Will this stock ever recover?

15th Nov '08 by Stocktaculous

9 comments 3173 reads

Well, will it? In July, its market value plunged from £700m to a low of about £18m and it's been bumbling around that level ever since. As you probably know, there are two legs to the business: zero emission electric vehicles and aerial work platforms.

The electric vehicles part of the business looks ok but the aerial platform seems to be getting nailed in the face of the sustained downturn in the construction industry. Construction is a cyclical business and there will be another upswing in the cycle. But that feels a long, long way right now. The Company itself is expecting the market to halve next year.

Is Tanfield going to make it to the other side? Their plans for a Chinese JV to produce small machines by the end of 2009 are encouraging, but that doesn't sound anywhere near enough to cope with the collapse in demand.

http://www.thenorthernecho.co.uk/business/3840216.Tough_times_but_Tanfield_optimistic

They have cash reserves of £13.1 million but IMHO, SELL!

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Stocktaculous

15th Nov '08

Bizarrely, it got an upgrade on Friday in recommendation by broker WH Ireland to ‘Speculative Buy’. What are they thinking?

Murakami

16th Nov '08

Stocktaculous, here's the content of the WH Ireland note (I got this second hand but hopefully it's reliable).

Tanfield Group (TAN.L) - Speculative Buy - Time to take a fresh look. Market Cap: £24m Price: 6.5p

Tanfield issued a reassuring update on trading two days ago, appended to the announcement of a change of advisor. The more salient points appear to have gone largely unnoticed given the lack of share price reaction. In particular, we would draw attention to the following points made.

To start with, a statement of the obvious. Global markets remain challenging, credit availability is poor and industrial demand is faltering. Specifically for powered access equipment, excess inventory continues to adversely impact pricing and, combined with higher input costs, this is significantly hurting Tanfield’s margins and profitability. Throughout the year we have consistently warned that the powered access cycle is viciously cyclical. Manufacturers large and small, among them industry leaders JLG, Genie and Haulotte, are now reporting deteriorating conditions whilst users such as Lavendon and Ashtead are cutting back sharply on their spending budgets. None of this should be any surprise: the only issue is whether Tanfield has done enough, early enough, to conserve cash and live to fight another day. We now think it might have.

Tanfield’s financial position appears to have stabilised. The group had cash of £13.3m at the end of October, up from £12.0m over the month. Furthermore, cash balances are expected to rise further as working capital unwinds. Recession has thrown Tanfield into contraction mode, allowing components on the high seas to be received and existing inventory converted into finished machines, sold wherever possible, the cash to be collected and working capital liquidated accordingly.

From a valuation perspective, the current share price remains a trade-off between the possibility of Tanfield failing against the substantial recovery potential that would exist were the business to survive and take advantage of the eventual market improvement. Based on the latest information available, we think the chances of survival are much better than they appeared just a few months ago. Whilst the road ahead will be bumpy with the risk of further profits warnings, we now believe the risk: reward ratio is weighted too far toward the negative. We therefore move from ‘Market Perform’ to ‘Speculative Buy’.

LeighBarton

17th Nov '08

Murakami thanks for the note, did anyone catch the FT story today of the perils of overseas supply chain model? I only saw the headline but it seemed dead relevant to TAN and OPE if anyone has got a copy.

I think the Broker's note is a fair reflection. Personally I never doubted TAN's survival although they did give us a pretty hairy time, and the market definitely has priced this as though it is still in doubt. I am sure we will get further profit warnings but the price is a reasonable punt at these levels. I guess at issue however is the fact that the market is very unforgiving. Two unpleasant surprises, it will take a lot of good news before trust is restored and the price recovers to anything like fair value.

You mean this one? http://tinyurl.com/6nd9l3

European companies launch supply chain rescues - "Some of Europe's largest companies are taking extraordinary measures to help out suppliers stricken by the credit crisis by offering cash to prop them up. Groups from Daimler in cars, EADS in aerospace to Safran in defence are worried that their own financial health could be affected by a collapse of a supplier and are considering using their own liquidity to support smaller companies.Paul Lester, chief executive of UK defence company VT Group, said he had told his top 100 suppliers that they should come to him for financial help. "If you get into financial difficulties don't delay, but come and talk to us. You are probably better talking to us than banks because banks aren't really doing their jobs right now and we can help," he said. Daimler and BMW, he world's two largest luxury carmakers, have both hinted they could buy... ".

I don't really know Optare - will take a look at them.

Tanfield forecasts 50% market decline in 2009 written by Murray Pollok - 14 Nov 2008
Tanfield Group has rejected speculation that it may close or sell its Snorkel subsidiary and said it was well-positioned to weather the downturn in aerial platform markets worldwide. Tanfield also revealed plans for a Chinese manufacturing joint venture that will be producing small machines by the end of 2009. Darren Kell, Tanfield's chief executive, told Access International there was no reason for Tanfield to even consider selling or closing Snorkel; "We need a bridgehead in the US; we need the US market; and North American customers like the brand and the products...it's a cornerstone brand and cornerstone part of our business."

Speculation about Snorkel's future arose after Tanfield temporarily closed the facility for a week at the end of October. Mr Kell said it had to adjust production capacity to meet market demand, with Snorkel now working three weeks in every four with no overtime, and production running at around 35 units a week, half of what it was doing this time last year. The same downsizing had taken place at UpRight Powered Access in the UK, where production at the Vigo facility is running at 60 units a week, down from a peak of around 250 a week.

Mr Kell said Tanfield was prepared for a severe slowdown in 2009 and was ready to resize the businesses again if necessary; "Globally, we anticipate a 50% reduction in demand. It's going to be a difficult year." He said customers were still having problems in obtaining credit, and even those that could were being cautious about investment. The group had reacted to the downturn earlier than many of its competitors, said Mr Kell, and was now well positioned to take advantage of the upturn when it comes; "We've got no debt. We can spend this next period consolidating and globalizing the business...It gives us breathing space." The company has cash reserves of £13.1 million and Mr Kell said inventory levels in the US were not excessive and in Europe were at 500 units; "That's about where we need to keep it", he said.

Part of the globalisation effort will be a new joint venture with a Chinese manufacturer based in the Wuhan area. The joint venture partner, which Tanfield would not name, is not currently manufacturing access equipment but is already partnering with another western construction equipment manufacturer. The venture will have a dedicated 20000 m2 facility that will initially manufacture vertical mast machines and small electric scissors. "It's not a huge investment for us, it's not a big facility - we are not reaching for the stars here: it's a moderate investment", said Mr Kell. Meanwhile, after introducing five new products at the APEX show in September, UpRight is now preparing to introduce two new ranges of heavy duty, RT, double-deck scissor lifts. There will be two series: 12, 15 and 18 m models that will be standard heavy duty models - competing with the equivalents from suppliers including Skyjack and Genie; and 15, 18 and 22.5 m working height HX models that will be higher specification, higher capacity scissors.

The first to be introduced is the 22.5 m HX67RT, with 800 kg carrying capacity, automatic leveling jacks and oscillating axles as standard and a platform size of 7.5 m by 2.4 m. The rest of the models in the range will be launched in 2009.

See the January-February issue of Access International for the full interview with Darren Kell.
http://www.khl.com/magazines/access-international/detail/item28964/

18th Nov '08

Murakami, the snippet I saw related to overseas supply chains and issues with it. However the only thing I could find on FT.com was the last paragraph of the article you quoted from:

"Manufacturers have made their supply base far more global in recent years in an attempt to reduce risk, but this has also meant the crisis has spread quicker around the world. Several companies said their Asian suppliers were starting to feel some of the same problems".

Optare is a bus manufacturer set up by Roy Stanley bringing together two of the big brands in UK buses. Set it up to follow the same model as TAN - ie mnf would be in Far East (China) and UK would simply be design and assembly. He believes that his model could drop costs by as much as 25% and make the company far more price competitive. Of course the danger is that in a time of falling sales then he could find alot of working capital tied up on the high seas meaning that the model is not quite as flexible as once thought. It was to this that I hoped the FT article was having a look at, however the headline in this regard was clearly misleading.

Stocktaculous, encouraging that TAN are still investing for the future, talk of their demise apparently too soon!

1st Dec '08

Interesting re: Optare, LeighBarton - thanks for that.

BTW, Investec put out a report in early October with a price target of 19p - "Tanfield’s interims reassured over the short term viability of the Group, but did little to clarify management’s view on longer term prospects for the business.... We remain buyers not because we believe the Powered Access market has bottomed, or that there are significant electric vehicle orders to emerge near term, but because we believe the asset value more than underpins the current valuation".

I am still keen on this one, whatever Stocktaculous may think!

9th Apr '09

Yuk - pretty grim set of results from Tanfield despite my earlier optimism above. Here's the link to the results: http://www.stockopedia.com/news/announcement/TAN/090408tan3143q.htm

While full year revenues were up 18% to £146 million, losses after impairment of goodwill, intangibles, inventory and receivables slumped to £88.5 million from last years profit of £11.9 million. This was mainly impairment charges in relation to the 2007 £62.5m acquisition of US-based aerial platform maker Snorkel, caused by the "global collapse in demand" for high level access vehicles, or cherry pickers.
Darren Kell, the CEO, said sales of cherry pickers "fell away precipitously" in the second half of last year as the financial crisis gripped the construction sector. The market is expected to "contract further" in 2009.
In an effort to respond to a crisis in its markets, Tanfield slashed 30% of its costs during the year and is targeting a further 27% reduction in 2009.
A note from WH Ireland apparently rated the shares as “little more than a speculative recovery play”. The note described the Snorkel deal as “a textbook example of the huge destruction of shareholder value so often caused by a dash for growth by acquisition”.

investorschampion

The impairment was anticipated but given the materiality of this and other factors we were anticipating a little more detail in the preliminary announcement - the strange segmental breakdown with the bulk of net assets allocated to ‘Other’ is also surprising to us!

the key issue is that management credibility is in depp negative territiory!

Loss of shareholder value is horrendous with over £140m of equity put into this business over the years

Investors Champion (www.investorschampion.com) have issued regular notes

Will this stock ever recover?

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Stocktaculous

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