AFG 4.40% $2.39 australian finance group ltd

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  1. 15 Posts.
    This fresh on Westpac

    Allco Finance Group Limited (AFG)

    Buying time?

    Recommendation 20080225: Sell/Avoid
    Investment Rating
    AFG is a financial services group that invests in a range of businesses and assets expected to generate above average financial returns. Operations cover niche financial products with core asset classes including aviation, shipping, rail, property, energy infrastructure and financial assets. The group specialises in asset origination and structuring transactions, funding and managing assets and management of specialised funds. AFG fits in the growth stock category.


    Event

    Results for the six months to December 31, 2007.

    Reported NPAT down 10% from $93.2m to $83.9m. Normalised NPAT up 11% to $92.1m.

    Normalised EPS down 4% to 26.5 cents. No interim dividend.

    Full Event Analysis

    Impact

    The reported result is below expectations and includes impairment charges of $63.4m and an after tax gain of $37m relating to the adoption of equity accounting in respect of certain investments. There is no interim dividend and no final is anticipated.

    The outcome of many weeks of uncertainty is extremely disappointing. The impact on the share price and ensuing publicity has inflicted severe reputational damage to the business and not just to its financiers.

    The short sellers are covering positions with turnover skyrocketing. At 2.00pm turnover 25m shares.

    It is a little pointless analysing the result as the focus is on the future. Management stated AFG transacted business with clients in aviation and shipping in February but the reputational damage is significant. Will Qantas, Emirates, British Airways etc continue to do business with AFG?


    Recommendation Impact
    (Last Updated: 20080225)
    While some uncertainty has been removed with the release of the accounts risk still remains. AFG may not pull through. The next two months are critical. We therefore have little option but to place a Sell/Avoid recommendation. It is a highly speculative situation.


    Event Analysis
    Event:
    Results for the six months to December 31, 2007.

    Reported NPAT down 10% from $93.2m to $83.9m. Normalised NPAT up 11% to $92.1m. Normalised EPS down 4% to 26.5 cents. No interim dividend.

    Impact:
    * The reported result is below expectations and includes impairment charges of $63.4m and an after tax gain of $37m relating to the adoption of equity accounting in respect of certain investments. There is no interim dividend and no final is anticipated.

    * The outcome of many weeks of uncertainty is extremely disappointing. It is the result of a combination of naivety, hubris, the dislocation in global credit markets and an aggressive and malevolent short selling campaign against the company – whether premeditated and or collusive but almost perfectly executed. The impact on the share price and ensuing publicity has inflicted severe reputational damage to the business and not just to its financiers.

    * The short sellers are covering positions with turnover skyrocketing. At 2.00pm turnover 25m shares.

    * AFG finds itself in this position despite not being in breach of any financial covenants or having defaulted on any loans or late interest payments.

    * Despite a 1H08 normalised NPAT of $92.1m it is difficult to value AFG. These are historic earnings. The market is focused on AFG’s future and future earnings.

    * The $250m bridge facility matures on May 1, 2008 and there is a potential requirement to repay the $900m senior debt in 90 days if given notice. There is no indication from banks that they intend to accelerate repayment of facilities. Management is in constructive and ongoing discussions with banks to all senior facilities and they “anticipate a successful conclusion.” Management is working to reducing debt to acceptable levels by June 2009.

    * If the banks gave notice to pay the $900m by late May AFG could not do so. It is critical for AFG to get through the next two-three month period. That should significantly improve the chances of corporate survival.

    * A restructuring program to reposition AFG to focus on core asset classes of aviation, shipping, rail and real estate is underway.

    * AFG will withdraw from the capital intensive infrastructure and financial assets activities and sell non core assets. This should release substantial capital but will take time which is not a luxury AFG has at present.

    * As mentioned on several occasions by management the core asset classes of transportation and real estate produced solid results.

    * It is a little pointless analysing the result as the focus is on the future. Management stated AFG transacted business with clients in aviation and shipping in February but the reputational damage is significant. Will Qantas, Emirates, British Airways etc continue to do business with AFG? The cost of funds will increase making AFG’s operating lease package less competitive and provide opportunities for competitors to shake business loose.

    * While some uncertainty has been removed with the release of the accounts risk still remains. AFG may not pull through. The next two months are critical. We therefore have little option but to place a Sell/Avoid recommendation. It is a highly speculative situation.




 
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Last
$2.39
Change
-0.110(4.40%)
Mkt cap ! $515.2M
Open High Low Value Volume
$2.51 $2.51 $2.37 $402.0K 165.1K

Buyers (Bids)

No. Vol. Price($)
2 3334 $2.39
 

Sellers (Offers)

Price($) Vol. No.
$2.40 2800 1
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Last trade - 16.10pm 06/12/2019 (20 minute delay) ?
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Last
$2.41
  Change
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$2.49 $2.49 $2.37 16653
Last updated 15.57pm 06/12/2019 (live) ?
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