• Check out my latest feature article in The Australian called, "Heresy to some but Tesla may just be another car company"! READ NOW


ValueLine: Offshore oilfield player

ValueLine: Offshore oilfield player

Whilst Roger Montgomery can’t predict how high the oil price will go nor tell you what kind of trajectory it will take, he does believe, with a considerable degree of certainty, that Australian’s will be paying higher prices for fuel over the next decade. Zicom, a supplier of equipment to service vessels, is just one company set to benefit from our growing need for oil. Read Roger’s article at www.eurekareport.com.au. WARNING: Zicom is a thinly traded microcap in which Roger Montgomery has purchased shares because it meets his investment criteria. It may not meet yours. It is therefore information that is general in nature and NOT a recommendation or a solicitation to deal in any security.


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.

Why every investor should read Roger’s book VALUE.ABLE


find out more



  1. Roger in Eureka tonight I noticed your estimated Val on Zicom is 0.71c and with a MOS of 19%. Am I missing something here?

  2. Hey Guys I asked this question a few blogs ago and didn’t get a response so I thought I would ask it again. It was innitially regarding Ash’s entry about Koon (knh). If Ash or anyone that can help that would be great!

    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.

    • Hi Frank,

      My data shows 163.988m. It also shows very little change historically which tells me I have adjusted for a bonus issue. I haven’t had a look at the docs you have, but my guess is that there was a bonus issue that doubled the shares on issue. A one for one bonus.

      • Hi Roger thanks for the reply,

        You say that it shows very lttle change historically which tells me I have adjusted for a bonus issue – does that mean there were roughly 164m shares a year ago or 82m. I’m sorry I still don’t get it??? Doesn’t the bonus issue mean for every share on issue they create another one (therefore doubling the amount).

        This is very important becuase if the shares were 82m a year ago my IV has actually gone done with their new annual report. As you always say the IV should be increasing!

        I really just want to know how many shares they had at their last annual report and how many they have at this annual report.

        Thanks again. I have learnt heaps now fine tuning my investment style.

      • Frank,

        Look at the announcements for December. There’s a document dated December 29 announcing the issue of 82 million bonus shares.

        Also, in the Annual Report, March 25th, Note 29, they state that the number of ordinary shares used to calculate Earnings per Share is 163,988,000.

        There’s your silver bullet. Sweet dreams.

        (And keep Koon Holdings under your hat. I have a good feeling about Singapore Companies at the moment.)


  3. Hi Roger,

    I can’t find how you arrived at the A$12.9m NPAT for Zicom but I guess it’s approx. double the first half result……I think it might be light because this company has a distinct second half bias in terms of its profits.

    Using your numbers I still struggle to come up with 52 cents….asset backing is A$0.27 and the FY dividend based off prior years is AS$0.01 which is 17% of NPAT……the multipliers for 17.5% ROE and 10% ROI are 1.75 and 2.738 and why apply these I come up with A$0.69…….my valuation is highe than A$0.69 because I’m using a greater NPAT and a higher ROE. I read ZGL’s reports and can’t see where they made a second half forecast but even using A$12.9m FY NPAT I can’t come up with 52 cents??

    Can you please let me see your calculations.



    • Hi Peter,

      Thank you for your email and request. This is why you need to be very wary of others who say they have built this spreadsheet or that online tool with my valuation model. They haven’t.

    • Peter

      I don’t have my figures to hand at the moment, but I got a FY2011 NPAT slightly less than Roger’s est of 12.9M by using 1H2011 and adding 2H2010 calculated from the annual reports. I think my FY2011 forecast NPAT was ~12.4M

      My IV using 14% RR was ~ 47 cents.

      As you mentioned, this est of NPAT for FY2011 may underestimate the actual NPAT, but this is conservative.

      Hope this helps a little bit.

      • peter,

        FY11 ($sing)

        book $0.345
        earnings $0.070
        Div $0.030
        ROE 20.3%
        payout 42.9%

        IV (RR12%) AU$0.58

        hope that helps. and again you dont need to come up with rogers exact figures. you want to be close and buy at a large MOS. i bought it at 32c, so as roger says – i don’t need to be exactly wrong!

      • I have just finished reading your book Roger and it has answered many questions and created many others!
        I am doing your IV calculations on many companies for practice and I was sure i was getting things wrong as some are very low for example I only got $1.067 for ARP. But i got .519 for ZGL so I must be doing something right, or is this coincidence?
        Equity per share 0.264 ( equity 56 and outstanding shares 212)
        ROE 15.3
        POR 18%
        RR 10%

      • Hi Natalie,

        Welcome to the blog and congratulations on becoming a Value.able graduate. The alumni here will gladly assist you in your value investing journey. Who’d like to help Natalie please?

      • Hi Natalie

        I think your POR and ROE may need reworking. But all that aside, read my post on 8 April 2011, under the another warning Roger! post.

      • Hi Natalie and Roger,

        I don’t think I can help really beacuse I am either very wrong or 2011 IV is much higher than current prices.

        That said I have not purchased this one yet. But it is one to keep an eye on. IV is only part of the process.

      • Think you might be mixing up 2009 and 2010 data possibly? There was $57.4m equity in 2009, increasing to $66.8m in 2010 for ZGL. (By the way, I think Roger’s IV figure is for 2011)

        Must have been some mistakes for ARB Corporation as well as I have it valued around $7.70 currently. (But that is taking into account recent half year numbers.)

        For ARP – go through the 2010 financials. You should get the following:

        Shares outstanding: 72.5m
        2010 Equity: $111m
        2009 Equity: $92m
        2010 NPAT: $44.8m
        2010 Dividends: $19.8m

        Average equity: $102m
        Average equity per share: $1.40
        ROE: 32.1% (44.8/102)
        Payout ratio: 61%
        Required return: 11%

        Hope that helps

      • Sorry, just to add, using those results (rounding ROE to 32.5%) should give you an IV of $7.00 (the IV has increased since then)

      • According to the 2010 Annual Report, the NPAT number is $32,6m. I think you’ve applied the pre-tax profit number to your calculation.

  4. Roger, I was wondering what you thought about the Matrix capital raising (MCE). Does this change your view or valuation on this company?

  5. Hi Roger,

    I’m jealous u got to meet Jim Rogers last night. I’m a big fan, read all his books and watched all his interviews. 2 years ago he was on sky business tv saying he was buying airlines, the tv host almost fell off their seat! He might not be Buffett when it comes to stock picking, but he’s definitely a legend in regards to commodities and currencies!
    Lately though I have to say that he’s become a bit of a broken record on tv, let me guess what he said last night:
    Buy agricultural commodities, oil & gold, become a farmer, us dollar is finished but may rally before that, buy remnimbi and ben bernanke is an idiot!
    Looking forward to your insights from the meeting.


    • Hi Ron,

      Yes, Jim is a real gentleman and gracious with his time and ideas. I have found them to be very rewarding and we had a short chat about counterparty risk.

      ..but would you prefer he change his tune every day? The big trends are just that – big trends. They last years. Perhaps we should ask the price of oil to stop going up or ask Ben Bernake to stop printing money so that Jim will talk about something else? I am not immune to the same criticism – Roger always talks about value investing and buying extraordinary businesses when they are cheap. It may sound like the needle isn’t moving, but thats because it isn’t.

      I am interested in the phrase “Lately though I have to say“. I do question this logic as I was always taught if you don’t have something nice to say, just don’t say it. There’s a country song with the lyrics, ‘If the Phone Don’t Ring You’ll Know it’s Me…’

      • I don’t think ur a broken record at all. Every tv interview or comment u post is different and specific to an industry or certain business. What I meant is that it feels like to me that when he is being interviewed it seems like he doesn’t really want to be there and keeps repeating the same stuff. Just a feeling I have. But don’t get me wrong, I have a great deal of respect for him. He’s a legend and has proved himself.

  6. anyone who holds Seymour white SWL should take notice that founders and directors recently sold between 10%-40% of their holdings.

    thought you should know.

    • They also announced that the 2011 result is expected to be in line with 2010 just a couple of days prior to the sales, so this should be taken into account with your valuations.

    • SWL is one that I looked at when it was first mentioned on here many months ago but the thing that turned me off was its cosy business relationship with the QLD government. This actually has little to do with SWLs recent performance but when your business success is more dependent than most companies on ‘who you know’ when those people ‘whom you know’ could be voted out and then things could change for the company. Sure, things may not change and SWL may do very well particularly given recent events in QLD.

      I can recall seeing my father get completely done over in his fairly senior education department job when there was a change of government and I think it is naive to think that SWL could not be affected in some way. I’m probably more sensitive to this issue than most as a result and my concerns about SWL may turn out to be unfounded, but I elected not to get on board the SWL train. Each to their own, as they say.

      • On SWL another thing to keep an eye on is its slim profit margin.

        Relative to others in the engineering sector its near wafer thin.

        Not all engineering firms are created equal and I believe that the margin of safety required is inversely proportional to the profit margin of the engineering business involved.

        I’d like to hear Roger’s views on the significance of the substantial variation in profit margins that is evident across the engineering sector. I look at the profit margin metrics an indicator of the competitive advantage of the business and also as a guide to the required MOS.


      • Excellent post Lloyd, spot on. For me this is one of the great qualitative (quantitative) measures of any engineering/construction company.

        FGE’s net profit margin for FY2010 was 12.6%

        RQL’s net profit margin for FY2010 was 27%* (This figure is skewed because they did not pay tax) 19% if tax included.

        SWL’s profit margin was 6.4% Not sloppy although not great.

        Obviously this cannot be taken as a stand alone figure. It needs to be taken in context will all the facts. However, I do believe it gives a great insight into what type of competitive advantage one company enjoys over others in their particular sector and also the degree of specialty of that company’s service, I believe you will find this holds true for the companies I mentioned above.

        I hope that you will write a column about this in the future Roger and I look forward to reading your thoughts.

    • William Gill

      Hi Roger/Ron
      Over 70% of the shares were held in escrow until April 2011, I can understand why a few have been sold off. I also think the price has held up reasonably all considered.
      My view only.

  7. Roger,

    As always useful original thoughts here and I appreciated the “you may baulk” points.

    I am puzzled though why (ZGL), a company whose directors are Singaporeans and which reports in Singaporean dollars, would remain listed on the ASX. (Or will that change if the merger of exchanges doesn’t go ahead?)

    • Gale – In Australia, these sort of engineering businesses, which are characterised by a strongly exposed cyclical earnings base that yields modest net profit margins in the best of times, are typically priced at a much higher multiple of earnings, EBITDA, NTA, etc, than they can achieve on any comparable international equity market.

      Why this should be the case is a good question.

      In my opinion, its due to the less than discriminate investment in such businesses that arises from compulsory superannuation inflows. Most of the latter has to find a home in Australian capital markets under the usual investment mandates of most funds. This leads to overpricing across many sectors when compared to international capital markets.

      So if you an engineering minnow looking for the highest equity market price uplift then the ASX is the place to be. This also makes it a great place to raise capital from equity markets should the need arise, as it inevitably will with those “disruptive technology” investments.


  8. Allan Pring-Shambler

    Have just received my copy of Value.Able and am currently absorbing all the info. Thanks! My question is: How can I most easily access all your Skynews interviews? For example, your interview with Peter Switzer on 6 April?

  9. Making money in Space:

    Hi everyone,

    i thought i would share with you some insights into an industry and company i very much beginning to like.

    Going along the theme of matrix, zicom and vocus – businesses that will benefit from high oil & gas prices and the need for greater telecommunication and internet capacity – I believe another industry which is growing and has very bright prospects is the satellite industry.

    Globally, the demand for faster speeds and bigger content has impacted satellite bandwidth and services and the number of VSAT sites required. (VSAT is the satellite antenna and
    modem that transmits and receives satellite signals).

    World wide satellite service revenue grew by 17% over 2008 to US$84bn. The Australian VSAT market is estimated to be worth over $600m. Excluding broadcasting, enterprise, government, defence and consumer sectors make up the majority of these revenues.

    A company set to benefit from these trends is NewSat (ASX:NWT). NWT is Australia’s largest independently operated Satellite Communications Company. NWT owns and operates two first class teleport facilities,one located in Perth and the other in Adelaide. NWT acquired these teleports from SES Newskies Satellites in 2005 for $14.2m. These assets have allowed NWT to provide government, corporations, and private enterprise with access to an increasingly large and diverse range of satellites.
    Today, NWT is linked to 13 satellites which allows it to reach 75% of the globe including Australia, Asia, the Middle East, Africa, and across the Indian Ocean extending into Europe.

    Since being acquired, the teleports have been upgraded and are now considered world class assets. The teleports now require little capex over the next decade and these teleports remain the key to NWTs revenues, and given their military accreditation, locations and planning permissions required, represent a significant barrier to other parties wishing to enter the Teleport market.

    The majority of NWT’s contracts are with oil & gas companies, mining companies, government agencies and military and defense forces from Australia and the US.

    if we believe that more and more remote mining sites will be built (mining boom) and extra oil rigs will be deployed across the vast oceans (oil boom), than more of NWT’s services will be required to provide telecommunication services to these isolated locations. In addition military operations by the US and Australia will require NWT’s services in order to maintain low churn rates of soldiers and to provide critical mission communication services.

    Recently NWT secured one of the hottest “realestate” assets of the space world and that is multiple satellite slots. Imagine these as valuable car spaces in the center of the city CBD, where there are limited car spaces available!

    NWT CEO Adrian Ballintine, has recently received the most prestigious award in his industry at the 2011 world teleport awards. This was despite fierce competition from 1700 other satellite operators around the world and was congratulated by his peers in securing these “Hot Commodity” orbital slots.

    Looking at the future, NWT prospects lie in its successful future launch of its 2 satellites, Jabiru1 & 2 (Jabiru1 expected to launch 2014). The satellites will expand the company’s market share and vertically integrate the company by giving NWT complete ownership of the satellite communications supply chain. Jabiru will become a wholesaler of satellite transponder capacity, with NWT retaining its role as a teleport operator, distributor and a retailer in some specialised markets. The cost of the project is expected to be part debt and equity funded. The cost will be dependent on the size of the satellite. At this stage, it is estimated that the project will cost between $300-400m. Future revenues can be in excess of $1bn!

    At this stage NWT is an emerging company recently achieving positive cash flows and a small negligible profit. As its costs are fixed there is high operating leverage in the business as it secures more and more contracts. currently its Valuable value is close to zero but will rise substantially in the future.

    Hopefully with the help of a 1 for 100 share consolidation to remove some of the decimal points on my calculator, and barring any substantial highly dilutive future capital raising, i believe this company’s prospects are extremely bright.

    One to watch closely.

    (on a side note: i highly recommend reading George Friedman’s book “the next 100 years” detailing the future need for space satellites which will be utilized to engage in wars and provide energy to our planet.)

    • Less than 1c per share?! (Whats smaller than a nano cap?) Not for the faint hearted this one Ron, although there does seem to have been some interest this morning, again I hope people are doing adequate research and not just taking a speculative punt.

      • I stand corrected, didn’t have time to check it out this morning. You’re right about the need for a share consolidation.

    • That is a nice marketing pitch Ron. I note that in the last decade the company has issued more than 7.5 billion shares taking the number of shares on issue to 8 billion. And this before the big capital investment begins. A bright future may be ahead of it, but the past decade has not proven a happy one for long-term shareholders in the business. I am reminded that a leopard does not change its spots. All a bit to blue-sky and speculative for me, so thanks but no thanks on this one.

      • just to clarify Lloyd, its not a marketing pitch. i don’t own shares in this company and i never did! im just sharing my insights. i would love to own shares in this one in the future if ticks all boxes. currently it only ticks 2 boxes – high barriers to entry & bright future for its product – whats missing is business performance (ROE, profit, debt etc..) and being able to calculate its IV.

        if i told you 20 years ago there’s a tiny company not making any money with an idea of selling hearing implants or blood plasmas, you would have told me thats a leopard also? guess what – they became CSL and Cochlear! :-)

        i just think we shouldn’t rule companies that are not performing yet. i advise everyone to add this on to their watch list on etrade or commsec and watch how its progressing. from what i understand they are currently selling pre commitments to their satellite and apparently half is already committed to.

        my feeling is that this company will be worth multiples of its current market cap in 5 years from now. Lets wait and see.

      • Ron – From your summary it seems they are staring down the barrel of a $400 million capital spend over the next couple of years or so. Therefore, your caveat that “barring any substantial highly dilutive future capital raising i believe this company’s prospects are extremely bright” seems a bit problematic. As Lloyd notes, dilutive equity issuance has been the norm for this business over the last decade. It appears to be a very high risk proposition, with very little by way of any confident IV attached to it at this point of time. By this reasoning it must be considered a purely speculative investment play at this time, some would say a gamble.

      • thats correct o’reilly. right now its a pure gamble. and so was cochlear by the way….

      • And at the time COH was a gamble so were about 1300 other listed companies on the ASX with very bright futures and little or no income.

        How many of the gambles came good?

        Pretty long odds need to be factored into the risk/reward equation when using this approach. So what is the expected monetary value of the NWT business at this point of time, when based on a realistic assessment of the odds?

      • Statistical probability is working against anyone making such a gamble. Just look to history for the reason.

        For every COH there were/are at least a thousand listed businesses with “massive blue sky potential” according to their directors and proponents that never made/make it.

        There is nothing tougher in business than turning bright ideas and potential into profitable hard cash.

        Entrepreneurship generates far more failures than successes, but for those that succeed the reward can be great. For this reason risk and reward are inversely correlated, but the reward is anything but evenly distributed across all the start-ups.

        Under these circumstances, picking winners from losers is a mighty tough game for the passive investor and the odds are stacked against him/her picking the winner from all the loosers.

        Currently, NWT has zero IV, lots of bright ideas and potential, but little cash in the tank to give them any effect. The first box to be ticked in the Value.able investment philosophy is a significant discount to IV. The second box is a high quality with little risk of default or liquidity crisis. The third box is earnings growth. It fails on the first two and notwithstanding the “bright” prospects will fail in all probability on the third by virtue of the mismatch between its balance sheet capacity and the capex requirement to bring about its dreams.

        In my opinion, it is about as far as anything can be from the Value.able investment thesis. Therefore, it has little attraction for me, but then I am not a gambler, nor do I believe that gambling is what the Value.able approach is about.

        That said, I stand to be corrected by Roger if I have misinterpreted, or misrepresented, the approach he has detailed in Value.able.

      • Hi Lloyd ur totally correct!

        NWT will need to raise some equity and some debt. Debt should be easy if they secure pre sale agreements for the satellite. The 400 million required will probably be shared by other investors who will own the satellite in some trust structure together with NWT.

        Again, I didn’t say to buy this company, I said keep an eye on it for positive progress, and maybe one day it will become a cochlear etc.

      • Simon Anthony

        Here Here ! I’m glad another Value.able Graduate has cotton on to this ten-bagger!

      • Hi Lloyd,

        Good to be reading your posts.

        $300-400M if absolute everything goes well (and both the satellites and their launch cost are obtained at a bargain price), and of course, no launch failures.
        Having access to 13 satellites (75% of globe) means they can “see” 13 satellites from their teleport (they used to be called satellite earth stations) location, but so can everybody else that lives in Perth or Adelaide.
        I’m not sure but, geostationary satellite slots are not tradable, they are awarded, then it is, use it or lose it (no resell/liquidation value).
        Aussat/Optus have been servicing this remote mining market for the better part 25years. I have not been to Melbourne lately, but previously BHP had twin satellite dishes mounted on the top of the HQ, 50 storeys up! Big fish already taken!
        Ground equipment for satellite services have slim margin, they give away receive only equipment (read foxtel/austar). Your average TV antenna guy installs & maintains Tx/Rx satellite equipment for regional house holds that have satellite internet.
        I don’t see NewSat competitive advantage, my guess is, IF it gets off the ground (pun intended), it will be mostly more equity raised because they will have trouble raising debt.

        Regards Greg

  10. This is the second time I have noticed Zicom pop up in Roger’s blog. The earlier one suggested an IV of $0.52. I decided to have a look for myself – I arrived at an IV of $0.53 based on the financial dater available through ComSec, however according to ComSec’s forecast they suggest an INCREASE for 2011in the order of 100% based on future EPS. So it will be interesting to see if Roger has unearthed another gem.

  11. Ha! I knew Greg Mc-isms would rub off eventually, Roger…

    From the article – “provision of “floaties” for the deep-sea”

    “Posted by Greg Mc on March 9, 2011 at 2:45 pm
    Yes, Ash,
    As it happens, I bought a few more of everybody’s favourite maker of oil rig floaties at that time. Certainly not regretting it $4 or $5/share later.”

    Next you’ll be making up words and catching big trout as well! (Well, maybe not the trout).

    I sense from your closing remarks some frustration in people running out and indiscriminately buying whatever you mention on any given day – and despite your urgings, I predict that ZGL will have a positive day today regardless. I must say that I am not as comfortable with ZGL as some other companies, and having passed on it 15c ago, I’m not inclined to rush out and buy it now.
    It’ll probly still go ok.

    • Hi Greg Mc,

      LOL just love your humour,

      I have it as one to keep an eye one. If it eventuaslly fits my bill I wont worry about missing it earlier. That just happens

  12. I like your “black box” warning at the bottom Rog, if that doesn’t get the message across I don’t know what will!

    • Clearly your warnings fall on deaf ears after seeing the >10% increase in share price…
      I’m hoping it’s the subscribers to Eureka rather than the bloggers here. I can imagine the temptation to throw a real turkey out there one day just to see how many gullible people take it up?!

      • Hi Jonesy,

        Clearly the Eureka report guys. The blogs has had this for awhile and I had and still have this one as one to keep an eye on.

      • I don’t think, unfortunatley, that we can place all the blame on the eureka people. For one reason, i think the eureka people are also blog people. I have and others i think have been noticing it too on this blog, a big change in the type of discussions and focus of psoters.

        I hope it is just me being cynical and i am wrong but their appears to be a larger element of spruiking on this blog than what i remember. With certain people posting about the exact same companys encouraging us to buy that gets posted on almost every post.

        Maybe it is just a side affect of the market being expensive and people are finding it harder to find value. but it almost appears to me that a lot of people have outsourced to Roger to find the companys for them.

        Plus i think people are focused on trying to find a new company that is under IV to show everyone, not a bad thing, but i think we have lost our way a bit as some of these companys aren’t quality.

        I had Westpac flagged up as having a decent discount to IV recently but it didn’t get a mention. I think because it is a large instead of small cap or not involved in the resources sector.

        I hope it is just me being pessimistic and sorry to everyone for going on a bit of a rant but i think we have lost our focus on what we are here for.

      • I agree that it should be removed Andrew,

        I thought I was doing a good job of filtering those out. Perhaps you could cut and paste a few examples of those that you feel are ‘spruiking’. That way I can get a better idea of your definition of it and look out for it.

      • Yeah at this stage I cant see it as anything more than something to keep an eye on. No track record here…

      • You can almost imagine their mother saying the classic line,
        “If Roger Montgomery told you to jump off a cliff would you do it?”

    • I like your “black box” warning at the bottom Rog, if that doesn’t get the message across I don’t know what will!


      How many smokers take note of the warning on the box?

Post your comments