Search Results for: ITX

Massachusetts Institute of Technology (MIT) is preparing to expand its global model of higher education through its MITx online course platform. These modules are quite good, and bring to mind the idea of whether they could be utilised as a pathway program, similar to what Navitas Limited (ASX: NVT) provides. Continue…

by Scott Shuttleworth Posted in Insightful Insights.

• 4 Comments
• save this article
• 4
• POSTED IN Insightful Insights.

Christmas is about sharing and joyful memories. With just 18 days to go, I thought it would be educational, if not insightful, to share the performance of some of the securities Value.able Graduates have discussed here at my blog.

Does the Value.able approach to investing, as advocated some of the world’s leading investors, have merit?

First Edition Graduates may not be surprised by the results posted below. The higher quality businesses, those scoring A1 and A2 Montgomery Quality Ratings (MQRs), and those at larger discounts to intrinsic value have, in aggregate, beaten the index. Some have trounced it. And with the exception of QR National, the companies that were labeled as poor quality (C4 and C5 MQRs) and overpriced, have under-performed. Some of the maturing higher quality companies (think JB Hi-Fi) have indeed performed.

The following tables present some of the blog posts and the stocks that I have listed, mentioned or discussed in them. I have consistently suggested investigating an approach that seeks the highest quality businesses and prices that offer the biggest discounts to value.

Whilst the results are short-term (therefore nothing should be taken from them), they are nevertheless encouraging. The approach advocated in Value.able is worth investigating.

Many Value.able Graduates have suggested I start a newsletter or a stock market advice service. Thank you for the encouragement. I do enjoy the cross pollination of ideas and look forward to 2011 attracting even more investors to the patient and rational approach shared here at my blog.

Here are the tables (DO YOUR HOMEWORK AND RESEARCH. ENSURE YOU ARE COMPREHENSIVELY INFORMED. SEEK AND TAKE PERSONAL PROFESSIONAL ADVICE).

Do these three companies represent the last of good value? Oroton, JB Hi-Fi, DWS, Cogstate, Cash Converters, Slater & Gordon, ITX, Forge, Decmil and United Overseas

Which 15 companies receive my A1 status? CSL, Worley Parsons, Cochlear, Energy Resources, JB Hi-Fi, Navitas, REA Group, Carsales, Mondaelphous, Iress, Fleetwood, ARB, McMillian Shakesphere, Sirtex, Oroton.

Is Apple an A1? What A1 companies does Roger Montgomery think are the best value right now? Apple, Forge and Decmil.

Where are my valuations Roger? Cabcharge.

JBH’s years of fast growth has slowed.

What do you think of the QAN, JBH and ITX results Roger? Qantas and ITX

Telstra profits will continue to drop

Who is in front of the reporting season avalanche? Navitas, JB Hi-Fi, Cochlear and Matrix.

Part II: What else has the reporting season avalanche uncovered? Ross Human Directions, Monadelphous, Forge, Carsales, DWS, Finbar, SMS Management, CSL, Consolidated Media, Integrated Research, McMillian Shakesphere, Count Financial, Domino’s Pizza, The Reject Shop, Credit Corp, Chandler Macleod, Primary Healthcare, Slater & Gordon, Noni B, Embelton and Tamawood.

Retailing Maturity – Roger Montgomery now has reservations about JB Hi-Fi.

Part III: The avalanche is over – where should you be digging for A1s? Lycopodium, REA Group, Fleetwood, K2 Asset Management, Acrux, Hunterhall, Macquarie Radio, Blackmores, ISS Group, Thorn Group, GUD Holdings, Webjet, Kresta Holdings, Kingsgate, Fiducian and Euroz.

Foster’s turns down $2b bid.

How does cash flow through Decmil?

Part IV: Where should you focus your digging?

Will Roger Montgomery invest in QR National?

I thought the performance of Fosters after the wine bid was knocked back was interesting, but only another year or two will confirm whether the opportunity to add value was passed up. Some higher quality businesses also underperformed the market, thanks in part to deteriorating short-term prospects rather than deteriorating quality.

Remember to look for bright long-term prospects. Of course, in the short-term prospects will swing around – that is business, but longer-term prospects of businesses with true sustainable competitive advantages tend to win out.

Keep an eye on the blog before Christmas as I will be posting a couple of very handy lists (and possibly some homework) before the annual Montgomery Family Christmas break.

Posted by Roger Montgomery, 7 December 2010.

by Roger Montgomery Posted in Companies, Insightful Insights, Investing Education, Value.able.

• 40 Comments
• save this article
• 40
• POSTED IN Companies, Insightful Insights, Investing Education, Value.able.

We are now two weeks into one of the most important times of the year for investors – reporting season. Eighty companies have reported to date, some good, some not so good – I know this because I track every single one. Yes, I am very busy. Are you wondering which companies are my A1’s now and which stocks I am interested in? In the last two weeks you will have heard me on TV saying I have bought a few things. Well, I don’t buy C5s so read on.

TLS was a clear disappointment, as it has been since it listed. I have been on the front foot for a long time saying that this is a company to avoid, I hope you took notice. My valuation has fallen now from $3.00 to almost $2.50. If anyone can turn it around however I think Thodey can.

Qantas should have come as no surprise. A $300 million cash loss and I wouldn’t be surprised to see another raising of capital or debt.

Personally though I am not interested at all in TLS or QAN as investment candidates. I am only interested in the highest quality best performing businesses available – it’s here that intrinsic value can be created rather than destroyed and with reporting season just about to kick into top gear from this week, to find them, I put each company through the same rigorous process.

My initial screening process is a vital part of the investment process as it allows me to determine those companies that deserve to retain their place in the short list and it also highlights new opportunities as they arise. But to do this for some 2,000 listed Australian companies can be a very burdensome task unless you have a systematic way of analysing and comparing results in a consistent manner.

For me, it involves pulling out some 50-70 profit and loss, balance sheet and cash flow data fields from each annual report to populate my five models. All of these models employ industry specific metrics to calculate my quality and performance scores. This allows me to rank all companies from A1 – C5 to sort the wheat from the chaff.

For those not familiar with my ranking system, A1s are the simply the best businesses and the safest to own, while C5s are the poorest performers and the least safe.

Out of the 80 companies that have reported, only 5 have achieved my coveted A1 status – around 6.25% (the best of the rest).

NVT, JBH and COH had my A1 rating last year and retained it this year and there are 2 new entrants in MCE and RHD, with GCL (it was an A1 last year) having a dramatic rating decline. I tend to shy away from resource companies for obvious reasons.

On my blog I have previously spoken about NVT, JBH and COH and also mentioned ITX, so please revisit those thoughts. itX is under takeover and Navitas, it was recently reported, had been approached some time ago by Kaplan – a company I have done some consulting work for and a subsidiary of Warren Buffett’s Washington Post company – so a big tick for the A1 to C5 Rating system!

That only leaves MCE, an engineering business that currently generates most of its returns from the manufacture of riser buoyancy modules for deep-sea oil rigs. Its order book is already underwriting a doubling of revenue for 2011. The 2010 result revealed profits had almost tripled and significantly exceeded prospectus forecasts and it is producing returns on equity of 49% – a rate that is unavailable generally elsewhere. Borrowings amount to about $8 million compared to equity of about $60 million (of which a little over 10% is capitalised development and goodwill intangibles).  Best of all, the share price over the last week is a long way below my estimate of its intrinsic value.

If you have seen me on TV or heard me on radio in the last week or so you would have heard me mention that I had bought something, MCE is it. Please be mindful that if you act rashly and go and push the share price up, you will be helping me perhaps more than yourself. Also remember that I am not recommending the stock to you and that I cannot forecast the share price direction (although I am pleased with its performance since my purchase). The share price, I warn you, could halve, for example if there is a recession and or the oil price plunges – delaying expenditure of the construction of oil rigs globally. I simply am not recommending it to you.

Also remember that I am under no obligation to keep you informed of when I buy or sell nor answer any specific questions, which means 1) you have to do your own research and 2) you have to be responsible for your own decisions. Seek and take personal professional advice BEFORE you do anything.

Moving on, another 13 companies have achieved my second highest rating of A2. They are listed below with their prior years rating so you can compare.

Noteworthy in this list is the excellent performance of the Commonwealth Bank (which I continue to hold in my Eureka Report Value Line portfolio, along with JBH and COH) and those companies I generally classify as being in the Information Technology sector including OKN, ITX, CPU and ASW. Both sectors appear to be doing well in aggregate.

While focus should always be placed on the A1’s (the top 5-7% of the market) at any one point in time, A2’s are still very high quality businesses. The use of the two lists in tandem will therefore provide you with an excellent starting point in isolating those who have reported high quality financials and performance levels above the average business. An important first step in the Value.able Montgomery brand of investing.

It is from here that I will select candidates worthy of further analysis (qualitative and quantitative) and possibly meet with company management, if I have not already done so. Once again I have taken you to the river I fish in, you have my fishing rods and tackle box. Now up to you to catch the right priced fish.

Please use these two lists as a starting point to conduct your own research and use Value.able as a guide to estimate your own valuations. If you don’t yet have a copy you can order one at www.rogermontgomery.com so you too can do your own valuations. Remember to always focus on the highest quality and best performing business available.

If you focus on the best when they are cheap and simply forget the rest, you should avoid more (if not all) of the disasters and should be able to build a portfolio that will give you a greater chance of out-performing the market.

Happy reporting season!

To be continued… Read Part II.

Post by Roger Montgomery, 17 August 2010.

by Roger Montgomery Posted in Companies, Insightful Insights, Investing Education.

• 105 Comments
• save this article
• 105
• POSTED IN Companies, Insightful Insights, Investing Education.

Here we are in the midst of reporting season and there are some reasonably predictable results. Qantas reported a profit today that was less than a quarter of its profit more than ten years ago. The airline reported a $112 million profit but that was boosted by $1 billion of revenue from its Frequent Flyer program and a $300 reduction in employment costs. For those of you interested in the real numbers, the company actually lost $302 million (see my chapter in Value.able on cash flow) and this can be explained by the very wide gap between the depreciation item in the profit and loss statement and the real expenditure on property plant & equipment. Depreciation looks backwards, but new planes cost more.

Separately, JB Hi-Fi’s result was excellent but my concern is that its $94 million of cash flow (of which $67 million was allocated to dividends and $20 million allocated to paying down debt) is superfluous to its needs. Take a look at the biggest asset on the balance sheet – Inventory of $334 million. Then take a look at the creditors item in the current liabilities section. Almost the same amount!

Think about it this way; the suppliers are funding the inventory so the company doesn’t even need cash to pay have the stuff it sells and that are on its shelves. Actually it really does, the gap is about what is left over once we subtract the debt repayment and dividends from the cash flow. It is small though. Once the debt is gone and the cash keeps growing it may do something that could harm intrinsic value.

Now don’t get me wrong; JB Hi-Fi is an amazing business that retained its A1 status in this result and the risk associated with its plans to roll out more stores is very low. I also think intrinsic value will continue to rise at a satisfactory rate. The concern for me with all this cash (and there is no evidence of it yet) is that the company increases the dividend payout ratio again. This would mean a reduction in the rate of growth of intrinsic value. It could stop being the “compounding machine” it has been to date. Return on equity also appears to be flattening, which could mean within the next few years, the valuation may plateau (but at a higher level than the current price).

On an unrelated issue, I note that back on 4 May 2010, I put together a list of the companies that I though represented the last of value in a blog post entitled Do these three companies represent the last of good value? ITX was one of the companies listed and I note the company has announced “itX confirms that it is in discussions with an interested party regarding a preliminary non-binding indication of interest to acquire 100% of the ordinary shares in itX.”

I’m pleased to strike another one up for the quality rating and valuation approach advocated here at my Insights blog!

Posted by Roger Montgomery, 12 August 2010

by Roger Montgomery Posted in Airlines, Companies, Insightful Insights.

• 29 Comments
• save this article
• 29
• POSTED IN Airlines, Companies, Insightful Insights.

Fifteen months ago I was shouting it from the rooftops; “we will look back on this time as one of rare opportunity”.  Since then, and as the All Ordinaries Accumulation Index rallied 61 per cent, there has been a fall in my enthusiasm for the acquisition of stocks.

Now, let me make it very clear that I have no idea where the market is going, nor the economy. I have always said you should never forego the opportunity to buy great businesses because of short-term concerns about those things. Even my posts earlier this year about concerns of a property bubble in China need to be read in conjunction with more recent reports by the IMF that there is no bubble in China. Take your pick!

My reluctance to buy shares today in any serious volume comes not from concerns about the market falling, or that China will cause an almighty slump in the values (and prices) of our mining giants. It comes from the fact that there is simply not that many great A1 businesses left that are cheap.

So here’s a quick list of companies that do make the grade for you to go and research, seek advice on, and on which to obtain 2^nd, 3^rd and 7^th opinions.

* Note: Valuations shown are those based on analyst forecasts and a continuation of the average performance of the past.

In addition to these companies, investors keen to have a look at some lesser-known businesses, that on first blush present some attractive numbers, could research the list below. I have not conducted any in-depth analysis of these companies, but my initial searches and scans are suggesting at least a second look (I have put any warnings or special considerations in parentheses).

• CogState (never made a profit until 2009)
• Cash Convertors (declining ROE forecast)
• Slater&Gordon (lumpy earnings profile)
• ITX (trying to identify the competitive advantage)
• Forge (Clough got a bargain now 31% owner and a blocking stake)
• Decmil (only made a profit in last 2 years and price up 10-fold)
• United Overseas Australia (property developer).

What are some of the things to look at and questions to ask?

• Is there an identifiable competitive advantage?
• Can the businesses be a lot bigger in five, ten, twenty years from now?
• Is present performance likely to continue?
• What could emerge from an external force, or from within the company, to see current high rates of return on equity drop? For example, could a competitor or customer have an effect or are there any weak links in the balance sheets of these companies?

Of course I invite you again – as I did in last week’s post entitled “What do you know?” – to offer any insights (good, bad or in-between) that you have about these or any other company you know something about, or even about the industry you work in.

Posted by Roger Montgomery, 4 May 2010

by Roger Montgomery Posted in Companies, Consumer discretionary, Investing Education.

• 72 Comments
• save this article
• 72
• POSTED IN Companies, Consumer discretionary, Investing Education.