VALUE INVESTING
Albion: A 'pyad' micro cap?

By Stephen Bland (TMFPyad)
March 1, 2002

This is one for micro cap value players, from which group include me out. Albion (LSE: AON), based in Harrogate, makes tailored menswear which I see as a high risk business. Your customers have a nasty habit of going bust on you and generally anything to do with supplying or manufacturing clothing can attract higher than usual risk due to the enormous competition and fickle appetite of the public for such products.

In fact a major customer of Albion, the high street menswear chain Ciro Citterio, did go out of business during the last financial year ended September 2001 causing a serious bad debt announced at the interim stage. However that customer was taken over and it seems that trading with the new owners has helped mitigate the problem for the full year.

Here are the usual fundies:

Share mid price: 83p
52 week high/low: 90p/57p
5 year high/low: 115p/45p
Market cap: £3.1m
Eps y/e 30/09/01: 12.8p normalised
P/E ratio historical: 6.5
Yield historical: 7.1%
P/TBV: 0.42
Gearing at 30/09/01: –21%, ie. net cash of £1.5m
One year RS: +59%
Directors own 13%, other majors 34%

The eps history over the last five years is erratic which, being in this industry, does not surprise me. The company reorganised over the last year in that it had capacity in Belfast but this appears to have been shed, and it has now relocated its remaining operations to Harrogate.

As is common with very small companies there are no analysts forecasts, but there is some interesting directorspeak. The company announced with the recent publication of its annual results to 30 September 2001 that it is seeking approval to buy back its own shares, stating that "it is confident it is in a strong position to maintain and hopefully improve performance in the immediate and medium term future." This, to the extent that it has credibility, may be the outer.

Another important factor in outing the value is the substantial discount to tangible book and of that book value of 196p per share, 41p was cash at the last annual accounts. This fact alone may sometimes out such shares by attracting asset style value players who simply invest in situations where the primary value feature is a very large discount to book, even though the company may not be doing very well.

Sometimes these are the active type of value player who tangle with the board, perhaps circulate shareholders and so on, to try and break up the company or generally stir things up in order to attract attention and drive up the price. In this connection a point worth mentioning is that a company called Value Investments Ltd has been building up a stake in Albion, presently holding around 7.5%.

Albion though is not just a pure asset play, it makes profits and pays dividends, the asset side is icing on the cake. Note that in addition to trading way below book, the shares trade substantially below net current assets as well, which at the last accounts stood at £5.7m against a cap of £3.1m, another very positive indication.

This then is more or less a pyad share, the absence of forecasts perhaps being the weakest feature plus the fact that it is in a high risk business. Against that though there is the huge discount to book. Readers will have to satisfy themselves as to the quality of the assets involved, but you can't argue with cash being almost half the whole cap of the company assuming that situation continues.

The usual warnings on very small caps must be made here. There will be large spreads and perhaps a lack of liquidity in the shares, leading possibly to an inability to deal at all, especially with automated online brokers.