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Another look at AIREA 22 December 2013

Having covered the Burmatex to Ryalux carpet manufacturer  back in the summer and subsequently buying the shares, I thought it worth perhaps catching up for a few words with the Chief Executive Neil Rylance.
Unfortunately, that hasn’t been able to happen, but I did receive a reply from him in relation to a few general questions. 
It is certainly interesting when it comes to contacting company’s, some are quite forthcoming, jumping at the chance to tell their story, while others are more intent on just getting on with the business, preferring to update investors within the interim management statement or at the time of the preliminary results. 
When it comes to AIREA, I think it is fair to say that it is very much a matter of being patient in relation to news flow here, as they don’t appear to offer a pre-close statement, merely stating that they will report on the first half results during the first quarter of 2014.
That would seem to be the usual way, so there is no prior guidance as to how trading may currently be fairing.  In relation to the prospects of the business, it would seem that the company is certainly not pinning  hopes on a recovery in the short term, but remaining confident in the medium to longer prospects, which perhaps bodes well. 
While that doesn’t exactly give us a great deal to go on and where also the website, could perhaps be more exciting, I am nevertheless comfortable to hold here.
As the shares have been coming off a bit after the dividend payment, I was tempted to pick a few more up, although confess I missed my target price, as the shares moved up last Friday.
That isn’t to say I wouldn’t buy further at the current level though,  as the recovery prospects do look interesting to me.
There are of course, many in the recovery mould that do not go on to deliver, and such investments can burn a deep hole in the pocket. However, such examples are often debt laden and already deep into loss territory.
Airea by contrast, despite having to navigate through choppy recessionary waters, boasts two well known and regarded branded carpet and flooring products, is in profit and backed up by a strong asset base, which currently gives a  net asset value of 27p, against the current price of 13.75p.
Interestingly, when it comes to assets and the like, it is worth noting that back in 2007, the company which had formerly been known as Sirdar, sold off its Bective Mills and Ensor Mill to Stirling estates for around £16m to clean up the balance sheet. The yarning business also went in a management buy out, which effectively left the company with the two remaining lines.
The point of mentioning the land sale of course, is to ponder the question as to whether there may well be further sales down the line, on what may be deemed surplus land.  
Of course, I didn’t buy into the story on that basis, but it could possibly present future upside, as the company, like other plc’s apparently keeps all options under review in the interest of shareholders.
As for major holders of the shares, according to the most recent information, top of the list is Lowland Investment Trust with 8.9% being part of Henderson.
Charles Stanley also appears with 5.2%, while the three daughters of the late Jean Tyrell who was influential in Sirdar’s growth years, also have major holdings, collectively accounting to more than 16%.
Neil Rylance the Chief Executive sits on 5.4% having last purchased 585k shares in June 2011 at 11p. While Chairman Martin Toogood who also bought the same quantity at the 11p mark sits on 4.5%.
Broker Milkstone covers the stock, although it would seem that Airea has no formal relationship with it, so it is worth noting that when looking at the forecasts.
That said, Milkstone got it right this year and has pencilled in pre-tax profits of £800k for next year with EPS of 1.2p putting the shares on a forward PER of 11.
That may not look overly cheap, but if the company can continue to deliver further improvement while the economy returns to growth, then I think they are worth my holding.
I also continue to wonder whether they may be vulnerable from an opportunistic approach, given those assets which put the shares on a considerable discount, despite the existing pension deficit.   


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