www.stockopedia.com/share-prices/air-partner-LON:AIP/news/rns/140410aip4806e.htm/?title=results-for-the-18-months-to-31-january-2014

Fair points ExpectingValue. I was going to mention the excellent ROCE metrics since, as you say, Air Partner (LON:AIP) is running a pretty asset-light model. Also the share count has remained static for a number of years to the board isn't tapping either the debt markets or shareholders to keep afloat.

So from this perspective they look pretty solid. Yet despite this the shares have been on a down-trend for the last seven years with a couple of false dawns along the way. I am genuinely curious to know what's happened here as it's a heck of a fall from grace!

Damian

Re Air Partner (LON:AIP). If ExpectingValue is right and basically AIP operates as middle-men, then should we not measure operating margin against gross profits and not revenues?
This is usually the argument accepted for recruitment companies. That might explain why AIP's operating margins appear wafer thin?

Damian,

Perhaps counter-intuitively, this is probably an inverse function of the excellent returns on capital you noticed. Growing companies with excellent returns on capital are a gold mine for investors, because growth is so accretive to shareholder value. Growing companies with terrible returns on capital tend to do very little for shareholder value.

If we allow both of these things to stand, the inverse must also be true - that shrinking companies with great returns on capital must be seeing their shareholders' value rapidly diminishing.

This is why AIP is, more than most, incredibly dependent on its growth prospects, in my opinion. I'm on the same page as you with regard to a) genuinely curious about how/why they've struggled so much and b) whether we can expect any improvement. Their annual reports don't leave me much the wiser, to be honest. Clearly, if we can, I'm a buyer!

EV

Thanks for the reply. So they have increased div for five years which seems to me to be impressive. Does that mean that the divi shown under Stockopedia's YearE (as in 2015E) column only show dividends declared/paid?

Thanks to all for the interesting posts on this stock from others.

Interesting and re-assuring view!

I think that it shows the expected dividend for FY ending 31/1/15.

So interim of 6.66p paid on 24/10/14 and 15.5p paid in April, usually.

As others have said, they don't have the dividend covered by earnings (At least it isn't expected to be).

It will be interesting to see how things have gone on between now and the results in April.

Regards,

Sully.

sully8786. Thank you

Richard Goodwin

31st Jan '15

I Have followed Air Partner for years. They seemed to lose their mojo when founder Tony Mack stepped back from day to day management. Despite various initiatives have been unable to recover it.
I don't of course know whether he stepped back because there were issues or whether there were issues because he stepped back.
disclosure : I hold Air Partner

Small Cap Value Report (30 Jan 2015) - BAR, AIP

Eclectic Bar (LON:BAR)

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Paul Scott

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