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Thoughts and Ideas / On learning and testing...
« Last post by galumay on December 11, 2019, 08:06:02 PM »
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General Discussion / Re: Things People Say...
« Last post by galumay on December 11, 2019, 07:05:56 AM »
"Value investing to me is a philosophy where you treat a stock as a business, not as a symbol. You have a long-term time horizon. Mr Market is there to serve you, not the other way around. You treat risk as a permanent loss of capital, not as volatility."

@vitaliyk
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Shares / Re: Companies I didnt buy
« Last post by galumay on October 30, 2019, 12:34:38 PM »
VOR, KPG PPK & SIT all go on the list, PPK & SIT because i hold indirectly thru EPG fund and I dont want to be too corelated, VOR  I just couldnt find conviction to buy & KPG has too much debt.

PPK $4.50 VOR 0.012c KPG $1.03 & SIT 0.069 oct 30 19
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Shares / VOR
« Last post by galumay on October 29, 2019, 03:05:16 PM »
VOR - I have started looking at this little cloud and cybersecurity business, it has 3 main business units, cybersecurity through their Decipher Works product which is a vertical system, CLoud Ten which is a cloud service provider using Amazon's AWS product, they are an accredited partner and appear to have a strong client book in enterprise and government. Finally they have a 25% interest in an Indian ATM servicing business that they are trying to divest themselves of. It has a current audited value of around $9m

The positives are that its operating cash flow positive, and once the final tranche of payment for Cloud Ten is made, should be free cash flow positive, its extremely capital light because it doesnt own data centres because it uses AWS. Earnings are negative but this is a function of the writedown in value of the share in the ATM business, accounting rules mean that the negatively adjusted value of this asset, which is down by $5m, has to be applied to the profit and loss. In fact they made a small operational profit once the $5m is backed out.

Given that there is not much backwards looking to work from, I have inverted and considered what sort of FCF or EPS the business would need to earn to be fair value at its current price, I am calculating it would need approx 0.08c per share earnings to give a valuation in the range of its current price of 1.4c
($0.014) which would equate to $1.9m earnings.

Given current revenue growth this is not a stretch at all, in fact the operating cash flow is already at that level in 6 months, and if you back out the aquisition costs (which finish next quarter), its already reached the required earnings in FCF in 6 months.

I think its clear that with any sort of trajectory of revenue growth without increased aquisition costs, the business will prove to be cheap on current metrics, the big question is what are the threats to that trajectory of revenue growth and what is the probability?

The obvious threat to the business is another provider of similar services cutting their lunch - presumably with margin squeeze.The question is whether the current relationship with AWS provides any sort of competitive advantage.

Datacom, private, AC3 privael, ARQ.ASX, Versent, private Idea11, private Cloud Conformity, private.

This is a short list of the many AWS Advanced Consulting Partners, its the Australian ones, mostly private, ARQ being the only other listed one I could find. This is a crowded market place, and its unclear why or how VOR is growing revenue so quickly.

Another issue is the millions of options on issue, this will have a dllutive effect on what is already a high share count.

In the end I couldnt build enough conviction about the business to invest.
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Shares / OMN
« Last post by galumay on October 29, 2019, 08:20:38 AM »
I took a position in OMN as a pure arbitrage play, @auscontrarian again drew my attention to this one with a very well researched article, https://www.notion.so/OneMarket-Ltd-d2eed01c703343538a6eebcc6f963e72

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General Discussion / Re: Decision Journal
« Last post by galumay on October 29, 2019, 08:03:09 AM »
I sold about 66% of my DDR holdings last month after the share price hit $7.30, i believe this is so far beyond any value I can asign the business that it would be irresponsible to continue to hold such a large position in my portfolio. I still retain about 8000 shares so its still a reasonable position.

I have mainly distributed the realised capital into existing holdings in AER, SFC, SRG, PPH, KME & JYC.

My thinking was to increase the holding in AER to a more meaningful size as the execution appears to be on track, in the case of SRG it appeared to be the most undervalued of current positions, KME & JYC i had identified as accumulate targets following strong execution identified in the AR's, JYC i waited for a dip after it ran up, but KME I paid up for as I think the probability of it growing strongly is above 50% with only a 20% liklihood of underperformance.

SFC remains a very strong conviction and hence I increased postion size on some price weakness.

I also put a significant amount of capital into OMN which is a pure arbitrage play, the business is being wound up after the founder became very ill, and it is that rare circumstance of a net-net where the assets significantly outweigh the capitalisation. Shareholders should see a return in the order of 15% over 6 months. This is one of those rare situations where the upside is as near to 100% as possible and the downside is close to 0%.

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General Discussion / Re: Decision Journal
« Last post by galumay on October 29, 2019, 07:46:14 AM »
Looked at KPG which is basically an accounting roll up, the numbers all look good, good FCF, healthy ROIC, a pathway of growth etc. My interest was piqued by a write up by a fellow #fintwit investor, https://www.notion.so/Kelly-Partners-Group-4743627e07e14940bd8461c75c568aab

As good as the business looks and as compelling as the linked narrative is, the company is operating with significant debt, above a level I would be comfortable with so its a hard no in this case.
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Shares / Re: LBL
« Last post by galumay on October 21, 2019, 08:30:19 PM »
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Shares / SIT
« Last post by galumay on September 26, 2019, 11:34:35 AM »
I am considering taking a position in SIT, this is a company that we have a vicarious holding in through the EGPCVF where its one of the largest holdings. I have no personal analysis to rely on here, rather just the judgement of Tony Hansen in taking such a large position.

First filter, is there catostophic risk?

Yes, business is not viable in its current state.

Is there balance sheet risk?

Yes there is debt with no means to service it long term. It does not have enough cash to last another year

3rd filter history of cash flows/earnings

None

Is their poor capital management?

Possibly, share count has grown greatly over the last 10 years

Does it have a good ROIC?

No

What price is fair value?

entirely depends what probabilty is assigned to the land value being realised.

What is the thesis for investment?

That the legal action will result in payment of amounts owed and that the land value in the Philipines can be realised, creating a massive cash inflow at multiples of current capitalisation

What can go wrong?

The land doesnt sell, they dont win the legal case

What are the alternatives?

The obvious alternative is to increase position size in businesses I already own, where I think the rate of return is better. This includes businesses like KME and SFC.


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Shares / A2B
« Last post by galumay on September 26, 2019, 11:18:42 AM »
I am considering taking a position in A2B, the old Cabcharge, Australia's Taxi company. I think the market has underpriced this business, and at current prices its trading below its range of value.

First filter, is there catostrophic risk?

No, the greatest risk has been disruption and legaslative, disruption has been overrated IMO, while ride sharers have taken a piece of market share, they have only been able to do so by making ongoing, massive losses. I dont believe ride sharing in its current model is sustainable and in fact the main impact may have been to focus A2B on improving their service and introducing tech solutions pioneered by the disruptors. The legislative impacts have just about washed through, in the removal of the ticket clipping with excessive credit card fees, and probably any future legislative impacts are more likely to negatively impact the disruptors.

2nd filter, is there balance sheet risk?

There is next to no debt, NTA is 86c, book value is $1.36.

3rd filter history of cash flows/earnings

Cash flow & earnings have been positive for the last 10 years.

Is their poor capital management?

There have been no new shares issued in 10 years

Dividends have been paid every year for last 10 years, payout ratio typically round 60%

Does it have a good ROIC?

its currently lower than I would like at about 6%.

What price is fair value?

A conservative range of intrinsic value is around $1.70

What is the thesis for investment?

I think the business has been misunderstood and oversold, I believe dividends are likely to increase slowly as profits recover and this will likely lead to a rerate of the business. Even if the business remains fairly static, it throws off a lot of cash and will provide a healthy return just based on yield alone.

What can go wrong?

Probably the biggest risk is mis-allocation of capital, the cash could tempt management to make a foolish aquisition at some point in the future.

What are the alternatives?

The obvious alternative is to increase position size in businesses I already own, where I think the rate of return is better. This includes businesses like KME and SFC.

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