I have been looking into Airea ( AIEA.L ) and ran into Richard Beddards posts about the company here: http://blog.iii.co.uk/airea-falls-at-last-hurdle/ ( make sure you read the articles in the links too ).

Immediately I thought of Airsprung Group ( APG.L ) which succumed to a takeover bid and delisted last December.

The figures are roughly similar for both companies but with some large differences.

**Airsprung**

Freehold Property £ 6.42m

Inventory £ 4.33m + Receivables £ 9.35m + Cash £ 1.73m = Current assets £ 15.41m less total liabilities £ 14.32m = Net working capital of £1.09m

Airsprung was taken over at £ 7.4m and you’ll notice that the property assets plus NWC equals £ 7.51m. Therefore the succesfull bid equalled NTBV ( except plant & equipment ).

**AIREA**

Freehold Property £ 3.87m

Inventory £ 8.72m + Receivables £ 4.47m + Cash £ 3.05m = Current assets £ 16.24m less total liabilities £ 8.11m = Net working capital of 8.13m.

AIEA is capitalised at £ 5.78m so qualifies as a net net company as it trades at a near 30% discount to net working capital. Add in the property and the take over price should be around £ 12m. Nice upside from the current market cap.

Not so fast however. APG actually had a larger pension deficit ( £ 2.45m ) than AIEA ( £ 1.27m ) plus APG had financial liabs of £ 1.62 whilst AIEA is debt free. So far all the points are for AIEA.

Taking a closer look though AIEA actually had their pension deficit reduced due to a technicality as you will see in Richards article. Additionally even though the APG deficit was larger than that of AIEA APG’s annual contributions were half the size than those of AIEA ( £ 350K vs £ 712K ). APG’s fair value of assets came to £ 22.29m which is just over half of AIEA’s assets ( £ 38.47m ).

Where did that leave my investment decision ? Well, frankly, it’s still up in the air. :O)

So next I compared like for like and placed Crex Carpets ( figures from the 1920’s !! ) against AIEA. Ben Graham illustrated Crex in an article in 1923. In another article, this one from 1924, Graham showed how the stock had risen 79% since the previous article!

Crex sold at $29 and boasted cash assets of $17 ( 58.6% of share price ). Further current assets less total liabs came to a further $23. Fixed property came to $73 but it is not clear if any of this was in the form of freehold property or other longer term cash investments. In short the price traded at a discount of 27.5% to net working capital. Crex had a market cap of $870,000 and total liabilities only came to $45,000. Net profits in 1923 were $ 3.72 p/s so the company traded on a multiple of 8.87.

Against this AIEA sells for £ 5.78m and has cash of £ 3.05m ( 52.8% of price ). The remaining current assets less all liabs equals 5.08m for a total discount of 28.9% to net working capital plus there’s an extra £ 3.87m of property on top. Of course total liabilities equals £ 8.11m which dwarfs the current market cap. Net profits were noticably lower in 2011 leaving AIEA trading on a multiple of 19.53.

Both companies sport irregular earnings and dividend payments. In this case Crex looks the more attractive company.

It’s back to the drawing board with AIEA.