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Aukett Fitzroy Robinson Share Chat (AUK)



Share Price: 1.55Bid: 1.50Ask: 1.60Change: -0.05 (-3.13%)Faller - Aukett Swanke
Spread: 0.10Spread as %: 6.67%Open: 1.60High: 1.60Low: 1.55Yesterday’s Close: 1.60


Share Discussion for Aukett Fitzroy Robinson




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vodkaquickstep
Posts: 22
Opinion:No Opinion
Price:1.75
RE: More M&A
23 May '19
I'm known for my typing errors! Corrected para below:

"Aukett (over the same 3 year average) implies a value of GBP 21.5k per staff member which is understandable given the smaller business and more lumpy trading / thinner margins etc. BUT, currently at GBP 2.9m mcap the value per staff member is around GBP 8.5k, way below the sector average".
 
vodkaquickstep
Posts: 22
Opinion:No Opinion
Price:1.75
RE: More M&A
23 May '19
This is a great debate and I appreciate your bearish stance.

One other way of looking at the value of Aukett (related to juicing sales) is the value the market assigns to each staff member.

From a review of Waterman, RPS, WYG and DRV (none of which are Architectural business I admit but are the only 'plc' comparatives we can use), the value per staff (on average over 3 years) was as follows:

WTM - GBP 34k
WYG - GBP 23.5k
DRV - GBP 74k
RPS - GBP 93k

Aukett (over the same 3 year average) implies a value of GBP 21.5m per staff member which is understandable given the smaller business and more lumpy trading / thinner margins etc. BUT, currently at GBP 2.9m mcap the value per staff member is around GBP 8.5m, way below the sector average.

If someone acquired AUK for lets say GBP 5m, they could strip out around GBP 1.2m of Plc costs from day 1 including the listing, broker, auditor and Board etc. 2018 final results were kitchen sinked and included lots of one-off bid costs, property costs etc. The 2017 results of a GBP 325k loss could have been a GBP 875k profit as part of a larger entity without plc costs.

6-8 x GBP 875k = GBP 5-7m mcap / valuation.

I agree they have branding / positioning issues and should focus on a core offering rather than spreading themselves thinly in order to diversify. Your points are all generally valid BUT lots of people said nobody would want WYG as the balance sheet was shot to bits (GBP 10m debt) + covenant issues etc.

Irrespective of many of the salient points you raise, professional staff have a value and Aukett's valuation of GBP 2.9m is anomalous. With the Board owning 50% of the stock this business will be sold - its just a matter of when.
bear17
Posts: 42
Opinion:No Opinion
Price:1.75
RE: More M&A
23 May '19
Usually people consider purchasing a professional services practice:

• to buy an industry leader [BDP or Watermans]

• to buy a ‘springboard’ into a major market [Quad]

• to expand into a niche like say healthcare [Devereux]

• to buy design skills in key market areas [Perkins + Wills]

Considering AUK, I cannot assess why someone would buy them?

They are not an industry leader, they are no longer a springboard say to the EU after Brexit, they are certainly not a niche, nor do they have any particular design skill. They are predominately in London and Dubai, despite all the blurb in annual reports...

The equity fee owners are ‘very aged’, but as they retired so did the Group’s fee income.

This time last year Aukett were not forecasting a massive loss – yet that is what unfolded. All 2.5m of it. I therefore take whatever is stated in quarterly statements with a pinch of salt.

What we do know is that the massive uncertainty of Brexit continues, RIBA workload figures remain negative, AUK’s secondary market in UAE is less than buoyant, and 2.5m of cash is all but gone.

Someone may 'parachute in' to buy them at some point [perhaps as a white knight], but I find it difficult to understand the rationale for someone to lay out 5m to do so.

'Revenue less sub consultants' is at 13.1m, with Costs at 15.7m. Earnings per Staff is horrendous, and architectural directors paid a pittance. Revenue collapsing, Unforecasted Losses, Millions of Cash drained, Chairman & CFO walk, just surving in rent free digs......

'Juicing Sales' might be a reason to buy AUK, but at what cost? Will the fee earners want to work under new management....or will they all walk too...? You might be buying a complete lemon [without the juice].

You might be correct longer term Vodka, but not for me.....

There has been no buyers in the market for AUK, and I would expect the above reasons is why AUK stay a 'lobster pot': easy to put your money in but very difficult to get it out?

Good luck with it Vodka...
vodkaquickstep
Posts: 22
Opinion:No Opinion
Price:1.75
RE: More M&A
22 May '19
Bear

I cant argue with a lot of the points you raise. My rationale for investment is quite simple namely that if you look at the majority of M&A in this sector (all the various possible multiples in particular) its clear that juicing sales is a key driver.

Lots of deals have been done where the acquired business is loss making, has debt or turns a tiny profit (or all 3!).

Lets assume revenues have now stabilised at around GBP 14m (although some of that is sub-con related) and that Group turns a profit which seems likely given recent newsflow ("we are confident to repeat the guidance provided in January, namely that we expect the Group overall to be in profit for the 2019 financial year"....) then it would not be unreasonable to see Aukett worth 0.5 x sales or GBP 7m.

Lets be super conservative and lop GBP 2m off that as a contingency. We have a GBP 5m valuation. Current mcap is just GBP 2.9m offering some 70-100% upside.

If the Board were in their 40-50's this situation wouldn't interest me as much but we have a Board (and major holders) at a time in their life when they want to exit. The impetus for a trade sale is there, the business (despite the valid points you raise) is undervalued.

Its just a matter of time before some form of Corporate Action occurs. Until then its dead money but for those willing to wait the returns should be very decent.

I hold circa 1% of the business.
bear17
Posts: 42
Opinion:No Opinion
Price:1.75
RE: More M&A
21 May '19
Hi Vod,

Unfortunately AUK provides a poor target for most suitors.

AUK has a declining market share in their home base in London, with revenue halving in recent years.

AUK’s management is not ‘design driven’ and therefore lack any sense of being 'niche': they are run by accountants.

Cash has crashed from 2.5m to next to zip in recent years, and there has been a spinning turntable of board members.

AUK has small businesses in London and in UAE – everything else is simply taking a dividend from other smaller practices that AUK have invested in.

Perkins + Wills would not be interested: P+W already have superior architectural practices in London & UAE.

BDP were bought by NK for being industry leaders: AUK are 'midgets'

Quad were bought as a springboard for BDP onto North America: AUK have no springboard to anywhere

Devereux was a niche purchase of a healthcare specialist: AUK are certainly not niche.

Coupled with this you have a 'second rung' of fee earners failing to win work in both London & UAE.

I am not sure what you are buying at AUK - and why you would want it? As I said, I am not sure who would want to buy a small architectural practice with no particular niche, not design driven, and who is declining in their own market? They might find a 'white knight': but that might be all they get?

WYG steady 150m of revenue is interesting, but they have their problems.....

Waterman Group sold for 43m with a 91m turnover, but they had a reasonable profit @ 4%, cash @ 7%, and net funds @ 6%. WG was/is a very well run engineering group.

WYG might be worth 70m, if management had resolved the issues....so what discount would a purchaser consider to resolve the mess, and bring the company back into sustainable profit?

If AUK can build back to a sustainable 10m turnover in the UK at a reasonable sustained profitability @ 10-20%, then someone might buy them for a PE of 6-8 at some point. It is a long way off....
vodkaquickstep
Posts: 22
Opinion:No Opinion
Price:1.75
RE: More M&A
21 May '19
Bear

Interesting to read your observations.

I would actually argue that Tetra Tech have put forward a low-ball offer given the potential for WYG. If you assumed industry standard margins applied to WYG's average annual sales and then applied a multiple to that it would be a lot more than the GBP 43m offered despite the agreed 'mess'. The P/S ratio for the deal (despite WYG's debt) is also very low.

I'm expecting a counter offer.

If you track M&A in this sector you will be aware that in fact there are many tens of M&A deals over the last few years in the Architectural space - these include lots by Perkins+Will, BDP acquired by Nippon Koei, Ryder acquired Devereux, BDP acquired Quadrangle, Scott Brownrigg buys Acanthus etc etc - its a long (and growing) list.

Andrew Murdoch (to whom you partly refer) who was based in the UAE for 12 months is now retired and has left the Aukett business I believe.

Can't argue that WYG has better (more diverse) prospects than AUK and that fact that nobody has tried to acquire the AUK business tells you something but with an ageing Board (and major shareholders) there is increasing impetus for such a transaction to occur.
bear17
Posts: 42
Opinion:No Opinion
Price:1.75
RE: More M&A
20 May '19
Hey V,

It certainly shows people will pay over the odds if they want something.

WYG looks like a mess to me:

Revenue steady at 154.4m
Net Debt 6.3m
2018 loss
Net Assets 25m propped up by a very fragile 21m of Goodwill & Intangibles
Marginal Profitability even in a good year

The only positive is their revenue line has been steady, so I would assume someone might believe they can improve the profitability position over time, with better management?

Unfortunately Aukett has a collapsing revenue stream, with the UK HQ halving their modest revenue in recent years, and the UAE revenue stream posting loss after loss. Nothing stable about an architectural practice!

Buying small architectural practices is not a normal past time in the M&A sector. If the main 'Fee Earners' walk, you have nothing.

A ‘Dad’s Army’ of Directors are now deployed to salvage the position, with +70 year old former retired Directors re-employed in UK & UAE to see whether they can stem the carnage. So much for the ‘next generation’ taking control of the future! ‘Captain Mainwaring’ & ‘Sergeant Wilson’ back in the breach! [I have a picture in my mind of ‘George’ & ‘Arthur’ on their ‘zimmer frames’ trying to win new business?]

WYG looks a superior buy than AUK: at least they have a steady revenue base.
vodkaquickstep
Posts: 22
Opinion:No Opinion
Price:1.75
More M&A
20 May '19
Very pleased to see one of my other holdings in this sector (WYG) acquired for a 200%+ premium today. Like AUK it has suffered from poor trading and a weak balance sheet including GBP 10m debt, however, the takeover is validation that despite such factors these consultancy businesses are always in the sights of potential acquirers at a premium.

Aukett is worth around GBP 5-6m or 3.5p
Driver Group around GBP 45m or 85-100p
RPS also probably has around 30%+ upside.

Just my opinion but based on many years of M&A in this sector that shows no sign of slowing up.




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