Who makes your A1/A2 small cap list?
Time was a rare commodity on Peter’s show last night. Whilst I managed to list a few A1 and A2 small cap stocks that I consider make the Value.able grade, there just wasn’t time for details. So, as promised, I have put together a quick precise of two stocks (in boring businesses) I listed last night.
Remember: DO NOT rush out and buy shares in any company I discuss with Peter or any other media outlet (or here at the blog) without conducting appropriate research and seeking personal and professional advice FIRST!
These insights are not a solicitation to trade any security. I may own shares in the companies mentioned. I cannot predict share price directions – they could all fall by 80% or more after you buy. Finally, I am under no obligation to keep you updated with any change of my view, my estimate of the Value.able value of the company or my Montgomery Quality Ratings (MQRs).
Before I begin, here are the highlights from last night.
Zicom Group (ZGL)
In 2007, the first reported results after purchasing the Zicom Group, the company earned $6 million on equity of $21.6 million (ROE 27.7%). Since then another A$8 million has been raised from owners and profits have risen to A$8 million. Return on additional capital is 25%.
In the HY11 results, the company announced a profit A$7 million. Revenue grew from $47.75 million in the previous corresponding period to $71 million. A buyback of $4 million shares occurred in the half.
Company forecasts are for a full year profit of $12.9 million, which would representing a return on equity of 18%. Growth in equity is exceeding growth in profits, however the ‘growth’ has been through retained earnings.
Zicom has four divisions; Offshore Marine Oil & Gas (43% of revenue, makes winches and ROV’s/oil rig boom to help – think winches on ships that lift ROV’s off deck and into water), Construction Equipment (39%, concrete mixers/marginally profitable & foundation equipment), Precision Engineering & Automation (14% constructs automated production lines, ink cartridges for HP, semi conductor and medical devices and associated components) and Industrial and Mobile Hydraulics (4%).
ZGL’s order book stands at $83.2 million, up from $68.9 million. Cash flow was negative $10 million, however $5 million was spent seeding two start-ups and another $5 million was spent on acquisitions ($700k of PP&E and $4 million on buying back shares).
Click here to read Roger’s latest insights on Zicom, published 6 April 2011 in Alan Kohler’s Eureka Report.
Codan Limited (CDA)
Codan Limited designs and manufactures a diversified products range for the international high-frequency radio, satellite and metal detection markets (think Minelab metal detectors).
Shares on issue are virtually unchanged from a decade ago and borrowings, which surged from $2 million in 2007 to $73 million in 2009, fell to $52 million last year and another million in the latest half year.
CDA’s 2007 profit of $11 million fell to $8 million in 2008, then rose to $24.4 million last year. The company forecasts profit of $20-$22 million in 2011 (optimistic analysts believe this figure will be higher, circa $24 million).
Since 2001, CDA’s profits have increased by 10.13 per cent per annum, from $10.268 million to $24.472 million
To generate this $14.2 million increase in profit, shareholders have put in equity of $21.859 million and left in earnings of $23.150 million (32%). The company has also borrowed $8.615 million net, in addition to the $43.483 million of debt held in 2001, resulting in current debt outstanding of $52.098 million and a net debt to equity ratio of 46.66 per cent.
Return on Equity is the best measure of economic performance, and CDA has averaged 31.02 per cent since 2001. Recently, CDA generated a return on equity of 37.94 per cent.
Finally, I also mentioned a small number of small cap stocks that are high quality and appear to be trading at a discount or close to my estimate of intrinsic value at the moment – Forger Group, ThinkSmart and Matrix Composites and Engineering. Here is my list:
Over at facebook.com/montgomeryroger Unc Dev’s list includes Thorn Group, Reckon, Iress, Nick Scali and Fleetwood. Shuo nominated PFL and Kristian proposed FSA, SWL & RQL. Which stocks make your A1/A2 small cap list?
Posted by Roger Montgomery, author and fund manager, 25 March 2011.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Roger Murdoch
:
Hi Roger,
I have just finished reading Value.Able and have valued a company which i have shares in. However very unsure as to my accuracy. Would anyone be able to give me their valuation of LGD from the half year results . I calculated $. 41c but would appreciate a second opinion.
Thanks
Roger Montgomery
:
You will definitely get a second opinion here ‘froggy’.
Matty
:
Hi Roger,
Please allow me to posthumously nominate Cellestis – they are in the proceeds of being taken over. It is such a shame that a promising little Aussie company disappears off the investable list after being taken over by another big company.
What are the real drivers here? From a cynical point of view the directors may have certainly earned a little extra when their options will be taken out. Certainly a few industry players had a whiff of this as the share price was driven upwards in the weeks leading to the announcement. From a pure business point of view maybe there is alot a bigger company can do to develop and market the technology into other applications. But they certainly seemed to be travelling nicely with good cash flows to grow the business. A shame this “value” is being gobbled up in goodwill to disappear into a big medical conglomerate. From the media release “Attractive premium of 24.3% to the 1 month VWAP and 31.5% to the 3 month VWAP…” It seems to be value destroying for alot of smaller shareholders who if you were in for the long haul could see the price at a disappointing discount to the business IV if they just wait a couple of years!
Regards,
Matt
Ash Little
:
Hi Matty,
It happens.
I felt the same outrage when ITX was taken out.
Not much you can do about it though.
Peter Ralph
:
IDL is a provider of capital equipment and services to the mining industry and has significant exposure to growth in China particularly in relation to coal mining.
It had a capital raising in the first six months of this FY…I’ve averaged the 30/6 and 31/12 equity to come up with $269m and an asset backing of 82 cents at 31/12…….dividend payout ratio is 28% …..debt to equity a little over 30% and directors are forecasting NPAT of $50-$55m for the full year (say $52.5m)…..this will result in an ROE of 19.5% (say 20%). Applying an investment return of 10% and using the formulae in Value.Able I arrive at $2.52 and the stock is trading at $1.445. BTW in a case like this I look back at previous forecasts by directors to see if they’re prone to exaggeration or inaccuracy (think DOW) but I think this board is staid and is more likely to under-promise and over-deliver…..always a good trait.
This is a business I’d want to own (I’ve owned shares for sometime and topped up with more late last week) and seems to have a good margin of safety. I’m not talking up my own book (I’m in for the long term) and made a similar post about ZGL when it was $0.30.
Gail
:
Hi All,
FWD Doing self imposed homework, could someone please check.
Curr equity 157, curr shares 54, EQPS $2.91, NPAT 39, Div 35,
POR 89.74% (used 90) Av equity 149.5, ROE selected 25% RR 11%
IV $7.22 (I used June 10 finalcials). Thank you
Ben
:
Stop blindly following roger.. please.
Brad J
:
Ben,
A lot of people follow Roger but for good reason, he is the best there is in Aust. I personally feel the comments on this site are exceptional and a lot of members are coming up with good companies/subjects of their own worthy of discussion. Keep up the great work fellow graduates.
BTW I think I am falling in love with VOC. Yes Roger mentioned it (as did others here at the blog) first but I can’t help it, LOL. Future prospects are so bright I need to wear shades. Do your own research as I own VOC. As Warren Buffett said the best purchases he ever made were the ones where the figures almost told him not to but he couldn’t resist.
Grant Duggan
:
Ron,Ash and Jonesy
Contacted NOE today about some questions,and secretary said no prob but e-mail me.I for one do like the field they are in but appear to be well out in my IV calcs.Please point me in the right direction i used POR 26% ROE 40% and EQPS 13cents.
I undestand this is only a minute area before deciding if investment grade however i came up with an IV of 74cents using a RR14%. If all goes to plan the annual report should be released about 15th march according to the info i recieved.
Many thanks to all Grant.
Jonesy
:
Hi Grant
Just going through some of my inputs. You’re right, current EPS is around 13 cents. However, this has more than doubled from 2010 so I used ending equity rather than an average of beginning / ending equity. So this would have the effect of halving the current ROE to about 21%. This would give you an intrinsic value around the current price. Once the new facility is up and running, the output should be doubled, an assuming a constant EBIT margin, this should give you EBIT of around $30m. Taking off around 3m in interest payments, should give NPAT of $18m+ which would give you a ROE of closer to 30% and IV over 50 cents.
Note however, some of the words being used: “once”, “assuming”, “should” – no guarantees that anything works out as you hope it would, it could all end up costing a lot more and there could be another capital raising on the horizon, hence the delay in me pulling the trigger as yet!
Ron shamgar
:
Current IV 32c from memory… Wait for half year results and see how they are dealing with pricing pressure
lloyd
:
CDA H1 cash flow statement raises a few questions. Can someone explain for me the blow-out in cash costs (paid to suppliers and employers) and the resultant collapse in cash from operating activities with the implications of this for the next half and full year?
Paul Kulen
:
Hi Roger,
MCE Trading Halt, share placement ! Any insights ?
PK
Pat gavin
:
VOC.
$20ML intangibles,
Deferred tax $.7ML asset,$1ML deferred tax liability
Borrowings $13.8ML
Share buyback $6.5ML
Issued shares $1.3ML
To me there seems to be some inconsistant if i’m reading the half yr report correctly.Anyone care to comment.
Also from Trevor Sykes generally re capitalization of expenses:
He asks how much could it be sold for and who would buy it?
Roger Montgomery
:
Hi Pat,
An accounting profit is Revenue – expenses. Taxable income is assessable income – allowable deductions. Assessable income is different to accounting revenue. For example revenue not yet received is not assessable. Deductions are not always equal to expenses either. The rates of depreciation allowed under accounting and under taxation differ. Some expenses such as entertainment are not deductible. Doubtful debts and long service leave are also treated differently. There are many. There is also differences between the balance sheet prepared for accounting purposes and that prepared for taxation purposes. The differences between accounting and taxation profit and balance sheets leads to recognition of deferred tax assets and liabilities. Here’s a neat list I found:
ITEM Accounting Treatment Tax Treatment
Depreciation As per AASB 1021 Often accelerated
Doubt. debts Expense when doubtful Tax ded when written off
Long Service Leave Expense when accrued Tax ded when paid
Rental Costs Prepaid until used Tax ded when paid
Rental Revenue Liability if in advance Taxed when received
Entertainment Treated as expense No deduction for tax
Research & Dev Capitalised and expensed Tax ded. when paid
Goodwill Amoristed No deduction for tax
Tax Loss No treatment Offset against future income
Moving on, I find the balance sheet cash flow method I describe in Value.able helps cuts through some of your concerns.
Roger Montgomery
:
Hi Pat,
have a look at how the intangible is generated and what the liability is related to.
Roger Gibson
:
Attention all bloggers.
What are you all waiting for? NCK has an IV of $2.59 @ 10% RR and $1.97 @ 12% RR so at $1.54 why aren’t you all buying it? I bought at $1.80 so get buying and HELP!
Ron shamgar
:
The reason we r not buying it is because furniture businesses are tough businesses with very low barriers to entry. Maybe if it was trading around 80cents it would be cheap enough to take the risk of selling leather lounges….
As an aside note, go to Moore park supa center and notice how many new and different furniture stores pop up and close down regularly. This one is not 4me at these prices.
JustinP
:
I went into the huge Nick Scali showroom in South Melbourne recently, and the only other people in there were two salesmen down the back. Looking at the prices I’ve seen similar furniture for much cheaper.
Ash Lillte
:
Not for me at any price
Michael
:
Your IV looks a bit high, but if you have done your research and confident in your numbers, you shouldn’t be worried about a fall in the price – you may even buy more.
Henry
:
This is an era of mining sector, why ‘d someone ever think of buying into retails sector ? It seems that you are swimming against the tide mate. You may reach your target in 10 year time, but is it worth your 10 year of life ?
Jim
:
Hi Bloggers
Mining services over furniture , no matter who is running it. It’s not the boat to be in now I feel
Cheers
Jim
nevada
:
lol .next time roger is on tv I will call in and ask him if he owns any gold stocks if so which ones .
i own slr rms fml mml but very small % of total holdings used to own ncm newmont barrick lgl kcn eld rsg sar and lots more i had a whole zoo of gold miners still think silver gold will go higher but i started investing in gold when it was 420 oz not as popular then as now every one seems to be gold crazy gold buyers every were in shopping centers they have gold buyers on the radio ,
Soros said gold is going to be the ultimate bubble he has increased his holdings , so i guess he wants to ride the bubble
mark faber and jim rogers said that gold could very well be cheaper now than 10 years ago because of the high debt and
money printing in us and other central banks jim rogers and mark faber peter schiff al think we could have global currency crisis in near future then a medium of exchange will be needed
sorry for any spelling misstakes spell check does not work here
Dane
:
Regarding Zicom, I am interested to hear other people’s opinion about the structure of the board, quality of corporate governance and remuneration.
This is one area that stood out to me in reading the annual reports, so I thought it is worth a mention.
Craig
:
Hi Dane,
I am as interested in your thoughts as you are in mine :)
Cheers
Craig
Roger Montgomery
:
This is an important part of assessing an investee given agency risk and I, for one, am also very interested to hear everyone’s findings…
lloyd
:
It is all in the family.
Nepotism risk is high. Good if you are a family shareholder. Perhaps less so if you are a passive shareholder.
And watch out for those disruptive technology investments. They can “eat your lunch” and do so more often than not.
Craig
:
Hi Lloyd/Dane/Roger
My thoughts are this
With GL Sim is the majority holder with 35% of the company, my guess is that the incentives are in the right place for small shareholders and the Sim family interests to be aligned.
I also think actions are louder than words. The companies capital management during the GFC was value enhancing for shareholders, a laudable show?
And more speculatively: It’s easy to be a bit suspicous of family interests, but providing the financial interests are aligned with shareholders (tick) I think it might even be a benefit. It appears that the eldest son has been well educated (honours from Columbia Business school?) and I would guess he has been well groomed under tutalage of GL Sim who by all accounts appears to be a very well respected businessperson.
Lloyd: I agree about the startups. Value destroying until proven otherwise?
Thanks for your thoughts Lloyd. What do you guys thing Roger/Dane? Any insights?
Cheers
Craig
Roger Montgomery
:
Hi Craig,
I have written a short piece for Alan Kohler tomorrow.
Dane
:
My thoughts on a general level are that family is not a big problem in management, but a little worrying in M&A deals. I like big shareholdings in top management and board, but only if they are paying themselves largely as shareholders. In this case I hesitant due to what at a glacé l
Dane
:
My thoughts on a general level are that family is not a big problem in management, but a little worrying in M&A deals. I like big shareholdings in top management and board, but only if they are paying themselves largely as shareholders.
In this case I am hesitant due to what at a glance looks like undervalued equity remuneration. The lump of shares issued at 10c is a concern. I understand the argument that the minor shareholder can benefit from the alignment of management through their equity holdings, but only if the risk of M&A and remuneration to the detriment of shareholders is minimal.
Probably a good punt, but I feel like I am not part of the family and consequently won’t be looked after in tue same way.
Craig
:
Hi Dane,
I think you are right about undervalued equity remuneration of course. However I am not sure the family connection is any different to the general institutional imperitive of the entire ASX. It’s hard to find a single company on the ASX that does not engage in corporate backslapping of the dilutionary kind.
In fact one of the only companies I can think of that actually remunerates and incentivises in a rational and shareholder focused manner, is RYM on the NZX. Their shares on issue have not altered since listing a decade ago, they offer no options to executives. Instead they provide an interest free loan for exectutives to purchase shares in the company. A laudable approach indeed.
If only others would follow this example on both bourses. :(
Roger,
Thanks for your Zicom insights on EurekaReport. You didn’t just give away the valuation formula behind your growth table by any chance did you? ;-)
“More importantly, return on equity could exceed 25% in 2011 and 28% over the next three years. Zicom gets a Montgomery Quality Rating of B2 and paying 1.74 times equity for Zicom is akin to buying a bank account that earns 25–28% per annum.”
Craig
Ron shamgar
:
Hi everyone,
I started noticing everyone is discussing all these mining stocks here.
Sure we r in a commodity boom and every miners’ shares are skyrocketing. But let’s not forget these guys r price takers with no competitive advantage what so ever!
Let’s go back to basics and start thinking about the businesses that have real moats around them.
What I think is happening is that we r running out of A1 stocks to value and resorting to speculative mining stocks even if they r profitable.
BE PATIENT! We can’t always find bargains. Opportunities will come, so make sure u have the cash to capitalize on them.
I thought I would just mention this. Thanks
Steve I
:
Ron,
I’ll have to disagree with you here. If you look at economic cycles (and global imbalances) it makes sense to have commodity exposure right now. Conversely, retail companies can still have margin pressure due to rising input costs no matter their competitive advantage. This scenario can last for years.
That’s fine if you want to ignore commodities, however the reality is that they are a viable asset to invest in when the time suits. The same thing applies to retailers. It depends on if wish to buy and hold for 20 years or if you have shorter timeframes.
To say that all miners, even if profitable, are speculative is denying the fact that all forms of investment is inheritly speculative as you are making a call on the future. The irresponsible thing to do is to invest in a company without understanding of value and this is often done by most people when investing in mining stocks. There is no reason in my view to ignore a large sector of the investment universe and no reason it can’t be done with a value investment philosophy.
Those who feel uncomfortable in this area should stay clear but for me this is the safest place to be given the cycle and environment in which we find ourselves. I’d like to preserve my purchasing power.
Adam
:
Have to say I totally agree with Ron (and Buffet!) on this and disagree with Steve.
As Ron said, the problem with miners is they are PRICE TAKERS. They largely rely on commodity prices to determine their profits, where as great industrial companies rely on their great products, marketing and human ingenuity to deliver consistant ROE over long periods. Future commodity price movements is indeed speculation.
If you don’t believe me look at the huge outperformance of the industrial index compared to miners over the long term. (With a few exceptions like BHP who is large enough to be a price maker.)
You definetely shouldn’t be in resources solely because we are in a resource boom.. because like all booms, it won’t continue for ever.
Steve I
:
Adam,
I’m not talking about investing in resources due to a resource boom. I’m talking about the fact that we are in the right cycle and that I see significant benefit in having exposure to precious metals and also oil/gas. We have a major global imbalance and huge levels of liquidity meaning coming rampant inflation. This is why you invest in resources.
You are talking about BHP for example and I’d assume you are referring to the last few decades. Industrial stocks (index) can end up at the same nominal value for up to two decades. This excludes the erosion due to inflation. If you are comparing from 1980 then you are not looking at the right period and this is a different cycle than from 1980 to 2005ish.
You refer to Warren Buffett. Did you know he took on a large silver holdings early this decade?
No, resource booms don’t continue forever and industrial stocks don’t go up in a straight line forever. It comes in cycles. This cycle should last till between mid decade and 2020. We have a massive inflation problem on our doorstep right now and we are definateky living in interesting times.
Refer to Jim Rogers’ work if you are interested to learn more about the cyclicality.
Ash Little
:
Hey Steve,,
Jim Roger quote……..If you want to be rich learn to to ndrive a Tractor
Nice post
Steve I
:
Thanks Ash,
He also said that they (farmers) will be all driving lamborguinis lol.
Heard that recently US farmers have stopped growing their usual crops and are growing cotton this season! Wonder what will be the crop of next season!
Ash Lillte
:
Hi Steve,
There will be lots of rich cotton farmers in Australia this year.
Next years crop will be the ones they did not plant this year hence creating future shortages
Ron shamgar
:
The one thing I can say to watch out for is that 70-80% of chinas GDP growth is in fixed infrastructure! This is unprecedented and not sustainable. This is why commodities are in high demand. I also get quite worried when people justify their opinions by ‘this time it’s different’ comments.
Have a listen to Jim chanos and if I’m not mistaken, according to Jim Rogers this commodity bull run began in 1999 and usually lasts around 14 years or there about.
Again this could go for a while more but I have never been good at selling at the peak and buying at the bottom. I’m happy to be close enough! ;-)
Rob
:
Hi Ron,
I love your posts and your contributions here on the Blog.
I disagree about the sustainability of Chinese growth.
Income and urbanisation drive infrastructure growth.
As China’s (and India’s) economy grows we will see a rise of the fortunes of the middle class.
Middle class for BRICs (Brazil, Russia, India and China) will increase from 300 million in 2008 to about 1.4Bn by 2020. China’s per capita income will rise by 175%. Chinese and Indian cities will grow by 30%.
During the eighties I witnessed massive infrastructure change in Singapore. They were continually knocking down and rebuilding Orchard Rd. The changing face of that small island was amazing. I couldn’t believe their MRT had full platform length glass and stainless steel partitions for boarding their trains.
On top of this, consumer spending will soar. This middle class will want air conditioners, phones, cars, ipods etc. Air travel in China alone will increase to a billion passengers a year by 2018.
The middle class will want the latest of everything so you can expect that infrastructure will constantly need maintaining and updating.
China plans to increase their rail network from 78,000Km of track in 2008 to 120,000km by 2020. Coal accounts for approx 50% of goods carried by rail and 7,000Km of the increase will be dedicated to transporting coal.
I’m not saying it will last forever but I don’t see an end real soon. When we talk about China, I think we often forget the sheer size of the place (population and area).
Cheers
Rob
Steve I
:
Ron,
Your view is the popular one assumed by many mainstream economists and I don’t buy it.
The reason why commodities are the place to be is not related to china specifically. There are many many more people in this world today and they need food and energy. World resources are not infinite and you can print food they same way the US Fed can print money.
This is not about China building more houses than it needs. Do you think they will stop eating? Stop wanting to drive? Energy demand is insatiable regardless and the only way to find new solutions is by market prices increasing significantly.
This is not about base metals or even demand of them either. World money supply has gone through the roof and it takes more paper currency to by the same commodities. Don’t even think about Chinese economic grown rates when considering these problems – they are a side story here.
Jim Rogers and others say 2001 and around 15-17yrs is typical. We could face this for quite a few years yet and it’s not about timing the market (in my view) – it’s just a matter of watching the world and seeing when the problems start to be fixed and I’m sure it won’t happen overnight and they are terribly big issues!
Not a fan of Jim Chanos as he is too focused on Chinese property from what I’ve seen (obsessed?). There are many other aspects to consider.
Anyway, hope this is helpful to some. It is a topic close to my heart as I believe that the issues we face will impact on investment outcomes.
Ron shamgar
:
1999 and lasts 15-20 years… He has said this one might be longer than average as GFC caused delays.
I disagree that it’s the opinion of many mainstream economists, they r all bullish as their employers r recommending their clients to buy the miners…
Anyway I guess time will tell who’s right and who’s wrong….I hope u will be right!! ;-)
Steve I
:
Ron,
Perhaps I should be more specific – some of the international economists have this viewpoint.
With regards to Australian economists… it hurts my ears to listen to them.
I’m pretty sure I’m right, but you never know and I’m always happy to hear other views and correct myself if I’m wrong.
Ash Lillte
:
Hi Ron,
Good call, This is something that is on my mind as well. Consumption as a percentage of GDP must rise and Fixed Investment must decline in China
For commodity booms and busts people lump them into one category but sections have different metrics. If we look back at the last boom during the 1960’s and 1970’s then we find that base metals were the first to boom (anyone remember a company called MIM which had( and I have not looked this up but it will be close) a market cap of close to BHP in the early 1970’s.) However base metals were the first to decline in the mid 1970’s. Precious metals like gold and silver continued on untill 1982 and agriculutural commodities boom lasted a few years after that.
If you listen to Jim Roger he is now on to agriculture and I would just guess that the reason is it is the last to boom and the last to bust in a commodity cycle.
Just my thoughts
Wing
:
Hey Steve,
Correct me if I’m wrong —
The key will be how accurate you can predict the commodity circle timeframes. The winners, no matter in which sector, always have competitive advantage. Say BHP & RIO’s competitive advantage are their economy of scale, their long history and experienced operations, their system and structure etc. I don’t have deep insight into small miners… some questions may be.. Are their earnings mainly driven by the raising commodity prices only? How certain they can find quality ores under the ground? Will they able to sustain rising cost pressure? If you are convinced some small miners can maintain the high ROE in the next 10 or more years, then becoming a business partner maybe a good idea.
I think buying commodities directly in order to hedge inflation is different from investing in small miners.
I’d personally prefer quality mining services companies, the competitive advantages are quality of work produced, experience in the field, client relationships and specialised skills. More importantly, although they are more or less exposed to commodity prices, they have to charge service fees regardless how profitable of these projects to the miners. (Think of your stock brokers, they don’t care what stocks you buy, they are happy enough as long as there are transactions)
Regards,
Steve I
:
Wing, I follow Jim Rogers and David Skarica. There are pretty well defined timeframes.
Mining services aren’t without risk (not against them I did hold forge and still hold matrix) as they can be impacted from fixed contracts when their input costs rise and especially energy costs rise. Also an economic slowdown due to inflation would be a risk.
At the moment i look to invest in miners as a proxy to holding the commodity with the duel benefit of gaining leverage and also investing in undervalued companies. Obviously there is volatility and they can fall along with the overall stock market.
Gavin
:
Hi Wing
I have a different take on Mining Service Companies. The competitive advantages you mention might be of use in winning work in the good times though I have my doubts that they will count for much in a down turn. I have worked for one of the majors and the overriding strategy in out-sourcing was to ensure the fixed costs and in house capabilities of the business were appropriate for the bottom of the relevant commodity cycle – above that contract as much as you can. Whether a contractor could do it better or cheaper was in reality a secondary consideration to making it a variable cost in a downturn.
To an extent I think the outsourcing boom has desensitized the producers to the commodity cycle and the risks have been passed to the contract service companies. Time will tell if they are any good at managing the risks though I suspect some service companies are coming to market now because current owners already know the answer and want to take cash of the table in the good times.
My opinion is that the Service Companies are highly exposed. They carry the capital assets; the sticky workforce and some heaven forbid even have debt whilst revenue is dependent on the amplitude of the commodity cycle
The good ones will have contract terms in place to help mitigate their risk but without being an insider it’s hard to know much about contract terms. Diversification in revenue sources between mining, infrastructures, commercial etc should also be helpful in managing when the commodity cycle turns down.
Ironically the poorer quality mining service companies experience the strongest share price increases during the goodtime because they are more concentrated towards mining, have higher operational leverage (some even have financial leverage) and margins starting from a lower base. But everything that works on the way up reverse on the way down. Generally I think the whole industry dynamics are poor but good money can and is being made now. Continuation of the commodity boom though will be critical to the well being of all but a few who will survive and eventually dominate. (those are the ones I want to buy and at that time)
That’s how I see it anyway.
Wing
:
Many Thanks Gavin, for your information provided! So that’s why I said “quality” mining service companies will be my choice. Those ones with high ROE, high operating CF, little or no debt and managed by owner-like managers will be more attractive than the others. I do agree that it is exposed to the commodity cycle as well.
And yes Steve, I’ve also watched Jim Roger’s video posted on Youtube and some bits and pieces from economists, who mostly pointed to a bull commodity cycle the next 10 years or so. I was just trying to point out that when buying commodities you are exposed to the commodity prices risk; but when buying small mining companies you are exposed to the risk at the company level and commodity prices will only become a factor of those risks. But if you have identified the competitive advantages of some small miners, I’m sure many of us would like to know your insights :)
Steve I
:
Hi Wing,
The whole point when investing in miners is to be exposed to the commodity price risk. One can invest in miners and gain a dual benefit of being a value investor plus having upside to the commodity price.
It is a completely different equation to investing in mining services companies. You need have have a view on the underlying commodity itself.
So yes, there are risks, however there is equal reward. Therefore if you have a good idea of what is happening, you can have significantly more upside compared to a mining service business. It all depends on what you are trying to achieve and your understanding (and therefore confidence) of the underlying commodity.
James
:
With all this talk of overseas investment; I thought of an idea to maximise returns and minimise risk (though not sure if individual investors have access to this type of strategy).
Assuming that one believes the Australian dollar is high at the moment and that one can find overseas companies at under intrinsic value, obtaining credit from overseas (i.e. in the US/Europe/Japan) where interest rates are low and then investing the money in stocks in those countries which will appreciate over time would seem a good way to achieving wealth. You would have bank accounts opened in the other currencies/countries and could then transfer funds in and out over time based on the currency levels/investment opportunities.
Does anyone know whether Australians can obtain credit overseas to invest with in those markets (i.e. a margin loan, but preferably a personal loan so that no margin calls are involved?)
Alternatively, are there ways to obtain credit from overseas and bringing it over to Australia; then either investing in term deposits (and profiting from the spread – bearing in mind currency fluctuations) or investing on the ASX? The aim would be to obtain long term fixed loans from overseas, which, if obtained cheaply enough (which looks to be the case currently), would almost guarantee significant profits over time considering the edge we hold as value investors.
Would love everyone’s thoughts and Roger’s if you have a view as to whether this was possible for individual retail investors (or in any other formats – such as starting a company to try and obtain the credit) to invest in overseas markets from borrowed credit – as now seems as opportune as ever to give it a go!
Thanks, James
Simon Anthony
:
Check out ASX: USD for investing in the rising U.S dollar. You may also get the benefits of receiving capital gains/losses tax advantages as apposed to having to report earnings as an income. Personally I believe that the Aussie $ will rise to $1.07/1.08 U.S before the end of the FY. So you still have time (IMHO) on your hands to look into this ETF.
Ron shamgar
:
Two problems with ETFs are:
1 they are not always liquid enough
2 in volatile times they don’t necessarily reflect the exact value of their holdings. Refer to Japanese equities ETF recently.
Hope that helps.
Ash Little
:
Hi Ron,
I admit to not being very well informed about ETF’s but I was under the impression that the people operatating the EFT are duty bound to be markets makers and provide the liquidity.
If we have any ETF experts out there It would be great if you could clarify how the operate.
michael s
:
Hi Roger,
Seems like people are interested in overseas businesses especially with the Aussie dollar being strong. I own shares in PET. Wayne Peters scoures the world and buys undervalued high quality businesses – a lot are in the US. Importantly he hedges currency risk. Perhaps worth a look for some people who want a lower risk exposure without some of the complexities of currency/tax etc.
Regards,
Michael S
Brad
:
ONT’s numbers are great but the major risk of a business like this is that its’ goodwill goes up and down the lift every day
Chris
:
What do people here think of DRA? Small Gold producer, debt free, in production. Hard to see a competitive advantage, but seems pretty cheap compared with IV even at a 15% RR.
Steve I
:
Chris,
Looks pretty good with large upside based on IV.
However, the is something unidentifiable that is concerning me and I have no idea why – I think it may be a feeling that their future growth potential via exploration isn’t absolutely certain (although some of there grades are fantastic). Have only have a brief look at this stage.
Vishal Hargovan
:
Hi Steve I
Is it the high cost of production that is of concern? Also I cant seem get a picture of the future production over the next 3-5 years.
Vishal
john f
:
Hello Roger,
Do you think the buy back by JB HiFi today was enough?? At least they did not pay out the money in dividends. What is the IV now?
Regards
John F
Will
:
Roger, I had replied to an email you sent me in 2010 recently. Probably it got sorted to your junkmail but look for that.
Steve
:
Interesting that CDA has shot up to Roger’s estimate of intrinsic value but ZGL hasn’t and is still at quite a discount. ZGL’s last big price move actually occurred before Roger mentioned it. ZGL also had the higher discount to IV and Roger projected higher growth rates of around 10% per year compared to CDA’s relatively flat growth
Stephen
:
Hi folks,
If you get time, have a look at the Prospectus for GR Engineering Services Ltd which work out of WA.
Raising $30M by issuing 30M shares. Very impressive reading. Reminds me of MACA (MLD).
I believe that all shares are already reserved for clients of Argonaut Securities. Rang them today to ask some questions, but they were just flat out rude.
I’ve lodged an application for an allocation but believe I won’t score any (similar to MACA).
Still I’d encourage you to have a look. I expect it will open somewhat above the $1.00 mark.
Robert
:
Hi Stephen,
Thanks for nominating GR. Just had a quick look using beginning equity, Im getting a current IV of $0.57 using 14% RR, NPAT of $17.8m, 120m shares on issue and equity of 1.8m, $0 dividends, POR 0%.
Based on the prospectus forecast numbers, I’m getting a forecast IV of $0.78 using an RR of 14%, NPAT of $18.77m, 150m shares on issue, equity of 30.37m, $0.04 Dividends P/S, POR of 85%.
If I use average equity, I get an IV of $1.45, which represents a significant premium to the listing price…
Cash flow looks like it will be positive.
NPAT growth as stated looks to be only 8% – could be understated – but not spectacular as is.
Anyone else had a chance to look at this – are my numbers correct? opinions?
Rob
Robert
:
Hi all,
Update. My numbers were incorrect (wrong multiplier, amongst other things). Im now getting an IV of between $1.74 & $2.03 based on the adjusted half year numbers and forecast NPAT for 2011. More investigation needs to be done.
Rob
Roger Montgomery
:
Hi Robert,
Much more needs to be done because the company’s strong cash flow and dividends over the last two years may be a function of a low spend on PP&E. Have a look at the cash flow statement for FY2010 and HY2011. You will notice $15mln was taken out in FY2010 and another $15m in the last six month financial period. Would this have been possible if an appropriate amount was spent on maintenance etc? Is the low spend on capex because the company is not capital intensive (good) or is it because the owners chose to take the cash out and let mum and dad investors fund the capex needed (not as good)? The concept that ‘all the money being raised is going back into the business’ is less attractive when measured against the low spend on capex in the last 18 months of less than $600,000. Not much for a business that earned cash revenue of $210 million in the last 18 months.
ken fraser
:
Roger, You understand and see things I don`t. Thanks a lot. I would have bulldozed in when they list as I had IV $1.61.
Ash Little
:
Hi Ken
A1
Depending on the price I may still bulldoze in
Robert
:
Hi Roger,
Thanks for that.. Very good point!. It seems rather cheeky to have taken $30m out, only to ask for it back from prospective owners.
Indeed, a very low capex figure.
Rob
Jonesy
:
I’d be thinking something close to 20% of net operating cash inflow would be reasonable for an engineering firm and the recent figures are not in that ball park. Add in the strange $30m dividend immediately followed by a $30m capital raising makes me have second thoughts. I would like to see some annual reports going back about 5 years to get a better idea on management and how well the company has been run to date.
Simon Anthony
:
For my money if they list @ $1.05 they are still a good buy. Make sure that you don’t expect GR to repeat MACA performance though. Treat each stock on its merits. Remember to turn the stock market off once your invested.
ken fraser
:
Simon, That`s easy for you to say.
yavuz
:
Hi,
I was surprised to see GRES nominated. A bit of history on GRES. I happen to know most of the key people at the top management as well as all the second line managers. Because I worked with them very closely in the past. They did built a 4.5 Mtpa gold processing plant in Kambalda (where I used to work) about 4 years ago. I was the client representative they were the engineers. Most of the present GRES people used to work for JR Engineering Services (JRES). JRES had a workshop in Kalgoorlie to provide plant maintenance sevices to mining companies around Kalgoorlie (mostly small gold mining companies). At the same they started designing and building small processing plants ( 0.5-2 Mtpa capacity). Just before the previous mining boom, the owners (key owner Joe Ricciardo) sold the company to Downer EDI, and it was called Roche Mining (JR). Once the time was up (about two years ago I think) all of them (including managers, principal and senior engineers) left Downer EDI to form GRES.This is also the same group who built a big mineral sands processing plant for Iluka. This is the plant for which Downer suffered quite a bit of well documented financial problems. I doubt the plant they built for us (gold plant) was a financial success for them either. One of their key design managers now works for Abesque engineering, which is a subsidiary of FGE. These people are capable, no none sense people who can build cost effective plants. As long as the boom lasts. As for their competitive advantage, being an extraordinary business and have a high ROE, I would have hesitations. It might turn out to be a success story. But I prefer to would sit on the sideline for this one and invest in companies like, for example, Vocus.
Yavuz
ron shamgar
:
some more small caps for further research and trading below IV (some of them have high debt to equity and highly iiliquid):
NOE, CSV, STS, AMB, CDD, DDR, VMG, LIC
Ash Little
:
Just my humble opinion but the first on the list is by far the best.
I have looked at it a few times but have never pulled the trigger.
Keep up the good work Ron I for one love your posts.
Not saying I always agree with them but that is what makes a market :)
Jonesy
:
Novarise Renewable Resources International Ltd (ASX:NOE)
Had a look at this stock after Ron made the suggestion to have a look at it. The fact that it is involved in recycling waste plastic also aroused my curiousity.
Novarise is an ASX listed company based in China which produces fibre grade polypropylene (PP) pellets from recycled polypropylene waste. From this, they then produce materials for domestic and export markets. As a synthetic chemical fibre it has advantages over eg nylon and polyester in that it’s corrosion resistant, non toxic and wear resistant. The range of products that this can be used for include bags, footwear, clothing, rope, tents, backpacks and laptop carry cases. The company has long term relationships with international brand notebook bag producers including HP, IBM, Dell, Toshiba, Samsung, Acer and Asus as well as the worlds largest beach chairs and tents producer.
Novarise is the only major producer of recycled PP in China and the technology it uses to produce the pellets from waste products is significantly more economical compared with producing virgin PP. The cost of processing PP waste materials into recycled fibre grade PP pellets is approximately 20% lower than the cost of using virgin (non recycled) PP pellets. In 2010 the company was granted patents related to the production of these PP pellets including a pellet bulking device, cooling device and a plastic peletting model.
In 2009, Novarise was producing 25,000 tonnes annually, increasing to 35,000 in 2010. The company had an IPO in 2010 to raise money for a new production facility, phase 1 of which is due to be completed in the 3rd quarter of 2011 resulting in an increased capacity of 75,000 tonnes annually.
The competitive advantages with the company are in the technologies that they use to produce the pellets – no other company can currently produce PP pellets from waste PP product. Also, the long term relationships that the company has with multinational corporations regarding producion of notebook cases.
Risks of investing in the company include the risk of being exposed to currency fluctuations (earnings being in RMB). Other longer term risks include competitors producing a competing cheaper product, somewhat protected currently due to the patents on their technology.
Looking at annual reports and financial data, I have Novarise currently trading around intrinsic value (using RR of 12-13%), but with significant growth likely over the next few years. However, any gains to intrinsic value may be offset by the need to raise further capital in the future to fund further expansions to the current production facility. There is a reasonable amount of debt on the balance sheet however, currently 59% of equity, which needs to be taken into account.
Whilst there are some analysts who are quite bullish on this stock at present, I don’t think this would classify as an A1 or A2 business, and like Ash, I would prefer to wait for a slightly bigger margin of safety before pulling the trigger on this one.
Kevin
:
Hi Ash and Ron,
NOE has to much debt for my liking if that were to reduce i would become a big fan, CDD looks ok i beleive it is undervalued.
Cheers
Ash Lillte
:
Hi Kevin
NOE has lots of cash ATM too
Allan
:
Hi Ash & Ron
Very new to Value.able. I need help with IV of CDD. Looks like $6.80 to me but I’m a bit confused.
Thanks
Ash Little
:
Hi Allan,
Sorry I can’t help you. I don’t consider CDD a good enough business to value
David V
:
Ron,
Any idea on how the new plant development is going? I was going to give the local non-executive director a call to discuss. The last photos on their website are from January 2011.
Ron shamgar
:
On their recent results they were discussing pricing pressure from competition… I think thats what turned me off about it, and the fact that I don’t trust Chinese companies with dodgy Chinese regulatory agencies.
But on paper it looks interesting.
Maybe one to watch…
David V
:
Thanks Ron,
My field of expertise is Governance and the recent resignation of 2 Non-Executive Directors sends a shudder through me, especially in reading the commentary around why they resigned (basically saying they were too busy to continue). I’ve put in my call and see what I get back. It will be interesting to see what sort of contract is in place with key buyers of the products as well e.g. IBM, Dell ….
On a side note, I did quite a bit of work with Chinese Regulatory agencies in the past and they are improving. Improvement has to be measured though against the baseline and the framework in which it is governed within.
David V
:
I haven’t had a response from the company yet. This coupled with today’s announcement are enough to take this one out of the loop for me; particulalry the responses (rather than the issues). Lots of potential but many considerations/risks as well.
Wayne P
:
Hi Fellow Value-ablers,
I have a picks and shovels stock which has been on my watchlist since it’s recent listing, Allmine Group (AZG).
From what I’ve read of there prospectus and prior financial reports they sound promising. I must add I have not yet managed to get round to recalculating my IV for their recently announced acquisition.
Any feedback?
Paul
:
Have a look at the position of financial statement.
$9.9 m in goodwill.
With the company looking to make further acquisitions as stated in the half year report the fact that goodwill has reared its ugly head is not great.
Also the ROE I calculated is not great at around %10.
Peter Johns
:
Hi Roger. What happens now that you are a price mover? I trust you will us your power for good :)
Michael
:
I am only getting a value of about $1.70 for Vocus. I think you can only count on earnings for 14 years (i.e up to when the IRU runs out), and therefore the Value.able formula can’t be used.
It is also making acquisitions that are hard to value. From the information available to the public, I am struggling with this one. There is too much speculation involved for me.
I have a large portion of my SMSF in cash, so was hoping to find something to put some cash into. No doubt I will be the pessimist who was wrong on this one!
Rob Walker
:
Hi Roger,
Did you just happen to get your first publicly noted speeding ticket today for CDA. LOL :)
Cheers
Rob. W.
scott
:
Its good to see that Roger’s ideas might be moving the market!
Codan received a speeding ticket to which the company replied:
On 24 March 2011 Peter Switzer discussed the Company on Sky News Business when he had Roger Montgomery. Following Mr Switzer’s segment, on 25 March 2011 Mr Montgomery published an article about the Company detailing the Company’s profits and return on equity. The Company considers that this may have had an impact on the price change and increase in volume of trading in the securities of the Company.
Roger Montgomery
:
I am about to issue a WARNING.
Hi ALL readers of this blog,
If you buy shares in companies merely because I mention them on Peter Switzer’s show, or anywhere else for that matter, and you do no research of your own and/or do not seek and take personal professional advice, you are worse than irresponsible.
As you know I recently mentioned Codan on Peter’s show and perhaps coincidently, the company’s shares rallied the next day. I was appalled to hear of the possibility that the price of Codan was pushed up so fast that the company had to respond to a speeding ticket from the ASX. Codan is a serious business with real people working there who may even have their financial futures tied to the share price. Volatility in the price of the shares does nothing but distract them from the much more value.able task of running the business to the best of their abilities.
Where I own a company’s shares I always articulate it. I did not say that I own Codan (ASX: CDA). I do not own shares in Codan.
If you buy shares in businesses merely because I have declared my own interest in them (as I am required to do), you are equally irresponsible because;
1) I may get it wrong,
2) I am a very long term investor and I look forward to shares prices falling, while you may not look forward to it.
3) I look for very large discounts to intrinsic value (many of you do not appear to require such discounts)
4) I look for many factors that may or may not exist in the company’s mentioned on tv because there isn’t enough time to discuss every aspect.
5) I am not able to predict short term share price direction,
6) I may change my mind at any time and sell (see some of the rules I follow for selling in my book) and
7) I am not under any obligation to tell you of, or keep you up to date with, any of my buying and selling.
Finally just because I own a business does not mean you should. Only if you truly understand a business, its industry, its competitive landscape and the future of that landscape, only then you are able to come to make an informed investment decision. There are some people who can make informed decisions and understand what a business will look like in 5-10 years time. These are the people who should be buying shares in those specific industries and companies.
The business of managing your finances is a serious one and not one whose foundations should be built on tv commentary. You cannot hope to sustain good performance by simply entering a race to buy something I have mentioned. You will lose money following such an approach.
Just to be clear, the companies I mention are those that I believe are worth researching carefully. Nothing more. They are not necessarily businesses that are worth buying now.
If you have not done your research and the shares I mention fall 10%, 20%, 50% or more, what will you do next? This may be a mouth-watering opportunity or it may be a reflection of a development that causes me to sell out, but I may never mention the stock again because I might not be asked by anyone what I think about it again.
Please be warned.
Joab Soh
:
Just to prove a point, I personally watched the program, calculated the IV of CDA and read their reports that night, but I decided not to buy it because I don’t think I have enough information to make an informed decision. And I am not regretting it.
I still have a view that we need to differentiate Roger’s “followers on this blog (or value.able graduates)” vs “followers on tv and eureka report”
Again, I came across CDA on 17 Aug 2010 when Roger posted “Who is in front of the reporting season avalanche?”
David V
:
I have made similar decisions Joab. I didn’t buy FGE and MCE the first time I heard Roger speak of them. I now own them, but only after I came to my own decision about them. There are many others that Roger has mentioned that I have approached e.g. Decmil.
And Roger – Great post. I believe there are many who are blindly following others. Like Joab I decided against CDA. I may not make quick profits, but I hope I have learnt some of your lessons so that I can develop a long term wealth strategy. Keep up the great work and again many thanks for bringing this community together.
Steve I
:
If you buy shares in businesses that are mentioned by Roger without thinking about how they fit in with your investment strategy or having insight about the business via research, you haven’t taken away the true gift from Roger as provided by value.able.
Stuart
:
Well said and very timely.
Ron shamgar
:
Roger,
What do u care. If people are dumb enough to rush in and pump the price up of stocks u own, than let them do it! At the end of the day u will benefit from it.
I know it’s not what u r trying to teach, but that is the nature of human beings… GREED!
The real valuable graduates on this blog, listen to ur insights, go do their OWN research, and then decide whether they wish to own a business based on the IV they come up with etc.
keep up the great work.
Roger Montgomery
:
Thanks for the encouraging words Ron. Good night all.
Henry
:
Ron,
I do not think dumb people following Roger advice. When I bought his book back in August last year, I did not beleive his IV calculation method, I thought his recommedation of all the A1, A2, etc… are all bluff like other share recommendation that I had with other share guru that I subscribed in the past. However, I still give it a try by making an exel spreadsheet that calculated the IV of all the 25 companies ( A1 to C5) that he recommended, and in one of the column contains the current share price at that time. And you know what ,most of them gone over 100%, even a very very low volumn traded share like LYL ( a few thousand share per day), or the one STU (hanging around 50c for a while prior a take over offer pushed it all the way to 90c). I missed out FGE at below $3 and MCE at below $4, because I did not trust him at that time. Luckily, I gave it a try and observed, finally I get it FGE at $3.90 and MCE at $4.87 with a very very large holding; trades many time but the amount of holding remains the same till now. I missed ACR, LYL and STU due to its low volumn trading. I have made heap since, whatever Roger recommeded I ‘ll buy it because I know I ‘ll never lose. This Roger is amazing, LYL share price is my eye opener, I don’t know how its SP keep going up north with a few thousand shares trading every days like this. So they are not dumb Ron, dumb people cannot make money.
Roger Montgomery
:
Hi Henry,
I am delighted you have done so well. No investor _ I am referring now to me – will ever get them all right. If you put someone on a pedestal, they will eventually let you down. Best to treat me with the same skepticism as that which I am sure you apply to other experts. I have no special genius that can completely mitigate the risk of loss. I live in constant expectation of something going wrong. Please be careful and do your own research.
Henry
:
Hi Roger,
The only thing I know is that I do not lose sleep by buying the shares that are on your list over the middle east turmoil or Japan earth quake. I even use those events as an opportunity to accumulate more. While others are panic selling, I am buying with a smile on my face. This was never happen to me since I get to know stock market in 2001, and was beaten black and blue by it since then. If I knew you a bit earlier, I would be retired by now. Thank very much Roger, I ‘ll let you know when I make my 1st mil.
Ron shamgar
:
Henry,
What I meant is that if u blindly follow Roger and buy anything he mentions without doing ur own research, than u missed out on what he is trying to teach u!
But I do agree that it’s been a very profitable strategy doing just that in the last 6momths!! ;-)
Maybe Roger won’t b so generous going forward…. Than what will u do??????
Good luck!
ron shamgar
:
hi Roger,
i just wanted to take the chance and thank you for the enormous contribution you have made to my investment skills over the last 9 months.
your book has helped me refine my investment techniques and think in a more clear and consistent approach when valuing companies.
in addition, your insights and blog has helped me discover new companies to research and i have made a lot of money in doing so.
i thank you again and looking forward to your future valuable thoughts and insights.
cheers Ron.
Roger Montgomery
:
Always a pleasure Ron. Its pleasing to read your comment ‘to research’. All the best.
dave
:
Am wondering if anyone has looked at Delta sbd-DSB as a recently listed small cap.
DSB is a coal mining service co which to me looks value and wondering what IV others get.
ron shamgar
:
with 10% ROE i wouldn’t touch it unless it was trading with 50% discount to book value.
Peter
:
Hi Dave,
I’ve just taken a very quick look.
ROE is only just over 10%, which isn’t spectacular. With a 10% RR (and many would want higher RR for such a company) the multiplier is only 1 * Equity. On that 10% RR basis, I got IV of about $0.99 (2010) rising to about $1.07 (2011).
This is assuming 99c equity/share at listing, growing to $1.07 (assuming a 2011 profit of about $5M and payout ratio of 30%).
With IV not rising particularly quickly, ROE not fantastic and discount not great, I will pass on this one and keep looking.
jeff browne
:
Roger,
You are right about time being at a premium on Switzer. I don’t understand why he gets experts such as yourself on, then proceeds to interrupt them when they are giving information. If only he would realise that his show would be watched by even more people if he asked the initial question, then remained silent until the guest has answered!
I only watch the show when you are on for this reason and even then I grind my teeth at his constant chatter.
Thanks for sharing your expertise on TV and on the blog.
jeff
Ash Little
:
Hi Jeff,
Firstly, I am not the leader of the Peter Switzer Fan Club but to be fair to Peter he is just trying to ensure that his audience understands what is being said by the expert he is interviewing.
My mind is drawn back to the words that Denziel Washington used In the movie Philladelphia
“Explain that to me like I am a 12 Y.O.”
Peter is just doing this and I think he is actually good at it despite yours mine and others irritations
Kent Bermingham
:
Roger please assist:-
required Return is established by :-
Risk Free Rate Plus Inflation divided by (1 minus your tax rate)
eg (6% + 3.5%) / .(1 – 0.3) = 14%
You quote ” Investing through a family company, my after tax performance is 10%”
My Question is:-
As I am over 60, and everything is tax free should I ignore the tax part of the calculatio to get back to the 10%?
ken fraser
:
Re MLD. Patersons stockbrokers have 2012 NP forcast of 38.2m. eps of 25.4c and POR of 35.4%. For 2013 they forcast NP 46.1m. eps of 30.8 and POR of 39%. I hope they are right. I was going to sell the lot then changed my mind to selling half. Since reading this report I have decided to keep them all. On their forcasts I have IV around $3.80 for 2012 on RR of 14%. But that is going totally by their forcasts and ROE on begining equity. I`m far from an expert but it`s enough for me to keep them at the moment.
ron shamgar
:
hi Ken,
it seems to me u r suffering from the case of the ‘when to sell blues’.
to clarify the way u make decisions u should go back and read rogers chapter on the subject.
in addition u need to go back and think why u bought this stock in the first place.
if it was for a short term trading profit, than the decision is easy – SELL!
if its because it was cheap, ticked all the boxes and had bright prospects with rising IV, than the decision is easy – HOLD until something changes or very expensive.
on a side note, go back to my comment i made about this dilemma. u may decide to sell some shares and therefore if share price goes up u win and if share price goes down u win! (and may buy some more)
hope this helps. no advice.
ken fraser
:
Thanks Ron I`m all over the shop with this one. Because I have 10% of my portfolio in them and they have no competetive advantage it`s good to remember the win win situation. Thanks a lot for reminding me.
Simon Anthony
:
Have a look @ STX, ONT, GCS, CDD & RKN
Peter
:
Hi Simon,
I agree re: ONT.
I think it’s a great business, with a great MD who behaves very much like an owner (which he is). The share register has been very tightly held over a number of years, but he has managed to consistently grow EPS at a very good clip. ROE is consistently strong in the 30%-40% range. I don’t think there’s much in the way of MOS at the moment but it’s a company with a great track record.
Disclaimer: I own ONT shares.
On Codan, I find it hard to go past their high debt to equity ratio and so will let that one pass by. The fact they had to increase borrowings to pay their tax bill wasn’t a great look from my perspective.
Michael
:
GCS looks like it has some potential.
Matt R
:
RE: ONT
Keep an eye out for the proposed “Denticare” (ie dental form of medicare) scheme which may impact on private dental companies…
Josh
:
Hi Roger and group,
I’m very interested in how Roger has come up with an ROE of 14% for TSM. Obviously I’m missing something very important because my calculation was higher by a concerning amount. Am I missing an important financial note in the statement?
This company raised a significant amount of money near end of their FY so using ending equity would grossly underestimated their ROE, yet 14% is even below the basic ending equity ROE calculation.
Peter M (Mully)
:
Hi Josh,
Don’t know how Roger came up with his ROE but I’m using with an ROE of 22.5% to arrive at an estimated 2011 IV of $0.82 based on the following additional variables.
EQPS – 0.33c
POR – 50%
RR – 12%
Hope this info is of some help to you.
Mully
Ash Little
:
Hi Roger,
I submitted a post with a few small caps that I like and it has not appeared.
Should I repost this or is it being witheld pending further investigation?
Roger Montgomery
:
Hi Ash,
Whenever I haven’t posted up a comments it is because 1) its defamatory or judgmental, 2) The writer has subsequently asked me to remove it, 3) Or I have been away and haven’t got around to it. The final possibility is that our technology is not perfect and I cannot see it. If it still hasn’t popped up, go ahead. I would warn you that if you are going to start putting up anything resembling a newsletter or regular list of stocks, it may have to go up elsewhere, with its own AFSL etc…
Ash Little
:
Hi Roger,
Thanks it has now appeared,
Pretty sure that a newsletter from me wont be very well subscribed to so I wont have to worry about that AFSL
Keep up the good work
JustinP
:
Hi Ash, I don’t see it, what do you like? :)
ken fraser
:
Ash, Where is it? What date? Or could you post it again. I can`t find it. We would all be very interested. Anything that goes on this site is worth investigating even though it is just someones opinion and none of us are experts or qualified to advise. I reckon I would have some of them in my portfolio as I have no so called blue chips at the moment. A friend of mine knows someone who is high up in VOC and he said next year will be the big decider of how they will go in the near future. He said 2012 is the make or break year. He said margins are being squezzed by Telstra at the moment but it`s not affecting them too much. He didn`t say why next year is the make or break year. I`ll have to ask him next time I talk to him. He suggested I should buy VOC a fair while ago when they were about 40 cents I think but I didn`t buy them then unfortunately. They owe me $1.55 at the moment.
Kent Bermingham
:
Ash, always interested in your valuable comments
ron shamgar
:
hi roger,
can i make a suggestion to add a search feature where you can search the blog by user. this way if we want to see what someone said on the blog previously or refer to one of our previous comments, its possible to find it.
currently i feel its near impossible to refer to my previous posts or anyone else, as who knows on which post we made them.
hope your IT team can do something about it.
cheers.
Roger Montgomery
:
Thats a good idea Ron,
I have pit it on the to-do list. Stay tuned.
LukeS
:
Searching Roger’s site with google allows deep and specific results.
For example if you want to see all of Ron’s comments put the following into a google search.
ron shamgar site:http://rogermontgomery.com
Then depending on your browser use the “find on page” to find each comment.
Peter M (Mully)
:
Thanks for the tip Luke. Works well on my browser.
Mully
LukeS
:
Roger. if interested, you could include a google search on your blog. It would then allow us to search all text on your site including company codes, people’s names – any text at all. It is quick and easy and free.
It would give the same results as my example.
You can default it to search your site only. It would possibly display some adds although you get some control as to types of ads. Who knows you might retire on the click through commissions.
By the way if you want to search for a company put this into google.
mce site:http://rogermontgomery.com
or
matrix site:http://rogermontgomery.com
Roger Montgomery
:
I’ll let my team know LukeW. Thank you. Not too sure about displaying ads…
Rob
:
Luke you’re a gem. I’ve been struggling with the same problem. The web page search only searches Roger’s articles and not the comments.
Cheers and thanks
Rob
MannySorbello
:
Hi All,
I notice that Warren Buffett is regularly misquoted or quoted way out of context. I think this article clears up any suggestion that he owns, or is interested in owning Apple. Lets be mindful of this and not misquote or misinterpret him in our posts on Roger’s blog.
Source Bloomberg
“Warren Buffett said he’ll probably prolong his aversion to electronics makers such as Apple Inc. (AAPL) because their business prospects are harder to predict than companies such as Coca-Cola Co. (KO)
“We held very few in the past and we’re likely to hold very few in the future,” the billionaire chairman of Berkshire Hathaway Inc. (BRK/A) said in Daegu, South Korea, today, referring to electronics makers. Coca-Cola, based in Atlanta, is “very easy for me to come to a conclusion as to what it will look like economically in five or 10 years, and it’s not easy for me to come to a conclusion about Apple,” he said. ”
“Even though Apple may have the most wonderful future in the world, I’m not capable of bringing any drink to that particular party and evaluating that future,” Buffett said. “I simply look at businesses where I think I have some understanding of what they might look like in five or 10 years.”
Andrew
:
I would add a caveat that even though Warren Buffett doesn’t invest in these type of companies it doesn’t mean that everyone should.
If you truly understand this business, its industry etc then you are able to come to make an informed investment decision. There are some people who can make informed decisions and understand what they will look like in 5-10 years time. I’m not one of them but they are out there.
What this quote says to me is the backing up of the concept “Don’t invest in things you don’t understand or can’t confidently predict the future of”.
It is exactly this reason why i have not jumped on the Matrix band wagon. No matter how much of a discount it is or how great a company it is, i am not accuratley able to predict what the future will be for this company as i can do others so i pass and will wait until i get around to learning more about it.
Gavin
:
Hi Andrew
Misery loves company, so you can take consolation in the fact that I looked at MCE early and passed. I could see the potential, but also a lot of earnings risk and didn’t have the knowledge to be in front of the pack if things changed. Since then it seems all the earnings risk has been to the upside!
I’m sure there’s a lesson in MCE for me but I haven’t quite figured out what it is yet. I think it is to ignore opportunity costs outside my area of competence but then the sirens with their sweet songs keep luring me to this one.
Craig B
:
Gavin,
Me too. “Regrets…I have a few…”
C’est la vie.
I also passed on Vocus at 0.65 cents in September/October last year also, choosing Zicom and FSA Group instead.
One of those looks like working out pretty well, but still….could be sitting a lot prettier at the moment.
Need to keep sharpening that blade!
ron shamgar
:
in regards to gr engineering and resource development group (and all other mining services groups).
this starts to remind me the beginning of the end of a commodity boom.
i remember when the share market boom was coming to an end in 2007, a bunch of stock broking firms were rushing to list on the ASX.
we all know what happened then….
now I’m beginning to notice a rush of mining services firms are rushing for the cash registers!
I’m not saying the boom will end this year, but bubbles usually end much shorter than what everyone else thinks!
be frugal and know when to take profits.
good luck!
RobertD
:
I know what you are saying Ron – but the events and dynamics of 2007 are vastly different to what can be compared with a commodity boom. I don’t think you can draw to many parallels.
While the boom will end, and I believe we are ~2/3 our way through it, when it will end is anyone’s guess. I agree with you that the downturn is always sharp, but at the moment I do not see any good indicators to say the boom end is in the near-term.
With regards to GR Engineering, if you can get in on the float then they look like a good opportunity. I am mindful of the small number of projects they are relying on, which is a risk, and I think you mentioned this also. The company management appears to be experienced and have been involved in a number of other successful companies.
RobertD
:
In light of my post above – Bank of Canada Governor Mark Carney has a few interesting things to say on the commodity boom. Worth a read –
http://www.businessspectator.com.au/bs.nsf/Article/WRAPUP-1-Commodity-boom-weighs-on-policy-in-Americ-FBRTE?OpenDocument&src=mp
“CALGARY – Canada says the current commodities boom could last decades and warned developing countries against being too timid with interest rate hikes, while the International Monetary Fund said that much of the Latin American economy is overheating.
Bank of Canada Governor Mark Carney told policymakers from North and South America on Saturday that they should not count on commodities prices coming down any time soon, a position likely to be much discussed at this weekend’s meeting of Western Hemisphere finance officials in snowy Calgary.
“It’s a mistake to chalk this all up to cyclical (factors),” Carney said, referring to the argument that prices for goods such as copper and grains have risen only because of an upswing in the global business cycle.
“We’re in an environment that is probably going to be with us for several decades,” he said during a panel discussion at the Inter-American Development Bank’s annual meeting.
Across Latin America, inflation is accelerating on both strong consumer demand and because a soaring commodities market has pushed food prices higher.
Indeed, the head of the International Monetary Fund warned that many Latin American economies, which have rebounded from the global financial crisis with help from strong demand for their commodities exports, are now growing too quickly.
“In many of them there are worrisome signs of overheating,” IMF Managing Director Dominique Strauss-Kahn said in a blog, adding that growth in the region’s financial markets put Latin America at greater risk of credit bubbles.
Strauss-Kahn said he discussed the region’s policy challenges earlier in the day in Calgary with Western Hemisphere finance ministers, who held meetings in parallel with the IDB meeting.
Some Latin American policymakers have argued that the food-price boom will pass and that focus should be put on whether the temporary price shock will poison inflation expectations.
But Carney said in a speech on Saturday that the outlook for underlying demand is strong because of the rapid development of emerging markets.
He warned that misguided policies in emerging markets for dealing with high inflation and a flood of capital could lead to financial instability and weak global economic growth.
“That’s where one can make pretty big mistakes and delay too much, both on the monetary side, or on the pretty fundamental structural reforms,” he said.
As the world recovers from recession, nations have clashed over foreign exchange policy as many countries adjust to ultra-low US interest rates and China’s reluctance to let the yuan appreciate more freely. Investors seeking high yields have put their money into Latin America, exacerbating these tensions.
Referring to what Brazil’s finance minister dubbed the “currency wars,” Carney said that when large economies keep their currencies from appreciating, others feel pressured to follow suit. This leads to a chain reaction of other distortional policies.
“The collective impact of this behaviour risks inflation and asset bubbles in emerging economies and, over time, subpar global growth,” he said.
This boom is different
Carney sees the current high commodity prices persisting for much longer than in past boom cycles because of the rapid urbanisation and mushrooming middle classes in emerging economies such as China and India.
“Even though history teaches that all booms are finite, this one could go on for some time,” he said.
The other thing that is different about this commodity boom – and which could lead to dangerous global imbalances – is that the strong demand from emerging markets is combined with tepid growth in core advanced economies such as the United States.
This shift to a “multipolar economy” is permanent and should not be underestimated, Carney said.
“Some countries are postponing monetary tightening in the hope that old relationships reassert.” Others have introduced measures to curb capital inflows. “All appear to be underestimating the scale of what is happening. Therein lies the risk of another crisis,” he said.”
ron shamgar
:
hi Robert,
thanks for your comments and link.
but from my memory i don’t remember any reserve bank board ever predicting a bubble and certainly not when it will end!
remember that in the long term commodities revert back to the marginal cost of production.
also it will never feel like the end of any bubble as if it did, it would be too late.
again im not predicting anything but im just noticing a trend with these recent rush of listings.
i share ur thoughts about GR engineering and would love to pickup shares at a dollar.
cheers.
Ash Little
:
Nice post Robert,
Jim Roger thinks if you want to be rich in the future then become a farmer,
I hope so because we service lots of farmers
Ilya
:
The commodity boom is set to continue for as long as governments print money and “stimulate” the economy. This rise of Asia is also not going to stop in a hurry. I think this commodity boom still have plenty of legs in it. Still, I agree it pays to be vigilant and not too carried away.
JustinP
:
Medusa Mining (MML) was recommended to me and sounds promising:
Code: MML
Price: 7.21
INPUT:
……….. EqPS .. Shares … DPS … EPS … RR
2012 … 2.01 .. 187.50 … 0.121 .. 0.596 .. 12
2011 … 1.53 .. 187.50 … 0.120 .. 0.554 .. 12
2010 … 1.10 .. 187.50 … 0.059 .. 0.442 .. 12
2009 … 0.71 .. 185.60
OUTPUT:
………….. IV .. .. ROE . NPAT .. POR
2012 … 12.81 … 34 .. 111.75 .. 20%
2011 … 12.62 … 42 .. 103.88 .. 22%
2010 … 11.27 …. 46 .. 77.20 .. 13%
Ash Little
:
Hi Justin,
Most on the blog use 14%rr for mining companies due to the difficulty in predicing earnings.
If you do the you get about$9 falling to $8 in 2012.
Given that we like big discounts to IV and IV rising at a good clip this one does not fit the Bill
JustinP
:
Thanks Ash, I get the following with an RR of 14, which actually rises somewhat to 2012, so hopefully my calcs are correct. Btw I take the 2010 NPAT from the balance sheet and use EPS x #Shares for 2011 and 2012, which I’m guessing is the right way to do it. As you say however the IV is only moving up slowly.
Code: MML
Price: 7.21
INPUT:
……….. EqPS .. Shares … DPS … EPS … RR
2012 … 2.01 .. 187.50 … 0.121 .. 0.596 .. 14
2011 … 1.53 .. 187.50 … 0.120 .. 0.554 .. 14
2010 … 1.10 .. 187.50 … 0.059 .. 0.442 .. 14
2009 … 0.71 .. 185.60
OUTPUT:
………….. IV .. .. ROE . NPAT .. POR .. MOS
2012 … 9.82 … 34 .. 111.75 .. 20% .. 27%
2011 … 9.68 … 42 .. 103.88 .. 22% .. 26%
2010 … 8.59 …. 46 .. 77.20 .. 13% .. 16%
Mikael
:
Current ROE is actually 57% and you are underestimating equity per share by 24% as you are using average equity for equity/share. Using ending equity you get $1.24/share. This is truly a money making machine. I confess I own MML.
Mikael
:
Equity 31 Dec 2010 232.6m
Equity 31 Dec 2009 139.5m
Average equity 186.0m
NPAT 106.8m (2010 calender year, which of course is the most recently updated figure we got).
ROE 57.4%
Noticed that you actually did not use average equity for eq/share, my bad.
Having said that $1.24 is the current figure (2010 calender year).
JustinP
:
Ok thanks Mikael, I was just plugging in figures from Etrade.
What IV’s do you get for MML?
Mikael
:
I get $16.91 based on RR of 13%, POR of 9% and using the 2010 calender numbers. Payout ratios are never going to be very high with goldminers.
Steve I
:
For MML I have:
2011 $9.23
2012 $10.58
The biggest attraction to MML is that they are on track to increase annual production from 100,000 to 400,000 over 5 years all funded via cash. Also extremely low cost of production.
The largest gains are likely beyond 2012 as they complete a new mill and start production at Bananghilig.
I purchased MML last Sept for around $4.20 a share and continue to hold them.
Mal
:
Roger’s method for calculating IV is invalid for calculating the value of mining and other companies that do not have a predictable future cash flow.
The basis for the formula using the tables, is investing in companies with a consistent growth profile (indefinitely). It’s essentially a simpler version of a DCF (discounted cash flow) analysis, where you discount future earnings to infinity.
You cannot use this analysis for calculating an IV for MML, as it does not have in any way a predictable cashflow. You can find one of the many DCF calculators available on the web and plug in a few numbers based on:
– Gold price
– Total cash cost (this is operating cost + capital replacement costs, but does not include capital development costs which are essentially retained earnings)
– Number of ounces produced.
Note that DCF calculations seem to notoriously overestimate what the market (and I think most of the people here) feels is a fair IV.
If you want to use big margins of safety, it is much simpler to get a current IV without factoring in future growth- this would just be your NPAT/ required return / number of shares. You could do this for 100000 ounces produced for 2011-12, to 200000 ounces produced for 2013. I personally tend to use a RR of 10% for these stocks for ease of calculation, and modify the gold price to get best and worse case scenarios.
*** On MML
Disclosure: I do not hold (only because there is a riskier gold stock that I am invested in).
– standout of the small- mid-tier producers on the asx
– has very high grades and one of the lowest cash costs/ounce around
– has a good resource, which is likely to increase
– will likely make something in the order of 100 million/yr over the next 2 years, and then go on to bigger and better things
RMS has similar metrics, but is much cheaper because it doesn’t have the proven gold in the ground and it is essentially unknown when it will run out. (Again do not own- but think it is undervalued).
You should also have some understanding of the underlying drivers of the commodity price before investing in mining stocks. As Roger and others have said, miners do not have the luxury to raise prices.
Steve I
:
Mal, having run the valuation on many miners over up to 10 year timeframes I find it works exactly the same as industrial stocks.
I think MML has a predictable cash flow with the bonus of giving me upside to the gold price. If price was more uncertain (in my mind) I’d be less inclined to invest – this is why I avoid base metals at the moment.
In fact, as long as you have conviction on the commodity, I think this form of analysis is perfect.
Grant Duggan
:
Hi Darren RE BKW .
Im no Roger mate but as i have seen him talk on this one in the past,and looked into them as well. Whilst their book value is heading in the right direction their ROE has hardly improved from an average 10% in the past 7years.
I will admit i have been in this game a short time,but if i remember correctly ROE was one of the contributing factors to making good investment decisions,and there is many to pick from without going for one this low.
Hope that helps a little.
Mike
:
Hi Grant,
Brickworks (BKW) is a difficult company to value, and I dont think you can using Roger’s method. It has a cross shareholding with SOL (Washington H Soul Pattinson) where Brickworks owns 42.85% of SOL, and SOL owns 44.5% of Brickworks.
Their ROE is very low because of this cross holding. SOL has a 60% ownership of New Hope (NHC). NHC currently has $1.8bn in cash. If you can find any company earning more than 10% on their cash, I’d love to know.
One of the issues of using Return on Equity as a means of calculating a companies value is that companies can use debt to leverage their returns, (so companies with debt should theoretically have higher ROE ratios than if they were soley Equity funded). The opposite of this is companies with large amounts of cash (on balance sheet or in cross holdngs) are never going to earn 20% or 30% on cash, so their ROE ratios will be dragged lower lower.
Codan is a prime example of a company with a fair whack of debt, which is used to push up its ROE.
Cheers
Mike
LukeS
:
Hi Roger
It seems in a small market like Australia you have a short term influence on prices. Maybe I am seeing a pattern that isn’t there however it appears to be true.
You have often said a small market like Australia has limits to growth for even the best companies. Do you invest directly in overseas markets? Would it be possible for you to publish a list we can use for research on A1/A2 in the USA markets? With the Aussie dollar currently strong a little international diversity might have some merit.
Here is a list of some USA companies I have started to research. At this stage I am not really interested in the IV. I simply want a list of 10 – 20 A1 business. Then I can work out an IV and wait for a margin of safety. A number of these companies are out of favour for various reasons. All have good ROE and little or no debt. Some like Microsoft may appear cheap but hard to see where they will get future growth from. Apple has fantastic growth but as you said in an earlier article it is hard to predict their future.
Aeropostale ARO
Apple AAPL
Bio-Reference Labs BRLI
Buckle BKE
Cognizant Technology CTSH
Credicorp BAP
Deckers Outdoor Corporation DECK
Dolby Laboratories DLB
Google GOOG
Hansen Natural Corporation HANS
Jinpan International JST
Johnson & Johnson JNJ
ManTech International MANT
Microsoft MSFT
National Beverage FIZZ
NIC Inc EGOV
PetMed Express PETS
Visa V
Roger Montgomery
:
Hi Luke,
That is two requests for US stocks in two days! Sounds like a trend might be forming. Also sounds like you are all growing/graduating too big for this little pond!
LukeS
:
It just seems there is a future margin of safety for Aussies built in to the AUD/USD exchange rate at the moment. It doesn’t take a genius to predict interest rates must rise eventually if they are currently near zero. I suppose it starts to be speculation to then say the AUD will fall relative to USD.
If we ignore all that and just concentrate on magnificent businesses with a margin of safety then any exchange rate benefit will be a bonus.
Ilya
:
I would stay away from US companies seeing what US government and the Fed are doing to their money. There is a risk (I think a very high risk) that you may see good profits in US dollars but no profit in Aussie $ because of the inflation.
Sound money matters!
Steve I
:
Illya, I agree. There are some commentators whom I respect that believe that the US is headed towards hyperinflation. Not surprising that Warren Buffet is desperate to acquire international businesses and that Pimco have dumped their US treasuries. Now is a time for caution – don’t think that the AUD will just go back to $0.70 to USD simply because it was at that range before.
Adam
:
Couldn’t have said it better myself! I can’t really see the U.S going anywhere in the next few years, especially with their increasing levels of fed debt. Its a matter of time before countries like China start thinking twice about lending to the U.S. Would not be surprised either if the dollar heads towards 1.05 in the next few weeks.
Michael
:
I am also looking to expand into the US market. Has anyone used a discount broker from the US that they can recommend?
Ash Little
:
Hi Michael,
Etrade australia allows you to trade on international markets if you sign up for it. I have signed up but never used it yet. i don’t even know the costs
I am still very cautious on investing in the USA and Europe because they are telling us they believe in a strong currency but their actions tell a different story.
Grant W
:
You can try Optionsxpress – despite the name they provide a cost effective online share dealing service. They are a USA listed company but are about to be bought out by Charles Schwab. I have used them for a number of years and have no complaints.
Joab Soh
:
If we are considering investing offshore, why not consider emerging markets like China (HK) and India.
The crystal ball post, at the beginning of the year, did had the theme of the rise of demand from China and India on everything. Accordingly, I would think that these markets should not be ignored.
Steve I
:
They shouldnt be ignored however for me the risk would be too great. Not the market itself, but getting the research wrong and making a big mistake due to not having sufficient understanding ‘on the ground’ so to speak. I think this would be okay if you spent most of your time researching but I think that it would be a full time job.
yavuz
:
Hi Room,
Just doing my own investigations on CDA and I have a couple of comments: NPAT for 2008 (after abnormals): 1 M (from annual report), and 1M from Comsec (after abnormals). Also NPAT or 2010: 14.4 M (after abnormals from annual report) and 14 M from Comsec (also after abnornals). These figures do not reconcile with the ones from Roger.
Yavuz
Ash Little
:
Hi Ron,
You have done really well
Your mission should you choose to accept it to find the blog another MCE.
This message will self destruct in 30 seconds
ron shamgar
:
i accept.
but why find another MCE when you can just wait and buy it for much cheaper in the future.
hopefully we get that chance again!
Ash Little
:
LOL Lets hope so Ron
ken fraser
:
10% of my total holdings is in MLD. I was wondering what others think of this stock and their approximate IV for 2011 and for 2012. I was thinking of selling half of them just because I think 10% may be too big a percentage to have in this company. I also have 10% in MCE and FGE but am happy to keep them as they seem to have brighter prospects for the future and maybe less risky than MLD. May be with MLD it would be best to wait for their full year result first before making a decision. Has anyone got any ideas that they might like to communicate? Thanks a lot.
Ash Little
:
Hi Ken,
No advice BWT but i have MLD IV at $2.50 for 2011 rising to $3 by 2013
I have recently sold to take up a better option.
It has high debt and was never a long term holding.
I
Hope this helps
ron shamgar
:
if you feel this company’s prospects have changed…
if i were you i would sell half and wait for FY11 results.
no advice.
John
:
Ash,
MLD have $44.6M debt but $58.2M in cash at bank. Their net debt to equity is less than zero.
John
Ash Little
:
Yes John very true,
It is regularly the case that mining service companies have to put up bank guarantees to win contact and the banks only issue the guarantee if the money is in the bank so not all that cash is free but I have no clue how much
Greg Mc
:
I agree with Ash. While conditions remain good, MLD will do well but you need to ask yourself what will set them apart from the others when the cycle turns. I still hold mine but it is only around a quarter of what I have in MCE if that helps.
ken fraser
:
Ash, Ron and Greg, That`s fantastic, thanks very much. I can`t believe how good the opinions are on this site. And thanks for taking the time to reply.This is what I`ve decided, I think I`ll sell the lot and wait for the next result or announcement and then decide whether to buy in again. Better to be approximately right rather than exactly wrong.
ken fraser
:
Also better to be conservative and wrong rather than optomistic and wrong. I read this somewhere and have it stuck onto to my computer. Thanks Roger.
Ash Little
:
My Favourite small cap was TSM but Roger has now outed that one.
MTU does not get much of a go on here but I like this one too. It is slightly expensive but IV is rising at a nice clip
This week RMS was mentioned on the Blog so I went and had a look at that one. After all I have said on the blog about gold mines and liars I can’t believe that I own my first gold mine. You should all go and have a look at that one. It looks to have material upside to production (Well they say they do anyway ……lol Visions of Mark Twain just went through my head)
Lastly KNH. I think the business is conservatively worth$100 Million and its market cap is about $20 Million .Ticks all the boxes too bright prospects etc. Now before you all run off and buy this one I must say that I don’t own it and the reason is that it is jointly listed in Australia and Singapore and has zero liquidity on both exchanges. I think less than 240,000 shares traded over the past 12 months on the ASX
Roger Montgomery
:
Hi Ash,
MTU has been mentioned here previously as well!
Craig Hanson
:
Hi Ash ,
Craig here i bought RMS 6 weeks ago i saw it on the blog checked it out looks like a great company no debt great prospects .Its performing well .Funny it seemd to have gone under the radar ! Although its half year annual report was awesome .
Rob
:
Hi Craig,
Yes I brought it up initially but Mark Twain had more credence. Even though he’s been bankrupt more times than me. :-)
Though, I’m feeling the pressure a bit more, now that Ash has bought it.
Cheers
Rob
Rob
:
I need to correct myself. As far as I can see, Ramelius was first mentioned by Steve I in January.
I originally bought it in 2003 for 13 cents. I wish I’d kept them.
I need to control “regret”.
Cheers
Rob
James
:
HI Ash,
I concur with KNH after having looked at it tonight briefly. Major inside ownership exists by numerous directors. This is a tiny stock that could remain unnoticed for many years though so a large MOS is required imo (which currently exists.) The good thing is that it pays a nice dividend (currently 7.5% around – although dividends have been inconsistent) whilst you wait for the next 5-10 years or so before the market wakes up. This is also extremely illiquid so not everyone’s cup of tea – but on first glance I like, and will be purchasing a small holding as soon as I can get my hands on them.
Matt R
:
Rob
RE: RMS, I assume they were an explorer then, not a producer, therefore selling them at the time was probably a very smart move for a value investor…
perhaps no consolation though…
Rob
:
Hey Matt R,
I have plenty of regret to deal with.
I bought IGO @ 20c and sold @ $1.10, now $6.43 and
MML for 20c and sold @ 0.63 now $7.20 but then my one blue chip TLS bought for $6.44 and sold for $3.99.
Ramelius was pretty good to me I bought at 13c and sold all the way up to $1.85 in 2007. I’ve now bought back in.
I have ridden out many storms including the GFC in that time.
Since reading Roger’s book I’ve certainly changed my habits. I feel much more comfortable with my holdings. I’m much more confident in turning the market off.
Cheers
Rob
Steve I
:
Ash,
I’m surprised that you have seen the light on this one given your previous aversion to the type of business.
Welcome to the RMS club!
Ash Little
:
LOL Steve,
Jim Roger has finally got to me
Steve I
:
A warning for anyone looking at RMS. It is very volatile like most small-mid cap gold producers. If you can’t tolerate 20% plus swings in a short space of time then it would be best to be careful. For those who can, it presents a great opportunity to accumulate on the dips.
ken fraser
:
Re RMS I thought one of the mines only had about 4 years production left. Did I read this wrong?
Ash Little
:
That is correct Ken,
A new mine coming on line soon so they say.
Steve I
:
Ken,
One of their resources is stated as 5+ years with the emphasis on the “+”. They are increasing production to 230,000 in the next 3 years up from 90,000.
ken fraser
:
Ash and Steve, Thanks, I bought some today only a small holding. I`ve never been a part owner of a gold company before.
Ilya
:
Hi Ash, Thanks for the tip on RMS. I like gold miners because gold is money (real money) unlike the pieces of paper we carry in our pockets. The difficult thing about gold stocks though is they must still be a good business to pass the value investing test and there are very few of them around. Looks like you maybe onto something special.
Ilya
:
Hi Guys,
What are your valuations of RMS? I used the following inputs:
EqPS # Shares DPS (cps) EPS (cps) ROE RR
0.54 291 0.000 0.160 35% 14
0.38 291 0.000 0.069 24% 14
0.26 219 0.000 0.026
I get 2010 IV of $1 MOS -44%. 2011 IV of 2.81 MOS 49%
EPS comes from the half year accounts (NPAT $47m)
JustinP
:
Ilya are you using my IV Calculator? :)
Code: RMS
Price: 1.44
INPUT:
……….. EqPS .. Shares … DPS … EPS … RR
2012 … 0.54 .. 0.00 … 0.000 .. 0.000 .. 14
2011 … 0.54 .. 291.00 … 0.000 .. 0.160 .. 14
2010 … 0.38 .. 291.00 … 0.000 .. 0.069 .. 14
2009 … 0.26 .. 219.00
OUTPUT:
………….. IV .. .. ROE . NPAT .. POR .. MOS
2012 … … 0 .. 0 .. 0% ..
2011 … 2.81 … 35 .. 46.56 .. 0% .. 49%
2010 … 1.00 …. 24 .. 20.20 .. 0% .. -44%
Ilya
:
Justin, I think I am busted :-) You have done a fantastic job! I use it as a quick IV estimation tool before I do a proper check through annual reports etc. Thanks a lot for your generosity in sharing it!
Luke
:
Justin and llya,
Your forecast values for RMS appear to be based upon average analyst expectations. It would be worth your while to try and estimate net profits, as they are basde upon the gold price. For example:
Production quantity – (from recent presentation announcement)
2010-actual 91700 oz
2011-estimates 90000 oz
2012 145000 oz
2013 175000 oz
2014 230000 oz
The latest investor presentation indicates that they think total cost of production in the future will be around $800 an ounce.
The gold price is currently around $1400 an ounce. You should play around with this figure to downside and upside to get an idea of future profits, rather than relying on analyst forecasts why not think about it yourself and you will gain a better understanding of the business.
Ash Little
:
Well said Luke,
I thing the cost of production for the new mine will be about $800 but the current mine is lower but likely to rise
Steve I
:
Yet they have been able to decrease costs every year. Initial costs are higher with the onset of production but with good management costs can be controlled.
Luke
:
yeh i think current production costs per ounce are around $458 which is very low cost production but the new mines appear to be on much tighter margins to the gold price, if costs are going to $800 ounce. i am avoiding this stock because the cost of production is increasing so much, would like to see improving margins. note: all prices U.S dollars
Ash Little
:
Hi Luke,
just my view but put it in a model and see what you come up with.
You may channge yoor mind
Luke
:
Hi Ash,
I have modelled the company and this is a company I owned in the past and made a tidy profit on, but I think management have been a little deceptive in their presentation of information. I suspect the Mt Magnet mine is going to cost more than they are letting on. A drop in the gold price and a poor performace update would really hammer the stock price and this is a risk im not prepared to take. Buffet’s no.1 rule: dont lose money.
P.S Enjoy your comments on the blog Ash
Ash Lillte
:
Hi Luke
Great comments
It is a commodity stock and risks are on the high side.
Personally I have some good numbers coming on my model but this is based on management guidance.
‘We will just have to see what happens
Mal
:
Hi all,
Refer to my post above in response to the IV calculations for MML- I scrolled down and lo-and-behold some other bloggers noted RMS.
I 100% agree with Luke that you cannot use the value.able method to value gold companies (refer above).
Re: RMS
RMS has 1 high-grade (has the highest grade gold-mine in Australia) mine- Wattle Dam. They have kept on deep drilling narrow veins, and there is still visible gold. The reason they have such incredibly cheap cash costs is the grade. The only problem is they didn’t do a deep drilling program prior to production to give a JORC compliant resource. In short- we don’t know how much gold they’ve got down there. They have just started drilling the next section, where there is still visible gold, and if you look through the company reports, they do expect it to last to 2012.
Their second mine- Mt. Magnet, is still awaiting production. The grades aren’t as good, but a lot of the infrastructure is already there, which should lower the capital development costs. The expected cash costs here are probably going to be 800 long term. Judging by RMS excellent management, I would expect them to hit their targets, and get the mine operational sooner rather than later.
So coming to the financials, you can see that RMS is quite cheap (though it is creeping up now).
It has a total market cap of ~400 million, but that includes cash in the bank of at least 100 million (probably more). They will almost certainly earn 100 million this year and probably the next. They purchased Mt. Magnet for 40 million cash last year, so you have almost 340 million in value by end of 2012, without accounting for future gold production. I think that this represents value at the current price.
Disclosure: I do not hold RMS (invested in another gold stock)
Roger Montgomery
:
So certain everyone seems that the model can’t work…and yet it seems to be working rather well for my investment in gold.
Steve I
:
Agree Roger. The model works perfectly as long as you are comfortable with the inputs.
Steve I
:
Roger,
Not sure why but on second reading of your comment I heard it as Yoda speaking. Made me laugh.
Ash Little
:
Hi Mal,
No Debt, bright prospects Discount to IV ……………………………………………………………………………………………………….Are you sure you are not using valu.able principals to value this.
Just Curious?
Mal
:
I absolutely agree with using value.able principles to value these companies, but only right now. But it makes me very nervous about people using the metrics above to calculate future IVs. There is a phenomenal period of growing profitability as a miner gets operational. That is where RMS is at. RMS cannot increase its profits without the price of gold going up, or increasing its production. With the current available information, it is unlikely to be able to increase its production in a predictable manner. You could argue that BHP or RIO or any of the big miners, efficiently deploy their capital and get incremental returns on equity, but they have the advantage of scale. At the moment, RMS still has to explore somewhat to be able to buy out the more profitable or more likely to be profitable mines.
I think RMS management will use their cash in hand to get Mt. Magnet operational sooner, rather than later, but it is much harder to value, particularly as we don’t have any idea what the overall grade of the gold at Mt. Magnet is going to be.
That said, I think RMS is very undervalued. Anyone can work that out with simple maths. It has 100 million in the bank, will make another 100 million this year, and has multiple other projects. You can buy this company for roughly 400 million. It’s worth something in the order of 2.50-3.00 at the worst case, and that is by significantly discounting its lack of resources.
RMS seems like a top class company, and I have actually owned their shares (but sold out earlier this year), and I have also owned MML (which is really the standout small-mid tier gold producer on the asx, but it’s valued as such). For people who are interested in gold, there are a few very undervalued companies. Have a look at SAR, GDO for examples.
Cheers,
Mal
Steve I
:
Mal,
It all comes down to where you think gold prices are. For me, if you want exposure to this sector, you look for solid management, low debt and the ability to grow production with cash.
I’ve had a look at SAR (hadn’t previously) and I agree it looks good – I’ll probably keep a tab on it for when I have some spare capital.
With regards to GDO, I’d personally skip past it given the ‘relatively’ lower margin of safety plus the fact that I’d prefer to not have exposure to African geopolitics at this time.
Luke
:
Mal,
My point was never that the value.able method could not be used to value gold stocks. I believe Roger’s formula is useful for any company. My point was in regards to using average analysts forecats to calculate future intrinsic value. This is highly dependent on the price of gold and my point was that you should try to estimate what the intrinsic value of the business would be under a range of gold price scenarios.
Steve I
:
I have:
$3.80 for 2011
$6.00 for 2012
14% RR.
I first purchased RMS last year for $0.80 and continue to hold.
Steve I
:
Whilst we are on the topic of gold miners. My other holding is FML. Again, big MOS and has a lot of exploration upside.
Matt R
:
Hi Steve I
RE: FML
I got a 2010 IV of 1 cent. where are you getting your forecast NPAT for FML for 2011? did you calculate it from the projected gold production?
cheers
Matt R
Steve I
:
Matt,
Forecast eps of $0.008 2011 and $0.017 for 2012.
I get $0.26 IV for 2012 (rising from $0.08 IV for 2011).
Nic Arena
:
Another company is Ideas International (IDE). Good ROE the last 3 years, very low debt, good cash flow and trading at a small MOS. Only problem is its illiquidity. Would actually be interested to know if anyone else has purchased some shares. I own some. Currently at 83 cents.
Frank Bildos
:
Hey Ash or anyone that can help,
Koon released their yearly results the other day and they do look good. But I am confused about one thing and it is their outstanding shares. I can’t quite work out which is which.
On page 63 of the document uploaded on 25/03/2011 called “Full Year Statutory Accounts” it says there were 162,430,000 shares after the Dec 2009 results and 164,318,000 after the Dec 2010 results (so basically a rise of 2 million shares). But if you look back at the document upload on the 03/05/2010 called “2009 Annual Report” on page 87 is has 81,994,000 outstanding shares.
Also on the 10th December 2010 (4 months ago) they released a document “Appendix 3B” which stated they had released 81,994,000 shares (I think bonus shares). When this document was released the share price basically halved.
So basically were the shares in the 81 million range a year ago or 162 million???? It makes a big difference to my IVs.
Thanks
Matt R
:
Thanks for the gold, Ash (literally)
Would you be willing to share your 2011 & 2012 IV for VOC? I’m currently looking at this one, although it is currently above it’s 2011 IV.
Regards
Matt
Ash Little
:
Hi Matt,
I will have to redo my numbers now that the capital raising and what it will be spent on has become clearer.
First Blush and roughly in my head future IV will fall but it still looks OK
Grant
:
I see that RMS has an average cost of production ~$500 per oz.
Its very good to see that when this mine is finished, they have a new one to come online. What concerns me is that the COP of the new mine is projected to be around ~$800 per oz.
This is quite a large increase and leaves less of a MOS for the gold price…thoughts?
Also, I cant find any guidance issued by the company with respect to FY NPAT..nor can I find any consensus data for the forthcoming years…how is everyone going about valuing this one?
Other than that it does appear quite good to me.
Ash Little
:
Hi Grant,
I did up my own model based on my views and information provided in the investor prsentaions and annual reports.
You are right the new mine will be more expensive but more production is anticipated as well. I have rising profits but declining ROE from 2011 to 2013
Grant Duggan
:
Not about small caps,but in the process of changing from Bell direct to either Commsec or E trade as i believe they have better tools and informtion.Would very much appreciate any feedback from the room if any have used both.
Thanks in advance.
Ash Little
:
I have both grant,
Etrade has a little bit better search facility but comsec has an additional year of analyst forecast.
I use Etrade more but that is only because I have have it longer and I am more familiar with it.
I can’t really say which is better but nice to have both
Scott T
:
Hi Grant,
I use use Commsec. It’s easy, it’s well priced and it just works.
All the best
Scott T
Roger Gibson
:
My first choices are; MCE, NCK, SWL, FGE and DWS, followed by FRI, DCG, TGA, ORL and SMX.
I’ve a feeling that the list will change when I have time to look at the suggestions this post attracts.
Jane
:
Hi Roger,
Do you look closely at the US market and would you consider doing a post about MQR A1 and A2 rated US listed stocks? I would like to practice using your methodology to research potential US investments but being completely new to that market it would of course be enormously useful to have a short list of top quality stocks to focus on as a starting point.
Thanks, Jane
Roger Montgomery
:
I would like to do that soon Jane. Thanks for the suggestion.
Simon Anthony
:
ASX: NWT has the biggest upside for a stock outside the ASX 300 IMHO
Brad
:
Hi William
My Val for SWL is $3 and rising. Co was flat out with a solid order book before the floods.
I met Brian Riddell MD at lunch a few weeks ago, he is an engineer by trade with an MBA, ex Balderstone Hbk brought into Seymours to transition from the founders. I found him to be a very straight up, capable guy. really into looking after his people and saw the ipo as way of turning employees into part owners with share plan.
Built a great team with low staff turnover.
RBS covers them.
Hope this helps
Brad
John
:
Brad,
I presume you mean Brian Riggall.
John
Will
:
Cheers Brad that does help a lot. Sounds like good management
Tony
:
If you want a small cap stock that is undervalued take a look at MUE
Ash Little
:
Hi Tony,
Don’t be offended but severely geared European properly = pass, next
Marg
:
Yeah FSA for me, altho i only been in the game since around Nov 2007, so probably don’t have much of an idea lol.
Kev Sep
:
Disruptive Technologies Zicom group ZGL
for those who own shares in ZGL ( including myself) what are your expectations for their investments in the DisruptiveTechnologies. I felt that Biobot and Curiox were not truly disruptive and Orion to offer some new major advantages.
So I gather my purchase was somewhat speculative with regards to the disruptive technologies but happy with the current paper return.
Chris
:
Hi everyone,
I was wondering if Roger’s intrinsic values and margin of safeties are for 2010, 2011 or a combination of both. In particular, his margin of safety for Forge Group of 13.6% which implies a value of $7.37. My intrinsic value for 2010 is significantly lower than this and my 2011 is significantly higher. Anyone mind sharing their thoughts on this?
Thanks in advance
Christopher
:
Hi Chris,
I get around $7.30 for 2011, what inputs are you using?
Ash Little
:
Hi Chris 2011 I would think
I have mid $7 for FGE
ron shamgar
:
2010 IV im pretty sure
Stephen
:
Hi Chris,
I’m like you. I had a 2010 IV of $6.50 and a 2011 IV of $8.40, although the 2011 IV is an estimate at this stage. Perhaps $7.37 in midway – I don’t know.
All in all though I’m still happy to add to my holding.
Chris
:
Thanks everyone for your replies I really appreciate it. Here is how I arrived at my valuations, feel free to point out any mistakes. For 2010, used a required rate of 13%, book value of $1.19, net profit of 29 million, return on average equity of 40%, and I raised the payout ratio to 38% to give an implied growth rate of 25% (not sure if this is too high or too low). This gives an intrinsic value of $6.97.
For 2011, I used the current number of shares, 83 million and assumed it will grow to 86 million by the end of the year given their previous track record. I don’t believe the one analyst on Commsec is right as the net profit seems a bit too low (net profit for the half year was 21 million while his/her forecast is 38 million for the full year) and because Forge Group has posted its 7 consecutive half of increased net profit before tax. Whilst I believe it will be higher, I used net profit of 42 million (gives EPS of 51 cents and return on average equity of 40%). Once again, I raised the payout ratio to 37% (19 cent dividend) to give an implied growth rate of 25%. Finally, I put all these numbers together to give an intrinsic value of $8.13.
I am guessing that Roger does indeed use a combination of 2010 and 2011 intrinsic values or it could be that I am completely wrong. Oh and one final thing, I realised that Roger determines margin of safety by (IV – current price)/IV, whereas I thought it was (IV – current price)/current price. This means his IV is actually $7.51, not $7.37.
JustinP
:
Hi Chris,
I get the following for FGE using Etrade data:
Code: FGE
Price: 6.61
INPUT:
……….. EqPS .. Shares … DPS … EPS … RR
2012 … 1.96 .. 78.80 … 0.090 .. 0.489 .. 13
2011 … 1.56 .. 78.80 … 0.090 .. 0.456 .. 13
2010 … 1.19 .. 78.80 … 0.070 .. 0.397 .. 13
2009 … 0.71 .. 68.30
OUTPUT:
………….. IV .. .. ROE . NPAT .. POR
2012 … 7.57 … 28 .. 38.53 .. 18%
2011 … 7.46 … 33 .. 35.93 .. 20%
2010 … 8.41 …. 41 .. 29.50 .. 18%
and with an RR of 14:
Code: FGE
Price: 6.61
INPUT:
……….. EqPS .. Shares … DPS … EPS … RR
2012 … 1.96 .. 78.80 … 0.090 .. 0.489 .. 14
2011 … 1.56 .. 78.80 … 0.090 .. 0.456 .. 14
2010 … 1.19 .. 78.80 … 0.070 .. 0.397 .. 14
2009 … 0.71 .. 68.30
OUTPUT:
………….. IV .. .. ROE . NPAT .. POR
2012 … 6.66 … 28 .. 38.53 .. 18%
2011 … 6.57 … 33 .. 35.93 .. 20%
2010 … 7.40 …. 41 .. 29.50 .. 18%
Matt
:
Doh! We have 2010, 2011, or a combination of both! If several people have asked then no doubt there’s a whole bunch that aren’t sure but haven’t asked.
Roger,
Would is be possible to qualify the IV’s year (which I assume is looking forward) to make it clear. Especially of interest though and (considering it’s effect on calculating IV), I think the RR used would be extremely educational to the vast majority reading the blog.
Lastly though, thanks for providing a fantastic focal point for devotees of value investing.
Regards, Matt
Michael
:
Hi Roger,
Late mid to late last year your were cautious about Forge (when its share price was just over $3). I know the sale of shares to Clough was a concern back then. In terms of your upgrade in your current valuation, can you let me know what caused you to raise your valuation? Was it that it became 2011, and so you flip to using the higher 2011 valuation rather than 2010 value, or has the outlook improved such that a higher ROE is justified in your estimates? I am just trying to understand the process of revising valuations better.
Thanks – Great website!
Roger Montgomery
:
Hi Michael,
My recollection is that the valuation has risen relatively steadily throughout the year. Any caution about Forge, does not relate to the business but relates to the company’s decision to sell a cornerstone stake so cheaply.
AngelaF
:
Hi Roger, Just wondering if you are going to put out a newsletter of your own? My subscription with Morningstar is about to finish. I’m not sure if I should continue with them. I notice you write for the Eureka Report (have just started my 3 week freebie, also notice some of the writers are technical people with their candles and stuff charts, yuk). Do you recommend a regular newsletter to sub-scribe to that thinks like you do? Still new at this and need a little guidance. Still trying to understand your blogs and your book. However making money so I am really happy. Your thoughts please.
AngelaF
:
And we don’t have payTV. Would that be a tax deduction??
Roger Montgomery
:
Hi Angela,
At this stage I don’t recommend a newsletter nor do I produce one, but many have asked for one so when the opportune time presents itself, it is indeed possible..
ron shamgar
:
Can everyone please do me a favor and DON’T take up your vocus SPP rights.
This way i will get my full allocation!
Thank you in advance. :-)
Marg
:
Not sure about small caps.
Still think markets will do well (good positive returns) over next couple of years. Maybe do bad 3 years from now though as I peer into my crystal ball!
Nick Mason
:
Hello Roger,
Great continuing work with your blog. Many thanks. I was just having another look through this morning and this new post came up.
I had a look at ZGL recently and was impressed. The company’s management adheres to strict financial management and is well disciplined. The company’s share price was below fair value. However I could not discern a distinct competitive advantage nor establish high barriers to entry. So whilst liking the company it didn’t really excite me and I passed (this is at the same time I was having a look at Vocus which does have competitive advantages and operates in an industry with high barriers to entry.)
Which small cap do I like at the moment? Resource Equipment Ltd. I have mentioned this on your blog before to little acclaim and even less excitement. The reason I mention it again is because last year our highly esteemed CEO, Jamie Cullen, touted a possible expansion internationally in the second half of the current FY. RQL has recently sent equipment with Bechtel (a privately owned engineering, construction and project management firm which in 2009 had revenues of $30.8 billion dollars American) to help with the relief effort in Japan. This I believe marks an exciting step in the company’s development and I really hope that their equipment can help improve the terrible situation that Japan finds itself in currently.
Whilst RQL does not have a stratastrophically high ROE it is a wonderful company, with wonderful growth prospects and excellent management and is currently selling below my calculation of fair value. The company also has distinct competitive advantages and operates in an industry with high barriers to entry.
Nic Arena
:
Hi Nick,
I have had a good look at RQL and it is a good company. I just have it at a priemium to my IV of 45 cents to 53 cents (Today’s share price is 67 cents). The other thing that worries me is that their NPAT is up one year down the next. I like a bit of consistency in this area beofre I invest (at least not negatives 2 out of the past 5 years). For this reason I have use a RR of 13%.
Nick Mason
:
Hello Nic, with RQL it is best not to use any historical figures provided by comsec or etrade… This is because the current business was backlisted (in 2009) through a former debt collection business called Repcol which has nothing to do with the present business. All historical figure aside from FY 09-10 are irrelevant.
In its only full year as a publicly listed business (09-10) RQL made $8 million. For the first half of this year RQL made $5 million. And the second half is typically stronger than the first half. I am predicting a profit this year of $11 million.
Of interest, each of the first six months of this FY set consecutive revenue records. Whether this has continued I don’t know, I got that information from the HY presentation which only included figures up until the end of December.
There has never been a time when NPAT is up one year, down the next.
Recently, Resource Equipment Ltd purchased a business called Dewatering Services Australia. DSA is a specialist contracting business which designs, installs, tests and commissions HDPE pipelines (commonly referred to as polythene pipe) and retails associated products. This will provide numerous cross selling opportunities as DSA’ installation of pipes occurs before RQL arrives on site.
Also DSA operates solely in WA, now RQL will have the opportunity to market their services across Australia as they have done with their subsidiary Resource Equipment Rentals which formerly only operated in WA. Now it operates Australia wide with a rapidly increasing presence in Queensland.
Important to note that in FY11-12 RQL will have to start paying tax. It has formerly utilised tax credits carried forward from the former Repcol business although these will run out next year.
I strongly recommend that you have a very close read of their recent accounts, announcements and presentations, this is a very exciting company with exceptional management.
Nicholas
:
Thanks for the comments on RQL Nick. I too am a fan (and owner in stock) of RQL but I have a question for you – what impact has the recent conversion of options and share purchase plan had on your estimate of IV?
JustinP
:
RQL looks good if my IV calcs are correct, please let me know if you have any argument with the results (used RR’s of 12 and 14):
Code: RQL
Price: 0.67
INPUT:
……….. EqPS .. Shares … DPS … EPS … RR
2012 … 0.42 .. 154.20 … 0.000 .. 0.084 .. 12
2011 … 0.33 .. 154.20 … 0.000 .. 0.071 .. 12
2010 … 0.26 .. 154.20 … 0.000 .. 0.043 .. 12
2009 … 0.01 .. 733.40
OUTPUT:
………….. IV .. .. ROE . NPAT .. POR .. MOS
2012 … 1.34 … 23 .. 12.95 .. 0% .. 50%
2011 … 1.15 … 24 .. 10.95 .. 0% .. 42%
2010 … 1.69 …. 34 .. 8.00 .. 0% .. 60%
Code: RQL
Price: 0.67
INPUT:
……….. EqPS .. Shares … DPS … EPS … RR
2012 … 0.42 .. 154.20 … 0.000 .. 0.084 .. 14
2011 … 0.33 .. 154.20 … 0.000 .. 0.071 .. 14
2010 … 0.26 .. 154.20 … 0.000 .. 0.043 .. 14
2009 … 0.01 .. 733.40
OUTPUT:
………….. IV .. .. ROE . NPAT .. POR .. MOS
2012 … 1.01 … 23 .. 12.95 .. 0% .. 34%
2011 … 0.87 … 24 .. 10.95 .. 0% .. 23%
2010 … 1.28 …. 34 .. 8.00 .. 0% .. 48%
Nick Mason
:
Sorry Justin, I cannot find many figures of yours I agree with.
I think you have the number of shares on issue wrong. The last time I checked it was 224 000 000 not 154 200 000.
Also there are another 17 750 000 options which can be converted before 30 September 2011.
This will throw out all other calculations.
Also, you have IV falling in 2011 and then rising in 2012?
By my calculations RQL is worth more this year than last year and will be worth considerably more next year.
I think RQL is a case where you have to disregard the brokers forecasts or if this is too big a step treat them with caution. The two research notes I have read show a solid understanding of the company although a limited understanding of its future potential (perhaps the two most dangerous words in investing!)
3 catalysts going forward which I believe will throw out brokers earnings projections, the expansion and cross selling opportunities of Dewatering Services Australia (recent acquisition) across Australia (despite its name it formerly only operated in WA.)
Possible opportunities to provide their equipment and services internationally (recently sent equipment with Bechtel to help with their relief operations in Japan.)
Although most importantly the huge increase in capital expenditure that was proposed last year unto what has eventuated for this year to meet current demand for their services which have been overwhelmed. (Funded in part by a recent capital raising, a $10 million debt facility and recent conversion of options.)
Please double check everything I have written in this post.
Nick Mason
:
The recent conversion of options, whilst raising important funds for expansion, reduced the figure for fair value of its shares. Although I had taken this into consideration before so it had no impact on my own valuation.
The SPP and Capital Raising was executed well. Have a read of the acquisition which RQL will incorporate into the company and the cross selling and potential growth which could eventuate from this purchase (from turning the business from a WA business into an Australian wide business.) The price paid for this business was cheap in my opinion and it only adds to the very bright future prospects which RQL was facing before.
Also, the funds raised will go towards the purchase of much demanded equipment, a demand which was much underestimated by management last year.
That said, I hope these CR do not become a frequent event and I do not expect them to be. After this current rapid development and expansion phase the company will have a lot of free cash flow to fund additional equipment purchases and/or complimentary acquisitions, given they are not too large.
Rob M
:
Hello Nick,
Thankyou for your analysis. I always enjoy hearing your investment ideas.
I have been looking into RQL recently and came up with the following valuations using an RR of 10% (to me RR or MOS can be arbitrarily selected to account for risk, so I tend to stick with RR at 10% and vary the MOS required).
2011 Calendar year: Shares: 185.68, SOY Equity: 33.31, EOY Equity 51.40, NPAT 8.8, P/O ratio: 0, ROE: 20.77, IV: 0.96.
2011 Financial year: Shares: 225.04, SOY Equity: 40.04 , EOY Equity: 70.73 , NPAT: 11, P/O ratio: 0, ROE: 19.86, IV: 0.86.
2012 Financial year: Shares: 243.79, SOY Equity: 70.73, EOY Equity: 88.73, NPAT: 14, P/O ratio: 0, ROE: 17.56%, IV: 1.00.
I have assumed that 18.75m shares are issued in 2012 as a result of options exercised and that RQL receives $4m for them.
With the SP at $0.67, and given RQL is very capital intensive, I’de like to wait for a lower price.
Also, I can’t see what RQL’s moat is? – What is to stop someone else with lots of money buying pumps and renting them out?
Would appreciate any feedback on the IV calcs…
Ed M
:
Like Darren, I would love your view on BKW Roger. I know someone who has quite an interest in BKW and says the company is not understood. The cross ownership with Soul Pats are well discounted.
Interestingly MD Robert Milner on Sky Business yesterday saying how concerned he was about Carbon Tax impact on earnings. Brick production = high energy intensity.
Andrew
:
No competitive advantage for me here that i can identify. They say they are te biggest and most efficient which reading between the lines may mean cheapest but at the end of the day, in my world, a brick is a brick. Zero pricing power i think in this space. When i see properties being advertised by saying “built with brickworks products” i will change my mind.
Brent D
:
Has anyone gone over the figures for the upcoming IPO of Resource Development Group? Id be interested to see your IV’s and inputs, im having a hard time filtering through and making sense of the historical and pro-forma financial records provided in the prospectus.
ron shamgar
:
asic has requested for more details. also they flagged that they will raise more capital as soon as they list. one to watch…
Stuart
:
Brent, I am currently looking at them now but I am having the same trouble as you. They are in the right space and their client base is excellent. I am not an accountant so the historical and pro-forma financials are throwing me a bit. I will continue working through the prospectus to see if I can come up with an IV.
george
:
Looking through the prospectus it looks cheap but has an inconsistant earnings profile
Regards
George
Brent D
:
George,
Earnings profile aside, what inputs did you use for equity for the previous “pro forma” financials for Engenium? Did you use the historical equity value of 10.89mill at 31/12/2010 and back calculate it assuming no dividends were paid out?
Peter
:
It would be better if the ZGL posting is tidied up to refer to a consistent currency. It is unclear whether the company forecasted profit of 12.9 m is in AUD or SGD. If 12.9m is in AUD, then the ROE is 25% rather than 18%. ROE 25% is consistent with the HY performance.
Using only HY figures with ROE 25% and RR 14% gives IV of 74 cents, which is a 42% discrepancy with 52 cents.
The above example shows clearly how the multiplier effect of IV calculation formula gives rise to big zigzags in IV calculations. You rely on it at your peril.
Jarrod
:
If you keept the profit in SGD and the equity in SGD, you will get a ROE. Convert both to AUD, and you still get the same ROE. Just make sure you’re converting the equity to AUD to work out the equity per share.
No peril at all.
Jarrod
:
Sorry hit the post button to early.
No peril at all if you do your own research before jumping in. Something Roger is always saying to do.
Mamos
:
Roger Where do you get company forecasts for of $12.9m for ZGL. Guidance has not been issued by the company nor is it covered by any analysts?
Matt R
:
HI Mamos
RE: ZGL
I got a forecast NPAT for FY2011 of 12.75M.
I got this by adding 1H2011 NPAT and calculating 2H2011 (by simply using 2H2010 results- find the annual & half year reports on the asx website, and subtract FY2010-1H2010=2H2010).
I think this method was recommended by Roger, and other bloggers (?Manny/Brad, sorry if I’ve forgotten others).
Given the growth in the company, this may likely underestimate the true FY NPAT, but is conservative.
I get an 2011 IV for ZGL of AUD$0.47. I own shares in ZGL
william
:
What do you guys value SWL at? cheers team
Brent
:
I have SWL valued at $2.43 for 2011, with ROE 37.5%, rising in 2012 to $2.83.
I own shares in SWL.
JustinP
:
What inputs do you use for that as a matter of interest?
Brent
:
For 2011, RR 12%, Avg Equity 32 mil, 79 mil Shares (EQPS – 40.5 c), net profit 11.9 mil (ROE 37.5%) with POR 52.9%.
For 2012, RR 12%, Avg Equity 40 mil, 81 mil Shares (EQPS – 49.4 c), net profit 15 mil (ROE 37.5%) with POR 55%.
avid Edmondson
:
Just watched Roger’s spot on Switzer last night. Until it’s up on the youtube channel, here is the link:
http://www.skynews.com.au/video/?vId=2276209&cId=Programs&play=true
Thanks Roger and Peter! Also thanks Ron for you little list. I’m not familiar with those companies but it will be fun to research and understand why you found them attractive. Lovin’ this blog…!
David Edmondson
:
And my name is David, not avid…LOL
David Edmondson
:
Just watched Roger’s spot on Switzer website last night. Until interview up on YouTube channel you could follow this link to check it out:
http://www.skynews.com.au/video/?vId=2276209&cId=Programs&play=true
Thanks Roger and Peter! I made a post like this before, but it seems to have disappeared…that’s why my previous comment refers to me misspelling my name…! :P
Darren
:
G,day Roger,
Just wondering if I could get your thoughts on Brickworks (Bkw). It is a strange beast to get a grip on, I see it is trading below book value and it’s ROE is increasing.
Cheers
Ed M
:
Once again Roger, thanks for your insights. By the look of the activity in CDA and ZGL this morning you definitely have the power to move the market.
Post YMYC, last night, did look at ZGL and have taken a small position, to join FGE and MCE among my Montgomery stocks.
Stephen
:
Roger,
I’ve mentioned this stock on previous blog posts but as this post concerns my pick of an A1/A2 stock, I thought I’d mention it again.
The business is Corporate Travel Management (CTD).
CTD is a travel agency used by business to coordinate and arrange corporate travel. It’s been around for about 10 years and has pursued a growth stratedgy that has seen it open in Brisbane, Sydney, Perth, Melbourne and Aukland.
It has achieved a number of industry awards over the past decade and has around 600 business clients on the books.
CTD floated in Nov 2010 after raising approx $20m to complete the acquisition of Travelcorp and enhance operating capital.
CTD is able to enter into long term contracts with business leaders and has an excelent retention rate. It is not capital intensive to operate and given the fact that most travel is booked and payed for instantly, it generates good quantities of cash for minimal business outlay.
As the IPO raised funds for the purchase of Travelcorp, it is of course hard to anticipate at this stage what the effect on ROE will be. However given the upgrade to profit announced at the start of the year I estimate a ROE of circa 30%.
In terms of competative advantage, I can say with some experience that the larger players in the Corporate travel industry such as QBT offer a service that is ordinary at best. I am encouraged by the number of businesses CTD have on the books and the awards for excellence it has received.
When discussing this during previous blogs, the subject of oil price effect on travel, and Skype meetings have been raised. Whilst I can’t predict the effect of rising oil, I can see through the current macro oil issue so I don’t see a huge downturn in corporate travel.
It’s also worth considering that corporate travel is not confined to top end execs speeding around the country.
Corporate travel involves some businesses moving portions of its workforce from point A to point B and back again. As an exmple, someone like BHP moves hundreds of workers around the country weekly and this travel has to be coordinated. Woolworths would do the same with sales reps and middle managers. My own organisation sends many of us interstate and around the world. All this travel is coordinated through a travel management firm to ensure best pricing. It’s this travel that can’t be substituted by Skype and so I believe that the industry will continue to grow.
As for IV, I’ve calculated $2.12, which sees it trading at a slight discount.
Es
:
Interesting .
I have a much lower valuation for this same company, but my calculations are always on the more conservative side. I used a predicted yield of 5 % for 2011 and predicted NPAT for next year of 7.75 to 8.5 million. Shares as off 31/12/10 of 70.37 million. Payout ratio 43 %. Forecast EPS 2011 11.5 cents, DPS of 5 cents. ROE used 24 %. I used required rate of return 12 %. IV of 1.37.
Es
Stephen
:
E’s,
Thanks for your comments. All of my figures are the same as yours including the RR which I also chose as 12%.
I think where we vary is the ROE. I have mine as 32.5% as I based it on an average equity figure of $22.9 M. I used a starting equity of $11.7 M (last years) and an equity forecast of $34.1M for 2011 to arrive at that figure.
Obviously we interpret the equity figures differently hence the different rate. I don’t know whose right or wrong I’m afraid.
I’m not sure if you had a look at the business, but I was really impressed with their model, plan, and management. Figures aside, I’m actually pretty confident in the viability of the business expansion going forward.
Stephen
ron shamgar
:
thank you roger for mentioning zicom. i bought this one at 30cents and have mentioned it here on this blog before.
the reason im thanking you is that now the share price will rocket up as all your followers rush in to buy!
thank you again. :-)
the other stocks i mentioned here before and have all gone up huge, are:
VOC – bought at $1.40 mentioned at $1.60 currently $2.30
JIN – bought and mentioned at 37c currently 47c
FSA – bought, mentioned and currently around 31c
HSN – great buy 2 weeks ago at 70c currently 92c
hope that helps.
RobertD
:
Is the market so small that Roger’s follower’s cause such price fluctuations? I wonder if Roger has observed any trends / correlations between his public commentary on companies and changes in prices.
Christopher
:
Hi RobertD,
Unfortunately I’m sure you’re right, especially with the smallcaps. Those wanting to follow Roger’s advice should remember that he only offers one piece: seek and take personal professional advice.
Andrew
:
In regards to some of the smaller cap companys that have very little liquidity a whole bunch of montgomery followers diving in to buy would cause for a material price increase in my opinion. People need to remember that just because Roger mentions a company as having potential he is in no way saying you should buy it, or endorsing it.
We (and this is what the book has helped us to do) need to make the decisions for ourselves. I am worried that more and more people are using Roger as a indirect fund manager and will use this blog, comments and articles to make their decisions rather than working it out for themselves and seeking more personal and professional advice.
Roger Montgomery
:
Hi Andrew and everyone else,
I agree with Andrew.
I am about to issue a WARNING.
If you buy shares in companies merely because I mention them on Peter Switzer’s show, or anywhere else for that matter, and you do no research of your own and/or do not seek and take personal professional advice, you are worse than irresponsible.
As you know I recently mentioned Codan on Peter’s show and perhaps coincidently, the company’s shares rallied the next day. I was appalled to hear of the possibility that the price of Codan was pushed up so fast that the company had to respond to a speeding ticket from the ASX. Codan is a serious business with real people working there who may even have their financial futures tied to the share price. Volatility in the price of the shares does nothing but distract them from the much more value.able task of running the business to the best of their abilities.
Where I own a company’s shares I always articulate it. I did not say that I own Codan (ASX: CDA). I do not own shares in Codan.
If you buy shares in businesses merely because I have declared my own interest in them (as I am required to do), you are equally irresponsible because;
1) I may get it wrong,
2) I am a very long term investor and I look forward to shares prices falling, while you may not look forward to it.
3) I look for very large discounts to intrinsic value (many of you do not appear to require such discounts)
4) I look for many factors that may or may not exist in the company’s mentioned on tv because there isn’t enough time to discuss every aspect.
5) I am not able to predict short term share price direction,
6) I may change my mind at any time and sell (see some of the rules I follow for selling in my book) and
7) I am not under any obligation to tell you of, or keep you up to date with, any of my buying and selling.
Finally just because I own a business does not mean you should. Only if you truly understand a business, its industry, its competitive landscape and the future of that landscape, only then you are able to come to make an informed investment decision. There are some people who can make informed decisions and understand what a business will look like in 5-10 years time. These are the people who should be buying shares in those specific industries and companies.
The business of managing your finances is a serious one and not one whose foundations should be built on tv commentary. You cannot hope to sustain good performance by simply entering a race to buy something I have mentioned. You will lose money following such an approach.
Just to be clear, the companies I mention are those that I believe are worth researching carefully. Nothing more. They are not necessarily businesses that are worth buying now.
If you have not done your research and the shares I mention fall 10%, 20%, 50% or more, what will you do next? This may be a mouth-watering opportunity or it may be a reflection of a development that causes me to sell out, but I may never mention the stock again because I might not be asked by anyone what I think about it again.
Please be warned.
Rob
:
It has been concerning that many may think that companies like MCE are the status quo for value investing.
Value Investing takes patience and lots of it.
4 to 5 baggers, although not unknown are not an everyday occurrence. Warren Buffet has averaged about 20% over 40 years.
So if you’re looking for a quick buck look elsewhere, you won’t have the patience.
Mind you, 20% pa translates to doubling your money every 3.5 years. The compounding effect will more than satisfy most of us.
Cheers
Rob
Steve PL
:
Ha ha you were spot on all the shares mentioned last night have indeed rocketed up.
The ASX will be handing out speeding tickets left right and center. At least the comanies instead of usually saying that they had no idea can say ‘Well our stock was mentioned on Switzer’ last night.
As much as I would like to have jumped on the band wagon too, one thing Roger and this blog has taught me is patience and do the hard yards.
Ilya
:
HSN looks overpriced. I get IV 2011: $0.73 MOS -23%. IV 2012: $0.97 MOS 7%.
JustinP
:
What inputs did you use Ilya? I get the following with an RR of 14:
Code: HSN
Price: 0.89
INPUT:
……….. EqPS .. Shares … DPS … EPS … RR
2012 … 0.36 .. 154.80 … 0.060 .. 0.089 .. 14
2011 … 0.34 .. 154.80 … 0.060 .. 0.075 .. 14
2010 … 0.32 .. 154.80 … 0.050 .. 0.072 .. 14
2009 … 0.30 .. 153.60
OUTPUT:
………….. IV .. .. ROE . NPAT .. POR
2012 … 0.70 … 25 .. 13.78 .. 67%
2011 … 0.60 … 23 .. 11.61 .. 80%
2010 … 0.60 …. 23 .. 11.10 .. 69%
Ilya
:
From memory I used RR of 12. I should be more conservative with IT companies, but Hansen seem to have a bit of an edge. I work in IT and I am amazed how they can get away with charging the sort of inflated pricey they do.
william
:
where does one find the most accurate data
ron shamgar
:
my HSN IV is 99c for FY11 and rising 10% pa.
the dividend looks quite juicy at 10% grossed up. (thats if u bought around 70c)
ken fraser
:
william, Only from the company reports to the Stock Exchange as for as I know. Brokers, Commsec, E-trade and subscription newsletters are not 100% accurate.
Paul
:
Hi Ron
FSA I currently have an IV of around .60-.70c.
All their numbers look good from their last report.
If rising interest rates cause pain to people this company is one that could profit?
Paul
ron shamgar
:
true Paul.
their balance sheet is not amazing but if they can improve their cash flow for this full year and maybe reward shareholders with some dividend the share price will hopefully shoot up.
:-)
Ash Little
:
Hi Guys,
Just remember FSA is a B4 and the lender of last resorts so they get the customers the Banks have said no to.
I have looked at this a number of times. The disclosure of No Recourse Loans may not be accurate if you read the entire financial report.
This is the comment about non recourse in the 2010 accounts
“These borrowings are provided to the Consolidated Entity on a 364 day rolling facility and are non-recourse to the Consolidated Entity unless
there is material event of default or breach of borrowing covenants.”
this does not sound like non recourse to me
Risks are too great for me when I had a bit of digging around
Scott T
:
Ash you have hit the nail on the head (again). A margin of safety is largely irrelevant if the company is something like a B4 or C3.
Companies with such poor MQR’s are in much greater danger of a major liquidity event, such as a default, rapidly increasing borrowings or putting their hand out to owners for more money.
Avoid.
All the best
Scott T
Ash Little
:
Yepper Scott,
If it does well all you have lost is opportunity,
Just not for me this one.
Matt
:
Ash,
I mention below assessing this company was beyond my circle of competence so I’m curious by this. I took non-recourse to mean those borrowings (mortgages) were secured by the collateral of the borrower’s house/land. Total borrower’s collateral was $485M against a loan value of $200M. For FSA’s rolling finance facility that you mention, how does this differ from the regular lender arrangement?
As an aside to this, I was interested in the breakdown of mortgages in arrears past 90 days was about 2.5% which doesn’t seem that much worse than a regular lender. Especially since Australia tends to be on the low-side compared to other countries.
Ash Little
:
Hi Matt,
All good points and FSA may do really well but my conservative nature says better options elsewhere
Craig Hanson
:
Hello Roger ,
My name is Craig Hanson i really like reading this blog i learn a lot .I wont ask Roger because i no your super busy . But i would like to ask Ash your opinion of 4 companies if you can please help me . I like your opinions and i hope you can help me .Dont trust myself 100 % to value a company yet .Can you give me your opinion and valuation of these companys please if you have the time ?
MLD, MND, MTU, FLT .
Ash Little
:
Hi Craig,
MLD
Not competitive advantage. Was cheap at $1.40 – $1.50 but now at about it’s IV
MND
Superb company that rarely trades below it’s IV. That week was not exception
MTU
This one does not get much of a run on the blog but I like it very much. Currently slightly expensive but IV is rising at a good clip
FLT
I have it at about it’s IV. The time to buy cyclical businesses is at the bottom of the cycle and we are probably closer to the top than the bottom for this industry
Just my views and I hope this helps
Craig Hanson
:
Thanks for your time Ash
Craig
Nick Mason
:
Ron, I hope that you will be sending Roger a case or two of wine for all the wealth he has helped you create!
ron shamgar
:
No probs Roger!
what do u prefer, a good whiskey or some wine?
:-)
Matt
:
Looking at the HY report the net debt/equity stands at 22% but has been increasing from only 3% (in june 2009). I use the balance sheet cash flow method Roger describes but that gives me a negative CF amount for HY11 and previous FY reports.
I’m guessing my Annual Report reading skills (i.e. basic) combined with my calculation methods for net debt and cash-flow are not appropriate for a company of this type?
If someone can help me out, I’d appreciate it.
thanks Matt
Matt
:
This is for FSA by the way. I looked at them a while ago and they peeked my interest but decided to not make a purchase until I could make a better judgement on the financials.
Kent Bermingham
:
Ron I will be watching your future posts with more care from now on – well done
ron shamgar
:
just remember that these stocks are quite illiquid and therefore should be a smaller part of your portfolio. unfortunately they are not a matrix!
ron shamgar
:
the asx queried Codan today and this was there response:
“Is there any other explanation that the Company may have for the price change and increase in volume in the securities of the Company?
On 24 March 2011 Peter Switzer discussed the Company on Sky News Business when he had Roger Montgomery, a popular online trading blogger, on his segment. Following Mr Switzer’s segment, on 25 March 2011 Mr Montgomery published an article about the Company detailing the Company’s profits and return on equity. The Company considers that this may have had an impact on the price change and increase in volume of trading in the securities of the Company.”
i thought its funny they called you “a popular online trading blogger” which is exactly the opposite from what you and this blog is about.
though i would mention it.