AJL - AJ Lucas Group

[Dukey]

Well - over the last couple of days AJL has commenced share buybacks which show a maximum of around 5.45 mill shares to be bought back over the coming months.... thats almost 10% of the 59Mill AJL shares in the market - so in theory that should allocate an extra 10% ... of what... enterprise value (?) to the remaining shares... can't hurt I guess.
Wouldn't mind more news on contracts etc.
-E

 

[pointr]

So AJL continues to drift lower, a fair part of each days trade being AJL's buyback. Probably not much incentive to release good news if there was any, as they are currently getting more bang for their buy back buck with this falling share price. One would think that with the current and continuing interest in CSG, that the company that drills a lot of the wells and also builds pipelines would be in a very good place.

 

[Goldmann]

yeah Pointr - agreed... i dont understand the negativity around this one at all... just no real interest...

 

[Jonathan111]

yeah Pointr - agreed... i dont understand the negativity around this one at all... just no real interest...

Hi Goldman,

There is alot of talk about the low share price, i think the factors include: about a Reedeemable Convertible Preference Share issue, VWAP, Spec Div, ann 8/12/08, and back back.. But i am also stumped..

 

[Dukey]

Hi Goldman,

There is alot of talk about the low share price, i think the factors include: about a Reedeemable Convertible Preference Share issue, VWAP, Spec Div, ann 8/12/08, and back back.. But i am also stumped..

Any chance you could explain your thoughts on these factors a bit further Jonathan? - I'd be interested hear.
My opinion is it's mostly related to the general market sentiment rather than anything else. Business outlook for AJL should be pretty good with their strong focus on Coal seam drilling, pipelines etc. - which is showing no signs of slowing.
In fact it looks like the Hunter to Qld pipeline is go!! - that would be a great contract for AJL if they can jag it.
-e

 

[Jonathan111]

Any chance you could explain your thoughts on these factors a bit further Jonathan? - I'd be interested hear.
My opinion is it's mostly related to the general market sentiment rather than anything else. Business outlook for AJL should be pretty good with their strong focus on Coal seam drilling, pipelines etc. - which is showing no signs of slowing.
In fact it looks like the Hunter to Qld pipeline is go!! - that would be a great contract for AJL if they can jag it.
-e

Hi Dukey,

These are things ive heard on other forums, but have not done my own research to find out if they are true or not:

1.
$300million realised in cash, and that is cash in the bank.
$50million will be used to retire debt.
$15millionish allocated for buy back.
Tax to pay on sale of assets? Anyone have any ideas on this, i am pretty sure they had these assets on their books at full prices, but lets be really conservative and say they will have to pay $40million in tax????
That leaves $200millionish in cash.
59million shares on issue this will be reduced to 55million or so.
Effectively the current market cap is covered by their cash, so at current prices AJL is a free call option on their business.

2.
Just so I understand this you are proposing that maybe if there is a special divi coming up and some of the note holders know about it , then the devious bartards sink the sp to then be eligible for more shares to cover the $45 million of convertible notes.. Is that how it would work? So rather than giving out potentially 6 250 000 shares at 7.20 AJL they have to give out twice that..


3.
These convertibles were issued "just in case" the restructuring that saw GB and ATP651 put on the market didn't within the anticipated timeframe. As it turns out the breathing space wasn't necessary but without it there could have been pressure applied by potential purchasors of these assets - also AJL would have risked being lumped in same basket as other potential re-financing cos - sp hammered.
When the convertibles were being put together there was talk of a sp div to use some of the proceeds os asset sales - so the convert price needed a clause to re-adjust. That seems fine to me. With hindsight the conversion price of $7.20 looks ok. I daresay AJL would like to redeem these early (like now) as interest payable on these is north of 11% but I don't think this is allowed - but it's a while since I read the deed.
So, these convertibles are not having any affect on the buyback or the falling sp.
BUT - another series of convertibles that I think have been fully redeemed over past 12-18mths might be having a shadow effect, with those shareholders that converted feeling nervous and offloading into the buyback. It is quite possible that their risk profile is not as robust as the long-term equity holders in this company. As I recall there were about $20m of these convertibles - some would have cashed out before AJL sarted running and it may well be that this buy back will mop the rest up.
I expect we will hear about the sp div with the half-yearly.

4.
This sp reaction to this buyback is all too common these days. imo it goes like this - investor needs cash, looks at portfolio and decides to sell into a buyback - assumptions being made are that price will fall post-buyback and in the meantime sp is being supported. ie buyback fluhes out sellers, many of whom might well have sold other investments in its absence.



I hold a small parcel long term. (to replace my sgl holdings).
Contemplating buying more..

If point 1 is true then i will go heavy.

 

[jancha]

Hi,
Could someone explain why AJL are buying back 10% of their shares & why should they drop in price? If there's plenty of drilling work out there for them & they're reducing the numbers of shares by buying them back shouldn't that increase the share price not reduce them?

 

[oldblue]

Your theory's right as far as it goes.
The SP movement just says there are more sellers than buyers at present - including AJL in the buyers - and for whatever reason the sellers are keener to sell than the buyers are to buy.

 

[pointr]

Well said oldblue, unargueable logic. It was once said that the market is a very effective pricing tool. I assume AJL is to release half yearly figures this week, these may show the market to be right or wrong.

 

[jancha]

Thanks for that Old Blue But why does the company want to buy back the shares? Whats the object of that...more money in their pockets in the long run? And if what Pointers saying in regard to the market being the best guiding tool....would that suggest AOE won't come back with a counter offer for PES as the share price for PES have dropped today suggesting that. I know thats a different thread altogether but on those priciples would that be correct?

 

[oldblue]

I don't really know much about AJL but it suggests to me that they have cash surplus to their requirements and that they have no other, better use for it. That's the usual motive for a share buyback and, again in theory, it results in the profits of the company being spread among a smaller number of shares with a commensurate increase in the SP. Again, all other things being equal!

The fact that the PES SP has dropped would indicate that the market doesn't expect AOE to make a higher offer.
As usual, we'll have to wait and see.

 

[pointr]

I've had a casual read of AJL's 1H09 results today and found them to be positive and cautiously optimistic for their future. The language as is usual for this company is conservative. They have also increases the interim dividend by a reasonable percentage. The net result as far as share price goes has been a drop of about 3% last time I looked. Am I missing something here

 

[pointr]

Well AJL certainly dropped by more than 3% on Friday and another 12% today. I take a little comfort that the average of each trade today was about 1200 shares. The weak thing I noticed in the half yearly report was that if you took out the Gloucester 1 off gain, you also took out most of the 'cream'. Perhaps it is still as was said last week "the sellers are keener than the buyers".

 

[Mad Mel]

AJL bought back 500,000 shares (~10% of their total buyback) yesterday, by far the largest single amount yet. Perhaps a sign that they think that the SP has bottomed out? Or that they want to get on with it so they can start releasing good news stories and bring the SP back up? Thoughts?

 

[Dukey]

The SP performance is indeed very mysterious to put it nicely - given the kind of volumes they are buying back?
Who the hell is selling at these crazy prices?? Any ideas folks?

and why havn't the ASX issue a WTF?! notice. - not that it would achieve anything other than the standard 'no reason that we know of' response.

Company reports massive profit increase - SP plummets.... spells something fishy to me!
-E

 

[grace]

The SP performance is indeed very mysterious to put it nicely - given the kind of volumes they are buying back?
Who the hell is selling at these crazy prices?? Any ideas folks?

and why havn't the ASX issue a WTF?! notice. - not that it would achieve anything other than the standard 'no reason that we know of' response.

Company reports massive profit increase - SP plummets.... spells something fishy to me!
-E

Yes Dukey, I am scratching my head as well. I didn't think we'd see the $2 in front. Should we buy more.....or is there something leaking that is bad?

Rumour and gossip can destroy a share price. I just haven't heard any goss though.

 

[pointr]

AJL released a very informative 'Investor Presentation' on the ASX yesterday-late. Also yesterday inside an origin energy announcement it disclosed that AJL has been chosen to build an 80klm gas pipeline in western Victoria. In the presentation they stated that they were going to sell off more assetts in 2010(they probably have enough earnings this year post Gloucester).Also in the presentation they stated that the Gloucester csg project turned a 28.5 M investment into 380M, a nice return. THe presentation also contained continuing reference to building AJL presence in water management, recycling and ownership. So only good news still from AJL

 

[Dukey]

So now we see where at least some of the downward pressure has been coming from - Westpac / BT have been offloading shares over recent weeks - reduced their holding by about 600 000 odd shares.

Meanwhile AJL have been buying back nice and cheap, and then cancelling those shares they bought - so in the long run it should be good for shareholders... increasing the underlying value of each remaining share...
well thats my take on it anyway.

Might see some upward movement if WBC / BT has stopped selling...

There certainly seems to be plenty of drilling continueing in CSG sector, plus other big contracts for AJL like the desal plant in WA, so outlook should be pretty good - despite the nasty GFC.

- any other ideas out there on this one?

 

[pointr]

No fresh ideas Dukey. Anything released to the market has only been good. The company only seems to speak in conservative engineers speak as compared to mining spruikers speak. Currently during a buyback it would only be in their interest to release the absolutely necessary good news. I like AJL, if I had spare $$'s I'd buy more. I think it is well positioned in the services it offers. I'm more a investor than a trader and even my limited brain has come to the realisation that as well as the company, I'm investing in the markets opinion of the company. So it may take awhile for the market to turn its attention in a positive way to this stock.

 

[Nero64]

Hi AJL holders,

Looking into this stock and it looks promising with its cash, appreciable equity and low share count.

Read a few pages of this thread as well.

After selling Gloucestor does this company own any GSG assets? Maybe its lack of holding has caused the sluggish share price. You only have to look at BPT to see what happend after it off loaded its CSG assets to AOE.

Its seems to have a 3-5 years of stable contracts on board but what is it doing with its cash. CSG or oil would be a good start.

Looks good long term provided it can use its cash well, but wondering if there is more down before up.