Member Info for vodkaquickstep

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.

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.

Very pleased with today's news having held on and off since June 2016 but acquiring the largest position post Feb 2019 profit warning. This takeover is further validation that despite poor trading and fragile balance sheets these consultancy businesses are always in the sights of potential acquirers at a premium. Other targets include:

Aukett S****e (AUK) worth around GBP 5-6m or 3.5p
Driver Group (DRV) worth around GBP 45m or 85-100p
RPS (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.

Good luck to all.

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.

seanx

Nothing to do with margins which are actually good for this sector (and improving year on year). Equally, as you have correctly noted, they have very low long-term debt but they do have GBP 1m of total borrowings but this is down from GBP 4.8m in 2014. Interest cover was 40x for YE 2017 so no issues there.

I perceive the low valuation to be primarily a function of its tiny mcap (sub GBP 10m) which puts off a lot of investors right from the get-go. You then have the sector which is unloved at present (albeit companies like CTO are also bucking the trend). You then have a historically poor balance sheet / negative tangible equity / poor WC / net debt.

To top it off, the shares are illiquid.

All of that said, the results in June should be excellent and show a further improvement in a number of these factors.

I'm excited about their prospects for 2019/20.

Rivaldo

Yes, very good news indeed. It would be nice to know who the contracts are with - possibly ISG given their track record of projects together.

The current valuation of MOGP is indeed anomolous and I think its worth at least GBP 7m given the order book and outlook. A PE of 10 would in fact not be absurd and would put the share price up around the 4p area.

I would like to see a share reorganisation / consolidation (1:40 or 1:50) to get away from the current 'penny share' status.

A catalyst for a firmer re-rating would be the introduction of a maiden dividend and a further strengthening of the balance sheet and I believe the former is not far away. The balance sheet has already improved massively since 2015 and i'm hoping the FY results in June will show a further decent improvement with tangible equity back in the black.

https://cube.investments/mountfield-group-picks-and-shovels-for-the-data-centre-boom/

My thoughts on Mountfield Group - small with some risks but equally has the potential hugely re-rate from current depressed prices.

hTtps://www.carterwood.co.uk/carterwood-complete-on-a-hat-trick-of-development-sales-on-behalf-of-mha/

hTTps://www.romseyadvertiser.co.uk/news/17543511.romsey-care-home-knocked-down/

https://news.leicester.gov.uk/news-articles/2019/march/plans-for-multi-million-pound-housing-schemes-for-vulnerable-people-get-the-go-ahead/

Courtesy of scburbs on ADVFN.

Great to see these schemes going ahead after some protracted delays on some of them. Assuming financial close is confirmed within YE June 2019 these will all help contribute significantly to the forecast 1p of EPS.

Bear

Your posts are amusing.

Yes cash is tight but mgt are at least transparent enough to state that
it’s improving from a low base.

2 year rent free period commenced next month (May 2019) and runs for 2 years providing a much needed respite from lease costs and even when costs recommence in May 2021 they will be saving £400k year (ish).

And no I’m not an ex-Director and I’ve never worked for the Group.
Be saving

Some comments on here about upfront payments for the Gib main contract (when finally awarded...) with someone mentioning £5m. That’s not correct although I believe they wil recover bid and design costs which are a chunky 6 figure sum. The planners comments about the scale of the proposed treatment plant means the Group will probably have to spend more on design fees yet to get it over the line. To me the project is in the bag BUT it’s only any good to MWG when they get the official green light from the Gib Govt, recover their upfront costs and get a stage payment schedule signed off. It will happen but it’s down to timing and in the interim the Group are still getting through cash at about £50k / month. I think they have enough cash until 2020 now but tomorrow’s results will clarify. We need membrane sales to ramp up to at least 8-10 year.

I don't disagree with a lot of what you say although the Group have been with Coutts for years and I cant seen any reason why they would suddenly want to pull the plug unless trading continued to be as poor as last year etc.

I believe the CEO (Accountant not Architect) manages their finances well, all things considered.

Your credibility as an informed poster is, however, crushed by statements such as the 9 major shareholders selling. This is untrue and unfounded (unless you can demonstrate to the contrary?) and hence why should people reading this Board believe anything else? I am not being rude but you get my point?

I think its great that you have presented a bear case and I believe there is often a dire lack of bear cases put forward so I admire you for that, BUT, can you please refrain from lowering the quality of the posts but making such sweeping factually incorrect statements.

Have you met with the management team? Have you spoken to any of the major shareholder The AGM is this week?

Like most people businesses, the value is the people. Other players in the same sector such as WYG and RPS have equally tiny net tangible assets. Most of their balance sheets are goodwill as typically most have been on an acquisition spree over many years. I am not in any way saying this is a healthy business, nor is it in a hot sector, nor does have any strong financial metrics......BUT.......it is only worth GBP 2.6m. I think not.

Strip out the PLC costs and its a different story.

bear 17

Of course its possible that AUK could run out of cash and their solvency does look fragile although I don't perceive any specific reason why they should run out of especially as they have their facility with Coutts to draw on if necessary.

I don't believe there are any issues with the business not remaining as a going concern.

Record loss yes the results included a double whammy of low utilisation (as they had too many staff / historically high personnel related costs compared to sales as a %) and high bidding costs - there were also write-offs, delap costs for the old office, rent deposit for new office etc. A "perfect storm" we understand....

Salaries will be below 1.3m / month now as headcount has been reduced (50 staff have gone from the Berlin office as just one example) but its agreed that staff costs (like all people businesses) are always a challenge wrt cash flow.

Their Middle East acquisitions have not worked out at all well - there is no disputing that.

Tangible equity at 1.1m is at a historic lows but the Group have been at these levels before (was 1.16m in 2012).

Impairment allowances, counterparty risk and quantum of trade receivables etc are not outside of historical ranges. An example is receivables over 60 days overdue which is at 1.14m (as of Sep 18) this is 31% of total receivables which is lower than 2017 or 2016. In 2009-10 (the dark days of the GFC) it was around 30%.

Going forward, the Group have a 2 year rent free period and a much reduced ongoing rent thereafter which can only help their fragile cash position.

Its good news the Chairman is leaving as he had been there 9 years and his time was up. The jury is out re: Raul Curiel coming back as Chairman but investors will have to wait and see. Previous FC has left and with the CFO also leaving they have saved one salary by now just having a CFO only although I assume they have other financial support staff.

I take issue with your comment re: the "big 9 shareholders selling stock and would go as far as saying this is untrue and unfounded. On what basis can you make such a statement? Its possible that some have although the top 9 are all notifiable holdings so will need to declare if they are.

Yes the market is clearly not favourable and Aukett Swanke have listing costs that make them uncompetitive compared to their peer group. That said, they are picking up work across the Group, Veretec remains a very well respected (and busy) provider of executive architectural services and I perceive that 2019 will show a much better performance than 2018 (well it can be worse or it would be curtains...!)

The Board and major shareholders are primarily all in the 60-80 yrs age bracket, >50% of the shares are held my management, ex management and staff and clearly at some point there will be a catalyst for value realisation.

I am happy to be patient as I believe the Group to be significant undervalued.

Hopefully John Cortes (who will be present) will tweet the news.

Planning meeting started at 9.30am Gib time (its now 10.35am there) - not sure when the results of the meeting will be made public?

I've put together some of my thoughts on WYG here on the Cube Investments website:

https://www.cube.investments/the-dirty-half-dozen-simons-updates-for-2019-ytd/

I think despite some clear challenges there is an opportunity here namely M&A.

bear17

You really don't like AUK do you?

Please note these Special Business resolutions were also put forward to shareholders in 2016 and 2017 and hence are nothing new.

I don't perceive the Board will be looking to raise any capital and certainly not at current prices.

http://chronicle.gi/2019/02/political-exchanges-online-petition-sewage-plant-draws-flak/

I’m invested and hope the already protracted process to-date doesn’t take any longer getting to site.