Aukett Swanke – profits recovery leaves shares looking cheap

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Aukett Swanke – profits recovery leaves shares looking cheap
Master Investor Magazine

Master Investor Magazine Issue 59

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The tide might be turning for this international group of architects, interior designers and associated engineers, writes Mark Watson-Mitchell. 

Two weeks ago, this little company announced its final results for the year to end-September 2019.

On a £15.49m turnover it made just £292,000 pre-tax profits, which is hardly anything to write home about.

However, on looking deeper you might agree with me that the tide might be turning for this international group of architects, interior designers and associated engineers.

Two years ago, Aukett Swanke (LON:AUK) declared a £0.3m loss on a £18.4m revenue, but in 2018 things got a lot worse – on £14.4m of sales it lost a staggering £2.5m.

Some stiff remedial action was warranted and put into play last year. Loads of cost savings were implemented and the loss-making Moscow based subsidiary was sold off.

Early last November, followers of the company did get an indication that improvements were happening when the company announced its trading update and the sell-off of its Moscow business. That sale took a long time to put in place and the board must have been relieved that it was completed.

Aukett provides professional design services to the property and construction sectors. Its services principally comprise architecture, engineering, interior design, master planning and related disciplines.

It has a network of overseas offices and informal arrangements with overseas partners that enables the group to deliver projects for local and international clients.

Over the years the group has endured various swings in its fortunes, reflecting the cycles of the various economies in which it operates.

The group’s client list is very impressive and its projects on hand are even more so – let us hope that they can bring in better returns in the current year.

As yet, no brokers have made any estimates as to profitability for 2020; however, from a £371,000 first-half loss in 2019 to a full-year profit of £292,000 – effectively that is a £663,000 profit in the second half.

It is apparent that its three geographic operating hubs – the UK, the Middle East, and Continental Europe – are now all trading profitably.

I am making a total assumption that the group could enjoy greater stability in its cost base. I go for a £1.5m pre-tax profit for this year, on a £17m turnover.

We will have to wait until the 26 March AGM for a further trading statement.

There are 165m shares in issue, with some 2,200 shareholders in the equity. That is a gross figure for such a small company and expensive to operate.

A share structure revamp must be anticipated fairly soon, which means that some holders may see their holdings shaved if below a minimum number.

They traded the 6p to 8p band from 2013 to 2016. A year ago, after the big 2018 loss, they were just 1.25p and have been on the gradual rise since then.

In the meantime, I would expect the shares to lift up from the current 2.8p to around the 4p to 5p level as investors average bombed out holdings.

But valued at just £4.5m, if my assumptions of a current year £1.5m profit prove close to the mark, this company looks to be very cheaply rated.

I set an end-2020 target price of 4p but I stress that they are a gamble until further profit recovery is more evident.

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