ANDREWS SYKES: ‘Robust’ FY 2023 Delivers Record £23m Profit After 13% Workforce Reduction Helps Lift Group Margin To 29% High

07 August 2024
By Maynard Paton

FY 2023 results summary for Andrews Sykes (ASY):

  • A “robust” FY performance, which delivered a record £23m profit through “careful cost management” and positive sales momentum within a number of European countries.
  • UK air-conditioning revenue declined 14% to £8m following lower summer temperatures, leaving the domestic market’s progress to again be dictated by pump hire — up 2% to register a sixth consecutive FY improvement.
  • Closing the French subsidiary, curtailing Middle Eastern losses and reducing the wider workforce by 13% were among the decisive actions that helped the group margin achieve a new 29% high.
  • The very respectable accounts showcased net cash at £20m, capex requirements of just £3m, a 34% return on equity and a “fully de-risked” pension scheme.
  • A possible 13-14x P/E does not appear outrageous, with the restricted free float, weather-sensitive operations and absence of obvious economies of scale counterbalanced perhaps by bid-target potential. I continue to hold.

Contents

News link, share data and disclosure

  • Share price: 560p
  • Share count: 41,858,744
  • Market capitalisation: £234m

Why I own ASY

  • Supplies air conditioners, portable heaters and industrial pumps for hire, with success based on a prompt 24/7/365 service, high-quality rental fleet and commercial-only customer base.
  • Straightforward accounts regularly showcase high margins, generous cash flow, net cash and satisfactory returns on equity.
  • Chairman and family are 91%/£213m shareholders and their “presence and requirements… has resulted in a strategy with the key aim of creating long–term shareholder value” (point 10a).

Further reading: My ASY Buy report | All my ASY posts | ASY website

Results summary

Revenue, profit and dividend

“Following the Company’s strong first half performance, trading in the second half of the year to date has been more mixed. Whilst extreme summer temperatures in Southern Europe positively impacted demand for the Group’s chillers in Italy, a more subdued summer season in the UK has limited the overall positive impact for the Group. Overall, Management remains confident of delivering full year results in line with the Board’s expectations.”

  • …had already hinted this FY may not surpass the revenue and profit highs set during the comparable FY.
  • Although FY revenue fell 5% to £78.7m…
  • …FY operating profit commendably advanced 6% to £22.7m:
  • ASY described this FY as “robust” and said the performance was supported by “careful cost management“. 
  • The FY profit improvement was complicated by the comparable FY including:
  • The profit comparison was complicated further by this FY incurring additional provisions relating to the relocation of another three UK depots and the exit from France (see Financials: margin and return on equity). 
  • ASY said “key accounts” helped shore up this FY’s profit:

“The group has continued to develop its relationships with key customers throughout the UK and Europe which has underpinned the strong results reported. These key accounts provide a consistent and growing revenue stream. Whilst turnover is down in the second half of the year as compared to the prior year, mainly due to revenue opportunities presented by the record summer temperatures seen last year, the focus on our key accounts means the group has still produced profit growth despite reporting a lower revenue.” 

  • “Key accounts” are presumably the large, high-spending customers that ASY says support approximately 50% of the business:

“We regard customer relationships as being of the utmost importance and our key account customers, which account for approximately 50% of our business, are visited by a customer relationship manager on a quarterly basis to ensure we are meeting their expectations.”

  • FY progress was hampered by the aforementioned exit from France (see Europe) and difficult trading in the UAE (see Middle East).
  • Extreme weather — particularly cold snaps, heatwaves and extensive rain — typically prompt sudden demand for the group’s hire equipment (primarily temporary boilers, air conditioners and water pumps). 
  • Progress from year to year can therefore fluctuate due to different climatic conditions.
  • This FY referred to lower UK temperatures and higher European temperatures:

“In 2023, the UK and Northern Europe summer temperatures were more subdued but the group controlled costs and produced a record operating profit”. 

“Southern Europe in particular was aided by the record temperatures seen during the summer and has been reflected in increased chiller and air conditioning hire revenues.”

  • The temperature fluctuations left FY revenue from ASY’s core hire activities down 1% to £74m:
  • FY revenue from ASY’s non-hire operations — essentially equipment sales and installing/maintaining fixed air-conditioning systems — meanwhile dived 40% to just £5m (see Other).
  • The “more subdued summer season in the UK” alongside the collapse of non-hire income (see UK) led to total H2 revenue declining 12%.
  • But somewhat remarkably, H2 profit remained unchanged at £13.0m.
  • The final dividend was again set at 14p per share to leave the FY payout static at 25.9p per share:

UK

  • The combined group today offers a trade-only nationwide rental service supplying pumping equipment, air conditioners, air purifiers, chillers, heaters, boilers, dehumidifiers and ventilation units:
  • ASY’s competitive edge is based upon depots providing first-class customer service…

“By providing a premium level of service 24 hours per day, 365 days per year, we have become the preferred supplier to many major businesses and operations spanning a huge range of industries and geographic locations. Our reputation for providing high levels of training to our staff whilst maintaining a strict health and safety workplace, within an environmentally conscious culture, makes us an employer of choice for our industry.” 

  • ...and stocking the best and most relevant equipment for different clients:

“Continual investment in new technology ensures that we provide our customers with new solutions to overcome their operational challenges. We constantly review and refresh our fleet of rental equipment to ensure that we set the standards within the rental industry throughout the UK, Europe and the Middle East.”

  • This FY repeated the claim from the preceding FY that the tip-top service combined with management experience had helped the depots sidestep a difficult economy:

“The current year has not been without its challenges with the well publicised inflationary pressures and tight labour markets that have been impacting the UK and European economies also impact Andrews Sykes. However, our strong relationships with customers and long standing relationships with key suppliers, coupled with our highly experienced management team have allowed us to once again not only navigate our way through these circumstances, but thrive.” 

  • UK Hire and Sales remains ASY’s largest division. 
  • For this FY, UK Hire and Sales represented 57% of group revenue and 62% of group profit, which led to a super divisional margin of 34%:
  • The absence of a long, hot summer left the division’s FY revenue down 6% and FY profit down 9%. 
  • ASY therefore had to “flex the cost base“:

“This [UK] result, we believe, shows the ability of the business to react to changing customer demands and market circumstances, and to flex the cost base of the business quickly to adapt to customer demand.“

  • ASY disclosed the following UK growth rates for its main categories of hire equipment:

“The UK hire business experienced a 6% turnover decrease when compared to last year, driven by negative comparisons for our air conditioning division against an exceptional prior year which was aided by the record temperatures experienced in the UK during 2022… Current year air conditioning hire was down £1.3m or 14.0% on prior year.

Our pump hire business continues to perform strongly with revenues achieving record levels for the sixth year in a row and are 2% higher than 2022. 

Chiller and boiler revenues remain under pressure and are 12% down on 2022.” 

  • For the first time I can recall, ASY disclosed the UK hire revenue generated by a particular category of equipment.
  • UK air-conditioning revenue down £1.3m or 14% suggests FY rental income from such equipment declined from £9.4m to £8.0m.
  • Air-conditioning revenue of £8.0m therefore supported 19% of UK hire revenue during this FY. 
  • Note that the comparable FY witnessed UK air-conditioning revenue gain 36% (helped by a 40-degree summer), which suggests this FY’s UK air-conditioning revenue remains 16% ahead of the level recorded for FY 2021 (c£6.9m).
  • Chiller and boiler hire in the UK did not perform well for the third consecutive year. The 12% revenue shortfall for this FY follows a 14% reduction during the comparable FY and a 7% reduction during FY 2021.
  • UK progress therefore seems dictated mostly by pump hire, with such revenue up 2% limiting the UK division’s revenue shortfall to the aforementioned 6%.
  • This FY’s 2% pump-hire improvement follows a 4% revenue advance during the comparable FY, a 16% advance during FY 2021 and a 3% advance during FY 2020.
  • UK pump-hire revenue has in fact achieved “record levels” for the last six FYs.
  • Reflecting the UK bias towards water pumps, six of the last twelve updates on ASY’s blog (at the time of writing) referred to pump hire:
  • Companies House shows ASY’s main UK subsidiary lifting UK Hire revenue from £36m to £45m during the ten years to this FY — equivalent to a very modest 2.0% compound average:
  • …although this FY oddly repeated the comparable FY and said the main UK subsidiary operates from 22 locations:

“Our main UK trading subsidiary, Andrews Sykes Hire, has 22 locations covering the UK and employing around 300 members of staff.“

  • Maybe my confusion is caused by ASY’s “continuing property relocation within the UK“:

“Restructuring provision relates to the continuing property relocation within the UK. In the previous year four properties were vacated and merged into one large consolidated site… During the current year, three further property locations are in the process of being vacated and merged into one larger facility.” 

  • ASY’s UK operations include installing and maintaining fixed air-conditioning systems, revenue from which has rarely generated a significant profit (see Other).
  • Total FY UK revenue declined 7% to £46.5m to represent 59% of group revenue — the lowest-ever FY proportion for ASY’s domestic market:
  • ASY’s dependence on the UK reduced further during H2. Total H2 UK revenue represented 56% of group H2 revenue:

Europe 

  • Europe remains ASY’s main opportunity for growth.
  • Between FYs 2012 and 2022, European revenue expanded from £10.9m to £24.2m to represent 29% of group turnover.
  • This FY then witnessed European revenue advance a further 10% to £26.7m to support 34% of group turnover:
  • H2 saw European revenue represent 36% of group turnover — a record six-month proportion for the region:
  • ASY said the European performance was driven by a “focus on key accounts in Northern Europe and high summer temperatures in Southern Europe”. 
  • European markets achieving new revenue records included:
    • Belgium: up 7%;
    • Netherlands: up 10%;
    • Luxembourg: up 21%, and;
    • Italy: up 25%.
  • Swiss revenue meanwhile declined 1%.
  • ASY decided to exit France during this FY: 

“In France, in the second half the decision was taken to cease trading and start the process to wind up the business. Management made this difficult decision after trying to restructure the business in the prior year and scale the operations back with a view of achieving profitable growth. Ultimately this restructure was unsuccessful and France remained loss making operationally, as it has been throughout its history. The decision was made to cease future trading to eliminate future ongoing losses. As a result turnover decreased 36%.” 

  • Why ASY did not succeed in France has not been made clear. This FY noted the French subsidiary’s consistent losses.
  • ASY’s website shows the European operations now consisting of:
    • Netherlands:
      • Started FY 1971
      • 4 depots (Amsterdam, Bleiswijk, Hoogeveen, Oirschot)
    • Belgium:
      • Started FY 2007
      • 3 depots (Antwerp, Brussels, Kortrijk)
    • Italy:
      • Started FY 2011
      • 4 depots (Bologna, Milan, Toscana, Verona)
    • Switzerland:
      • Started FY 2013
      • 2 depots (Geneva, Zurich)
    • Luxembourg:
      • Started FY 2014
      • 1 depot (Luxembourg)
    • Germany:
      • Started FY 2023
      • 1 depot (Frechen)

“At the same time we are pleased to announce the incorporation of our new subsidiary, Klimamieten AS GmbH, in Germany and look forward to the development of this exciting market. We are encouraged by how the business has consistently adapted to overcome market and operational issues and take advantage of new revenue opportunities.” 

  • The “exciting” German market provided extra perspective about the difficult French market:

“With reference to market research undertaken on the German market, the Board made the decision that the group’s resources would be better employed in generating shareholder returns by entering the German market than persisting with the French operations.”

  • The European subsidiaries lifted their collective FY profit by 26% to £8.7m — although the comparable FY did suffer French impairments of approximately £0.7m. 
  • The £8.7m profit translated into a lovely 31% FY margin:
  • That 31% margin may improve further now that the loss-making French operation has been closed. The European margin has been rising every year since it was first disclosed for FY 2020:
  • The French exit means European depots have increased from six to only 15 since FY 2011.
  • Opening a net nine depots since FY 2011 could mean future European growth will be slow going.

Middle East

  • ASY’s Middle Eastern ventures continue to underperform. 
  • To recap, FY 2021 had revealed Middle Eastern revenue diving 24% and divisional profit — which since FY 2015 had been running at between £2m-£3m a year — collapsing to just £0.3m.
  • FY 2021 contained a £1.2m provision for unpaid invoices after certain Middle Eastern customers had not settled their bills.
  • The preceding FY then admitted a further £1.9m charge against unpaid Middle Eastern bills, which in turn created a small divisional loss despite revenue gaining 12%. 
  • This FY then owned up to an ongoing lack of regional projects…

“The operating climate continues to be tough in the Middle East with a lack of significant infrastructure projects still depressing turnover in the pumps division to below what was being generated a few years previously.”

  • … which translated into FY revenue down 35%.
  • At least the Middle East returned to profit during this FY following a much lower (£0.2m) charge for unpaid bills.
  • ASY suggested the worst had now passed for the Middle East after the recruitment of new managers:

“New local management has been installed during the current year and a turnaround of this business is underway. It is pleasing that core hire revenues in the second half of the year are 38.1% up on the first half of the year and in line with that generated in the previous year. Management is confident of a return to increasing profitability in the Middle East.” 

  • I am hopeful the new managers have tightened customer-credit terms and unpaid bills can now be kept to a minimum. 
  • FY Middle Eastern revenue of £5.6m represented just 7% of total FY turnover:
  • For perspective, Middle Eastern revenue between FYs 2015 and 2020 exceeded £10m and at times represented 17-18% of group turnover.
  • ASY’s Middle Eastern operations have in the past enjoyed FY profits of £2m-£3m and margins beyond 20%…
  • …which presumably explains why ASY is persisting with the region.

Other

  • ASY’s Other activities — involving equipment sales and the installation/maintenance of fixed air-conditioning systems — suffered a terrible FY.
  • FY revenue from equipment sales collapsed 47% to less than £2.9m, while FY revenue from installation/maintenance dived 26% to £2.1m:
  • Revenue from these Other activities appears in terminal decline:
  • ASY explained the installation/maintenance revenue shortfall was due to “labour availability“:

“Our fixed installation and maintenance business sector in the UK saw a small decrease in turnover from £2.8m to £2.1m and returned a small operating loss of £0.1 million this year, a decrease of £0.1 million from the small operating profit achieved in 2022. This result was largely driven by labour availability impacting the ability to service contracts which limited revenue opportunities and the operating profit of the business.“ 

  • ASY did not explain why revenue from equipment sales had reduced by so much. 
  • I have never determined whether equipment sales have ever made ASY any profit. 
  • This FY confirmed stock sold — presumably relating entirely to equipment sales — was £7.7m:

“The cost of stock recognised as an expense in the period was £7,680,000 (2022: £11,167,000).” 

Financials: hire revenue and hire equipment

  • The productivity of ASY’s hire equipment deteriorated slightly versus the preceding FY but remains within the range witnessed since FY 2014.
  • I measure hire-equipment productivity by dividing hire revenue by the historical cost of the hire equipment. Using historical cost rather than book value avoids distortions caused by depreciation rates.
  • ASY employed hire equipment that averaged a £70.5m historical cost during this FY:
  • Hire revenue was £73.7m:
  • Hire revenue of £73.7m divided by hire-equipment cost of £70.5m gives 1.04x:
  • Hire-equipment productivity greater than 1x means ASY buys equipment for hire and recoups the cost through hire fees within a year. 
  • Hire-equipment productivity has bobbed between 0.90x and 1.16x since FY 2014, which suggests ASY has been unable to:
    • Dramatically improve utilisation of its equipment, and/or;
    • Raise hire fees faster than the cost of new equipment. 
  • Between FYs 2006 and 2013, hire-equipment productivity ranged between 1.17x and a remarkable 1.57x.
  • The much higher rates from 10-15 years ago reflect some very impressive hire-equipment productivity outside the group’s main UK subsidiary. 
  • However, the impressive hire-equipment productivity outside the main UK subsidiary has since ‘normalised’ towards the UK rate. 
  • For perspective, ASY’s main UK subsidiary employed hire equipment that averaged a £41.0m historical cost during this FY…
  • …while the subsidiary’s hire revenue was £42.5m:
  • UK hire revenue of £42.5m divided by UK hire-equipment cost of £41.0m gives 1.04x:
  • Outside of the group’s main UK subsidiary, average hire-equipment employed was £29.6m versus hire revenue of £31.2m to give 1.06x for this FY:
  • ASY being unable to really improve its group hire-equipment productivity is not ideal, but at least the measure is reasonably consistent.

Financials: cash flow and working capital

  • The aforementioned 59.4p per share special dividend declared during H1 amounted to £25m, and was funded through years of controlled capital expenditure and tight working-capital management:
  • Between FYs 2019 and 2023 for example, aggregate cash of £144m was generated through operations but only £3m was subsequently absorbed into working capital and just a further £14m was spent on capex:
  • The £144m less £3m less £14m then left £127m to pay tax of £21m, pay leases and debt reductions of £20m and return a mighty £94m to shareholders through dividends.
  • This FY’s cash generation was impressive, with cash flow from operations of £31m benefitting from a £1m working-capital inflow and funding net capex of only £3m:
  • This FY witnessed ASY’s first share buyback since FY 2018. 
  • £1.9m was spent repurchasing 0.7% of the share count at approximately 643p per share:

“During the year the company repurchased and cancelled 289,301 ordinary shares at a price between 510p and 665p per share. The total cash spent on share buybacks during the year amounted to £1.9 million.“

  • The accounts incorrectly deemed the buyback as “equity dividends forfeited“:
  • The £1.9m buyback may be a positive omen; the last time ASY undertook significant buybacks occurred during FYs 2010, 2011 and 2012, when an aggregate £3.1m was spent cancelling shares at a 155p average.
  • The £25m special dividend was the main reason why the cash position finished £8m lower at £20m. 
  • The balance sheet still carries no bank debt. 
  • Net cash at £20m is equivalent to 48p per share and is the lowest level since H1 2019 (£19.8m):
  • Net cash of £20m is equivalent to 25% of FY revenue of £78.7m — the lowest proportion since H1 2018 (23.1%):
  • Note that net cash as a percentage of revenue always topped 30% between FY 2020 and the preceding H1 — during which three special dividends were declared. 
  • Net cash rebounding to the equivalent of 30% of revenue may not take too long.
  • After all, this FY’s free cash flow was £20m, which if repeated for FY 2024, would take the cash position to £29m assuming ordinary dividends remain at £11m. Net cash of £29m is equivalent to 37% of this FY’s revenue. 
  • Bank interest received during this FY was a useful £1.2m:
  • Year-end cash averaged £28.6m, giving an effective 4.2% interest rate (£1.2m/£28.6m):
  • ASY said interest received was in fact 4.3%:

“Deposit accounts comprise instant access interest-bearing accounts and other short-term bank deposits with a maturity of three months or less on inception. Interest was received at an average floating rate of approximately 4.3% (2022: 1.3%). 

  • The £680k bank interest earned during H2 equated to 4.6% of H2’s average £29.6m cash balance.
  • ASY’s capital expenditure is complicated by the group acquiring equipment for resale but then capitalising a proportion of that stock into the hire fleet:

“In addition a further £2,522,000 of items held in stock at 31 December 2022 (2022: £2,651,000 items held in stock at 31 December 2021) have been capitalised in the hire fleet this year.“.

  • Such stock-to-fixed-asset transfers are unusual, but presumably reflect ASY offering equipment for hire that could not be sold direct.
  • Between FYs 2019 and 2023, stock with an aggregate £12m value was reclassified into the hire fleet.
  • This £12m is arguably capital expenditure rather than working-capital investment, although the net effect on cash flow is zero.
  • ASY’s stock footnotes raise two other points:
  • First, the cost of stock recognised as an expense of £7.7m exceeded revenue from equipment sales of £2.9m:

“The cost of stock recognised as an expense in the period was £7,680,000 (2022: £11,167,000).” 

  • Those figures imply ASY sells equipment at a loss (see UK).
  • Second, the £2.4m stock position is stated net of impairment provisions of £0.9m:

“Inventory is stated net of impairment provisions totalling £877,000 (2022: £1,297,000).

  • A £0.9m inventory provision equates to a very significant 36% of this FY’s stock value and indicates ASY suffers from material levels of inventory obsolesce or damage. The figures imply £9 of every £33 invested in stock is written off entirely.  
  • Emphasising ASY’s generally conservative accounting, a small profit over the book value of disposed equipment has been recorded every year since at least FY 2005:

Financials: margin and return on equity

  • The aforementioned high margins within the UK and European divisions ensured the group converted a record 29% of revenue into profit:
  • A 25% H1 margin was followed by a 32.6% H2 margin — the highest for any six-month period since at least H1 2008.
  • Supporting margins during this FY was a 10% reduction to cost of sales and a 23% reduction to distribution costs:
  • Cost of sales absorbing 34.3% of revenue was the lowest FY proportion since at least FY 1998, while distribution costs absorbing 14.5% of revenue was the lowest FY proportion since FY 2003 (14.1%):
  • Mind you, administration expenses absorbing 21.1% of revenue was the highest FY proportion since at least FY 1998.
  • Note that this FY’s margin comparison was complicated by provisions covering:
    • Extra French closure costs of £464k, and;
    • UK restructuring costs of £1,011k during this FY and the comparable FY.  
  • A high margin combined with the aforementioned hire-equipment productivity leads to appealing returns on equity (ROE).
  • Reported earnings of £18m versus average shareholder equity employed during this FY of £53m gives a conventional return on equity of 34%:
  • Assuming earnings remain steady, ROE ought to improve during the next few years after the aforementioned £25m special dividend reduced shareholder equity by a commensurate amount.
  • Despite the £25m special dividend, ASY’s largest balance sheet asset for this FY — and for the eleven FYs before that — was cash:
  • For perspective, during this FY, shareholder equity excluding cash averaged £24m while earnings excluding interest income was approximately £16m — leading to a remarkable cash-adjusted conventional ROE of 66%.

Financials: pension scheme and employees

[H1 2023] “Since the period end, the company has worked with the pension scheme Trustees and pension advisors, Hymans Robertson, to successfully de-risk its defined benefit scheme by completing a buy-in deal with Canada Life. 

This transaction, whilst significantly reducing the defined benefit pension scheme surplus recorded on the balance sheet, means that future liabilities are fully de-risked and the company will not be required to contribute significant cash payments into the pension scheme to fund adverse liability movements. During 2021 and 2022 the company contributed £2.6m of cash into the defined benefit pension scheme.“

  • The buy-in did indeed “significantly [reduce] the defined benefit pension scheme surplus recorded on the balance sheet“:
  • Employer contributions of only £120k during this FY confirm ASY did not have to contribute a sizeable sum to the scheme to complete the buy-in:
  • The buy-in is represented by a £27m “insurance asset” that effectively shifts responsibility for the scheme’s obligations to Canada Life:

“This transaction, whilst significantly reducing the defined benefit pension scheme surplus recorded on the balance sheet, means that future liabilities are fully de-risked and the company will not be required to contribute significant cash payments into the pension scheme to fund adverse liability movements…

No cash contributions are to be made during 2024.” 

  • The buy-in should now eliminate significant distortions between ASY’s profit and cash flow.
  • ASY had been contributing an annual £1.3m into the scheme…
  • …most of which bypassed the income statement and was therefore not charged to earnings:
  • Perhaps the most remarkable feature of this FY concerned ASY’s employees; the workforce was reduced by 13% to 479:
  • 479 is the lowest headcount since FY 2012 (472):
  • Revenue per employee rallied to £164k — a new high and some distance beyond the £115k-£137k range witnessed between FYs 2010 and 2022.
  • Despite fewer employees, the total staff cost remained at £23.1m, suggesting ASY pruned the less productive workers and gave the more productive a pay rise. 
  • The average cost per employee during this FY in fact gained £6k to £48k.
  • ASY said the lower headcount was “driven by operational efficiencies“.
  • Revenue per employee and ‘absenteeism’ are very welcome KPIs:

“The group uses Bradford Factor scoring in the UK, a common means of measuring worker absenteeism. In using this measure to manage absenteeism the group has reduced the staff absenteeism metric during the year. The Board is pleased with this reduction and would seek a similar reduction in 2024.” 

  • Between FY 2020 and this FY, absenteeism has reduced from 1.67% to 1.54% to 1.42% to 1.01%.
  • More quoted companies should publish an absenteeism KPI.
  • I speculate the pandemic has helped ASY find more efficient ways of working. Although ASY employs some 113 fewer people versus pre-pandemic FY 2019, FY revenue remains at approximately £78m.

Valuation 

  • This FY’s terse FY 2024 outlook did not give much away:

“Trading momentum has continued into the current year, with overall performance in the year to date in line with the Board’s expectations. The group is confident in its core markets, its revenues and its profits.” 

  • …updates have not been published since 30 May. 
  • Perhaps ASY’s blog writer has become a casualty of a further workforce reduction.
  • FY operating profit approaching £23m less 25% standard UK tax gives earnings of £17m or nearly 41p per share.
  • The valuation sums could be fine-tuned for:
    • The £20m net cash position;
    • UK restructure costs;
    • The elimination of French losses;
    • A revival of Middle Eastern profit, and;
    • Annual IFRS 16 lease-financing costs of almost £0.8m. 
  • But at least the valuation sums do not have to be fine-tuned for the “de-risked” pension scheme.
  • The 560p shares are valued at 13-14x my 41p per share estimate, which does not appear outrageously expensive for a high-margin, cash-rich and cash-generative business that:
    • Has delivered a record profit for this FY;
    • Offers further expansion opportunities within Europe, and;
    • May possess vague bid hopes should the Murray family want to exit (see Potential bid target?).
(Source: SharePad)
  • Bear in mind ASY’s P/E has tended to bob around the 15x mark during the last ten years and has rarely climbed to a 20x rating:
(Source: SharePad)
  • Keeping a lid on the P/E may be:
    • The Murray family’s 91% ownership (see Potential bid target?) and limited free float;
    • A lack of reinvestment opportunities for growth, underlined by that £25m special dividend, and/or;
    • The profit ups and downs due to the weather.
  • Plus ASY’s economies of scale may not be fantastic. In particular, previous results have shown a consistent 1.2x limit between revenue generated from the group’s hire equipment and the original cost of that hire equipment: 
  • A sustained P/E re-rating may therefore require ASY to earn more revenue from its existing hire equipment, rather than through consolidating its UK locations and/or opening more depots within Europe.
  • For now the 25.9p per share trailing twelve-month ordinary dividend supplies a 4.6% income at 560p.

Potential bid target?

  • I continue to speculate ASY may become a bid target.
  • Jean-Jacques Murray becoming executive chairman is very intriguing.
  • After all:
    • ASY has coped well employing just one board executive (ASY’s managing director) since 2011, and;
    • The Murray family had previously never undertaken an executive ASY role since taking the aforementioned controlling interest during 1994.
  • Jean-Jacques Murray alongside his brother Jean-Pierre Murray control 91% of ASY following the death of their father, Jacques-Gaston Murray, last year.

[2016 AGM notes] “The controlling family, who are not involved in the operation of the business, like the higher levels of management governance a stock-market listing can provide“

  • Holding just two main board meetings a year also indicates a ‘hands off’ approach:
  • But now an executive, Jean-Jacques Murray appears very much ‘hands on’… although I doubt he will be managing water pumps and temporary boilers.
  • I speculate Jean-Jacques Murray might instead be contemplating corporate activity.
  • Wishful thinking perhaps, but that £25m special dividend alongside “de-risking” the pension scheme could be interpreted as optimising the balance sheet for a potential bidder.
  • After all, corporate suitors never like to:
    • Pay a premium for surplus cash, and;
    • Guess whether pension obligations will turn into ‘black holes’.
  • Exiting France and reducing the workforce by 13% are other decisive actions that may have been encouraged to ‘tidy up’ the group.
  • Selwood manufactures and hires out a wide range of industrial water pumps from 21 UK branches: 
  • Siltbuster meanwhile claims to operate the UK’s largest rental fleet of water-treatment equipment:
  • Arcus paid a £391m enterprise value for Workdry International, the holding company of Selwood and Siltbuster:
  • Arcus therefore paid 13x operating profit for Workdry, which if applied to ASY would give a near-£300m market cap or a share price just beyond 700p (excluding any additional value for ASY’s £20m/48p per share net cash). 
  • Perhaps with a view to optimising the balance sheet, Workday undertook a pension-scheme buy-in with Aviva just before the sale to Arcus:
  • The Murray family were cited by the Sunday Times Rich List 2024 as being worth £2.8b, and maybe the death of Jacques-Gaston Murray will prompt a review of the family’s portfolio.
  • The family’s 91% ASY shareholding carries a £213m market value and therefore represents less than 10% of their estimated fortune.
  • The Murray family’s other London-quoted investment — a 99% shareholding in London Security (LSC) — has a market value of approximately £478m.

Maynard Paton

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Investing in shares for 25+ years. Former share tipster. SharePad evangelist. Blogger. Webhost nerd. FIRE. Read more | Contact

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