Profits rose at AGA by 19.6% in 2011, but is it a good value play?
AGA Rangemaster (LSE: AGA) makes expensive cookers. These are luxury products and the company was hit hard by the downturn in 2008. Yet it's got plenty of cash and is still in profit.
In this article, I'll review AGA's value credentials in the light of its latest results, which were published today.
Revenue down, profit up
AGA's 2010 results have been restated as the result of a combination of tax credits and debits, so I will focus on figures that have not been distorted too much by this process.
Revenue for 2011 was down 3.3% to £250.9m while operating profits rose by 19.6% from £5.1m to £6.1m, thanks mostly to modernisation of the company's production processes.
Basic earnings per share (eps) for 2011 were 18.1p; AGA's underlying eps rose from 5.2p to 7.1p. The final dividend payment will be 1.1p, taking the total dividend for 2011 to 1.9p (in 2010, it was 1.7p).
AGA's net cash position remains strong at £31.3m, down slightly from £34.6m in 2010.
Value credentials
At first glance, AGA's value credentials are strong:
| Criteria | Value |
|---|
| Net cash | £31.3m |
| Price-to-earnings ratio (current price/2011 earnings) | 4.63 |
| Price-to-tangible-book value | 0.78 |
| Yield | 2.2% |
| Current share price | 86p |
Sources: AGA Rangemaster 2011 Annual Report, Digital Look
The yield is weak, but AGA's modest valuation and strong net cash position should help protect the downside. Based on tangible assets alone, a fair share price would be 111p, a level which it has exceeded several times over the last three years.
Pension
Back in January 2011, my Foolish colleague Owain Bennallack took a look at AGA and was concerned by its substantial pension deficit.
Today, that problem remains. On an actuarial basis -- based on a calculation of future liabilities and growth -- AGA's pension was in deficit to the tune of £62m at the end of 2010, the most recent year for which figures are available.
A full valuation of the pension scheme is currently in progress, as is a revision of its funding plan. My instinct is that the solution will not allow the tail to wag the dog -- this won't be a deciding factor in AGA's future.
Cooked or still raw?
So is AGA Rangemaster a good value play? On the face of it, yes. It meets three out of four of value Fool Stephen Bland's pyad criteria, with a price below tangible asset value, a low price-to-earnings ratio and net cash equivalent to about half its market capitalisation.
The only weak area is the yield, which is below average and likely to remain so.
As a small-cap manufacturer of low-volume luxury goods, its recovery could be sporadic and unpredictable, so I wouldn't bet the farm on AGA -- but I might well consider a smaller investment.
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