AFG - Allco Finance Group

[tronic72]

Looking at AFG as a current buy

Looking to buy AFG. I think it's currently an undervalued stock but I don't know enough about it. The company looks like it has a good footing but the board hasn't be too great. I've also noticed many members have been burnt (this is often my reason for jumping in)

I hope the mods don't see this as Spamming as I've already had a warning and am not 100% sure why. I'm a new member so I'm happy to be told "what's what"

Thanks.

 

[professor_frink]

Re: Looking at AFG as a current buy

Looking to buy AFG. I think it's currently an undervalued stock but I don't know enough about it. The company looks like it has a good footing but the board hasn't be too great. I've also noticed many members have been burnt (this is often my reason for jumping in)

I hope the mods don't see this as Spamming as I've already had a warning and am not 100% sure why. I'm a new member so I'm happy to be told "what's what"

Thanks.

I've moved this to the AFG thread.

In the future, it would be good if you could do a search to see if there is already a thread on a company you want to talk about, and if there is, then could you post in the relevant thread please.

Tronic, you didn't get a warning about spamming. Check you PM box, and read the message again. You were asked for information after you called a company a good buy without giving any reasoning, and then preceded to go on the attack instead of providing some.

 

[tronic72]

Re: Looking at AFG as a current buy

I've moved this to the AFG thread.

In the future, it would be good if you could do a search to see if there is already a thread on a company you want to talk about, and if there is, then could you post in the relevant thread please.

Tronic, you didn't get a warning about spamming. Check you PM box, and read the message again. You were asked for information after you called a company a good buy without giving any reasoning, and then preceded to go on the attack instead of providing some.

Hi Fink,

It's form of SPAMMING. I'd forgotten what it was called. I deleted the E-mail can you remind me the name of it. I'm new and I don't want to tread on peoples toes.

Thanks

 

[professor_frink]

Re: Looking at AFG as a current buy

"Hi Fink,

It's form of SPAMMING. I'd forgotten what it was called. I deleted the E-mail can you remind me the name of it. I'm new and I don't want to tread on peoples toes.

Thanks"


Check your PM box. I've re sent it.

 

[Pager]

Re: Looking at AFG as a current buy

Looking to buy AFG. I think it's currently an undervalued stock but I don't know enough about it. The company looks like it has a good footing but the board hasn't be too great. I've also noticed many members have been burnt (this is often my reason for jumping in)

My average cost is $7-50 so yes im behind, in the long term I think they will do very well, they're a well run company, many brokers have price targets of over $12 on them, not that that is any guarantee they will get there.

There are worries about its purchase of Rubicon and also the credit problems in the US aren’t helping, AFG have stated more than once they have no exposure to sub prime or issues relating to credit but sentiment is against them so until that cloud has passed I wouldn’t expect any kind of rapid upwards movement.

I’m holding for the long term and would have been nice to pick them up cheaper but that’s life, happy to hold.

The whole sector has taken a hit with credit concerns etc and who knows another few weeks and they may all be cheaper still, have taken the opportunity though to top up my stake in Macquarie and bought PTM below its $5 IPO price, remember the scrum when that listed at a massive premium only a few months ago.

 

[tronic72]

Hi Pager,

Thanks. Just purchased at 6.7 which I think is a really nice price. This is the kind of company buyers will look at when the shine starts to come of the commodities.

IMHO.

Thanks again.

 

[michael_selway]

Re: Looking at AFG as a current buy

My average cost is $7-50 so yes im behind, in the long term I think they will do very well, they're a well run company, many brokers have price targets of over $12 on them, not that that is any guarantee they will get there.

There are worries about its purchase of Rubicon and also the credit problems in the US aren’t helping, AFG have stated more than once they have no exposure to sub prime or issues relating to credit but sentiment is against them so until that cloud has passed I wouldn’t expect any kind of rapid upwards movement.

I’m holding for the long term and would have been nice to pick them up cheaper but that’s life, happy to hold.

The whole sector has taken a hit with credit concerns etc and who knows another few weeks and they may all be cheaper still, have taken the opportunity though to top up my stake in Macquarie and bought PTM below its $5 IPO price, remember the scrum when that listed at a massive premium only a few months ago.

Do you reckon it will be a takeover tarket?

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 63.9 78.6 95.1 107.2
DPS 44.0 44.0 49.0 53.5

thx

MS

 

[3MT]

Took interest in this stock when Citigroup mentioned that this is a very mis-understood company and as a result very underpriced compared to its peers.

I have been waiting patiently and at the same time trying to get a grip on the business (I still don't quite understand the business to the level where I am comfortable to invest in it -- too much leverage all over the place is confusing to me)

Hence any entry for me would be purely from a technical point of view and as Reece and others have mentioned, its not the right time to enter even though my gut feel is it must surely be good value at these levels with directors buying into the company at much higher levels.

 

[tronic72]

Hi 3MT,

I'd actually purchased late last week and have now purchased another two parcels of AFG. Today's Citigroup announcement has been the shot in the arm Allco needed to turn around their share price.

See link: http://biz.yahoo.com/ap/071126/citigroup_abu_dhabi.html

I'm almost certain this morning saw the lowest prices for this stock, so any further waiting will simply cost more. IMHO, Unless another Google comes along, I'll be keeping these shares long term as I believe they represent superb value.

I'm already up over 4% on the third parcel I purchased today after hearing the news!

Thanks for the news 3MT, I haven't read that comment by CitiGroup, but it confirms my belief in the value and potential of this stock at current prices. Out of interest, where did you read the comment by Citigroup? I'd be interested to have a look at the article if it's still current.



If this afternoon is any gauge, I foresee very nice gains in both the short term and long term for Allco.

 

[tronic72]

Re: Looking at AFG as a current buy

Do you reckon it will be a takeover tarket?

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 63.9 78.6 95.1 107.2
DPS 44.0 44.0 49.0 53.5

thx

MS

I'd say no.

Due to the fact that the company has yet to integrate it's recent acquisitions to show that their purchase was in fact good value and that they have been able to ad value to the sum of the parts by joining them together.

Clear as mud?

 

[3MT]

I hope you are right Tronic. I'd like to see you folks make $.

I subscribe to various newsletters and one of them issues broker reports that come out each day. I try to look for a consensus or identify a good call and then do further research on my own to see if its worth my while. Then I wait patiently Call me a conservative, but I've been in the game for too long (ie. made lots of bad calls before)

I think that AFG comment came out last week some time from memory.

I am still bearish about financial stocks in general. I think there are better opportunities elsewhere at this stage (resources, infrastructure, health), but if I had to consider a financial stock, NAB (following the brokers here) and AFG would be my preferences.

 

[tronic72]

I hope you are right Tronic. I'd like to see you folks make $.

I subscribe to various newsletters and one of them issues broker reports that come out each day. I try to look for a consensus or identify a good call and then do further research on my own to see if its worth my while. Then I wait patiently Call me a conservative, but I've been in the game for too long (ie. made lots of bad calls before)

I think that AFG comment came out last week some time from memory.

I am still bearish about financial stocks in general. I think there are better opportunities elsewhere at this stage (resources, infrastructure, health), but if I had to consider a financial stock, NAB (following the brokers here) and AFG would be my preferences.

Thanks 3MT,

Another 2% up when the market is going backwards, so it's all good at the moment.

I'm also quite conservative. After all it's money! I try and find companies at the bottom of a downward trend that the Market has been overlooking. I'm hoping this is the situation for Allco.

Time will tell.

T

 

[bewick]

UBS Investment Research
Allco Finance Group Limited
A FG pays up for Rubicon
Proposed acquisition of Rubicon – EGM set for 12 December
AFG has announced that (subject to shareholder approval) it will purchase the 80%
of Rubicon it does not own for up to $328m via cash and scrip. This is a related
party transaction given David Coe (AFG’s Executive Chairman) owns 20% and
Gordon Fell (AFG Non-Exec Director) owns 45% of Rubicon. Strategically this
boosts AFG’s Real Estate AUM from $3.9b to $9.1b, increases geographical reach
and its origination capability. This helps accelerates its business transformation.
However, the price paid looks large.
In conjunction with our Real Estate team, we estimate Rubicon’s NPAT could fall
from $35m in FY07 to $12m in FY08E (see within). This is a result of substantial
transaction fees in prior years that management stated are unlikely to re-occur. This
implies AFG is paying a “base case” 35x FY08 (7.9% of AUM) for Rubicon.
Wholesale funds must be raised or this deal could be 5% EPS dilutive.
To make this deal work AFG must raise c$2b in new AUM p.a. primarily from the
wholesale markets (consistent with pref share hurdles). Otherwise, given falling
base case Rubicon NPAT this deal to be up to 5% EPS dilutive to AFG in the first
full year. AFG is also acquiring more underperforming funds that will be subject to
a strategic review. A potential merger of RRT, RAT, REU & RJT could help.
Valuation: Reduce Price Target by $1 to $11.50.
We have reduced our SOTP-based PT to $11.50. This implies a 12% discount to
the Asset Originator peers (BNB, MBL & CFG). While we see upside from AFG’s
business transformation, it needs to demonstrate an greater ability to raise
wholesale funds
ab
Allco Finance Group Limited 23 October 2007
UBS 2
Details of the proposed acquisition of Rubicon
AFG has proposed to acquire the remaining 79.6% of Rubicon Holdings
Australia Limited that it does not already own, subject to the approval of
shareholder at an EGM on 12 December 2007. Total consideration paid is
expected to be around $328m comprising:
$63.7m in Cash.
23.9m new ordinary shares in AFG.
5.8m converting redeemable preference shares which will automatically
reclassify into AFG ordinary shares if certain targets are met (based on
targeted AUM growth of 20% p.a.).
Summary of Rubicon
Rubicon is a global real estate asset manager. It currently has approximately
$5.6b in Assets Under Management (AUM). These assets are held
predominantly through three listed Australian Property Trusts: Rubicon America
Trust (RAT); Rubicon Europe Trust (REU) and Rubicon Japan Trust (RJT).
Rubicon currently owns between 9-12% of each of these trusts.
Rubicon currently has 44 employees of which 18 are located outside Australia.
Approximately half of its employees are in origination and financing.
Rubicon is currently ownership structure
A potential criticism of this transaction is the very close ties between AFG and
Rubicon. The current ownership structure of Rubicon is:
20.4% - AFG
19.9% - David Coe (Executive Chairman of AFG)
44.9% - Gordon Fell (Non-Executive Director of AFG. To become
Executive Chairman of AFG’s Real Estate Division post completion).
14.8% - Matthew Cooper (COO of Rubicon. To join AFG post completion).
Following this transaction the staff ownership of AFG will rise from
approximately 41% to 46%.
Strategic rationale
We believe that AFG has entered this transaction to increase its scale and
capability within the Real Estate sector. This forms a key component to the roll
out of its funds management platform across its key asset classes (transportation
assets, infrastructure, property and financial assets).
The combination of AFG’s existing property business with Rubicon
substantially increases the size of this business and its importance to AFG. Total
AUM will rise from $3.9b to around $9.2b. Geographic diversification is also
increased. In addition, this acquisition increases the capability of AFG’s
acquisition team, with staff rising from 53 to 97 people.
AFG’s real estate portfolio will now include five listed vehicles and one
wholesale fund following the completion of the Rubicon deal.
Allco Finance Group Limited 23 October 2007
UBS 3
Financial Impact Less Attractive
Forecasting future earnings of Rubicon is difficult as highlighted in
management’s decision not to provide any earnings guidance. As a result, we
have conservatively modelled our expected earnings for Rubicon in conjunction
with our Real Estate Team.
Table 1: Estimated Rubicon “Base Case” NPAT (A$m)
2007 2007 "Normalised" 2008E
Co-investment Income (distributions) 14.1
Management Fees 22.5
Sub-Total Recurring Income 16.4 38.7 36.6
Advisory & Transaction Fees 15.0 54.0 10.0
Total Revenue 31.4 92.7 46.6
Expenses -10.0 -22.0 -13.0
Financing Costs -13.9 -16.0 -16.0
Share of Associates 0.6 0.0 0.0
Profit Before Tax 8.1 54.7 17.5
Income Tax -2.5 -19.4 -5.6
NPAT 5.6 35.3 11.9
Spot AUM 3,800 5,230 5,230
Average FUM (est) 2,975 4,753 5,230
Recurring Income to Ave AUM (bp) 55 81 70
Cost to Income Ratio (%) 31.8 23.7 28.0
Effective Tax Rate (%) 30.9 35.5 32.0
Source: Company date, UBS estimates
We estimate that Rubicon’s earnings could fall sharply during FY08 from
$35.3m to around $11.9m. This “base case” is a result of:.
FY07 “Normalised” NPAT was boosted by substantial Advisory and
Transaction fees, primarily related to the listing of RJT. During the conference
call, management stated that it would be “unusual for these to re-occur”. As a
result, we estimate that Rubicon could generate around $10m in Advisory and
Transaction fees during FY08, down from $54m in FY07. This assumes that
there are no new IPO’s or substantial capital raisings over the next year.
We have assumed that expenses fall substantially in FY08 as bonus payments
are likely to come back. We have assumed a 32% cost to income ratio.
Financing Costs were highlighted as a potential area of potential savings to
Rubicon as they move onto AFG’s balance sheet. Previously AFG had provided
Rubicon with warehouse funding and a merged entity would have a cheaper cost
of capital. However, funding savings to Rubicon would be lost revenue to AFG
with any benefit eliminated on consolidation. As a result we see no net impact.
We have also assumed that Rubicon’s AUM remains flat over the next year.
Management have stated that Rubicon will not raise new funds within its
vehicles until the share prices are trading above NTA. At present its three listed
Allco Finance Group Limited 23 October 2007
UBS 4
funds are trading at discounts to NTA of between 11-27%. Given current market
conditions and previous track record, we believe that an IPO of a new LPT
would also be difficult for Rubicon. As a result, Rubicon must look to wholesale
funds as a new source of capital.
Implied Price Paid for Rubicon
Given our estimate of stand alone NPAT for Rubicon of $11.9m, we estimate
that AFG is paying a “base case” of around 34.6x FY08E for the business. This
also implies around 7.9% of AUM. We believe that this is fully priced.
EPS Impact of the acquisition of Rubicon
Given our conservative “base case” forecasts for Rubicon’s earnings prospects
in FY08, we believe that this transaction could potentially be around 5% EPS
dilutive to AFG during the first full year.
Table 2: EPS Impact of “Base Case” Rubicon on AFG during the First Full Year (A$m)
FY08
AFG NPAT 277.4
Rubicon NPAT 11.9
Cost Synergies 1.0
Funding Cost on Cash Paid to Rubicon Shareholders -4.5
NPAT Post Transaction 285.9

 

[tronic72]

Bewick,

I don't mean to be rude, but I'm not sure why you posted that information as it's quite old now. Am I missing something? (I read it twice)

 

[tronic72]

Allco reassures investors of stability
Wednesday December 19, 2007, 9:02 am
Allco Finance Group (Allco) has become the latest investment company to assure investors that it is financially stable.

In the wake of the US-based subprime crisis, and the collapse of securities in Centro Properties Group over the last two days, Allco says its current funding facilities are sourced domestically, and it's not directly reliant on financing or refinancing in the US debt markets.

In a statement to the Australian stock exchange, Allco outlined its debt facilities, including three facilities ranging between $250 million and $900 million maturing between May 2008 and November 2012.

Allco said it had cash and undrawn capacity under these senior facilities of $314 million.

At June 30, 2007, Allco said, shareholders' funds totalled $2.2 billion.

Its gearing ratio was approximately 35 per cent.

Allco said the total debt on its balance sheet was $6.1 billion at June 30, of which $5.5 billion had limited recourse against the specific assets which it financed.

"We actively manage our business in the context of our available funding facilities and current transactions have committed bank funding in place, together with sufficient capacity under Allco's above facilities to fund Allco's investments," the company said.

NOTE: Currently holding AFG as of yesterday

 

[waz]

UBS has downgraded AFG from Buy to Hold, with a nice round figure of $6.00

They think its too complex to asses a target price, which you could say about any company that uses gearing as a way of making money.

UBS may aswell rate the entire sharemarket as a hold.

 

[tronic72]

UBS has downgraded AFG from Buy to Hold, with a nice round figure of $6.00

They think its too complex to asses a target price, which you could say about any company that uses gearing as a way of making money.

UBS may aswell rate the entire sharemarket as a hold.

Let me first say, I purchased AFG today.

Let me secondly say. After this recommendation, I'll never read anything that comes from UBS. I mean, come off it! Where did they get $6 from? I agree with Waz, it's far too neat, this is the exact same company that the likes of UBS were recently recommending as a buy. Nothing has changed. If Allco has a fault, it's their lack of transparency to the Market. But they've recently, on numerous occassions reassured the Market that the Sub-Prime issue will have little effect on them. Only today they've reiterated that they get their finance from the much more secure Australian Banks.

Even though the price has dived I'm still happy with my purchase. Find an similar company with a P/E Ratio that's within a 1000 miles of AFG. If anyone else can find a company for $5.50 with a divided of .44 then please tell me so I can buy it.

PS. Did UBS actually say they couldn't calculate target price or where you just taking the pi$$. I assumed it was the later

 

[waz]

Yes, UBS said it was too complex to asses a target price.

Which pretty much means giving up (Not on the company, but on UBS ability to analyse the company). Even before they had a nice round target price of $9.00

 

[tronic72]

Yes, UBS said it was too complex to asses a target price.

Which pretty much means giving up (Not on the company, but on UBS ability to analyse the company). Even before they had a nice round target price of $9.00

I thought that was the case.

What a waist of time that review is then. I find it bizarre they presume to know enough to revalue the company but not enough to value it accuratly. Like you, I find it a litte bit too tidy they picked $6. I suppose if Zinifex was in the same boat as Centro, UBS would knock a third of the value of BHP.

 

[michael_selway]

Yes, UBS said it was too complex to asses a target price.

Which pretty much means giving up (Not on the company, but on UBS ability to analyse the company). Even before they had a nice round target price of $9.00

Hm interesting, basically they are assuming no growth in EPS in the next few years for the $6 target

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 63.9 73.8 87.4 101.9
DPS 44.0 44.0 48.0 53.0

Date: 19/12/2007
Author: Stuart Washington
Source: The West Australian --- Page: 53
The ASX 200 dropped by 156 points on 18 December 2007, as Australian investorsmoved away from stocks with complex debt structures. The liquidity crisis hasprompted investors to seek simple, transparent stocks. Allco Finance Group andAsciano were among the companies to suffer share price drops on 18 December,with Allco closing down $A0.58 to $A5.88 and Asciano ending the day $A0.40lower. Credit Suisse's Adnan Kucukalic says infrastructure and utilitiesstocks are most at risk