Friday, August 29, 2014

Reporting Season EOFY 2014- Part 3

This is the business end of the reporting season, as far as I am concerned. Interesting season so far.

25 August 2014

MTU results out. $85m OCF, $100m OCF before interest. MC $1.2b, EV $1.5b.

SDI results out. $2.6m in FCF.  $7.6m OCF. $80m MC. Continued capex required for growth.

26 August 2014

SRV results out. FCF $40m. Cash in bank $108m. 120 mature floors, 16 immature floors, total floors 136. Like for like floors revenue increased 34%.  Occupancy of like for like floors at 79%, falling short of target set last year. However, number of offices has increased and margins have improved. 17% increase in revenue half on half translated into 22% increase in NPAT and OCF. Opening 9 new floors and expanding 5 floors in 2015 to add another 10% capacity.  Australia is under pressure, and USA not yet profitable. Guidance on 15% NPBT improvement in 2015. Balance sheet remains solid. Expenses ratio remained consistent. Revenue per floor is still very low at $1.7m, yet to even reach levels achieved prior to 2010. Net cashflow per floor is still low at $290k, half the levels prior to GFC. Possibility that OCF will reach near all time highs in 2015.

GNG results out. Revenue $114m, NPAT $14m, cashflow $18.8m. Locked in revenue is $110m for 2015. 14 studies as at June 2014. Total cash on hand $37.4m, AR $34.6m AP $21.6m. 4c dividend ff. MC $120m= 6.5x cashflow, 4.5x casflow after backing out cash, PE 8.5, PE 6.5 after backing out cash. Everyone is scared witless with mining services. Now, what did that old geezer said again about fearful and greedy?

VEI results out. Revenue up, but EBIT down, showing continual erosion of margins. FCF $17m, debt at $38m. EBITDA=$26m. MC=$120m, EV=$160m. EV/EBITDA=6, but EV/FCF=$9.4m.

VRT results out. FCF $44m, debt $140m, MC $620m, EV $760m. Required CAGR 7 to 8%.

HSN results out. FCF $18m. MC $250m.

REF results out. Revenue $9.7m, NPAT $1.5m with Contacts and TriTel making losses of over $500k. Cash on hand is $5.1m. OCF is $2.2m, FCF is $2.2m. No dividend, management wants to make acquisitions. MC $16m. EV $11m. EV/FCF=5.

TGA MD address. Focus on Return on Equity. Logical coherent plan executed consistently and communicated clearly. Looking to enter into telco market (note competition in this sector). Continued good performance at Rentals with opportunities being actively investigated. TEF continues to grow loan book to $73m, aiming for target of $100m. Rent-Drive-Buy concluded and closed.  Reaffirmed NPAT above $30m. Emphasis on culture. Ticks all boxes.

27 August 2014

LYL results out. Outlook okay, pressure in MS continuing.

AMA- $5.6m NPAT, $6m FCF. EBIT $8.8m, revenue $64m. Balance sheet is debt free with excess working capital. Very positive outlook. 1.6c ff dividend. Still a bet on Malone to deliver on the smash repairs industry consolidation.

FPS results out. Revenue $22m, PBT $6m, NPAT $4m, dividend 5c ff.  Cash in hand $11.1m. Receipts $24.5m, OCF $7m (Q4 took in $3m), OCF after tax $5.8m. Expenses down 6.7%, revenue up 3.6%. Positive outlook, using cashflow to pay dividends and surplus for acquisitions. The cashflow run rate is now over $10m pa before tax payment.

ICS- $2m in cash, but note working capital. $1.1m in OCF. Slightly disappointing but understood in light of money spent on premise relocation and fitout. MBC continues growth. MC $10m, trading at less than PE 10 and less than 10x cashflow. 0.1c dividend nf.

TTI- outlook positive, especially in LED street lighting, but balance sheet is too precarious, with heavy debt load and low free cashflow. Prefer to avoid solvency risk.

CGO- Revenue up, NPAT up. OCF at $2.7m. Undemanding price ATM.

UOS HY out. Book value essentially stayed flat. Still trading at substantial discount to book.

TWD results out. Revenue down, NPAT flat. FCF $6m. Leveraged to housing market, on the improve for 2015, plus franchising becoming capex light. Solid balance sheet, high dividends maintained.

28 August 2014

VOC results out. Revenue is $92.3m, up 37%, beating expectations. Underlying EBITDA $33m. Cashflow this half is $17.5m versus $13m last half, given total cashflow of $30m, which matches up with EBITDA. Core Capex at $18m. Capex efficiency reduced to 0.58. Internet division result is staggering, and appears that growth with continue and largely offset $4m of EBITDA loss on the Vodafone contract renewal. Buildings connected over 1000, fibre kms is 585, utilisation up at 13% despite expanded base. Prior to FX Networks acquisition, looking at $40m to $50m of cashflow for 2015, placing it on 10x to 12.5x multiple at current MC. Market wants reducing capex and increasing dividends. I want increasing growth capex and no dividends.

TCN results out. FCF $2.3m. Solid balance sheet, no debt. $3.6m in cash plus $1m receivables from associate. MC $21m is not expensive.

CTE results out. Revenue increased to $9.1m from $8.7m.  NPAT is $500k. Cash on hand is $6.2m, unearned income is also up. Operating cashflow is $1.5m, FCF is over $1m. Watch the cash next year once the capex is removed. MC justified even at current run rates.

RHT results out. HepaFat sales have started. Revenue $2.28m, cash in hand $2m. Ferriscan revenue is $2,284,565 with 5596 scans, clinical use volumes up 32%.

RHC results out. Need to find time for deep dive.

29 August 2014

SCD results out. Slight negative cashflow. Before tax payment of $1.6m, actually OCF positive. No balance sheet deterioration, cash in hand is $6.2m. Orders on hand smaller than during GFC days. Service continues to buffer. Cash plus net property is $7.5m, plus franking credits of at least $1.6m. MC is slight over $8m at last traded price.  The benefits of downside protection is apparent with plays like SCD. Heads I win, tails I dont lose much.

ONT results out. OTC revenue dropped. OCF $8m, FCF $5.5m. Results actually an improvement, and weird accounting treatment stripped out $800k from NPAT. Normalised FCF is over $6m due to stamp duty issue on acquisition. CEO communication is excellent.

SBB HY out. COGS skewed. Interest rates checked out at savings rate of 0.35%. If the accounts are to be believed, this is trading at 1x OCF after backing out cash, and 2.5x OCF before backing out cash. Why is there no dividend? They obviously do not need the cash hoard, given that they are OCF positive to the tune of $10m per half, and capex is less than $2m. Something NQR.

That's it folks. Enjoy and Prosper, and drop some comments.

Yours One Legged

Friday, August 22, 2014

Reporting Season EOFY 2014- Part 2

The pace is definitely picking up this week. 

18 August 2014

GBT- $14m in FCF. Results already well guided, but Mr Market appears surprised.

AZJ- underlying EBIT $851m. Still very little FCF flowing through. Debt increasing. Pass.

ABS figures show new car sales fell in July 2014.

DWS- revenue down, NPAT down, but very good cashflow at nearly $20m. Clean balance sheet with excess cash and working capital.

TCN- interesting....

19 August 2014

BYL results out. $9.9m NPAT even though revenue down. Balance sheet in net cash. Dividend declared. Cashflow is a whopping $28m. Revenue next year at least 20% higher at $300m. ROE just under 20%. Book value 54 cents, increased 13%. Civil margins lower than mining margins- unexpected. 15% gross margins.

TPI results out- made a profit, announced dividend. But whole fleet grounded a day later due to safety concerns. Difficult to find any excess free cashflow.

SHL- revenue and NPAT up in low teens. Very low ROE despite high level of debt. Pass.

EAX results out. Flat with no growth but priced for growth. FCF slight improvement to $4.5m due to changes in working capital. Not looking good on other fronts.

TOL- flat revenues, increased NPAT due to cost cutting.

MND results out. Holding firm with huge load of work in hand. SP bobbing up and down in a range as Mr Market keeps his eye on the IO price and news on China.

MVF- now trading at $1.75, below IPO price of $1.85. IPO Mark II candidate.

20 August 2014

NWH- $1.1b revenue, NPAT $45m. 9c dividend. Work in hand $1b, forecast $1b revenue 2015, with $2.4b of tenders in progress. Cashflow over $120m, FCF $80m, spewing out cash as capex is reduced. ROE 12.5%. Book value is $1.22. Red Flag= PBT line decreased by half. Margins crunched. Share register of NWH resembles a playground for traders.

CCL HY results- FCF annualised to $200m. Owner’s earnings= $200m. EV $9b. Small volume growth in soft drinks, the same with USA, but margins being crunched. Watkins not articulating any clear strategy, in fact, I am not sure Watkins really knows what the core problem is.

ARP results flat. No growth but priced for growth. Pass.

MYT- FCF $257m. I need to learn more about the NZ electricity market.

TOX- sales and NPAT both up, $370m and $22m. FCF $23m. MC=$425m. Pass.

SEK results- FCF $230m. Pretty demanding implied growth CAGR embedded in SP. Pass.

SRX- NPAT $24m, FCF $24m before R & D- MC= $1.1b. CAGR required is now over 20% for 10 years. Pass.

UOS- terminated Myanmar venture. I breathed a sigh of relief.

21 August 2014

MGX results out. Cash kitty up to $520m. Dividend 4c. $60m of capex for Koolan Island coming up. Shine project delayed. With Chinese control, not sure whether shareholders' interest will be served.  Pass for the moment.

IMF results out. Investments just under $100m, cash and receivables $180m, debts $50m, net=$130m. Optimistic valuation is $400m vis a vis MC of $350m. Not enough margin of safety. Character of IMF is changing, not the same IMF of old. Pass.

AZV results out. NPAT just under $4m, but everything is stuck in receivables. Cashflow anaemic at $577k and barely covered capex. Let's see what the next results look like. Pass.

NAN results out. Strong sales growth, turned profitable, annualised to $2m to $3m NPAT, but MC is $238m. Pass.

GLH- $1.4m of inflows but $1.1m of R & D capitalised. Revenue is up, but I am still not convinced this is worth $20m. Cash is up slightly to $1.1m. but cash boosted by annual license fees collected upfront, with close to $1m of this being unearned. Outlook growth is slowing to 10% for 2015. Quite a crowded space. Pass.

ARA- good cashflow $5m, strong balance sheet with no debt. $80m MC. Nothing on sell side. Just announced buyback. NTA 39 cents. $16m in excess cash. Very little HC noise. Worth a further look.

CMI results. Woeful tale continues, electrical down but still profitable at $11m PBT, but TJM losses increased, despite increase in aftermarket sales volume (decrease in OEM orders). Management and board revamp. Forecasting positive medium term outlook for Electricals and return to profitability for TJM in 2015. Declared 3 cents dividend. Pass.

CTE- partnership agreement with RGS. I wonder how much is CTE planning to spend on its stem cells development. Is this announcement a furphy designed to buoy the SP ahead of a disappointing FY report? Still cant find a new CEO?

MVP results out. Negative FCF. Remains a “potential” stock unless numbers start flowing.

IRE- $70m FCF- $1.4b MC. Pass.

BRG review- PBT $70m- MC $910m. Cashflow before tax also $70m. Clean easy accounts. 130m shares x $7= $910m MC. With NPAT and FCF at $50m, Current price implies 8% CAGR for 10 years.  Chart target is $6= $780m MC?

PTM FUM increased from $16b to $22b. Keenly waiting for FPS.

AIO FY results out. OCF is $600m, but capex is $700m! EV value including debt is over $9.3b.  NPAT is $257m. 

22 August 2014

NEA results out. Clean balance sheet in net cash. Cashflow strong at $11m. Good tailwinds. Last half OCF is $7m versus $4m for previous half. Annualised without growth and stripping out R & D, OCF is now $11m, easily underpinning current SP of $150m. There is also cash of $23m on the balance sheet. Refining my understanding of NEA's business model. Hopefully I will put my thoughts in order for a meaningful post.

PME results out. Building up nicely. R & D of $5m exceeds OCF of $4m. CEO said pipeline is building up in the USA.

CAF NPAT turnaround. Cashflow going backwards, and negative after paying litigation claims. Pre claims OCF also decreased to $7m. $40m in working capital to be freed up due to mismatch of receivables and payables. Declared dividend. Balance sheet strong with $16m of cash plus franking and tax losses, balanced by provision for claims at $13m.  Too hard basket.

JIN- results out. Australian profits are up slightly despite lower revenue, but some of the cash earned here is spent on overseas expansion with very little to show. Mexico=0, USA= 0, Germany=$8k revenue. Pass.

IFM results out. Improvement- price shot up another 10% to 97 cents. This is a 5.7 bagger forgone from days of 17 cents. Painful.

Riddle for the day: Who is going to win the growth race PME, NEA or RHT?

Hint: there is no correct answer, but bonus points will be given for correct questions. 

Enjoy and Prosper,
Yours One Legged

Thursday, August 14, 2014

Reporting Season EOFY 2014- Part 1

Okay folks, back to serious business.

The run-up to this year's reporting season was much more boring than usual due to the dearth of any news. In fact, 2 weeks into the reporting season, things are still pretty dull in terms of any exciting business developments or news that matter in the long term. The reality is that things just do not move that quickly in the business world.

5 August 2014

COH- NPAT $93m. FCF $80m. Market Cap is $3.8b. FY15 NPAT will be around $150m to $170m assuming half on half performance continues together with growth in the high teens. At current prices, implied growth is over 10% CAGR for 10 years with 10x terminal value. N6 surprised on the upside with good sales. I do not understand COH adequately on a qualitative basis to make an informed guess as to its possible long term growth rates. It also appears that this industry is akin to an arms race, not unlike the smartphone battles, where new products are constantly required to keep ahead of competitors. This is not a healthcare play unlike say Ramsay Health Care, it is a technology play.

TCL- $20b EV. $500m in FCF.

Question of the day: Which businesses are able to provide an analogue experience in a digital world?

6 August 2014

I have an ABC policy- Anything But China. So it was with some reluctance and disgust that I reviewed SBB. I even managed to persuade my darling missus to do some research for me. If you want to know more, I am afraid you will be disappointed, as I am not going to make myself an unwitting target of a potential defamation suit.

OFX 1st quarter numbers up over 30%. 1st quarter EBTDA is $7.8m.

7 August 2014

IPP results out. Still cashflow negative despite revenues up 40%, positive EBITDA before writedowns. Losing ground in Singapore, but making money in Malaysia, and turning profitable in HK as expected. Share price is still strong due to REA taking a big stake. Current market cap is $650m. Maybe REA can make it work, but REA can afford the risk of losses more than me.

IRI- growth in H1 did not follow through to H2 due to lack of once-off license sales. Lack of recurring revenue is spooking market. Not much growth but somehow priced for growth.

TTN results out. Still not much FCF despite being in a good sector.

8 August 2014

REA- Revenue up 30%, NPAT up 37% to $150m. FCF about $150m. Results driven by Australia. Market cap pre-results is $6b- implies 20% CAGR for 10 years. Market marked down REA by 8% because results did not reach expectations. 

ASW- full year result flat yoy. Difficult to advance without ability to scale due to small size and already very efficient operations. The registry game is about scale.

UOS- profit guidance of about $64m PBT before minorities. Some headwinds coming due to sliding property market in Malaysia with the introduction of GST.

11 August 2014

COF FY results out. As expected, Geosciences still under pressure but International Developments division revenue improved. Operating Cashflow is over $20m (steady for last 3 years). No restructuring costs this half. Net debt reduced to below $50m. No dividends declared, as directors continue with debt reduction strategy. Contracted work in hand is $100m for ID and $90m for Geosciences. EV at $120m. Geosciences margins continue to be under pressure at 4%. As a leading indicator of conditions in the mining services sector, COF’s results indicate that things are not improving in a hurry. The initial investing thesis remains solidly intact. But it has been a roller-coaster ride with the share price dropping over 75% to 10 cents at one stage, and then staging a recovery. To make matters worse, I failed to top up during the entire ride. Not my finest moment.

FLN- revenue increased 40% but running a loss. CEO certainly likes the word "monotonic." Commented that FLN is like Ebay in 1997. Mate, we can talk again once you show a profit and positive cashflow.

TGA- Perennial ceased to be a substantial holder. TGA has a moat as competitors have little mindspace for this sort of unsexy business, and the banks are not interested in this sector due to small profits. TGA’s size and penetration of the communities it serves give rise to economies to scale. It went through the GFC with hardly a blip, testament to the resiliency of its business model. One of the more neglected quality businesses on the ASX.

OFX- director picked up nearly $60k worth of shares on market.

12 August 2014

SGH- WIP now exceeds total yearly revenue. Expenses/Revenue static at 79%. I have examined the figures for each year back until 2007. It was an exercise which was both intriguing and disgusting. It was also interesting that total revenue and total cash receipts from 2007 to present tally to an exact figure of $1.462b. An exact match...hmmmm. For your information, I am halfway through drafting a blog post which attempts to discuss concepts of accrued revenue, work in progress, prepaid revenue, unearned income and other such similar exciting items in balance sheets.  I know, I know, you can hardly wait to read more on accounting arcania.

RKN- results are pretty good, still growing in business market, strong cashflow. News reported hiccup with new software, with lots of complaints on social media.

BOL results out. Total assets is $389m (negligible intangibles). Total liabilities $155m. Equity is $234m vis a vis market cap of $84m. OCF= $23m before asset sales. Management expects further strong FCF in 2015 which will be used to reduce debt currently sitting at $89m net. Finance cost is $8m which will decrease by at least $2m in 2015. Expects infrastructure to kick in in late 2015, and picking up speed in 2016 and 2017. Flagged another $15m to $20m of capex in 2015, which is largely covered by expected asset sales. CEO confident that business is cashflow positive, and asset sales only supplement cash on top.

13 August 2014

CRZ- sales up 10% NPAT up 14%. FCF nearly $100m. Market cap $2.6b.

AMM- FCF $20m. Capex $27m. Maintenance capex=$10m. Since DA=$11.4m, Owner’s earnings= $24m. Forecasted NPAT growth of 20% for 2015. Trading at 20x owner’s earnings.

CPU- results out. NPAT up 60% with flat revenue.  Need to check interest margin revenue.

CSL- R & D is US$466m. OCF less capex is $1b- US$1.5b after adding back R & D. Share price has gone off again. The waiting game continues.

VOC splurged another $11.7m for WA data centre. Purchase price nearly 6x EBITDA. Pouring capital into a commodity business at the height of the boom. Wisdom of this acquisition will depend on cross-sales eg revenue synergies. Risky.

SSM FY out. Cashflow from operations is over $50m. Out of this they paid off the Syntheo liability and $5m interest, with a net cashflow of $25m. The money raised was capital raising they paid down debt. Gross debt is $17m, and net debt is $11m. EV is $88m. Next year’s cashflow will be in the range of $30m to $50m, putting SSM at cashflow multiples of 2 to 3x.  Cashflow boosted by lack of capex spending which was running at $10m per annum. Normalised cashflow should be about $20m to $40m. SP unmoved. New management remuneration based on EPS and TSR again (current fashionable metrics- way inferior to return on capital).

14 August 2014

TLS and FXJ results out. TLS increased dividend and announced buyback.

15 August 2014

IRI results out. Very little growth, good ROE. Recurring revenues on the increase to over 40% of revenues. Priced for growth at $160m compared to less than $10m FCF.

Lastly, dear readers, a small riddle:

"How would a one-legged man win in an ass-kicking contest?"

Hint 1: Bobby Fischer
Hint 2: Sun Tzu

Enjoy and Prosper,
Yours One Legged

Monday, August 4, 2014

A No-Brainer "Investment"

This post drew its inspiration from a great blog post written by Tony Hansen, which I urge all readers to read here.

The Australian Superannuation Co-Contribution Scheme (CCS) was introduced in 2004. For each of the years from 2004 to 2011, a low income earner paying $1000 into his/her superannuation fund would have received into their super another $1500 tax free from the CCS. In 2012, the CCS would have paid $1000. In 2013 and 2014, and for future years (assuming no changes), the CCS payment is $500 for every $1000 of after tax contribution.

A low income earner who made use of this opportunity from its inception in 2004 right up until 2014 would have received a total of $12,500 superannuation co-contributions from the CCS for an outlay of $10,000 over this ten year period. Assuming a relatively modest 8% yearly returns, a sum in excess of $32,000 would have resulted from this exercise. The only investment "skill" required is the effort of saving the equivalent of $19.20 per week from after tax pay. Bearing in mind the low income tax rebate available to low income earners every year, the actual saving required drops to a mere $11.50 per week.

In advertisement lingo: "Receive $32,000 in 10 years by paying less than $20 per week."

There are very few investment opportunities, in fact none that I could find, available to the general public which provides such fabulous returns for virtually zero risk and miniscule effort over such an extended period of time. The mystery to me is why so very few take advantage of it. One logical inference is that for many people, saving $20 per week is just too difficult. Another logical inference is that our education system and financial system have not been doing a good job of lifting standards of financial literacy amongst Australians.

The good news is that it is not too late to act now (ala Demtel and TV infomercials). A low income earner saving $20 after tax per week into his/her superannuation for the next 10 years, assuming 8% per annum returns (quite achievable with a low cost index fund), would have accrued a total of nearly $22,000.00. Yes, the money is locked away for a long time, and yes, the laws governing superannuation is quite likely to change in the future. On the other hand, to carry the cheesy advertising angle a bit further, what have you got to "lose", other than one less $20 note in your wallet every week? If the CCS is removed 5 years from now, there is no loss to the saver, who can just redirect his/her savings elsewhere.

For young people just starting out working, perhaps in low paying apprentice jobs, it will be difficult to find a more rewarding alternative to the CCS. Consider the fact that a 18 year old out of high school, working as a low paying apprentice, by saving $20 per week, would have accumulated an extra $22,000 in their superannuation account before they turn 30, on top of any employer contributed superannuation.

Whether one is low-income, mid-income or high-income, I hope that this post delivers the message clearly: how you play the cards you have been dealt in life is equally important, if not more important, than the cards you have to start off with.

Disclaimer: Opinion of a General Nature Only, containing facts that may be wrong or outdated. Definitely not financial advice of any kind.