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Hey shearclass - we’ve spoken before over at tinybuild…always like your input.
I must admit, this has been a painful watch for me as lost 20%…but fundamentally do think there is value here. It’s a cash hungry model but there collection rates are also growing a lot and are very substantial. They had a difficult year in credit hire with the court delays and the insurance contract going wrong which was not their fault. I’m looking beyond credit hire here….the housing disrepair segment is highly attractive, has much quicker pay back and returns on capital of +50%. It’s a hated stock at the moment but I think the VW case will come good and you gave that added upside as well.
Always just about assessing risk and reward but I think there is good upside here. Agree though that VW must be used to get rid of that horrendous expensive funding got last year - that was silly.
Why has the market suddenly dropped shares 20%? Part of the reason is surely the terms of their latest debt funding.
On 7th April 2022 they issued a trading statement that said; "The Group is pleased to announce an increase in its overall debt facilities. New debt facilities of £7.5 million have been secured from a new lender on regular commercial terms"
Note the phrase 'regular commercial terms'
An increase to £15m was then disclosed in the half year accounts, but no mention was made of the terms.
It wasn't until the final results landed last Wednesday that the market found out what these 'regular' terms were;
"In March 2022 the group secured a loan of £7.5 million from Blazehill Capital Finance Limited, with an additional £7.5 million drawn in September 2022, the total balance drawn at 31 December 2022 was £15.0 million. The loan is non amortising and committed for a three year period. Interest is charged and paid monthly at 13% above the central bank rate."
13% above the central bank rate = 17.5% interest rate on a £15m loan, which is quite staggering.
Now why would a company booking profit of £24m need to take a £15m loan at 17.5% interest rate?
This is a textbook example of why you have to read & ideally understand what all of a companies financial statements tell you. Sure, the P&L shows a whopping great profit of £24m & EPS of 16p, however the balance sheet & cash flow statement tell you this apparent profitability is nothing more than superficial.
Revenue is being booked to the P&L but never feeds through to the cash flow statement. Instead it sits on the balance sheet in an ever growing pile of trade receivables, which tallied an incredible £222m at 31/12/22, an increase of some £34m year on year. Because this cash isn't being collected, they need to increase their borrowings to finance new cases, so debt grows year on year too.
The result is a gradually expanding house of cards. They'll reach a point where they can't borrow any more & won't be able to invest in new cases, this will lead to a collapse in revenue & unless they can cash in a chunk of those £222m trade receivables to repay the debt, likely lead to insolvency.
Anyone who sold as the FD resigned would have saved themselves a few bob in losses and more pain.
Just look at the debt increase and funding. Amazing. At this point in the debt cycle it should be priority to get it down. FD probably made his opinion clear and had no choice but to walk as he didn't want to be associated with it, wasn't listened to and its very career limiting to be on the bridge of a sinking ship. Doesnt matter to an old captain but really bad for anyone under 60.
FDs know the state and the score and he resigned, wasn't fired.
Good luck.
As soon as you see an FD resign at short notice before results, runaway. A basket case. No excuses can cover up for the debt increases. It is nothing more than a mess but, hey, VW will make it all better and get it back towards £1.10 perhaps.
A real avoid.
I think you will find it is MCE - announced early in the year as a big business win, it then went into administration causing hire numbers to drop by 27% at year end. This cost money to set up for the anticipated demand and further money being lost flowing through numbers being hit going through 2023 as this business is now lost and gone!
Trendz, I'm like you, scratching my head over this one. I ignore revenue increase and focus on profits and eps; and eps really hasn't increased although the company is making money. This is put down to further investment in staff, I imagine this also explains increased level of debt. This is also has been put forward as reason for not increasing the meagre dividend (although this is covered x11!), it's argued better to maintain cash levels in the company.
Can't understand reason for fall, can only think it's a knee jerk reaction and price will stay around a £1... But if this continues for too long perhaps it will come under scrutiny from possible purchaser
What am I missing here? 7.5% down on those strong results?! Valued at almost 5 pe. Maybe the debt? Successful VW claim and this could double in a day
Most exciting piece of news out of ANX for a long as they push back results a day for the coronation so building even higher levels of anticipation.
Wow.
Personally, I think VW and Mercedes should be made to pay additional punitive damages and penalties. They settled in the US years ago and are just trying to play the system here in the UK and delay paying out. They should be forced to fund a UK advertising campaign - "vorsprung durch schummeln" ;-)
A good update overall as long as PBT comes out at the top of the projected range, as nearer the lower £24m would be a fair miss. Given that the year end was over three months ago it seems to have taken a long time to only arrive at a relatively wide range of PBT expectations?
The business as a whole is performing well, with all divisions performing soundly. And net debt is slightly better than expectations.
The news of the Mercedes case is encouraging and could provide a second major windfall on top of VW, which is mooted to settle soon.
With say 17p-18p EPS ANX looks very good value at these levels, even with the debt which is forecast to begin declining from here as housing disrepair revenue share increases and the focus on cash collection bears fruit.
Debt hole deeper.
Interesting to finally see some discussion here!
Completely agree that VK is not key part of investment case….but find it very hard to believe they will not get a settlement after therium case last year…really not sure what could drive a market. Belief they will lose??? Thoughts?
Even without the VW case which presumably there's zero update about in 2022 nor in Q1 2023 (despite the court case in "early 2023") otherwise there would have been an RNS to update on this market moving news.
The underlying profitability 2023 EPS of 20p (PE of 5.3), positive £11.7m 2023 FCF and the estimated 2023 NAV/share of 144.8p (~35% above market price) is not baked into the price.
A VW settlement only adds about 10% profit so drops another 2p-3p earnings per share straight to the bottom line. It's a welcome addition but this share isn't an all or nothing bet. Plus there's plenty more emissions cases to pursue.
Only explanation I can think for the current doldrums is that the market is assuming annexo will lose the case. There were £5.8m accrued costs relating to emissions H1 2022 so perhaps £7.5m now? A loss would send that £7.5m to the bottom line and reduce profits by 25% for 2023 plus put the logic of pursuing further cases in doubt. I do not believe this will happen but if you separate out the legal emissions cases the rest of the business feels undervalued.
The lack of news and engagement is an issue but the numbers are the numbers. The brief and understated "trading in line" doesn't wax lyrical that's true, however anyone who analyses the past performance and trajectory can see that "in line" is flipping good!
Anyway, yes, Tuesday should be good reading.
GLA
Should be good reading.
we must be getting very close to a VW settlement now....the effects of which would be truly transformational...and it is still being completely missed by the market!!!
This is a quiet board for a share that seems so disconnected from fair value.....
Do people have a view on the Volkswagen settlement and if there is any probability it won't come through? Feels very much like a done deal given they were found against last year for the same case that was brought...just feel like time is now dragging on a lot?
Either way, interesting that all broker forecasts don't even account for the settlement and we are still way way off fair value.
I note yesterday's offer at Kape technologies to be taken private.
The offer represents a 12% upside to the previous days close but a shocking £1.50 a share below the £4.44 kape was trading at less than a year ago.
Can't blame the major shareholder for taking advantage of a mispriced opportunity and can't see the (generally upset) small Private Investor base finding a way of stopping him.
I know many on here are also invested in Kape and view the recent TU here as a precursor to being taken out. Careful what you wish for eh? Similar percentages would represent a take out price around 130p here, 20p below where we were less than a year ago & well below true value.
I sold most of my holding here after the lacklustre TU two weeks ago but I retain an interest both here and at Kape.
The above also goes for Centralnic where again some of the cheerleaders here are also invested, as I am, in a much more committed way.
I was expecting the VW case resolution by January. Perhaps, the management delayed the TU in anticipation of a last minute settlement from VW.
Assuming DBay plus all the Directors voted in have of taking ANX private they'd have 66.84%. They'd need 8.16% out of 33.16% remaining to pass the resolution.
So 25% of the remainder.
Given ANX has been trading higher 50% higher than today I think it's unlikely either PIs and IIs would vote for ACP of 36 sessions. But if DBAY repeated their 150p take out offer I could see that potentially passing, can't you?
GLA
A strange TU with so little to go on there has to be a reason. They just can't be a*s*d with the market and only one reason for that attitude I can think of is they intend to come off market.
An offer based on the average closing price of the last 36 sessions or something?
DBAY?
Rivaldo,
Corresponding statement from full year 2021 trading update 12 months ago
"The Board is pleased to announce that revenue growth has exceeded the Group's forecasts and that profit before tax will be significantly ahead of market expectations." Incidentally, the catalyst for my investment here.
Not, simply, "in line with expectations " as of this morning.
Given that we were so far in front of 2021 at the 2022 half year (EPs 9.3p v 6.1p, + 52.5%) and that full year eps 2021 were 16.8p, this indicates ANX trading below 2021 for 2022. Not "nicely" in my book.
Also no mention whatsoever of housing disrepairs or vehicle emissions, the two big growth opportunity areas that, hopefully, were to push profits further ahead moving forwards and are the reason many are invested here.
Having just come out of Immo where a paucity of information was due to a subsequent PE/management buyout I wonder if its the same here? The TU was 1-2weeks later than usual and hilst anx's past TU have not been verbose they had a little more information
Glad to see confirmation that trading for 2022 was nicely in line with expectations.
That equates to consensus 18.5p EPS - a historic P/E of just 6.2.