Stephen Bland takes a look at the high-end cooker company.
Here's a small-cap share with which experienced value investors may be familiar from past trawls, AGA Rangemaster (LSE: AGA). These are the usual fundies with the historical information taken from the latest accounts which were to 31 December 2011. For the forecasts, in common with most small caps, there is only one broker making recent predictions so their merit is much more questionable than the wide coverage given to larger businesses.
| | |
|---|
| Share price | 72p |
| 52w high/low | 113/62p |
| Cap | £50m |
| Net tangibles per share | 111p |
| Net cash | £31.3m |
| Underlying earnings per share (eps) | 7.1p |
| Forecast eps | 8.2p |
| Dividend | 1.9p |
| Forecast dividend | 3.0p |
| Price-to-book (P/TB) ratio | 0.65 |
| Forward price-to-earnings (P/E) ratio | 8.8 |
| Forward yield | 4.2% |
| Directors own | >1% |
| Other majors | 42% |
King of the value ratios is P/TB, so I'll scroot this first. At 0.65 it's well into value territory, and one of the principal reasons I selected it for review here, but the nature of the assets bears examination. There's no undervalued property here as far as I can see, so I'm using the book figure shown above of 111p in net tangible assets per share, which in total is £76.9m.
Of this fixed assets are £52.4m, net current assets are £48.1m including properties for sale, with non-current liabilities and minority interests at £23.6m. The property element in fixed assets is relatively small at £14.1m so comparing that with the cap of £50m tells us that AGA is not a property play and more of a general below tangible book play.
However, included in net current assets is my second favourite value filter, net cash of £31.3m. That is a tidy sum against the cap.
The forward P/E of 8.8 is not a bargain for a small cap but in any event the eps forecast is not that dependable in my view as I suggest above. The company made marginally optimistic noises in its interim management statement for 2012 released on 3 May, but not really strong enough to support or otherwise the eps forecast of 8.2p.
The historical yield of 2.6% is low for a small-cap play but the forecast is much better at 4.2% though my doubts over the reliability of the latter, based on a 3.0p expected dividend, apply here too.
Somewhat surprisingly for a company this size, the share price spread is quite modest. Small caps usually mean big spreads but here it appears to be under 1p, which increases its attractions. One possible reason is that the company despite being a market midget is quite well known for its products, which may have the effect of increasing the volume of trades in its shares and hence narrowing the spread.
Same AGA, different day
AGA makes those range cooker monstrosities of the same name found frequently in country homes and which some see, incomprehensibly to me, as highly desirable. I recall accompanying a friend a couple years ago to view one such property and the owner proudly displayed this enormous thing in the kitchen, oil fired in this case, which was not only a cooker but a central heating and hot water boiler, too. Stupendously inefficient, you either leave the damn thing on all the time or if not and you want to boil an egg you have to wait about three weeks for it to heat up. How anyone could prefer that to the more common instant gas or electric hob and stove beats me.
Agas and the like have become far more than just trendy pieces of country-house oversized kitchen equipment; they have become a metaphor for a certain lifestyle. Indeed I plagiarised the title of this piece, Aga Saga, from a cute description given to a genre of novel, originally I believe from Jilly Cooper's books, based around that lifestyle.
I should point out here that AGA makes all sorts of commercial kitchen equipment in addition to the famed Agas so they shouldn't be judged on the market for those things alone. In any case, it doesn't matter what I think of the product, I don't usually permit my liking or otherwise of a company's products to affect its investment merit -- though I've noticed that many small investors do just that. A view that will let you down, in my opinion.
So what is the outer here? Forecast eps for what it's worth does not show a major improvement. Rising eps is the most common outer. But some shares are just so cheap on other grounds that this is itself the outer and here it is P/TB and substantial net cash. There is a style of value investing that just buys portfolios of shares trading below tangible book. It's not a bad strategy I'd say because below tangible book shares tend to be outed over time just for being in that state though one needs the usual corpse-like value patience. And if additionally eps does do well over time, then that can't hurt any.
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> Stephen does not own any of the shares mentioned.
