Thursday, August 29, 2013

Further one-legged update on the reporting season

Well folks, we are at the tail end of reporting season. I don't know about you, but I will be glad to give my one leg a much needed rest after this bout of ass-kicking.

23 August 2013

LYL results out. NPAT for FY 2014 will be reduced by 50%. Price is getting interesting, but my call is that there could be slightly more pain for LYL given their position in the food-chain.

CAB analysis. Postulate that market is overweighing the impact of ACCC recommendation to reduce 10% to 5% for payment systems.  The absolute downside is that $45m being wiped from the top travels right to the bottom, reducing FCF from $60m to $15m. Multiple compression follows as ROE of 20% becomes 5%, turning a good business into a capital intensive substandard business. A compression of multiple to 8 means the current market cap of $500m falls to $120m, which is a 75% drop. It is probably obvious that the outcome lies somewhere in between the absolute downside and the current situation, therefore it will be helpful to map out multiple scenarios in preparation for a price opportunity.

26 August 2013

SCD results.  Operating cashflow of $2m, resulting in $7.2m in cash, but there is $1.2m in tax liability and $1.6m tied up with banks as security for bank guarantees.  Factory revalued downwards from $4.4m to $3.2m. Equity increased from $10.2m to $12.6m.  Service revenue increased from $4.5 to $5.2m.  Orders on hand $6.9m. One customer made up 30% of revenue. I have covered this company in a previous post.

MTU results.  Underlying margins appear to be declining.  ROA declining. Debt increased.

VTG results.

MLD results.

HSN results out.

27 August 2013

SRV results out. Operating cashflow of $27m (after paying tax of $10m). Occupancy increasing. Cash on hand $99m. Weakening AUD may boost earnings in FY14. 23 out of 38 immature floors will mature in FY14.  Opening another 8 large floors which will boost total office space by 10%.  All USA floors are cash flow neutral and all expected to mature in FY14. Occupancy rate is 88% as at June 2013 (USA recovery).  Using $27m of FCF, with 10% RRR, assuming zero growth for 10 years and adding unencumbered cash of $90m, yields $345m value.  Using dividend discount model, on grossed up dividend figures, current market cap requires dividend to rise by 5% every year, and terminal value of 10x grossed up dividend.  Current price means that an investor gets growth for free. I have held this for over 5 years now (first post here), and this long holding period has been helped immensely by a very competent management.  

FLT results out. NPAT up 20%.  Amazingly, current price implies growth of 5% per annum in FCF for the next 10 years. I missed picking this up during the GFC for under $4, which means a 10-bagger has gone down the gurgler.

VEI results out.  All metrics declined. Revenue down, gross margins down, cashflow down, but surprisingly, wage expenses and doctor payments were also down.  FCF of $18m, debt of $45m. DCF of $168m, less debt of $45m, yields $123m. 148m shares on issue.

Examples of edge- information, analysis, behavioural, structural. From Robert Robotti.

28 August 2013

TWD results out.  Good yield. Exposure to housing in SE Queensland. Worth a deeper look.

AMA results out. Revenue up, but EBIT down. EBIT margin increased by 2%.  Company is debt free, with cash at $10m in August 2013.  Cashflow very strong at $10m. 332m shares. Net of cash, AMA priced for no growth. Good to see a capable and honest CEO delivering on his promises.

IFM- founder CEO is leaving and has sold all his shares.

WTF results out.  Revenue down, profits down, and cashflow down. But somehow market is valuing shares for 10% growth pa for 10 years. Madness.

MLB results out. Heavy in cash, new management team coming in, but premium core business under pressure.  Core business valued at 5x cashflow after backing out cash chunk.

TTI results out. Debt still of concern.

29 August 2013

VOC prelim results out. Revenue increased to $66m. Profit down. Cashflow $18m, tax $3m. Free cashflow $15m.  Fibre and DC showed tremendous growth.  Cash balance of $14m will fully fund next year’s $13.3m capex. Locked in recurring cashflow will pay off IRU obligations of US$10m next year. USD hedge runs out in Dec 14, so some exposure to declining AUD. FCF $15m, current market cap implies 5% growth pa for 10 years. Adding debt to get EV of $220m, with FCF $15m, implies less than 10% growth pa.  In the presentation, VOC stated that FY14 capex is in response to customer demand, and this was repeated.

CTE Prelim report out. NPAT $1.25m. Operating cashflow $1.9m. FCF $1.6m. Cash on hand $5.7m. No dividend declared.  Wage costs up $300k and one-off capex spend.  $2m tax losses remaining.  Record number of blood cord clients. FCF estimated at $1.7m. Fair value at $23m, assuming no growth. But note:   “The Board is confident that subject to any unforeseen circumstances, the benefits of its common infrastructure and operations systems to support the business units will allow it to increase revenue, improve margins and overall financial performance of the Company during the next financial year.

IPP HY report out.  Revenue period to period hardly moved.  Not a good sign, as M’sia went backwards due to elections, but increase in prepaid services plus record month in July, so momentum will continue. HK shows very good growth and is close to breakeven, locking in 4 out of 5 major developers.  INA growth slowing but still strong, whereas Singapore is lagging (still number 2). REA trading at 14X revenue. IPP is trading at 12x revenue.  We await next quarterly cashflow statement.

30 August 2013

DDR results out. Cashflow negative.

SST results out. Loans paid to other entities??

UOS HY results out. I have held this for over 3 years, and posted about it here. Within the HY report, I found an amazing and pristine balance sheet:

Land held for property development
Property plant and equipment
Investment properties
Total of Asset Items above
Financial liabilities

Rent and parking fees for half year is $20m.  Shares on issue is 1.1b, market cap is AUD$580m.  Book value increased 15% over 6 months.

That's it folks.  Time to sit back and think through ideas. By the way, the reading list has been updated, for those interested.

Disclosure:  My family and I own shares in AMA, CTE, SRV, SCD, TWD, IPP, VOC and UOS.

Disclaimer: the content of this post is not to be relied on as financial advice.  It contains my personal opinion only, plus facts that I cannot verify to be accurate.  Do your own research and seek financial advice where appropriate. I have made many mistakes in the past, and will continue to do so in the future.

Thursday, August 22, 2013

One Legged Update on Reporting Season

1 August 2013

Reporting season kick-off.

GUD- under pressure, failing to invest in tiring brands, dividend is too high, debt is mounting. Dropped from superstar status after 10 years of stirling results.

UBI- burning through $6.7m in cash last 6 months, with $18m in the bank and some minor liabilities.

TCL- new CEO with lower pay, and 198% rise in profits due to toll rises. Flagged increasing dividends.

2 August 2013

AMA paid off all debt with $10.8m, and negotiated a new $6m facility. Given that balance on Dec 12 is close to $13m, looks like it is a good deal (assuming they made no repayments in the 2nd half). AMA’s cash position should be about $8m to $10m.

HSN upgraded profit due to currency movements.

6 August 2013

UOS update- HY PBT is $110m.  The good keeps giving. See here.

7 August 2013

Rumours of tie-in between MND and SSM in the AFR.  Not denied by SSM after ASX please explain.

8 August 2013

ASW- flat results, not much growth, as expected- spinning back cash, good ROE at 20%. 

9 August 2013

Thorney Holdings increased stake in SSM.

12 August 2013

COF FY results out today. As expected, International Developments propped up the whole group. ID EBITDA running at $18m per year.  The whole group’s FCF is about $11m after deducting $10m in restructuring payments. Trading at 5 times EV.

WTF- heavily shorted- 10% shorted as of 8 August 2013.

NWH- CFO resigned without resign. Aftermarket announcement, not looking good.

AMM- results out, pretty impressive.  Good indication for VOC results.

REA- another blistering result.  Pity about the price

14 August 2013

CRZ- good results, $90m cashflow. Priced at $2.4b implies growth rate of 15% per annum for 10 years.

CSL- results as expected. R & D over US$450m pa now, and cashflow still strong at $1.3b.

CBA- results reaffirmed position as the highest quality bank.

UGL and WOR providing better outlook in mining services space.

15 August 2013

IRI results flat.  Cannot understand the price.

SRX results out. Operating cashflow of $24m but capitalised $12m in R & D. Market cap of over $720m implies 20% pa compounded growth for 10 years.  Very optimistic price.

16 August 2013

ONT results out. Slightly better than expected.  Fair valuation at $4 compared to $6.50 SP.  Management is top class, reports are easy to read, and commentary is clear and relevant with very little corporate geekspeak.  Very rare management quality. 

19 August 2013

Question of the day: why do you rationally believe that you have an edge to beat the market?

20 August 2013

EAX results out. Top line showing good growth. But decision to capitalise $1.2m of commissions is questionable.  Expensing these payments would have resulted in NPAT being down yoy.

21 August 2013

SGH- another acquisition. WIP is now $300m, ROE slightly up to 16%.  Disaster waiting to happen.

SEK- FY results with significant gains.  FCF now $160m and current pricing implies growth of 10% per year for next ten years.  Reasonable pricing amongst all these network effect plays.

BYL- record FY results. Flagged no growth for 2014. Mentioned large infrastructure spend for WA. Bodes well for NWH.

FAN- continues to deteriorate. ROE is 13% and no longer a superstar.

COF- director picked up 500k shares. Serious money.

22 August 2013

NWH results out.  Evidence of margin compression, and affected by mining downturn. Management has countered by cutting headcount by 50% (showing in the cashflow) and diversifying into other sectors such as oil and gas where they just completed their first project.  Outlook is good, with 60% of $1.2b of work already secured, and over $3b of works in tender. Debt has gone up slightly, and cashflow has crunched in the second half, even though overall cashflow is still healthy.  At this stage, NWH is unlikely to suffer solvency problems, and is holding up well in difficult conditions.  However, it is priced as if it will be going out of business soon.  Current multiples of below 5 allows 50% drop in cashflow and NPAT.

CDA results out.  Downgrade to short term earnings outlook.

PEA results out.  Lots of contract terminations and variations.  This puts question mark over reliability of cashflows, which is required to balance out mediocre return on capex spend.

IMF results out.  $35m of receivables subject to appeal.  Not exactly conservative accounting.

CMI results out.  Debt free. Declared dividend. $10m operating cashflow, $8m FCF.  TJM continues to lose money, but revenue is up.  NPAT of $10m.  Trading at PE 5 and 5x Operating Cashflow.

23 August 2013

FFI results out.  The food operation has improved PBT to $3m, but food business also incurred $1.5m in capex.  Cashflow healthy, dividend declared.