AGA Rangemaster - a slow burner

AGA Rangemaster: With brands including AGA, Rayburn and Fired Earth, the group has some real gems to polish. Their interim results showed revenue up 3.3% to £123.5m, with a first half loss of £0.3m, reduced from £2.4m in the first half of 2013. There was no dividend again, whilst net debt was down to £2.4m against £6.0m a year ago. They are in the process of launching a new range of standard 60cm wide cooker/ovens which will take them into the world of normal sized kitchens. The UK operations are very tied to the higher end property market and with this buoyant, the backdrop here is good, although their overseas markets are patchy. Yet, AGA is hamstrung by a large pension deficit of £46.7m. (To put a scale on this the market capitalisation is around £108m, with debt of £2.4m giving an enterprise value of £110.4m.) This was up from a deficit of £35.8m at year end, despite shovelling £19.4m into the scheme, with liabilities up £21.3m. This rise was due to a change in the discount rate, used to calculate the liabilities, from 4.5% to 4.3%. (Indeed this time last year the deficit was ‘only’ £15.6m, all in all another corporate consequence of QE inspired low gilt yields.) They are due to pay a further £4m in December 2015 and then £10m per annum thereafter, subject to the December 2014 actuarial valuation. These are chunky payments in the context of expected pre tax profits of the order of £10m-£11m this year. Like many a firm they will be praying for a rise in gilt yields to take the pressure off. For now though, no dividends can be paid without the agreement of the pension trustee and none are likely. For this year, increased eps could be 11p-12p, so a conventional twice covered dividend of 5.5p at 158p would be a theoretical yield of 3.5%. For now though this won’t happen and these great brands are financially smothered in the pension issue. Dividend investors can bide their time before anticipating AGA’s return to the dividend lists. (26th August 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk