Author Topic: Companies I didnt buy  (Read 2284 times)

galumay

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Companies I didnt buy
« on: May 23, 2015, 03:39:33 PM »
Sometimes its helpful to record why i didnt buy companies and what the reason was as well as a prediction.

Pact Holdings, PGH, packaging company. A brief look at the financials looked ok, but debt is 200% of equity and interest coverage only 2.2. This seems like high catostrophic risk if interest rates rise. For this reason alone I am striking this one off the watch list. Its $4.14 now, if it can radically reduce debt, or interest rates stay low I predict it will maintain that sort of price. If there is any increase in interest rates then I expect it will drop hard.

EDIT 4/16 Its SP is over $5:00 now so looks like i got it wrong! Still has horrible levels of debt.

EDIT 7/16 Its over $6:00. wronger!

1/9 still $6ish

27/1/18 $5.29

9/4/18 $5.60

3/19 $2.80 So it finally played out as I expected!
« Last Edit: March 31, 2019, 06:54:24 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #1 on: September 22, 2015, 04:32:06 PM »
VED, VEDA GROUP

I have looked at this company a couple of times, I just dont see the future value that others do, I decided not to buy at $2.00, looked again at about $2.15 still couldnt see where the growth was going to come from to sustain the price, now they have shot up to $2.70 based on a takeover offer for that amount. Still doesnt add up for me, but many i admire are holders.

EDIT 4/16 Taken over for $2:82 so I was very wrong again!

ICS

Another one that Tony Hansen held and sold, he got out at $1.25 and while its had a run up to $1.50 its back to $1.25 and has me looking at it again. I didnt buy because it did seem fully valued, but with the numbers from this FY $1.25 looks cheap to me.

EDIT 4/16 Ran up to $1:95 and now back around $1:50 - wrong again!!!

7/16 - $1:70  wronger!

1/9 $1.61

27/1/18 $1.38

9/4/18 $1.22

3/19 93c so maybe another it was good i didnt buy.
« Last Edit: March 31, 2019, 06:55:40 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #2 on: April 20, 2016, 08:56:51 PM »
SMX

Didnt buy on the 20/4/16 @ $1.67 see http://www.galumay.com.au/forum/index.php?topic=32.msg86#msg86

7/16 $1.65. but maybe...!

8/16 Now up to $2.15 from the $1.70 I started looking at this one, failed to run the FY15 numbers in my spreadsheet - I suspect i would hold them had i done so!

1/9 $1.81

late 2017 SMX was taken over and shareholders received about $1.70 + a special 10c dividend.
« Last Edit: January 27, 2018, 10:10:25 AM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #3 on: July 17, 2016, 10:07:05 AM »
Another, CAT is a leading global sports analytics company that uses proprietary technology to provide elite sporting organisations and athletes with detailed, real time data and analytics to monitor and measure athletes' fitness and skill levels; responses to specific training techniques; tactical performance; and risk of injury and safety and to assist with rehabilitation.

I have had a look at them more than once and I think it is a business with huge potential, but as its still making losses and is very new I have not taken a position. They are trading around $4 post a CR and acquisition. I will reconsider when profitibility is realised or I decide to take a speculative punt with a small position.

1/9/16 $3.80

27/1/18 $1.98 looks like a good decision not to buy!

3/19 94c my decision looks even better!


9/4/18 $1.19 This one I got right, didnt meet my investment criteria, and i resisted the temptation to buy the narrative.

« Last Edit: March 31, 2019, 06:56:33 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #4 on: August 05, 2016, 07:23:36 AM »
not sure if these are going to be companies i didnt buy or just ones i havent bought yet!

TNE $5.70 I have been running my ruler across this one, the metrics are outstanding, 15 years of continuous growth in earnings, dividends, ROE, revenue, etc etc. Its a straight line growing at an average of 15%. Almost no debt, buckets of cash, well run, but...and this is the 'but' I struggle with - it seems to have all of that growth and some already built into the SP. I suspect thats because my default values for 5y and terminal growth are too conservative for such a strongly growing company.

Trouble is the conservative investor in me doesn't like adjusting those values because it feels like I am just making the data fit the price!

ADA $3.14 Not quite the same quality, a bit of a cyclical company, seems to be in a strong growth phase and has some good recurring business in its services sector now. No debt, strong financials, international business. Also looks to be pretty fully priced. Although once again my assumptions about growth may be too conservative.

SXE $0.54 Finally one for contrast, wouldn't normally be regarded as a 'quality' company, in the very unloved mining services sector (where I have plenty of exposure already!), but no debt, plenty of cash, well run, diversifying from reliance on mining, and looks really good with my conservative growth assumptions!

I have been researching these 3 companies as I look for somewhere to allocate accumulated capital from tax returns, dividends and some bonds i sold.

On reflection, SXE is the sort of company I look for normally, smallish, unloved, low debt, well run and positioned to take advantage of any change in sentiment. TNE and ADA tend to be the sort of companies I have dismissed in the past - while acknowledging their quality, my conservative approach to growth assumptions have made them look too expensive.

All of these 3 turned out to be "companies i havent bought YET!
« Last Edit: September 01, 2016, 08:32:45 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #5 on: August 13, 2016, 07:42:26 PM »
CWY Cleanaway, got a "hot tip" via a friend that they are due to fly as a result of some new contracts about to be awarded. I had a squiz, and they dont meet the minimum standards by my metrics for an investible company. I am not a trader and I have to shut out any temptation to behave like one without any of the experience, skills, knowledge or training of those that are. So one I didnt buy at about 85c

EDIT - 1/9/16 - shot up to $1.13 - based on turning PRP loss into a profit, made all the metrics look better, debt, interest covereage etc.

27/1/18 - $1.47

9/4/18 $1.45

3/19 $2.22 Shows I should have looked harder at that inflection point in 2016, would be a double bagger if I bought once it was investible on my metrics.

« Last Edit: March 31, 2019, 06:58:26 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #6 on: October 12, 2016, 09:39:56 PM »
SDI, should have documented my original thoughts about this one, dental tech company, good metrics but something about them put me off but now I cant remember what! A reminder to record all my analysis!

Ended up buying.
« Last Edit: January 27, 2018, 10:12:59 AM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #7 on: November 29, 2016, 07:57:12 PM »
VOC, fell 25% today. Looks like a classic over reaction by Mr Market, but rather than rush in and throw money into VOC, I downloaded the AR and crunched the numbers - i found that my calculated IV range was the same at as todays closing price - at the top end of the range. That was only achieved using the underlying rather than statutory reported numbers because it didn't get anywhere near current price on statutory numbers. EV/E was also poor as were a number of other metrics =- although the substantial changes in the underlying business this year make those sort of metrics unreliable guides to the value of the company.

Anyway, I have decided not to allocate any capital to VOC. It closed at $4.35 so lets see where it goes from here!

ended up buying - much to my regret. A dog. Sold for a loss.
« Last Edit: January 27, 2018, 10:13:40 AM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #8 on: January 27, 2018, 10:03:33 AM »
SP3 - 36c 27/1/18 see decision journal - not investible, not cash flow positive, no competitive advantage.

BWF - $1 27/1/18 see decision journal - saw it at fair value, with potential of extra growth I hadn't been able to quantify.

UPDATE: 9/4/18 SP3 30c, BWF 98c

3/19 SP3 12c BWF 84c  Both look like good decisons not to buy!
« Last Edit: March 31, 2019, 07:03:15 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #9 on: February 14, 2018, 07:26:34 PM »
RDH one I came across reading this blog (which is full of great info and ideas BTW) https://hiddenvalue.blog/2017/08/25/weekly-wrap-250817/

At $2.40 I couldnt see they were anything but fully valued so gave this one a miss.

9/4/18 $2.72

3/19 $2.54 so they havent done much, probably a good call.

Also GCS one that Tony at EPG has taken a position in, again, at 85c they seem close to fully valued according to my data.

9/4/18 68c - might have another look.

Bought GCS at 68c now 72c so looks like a good call
« Last Edit: March 31, 2019, 07:04:49 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #10 on: June 28, 2018, 04:30:44 PM »
Had a look at a few businesses that came to my attention this week, firstly PSQ, a dental provider roll up that announced a downwards revision on their earnings for the FY, price fell 11% to $1.56 which seemed a huge over reaction. My full analysis suggested though that it was still well outside my range of IV which was only around 50c.

3/19 $1.16 good call to give it a miss.

Second one is PME a medical imaging business, this is an amazing busienss with a moat and great management holding very tightly, announcement of new contracts pushed them up 12% to $8.00 today, but as good as they look thats miles past my IV of under $2!

3/19 $14.80 obviously missed out there, would have been a great buy at $8 in hindsight!

Third was ONT which i looked at as a competitior to PSQ, its also a good business and fills the criteria i look for in most of its metrics, but again its priced for perfection, trading at $6.40 with my range of IV around $5

3/19 $6.15 so looks like i was right again.

So 3 to watch in a market fall!
« Last Edit: March 31, 2019, 07:07:30 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #11 on: August 10, 2018, 08:26:22 AM »
I have been looking at CUP for the last few weeks, I emailed a fellow investor about it,

Quote
I have been looking into a possible new investment recently and wondered if you had given it any attention? CountPlus, CUP, came to my attention in a blog post from the Hidden Value blog, https://hiddenvalue.blog/2018/08/01/low-multiple-of-depressed-earnings-with-multiple-ways-to-win/ which also linked to a post by Capital H Management, https://www.capitalhmanagement.com.au/2018/05/19/countplus-asxcup/
 
I have read through all their announcements and reports over the last couple of years and have formed the impression that at current prices its a suitably asymmetric opportunity with a number of ways the value can be significantly increased over the next few years, with very small downside risk of capital damaging outcomes.
 
I am finding it more difficult as time goes on to add new positions to my holdings! My inclination is to allocate more capital to the highest conviction positions I already hold and stay as concentrated as I am reasonably comfortable with, but I also realise its important to keep researching and looking for new businesses that present as compelling investments!
 
I would be interested to know if you had run your ruler over CUP and if so what your impressions about the business were.

His response was,

Quote
I met with these fellows a couple of months ago. It does look like it should be in for a good few years.
 
What put me off was I met with an investor in the fund who vended their business into the roll-up. They gave me the impression there are many more risks than apparent from the outside. In fact after his non-compete period finished, he had set up a shop & more than half his clients had moved already back to him.
 
The CEO does have a clear vision of what he wants to do & the insider I spoke with said heíll do a good job but thereís too much risk to be involved. Reckons youíll be waiting for an inevitable major issue, he was persuasive enough that I let it passÖ If it wasnít for that, it certainly looks tempting otherwise & you could very easily make good money if the issues donít surface or are resolved without a major problem - Tony

On that basis I gave it a miss, it traded at 75c.

3/19 50c so missed another dog!
« Last Edit: March 31, 2019, 07:08:18 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #12 on: August 10, 2018, 08:30:15 AM »
AKG, an education business. 42c.

Already owning KME I wasnt convinced that AKG was a better business so didnt buy.

3/19 40c got this right too, KME has done really well in this time and i increased my position size!
« Last Edit: March 31, 2019, 07:09:54 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #13 on: August 17, 2018, 08:34:34 PM »
CUP & LBL two I have looked long and hard at. 70c & 17.5c repectively.

Bought into LBL and increased my position a couple of times.
« Last Edit: March 31, 2019, 05:37:55 PM by galumay »

galumay

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Re: Companies I didnt buy
« Reply #14 on: March 31, 2019, 05:42:55 PM »
XRF is a business I have looked at a couple of times in the past, I have some 'circle of competence' in that we used their fusion machines and platinum ware in the Lab when I worked at the Gove Refinery.

XRF manufacture fusion machines for the mining and mineral processing industry, these machines make fusion beads for XRF (X-ray fluorescence ) analysers, these enable the companies to detirmine the chemical composition of samples. They also make the platinum ware which is used in the machines, this hardware depletes over time and is returned to XRF to be reformed and then reused. They also produce fluxes used in making the fusion beads.

I had it drawn to my attention again by a friend on twitter and we ended up having an extended exchange of ideas about the business, here is the bulk of that,

Hey Rick

Cheers for this, always tough as an investor looking from the outside into a technically difficult product/industry.
 
Iíve attached my notes from the chat with Vance the CEO and my rough P&L financials where I think they can report 2c EPS in FY19 (and grow strongly in FY20).
 
I guess my apprehension comes from a lack of knowledge around the product/industry. Vance said to me he thinks XRF has an 80% market share for fusion machines in Australia and maybe 20-30% globally (but admitted that is much harder to calculate). Does this sound right to you? If so do you think that it is a legacy dominance where XRF has been the benefactor of inaction from customers, or do they have a genuine edge over competitor products?
 
I agree with your point that flux/platinum labware are commodity products, and I didnít think to ask the question about margins on the new customisable platinum products. I might chase that up further with Vance. Do you have any thoughts on the expansion into the non-mining customisable labware?
 
Obviously you are closer to the product/industry, but here is the brief outline of why it looks interesting to me:
 
Large investment into new products, acquisitions and expanded factories/offices over the past few years is beginning to normalise. Should see margins head back towards historical levels (confirmed by Vance).
Revenue growth has been accelerating in Capital Equipment, 3% in 1H18, 17% in 2H18 and 28% in 1H19 (all half on half). I may be wrong, but there should be a strong correlation between Capital Equipment sales and subsequent growth in Consumables and a portion of Precious Metals.
Multiple looks really depressed (could be 7-8x normalised FY19 earnings, maybe 5x FY20 if things go as I expect). Given previous reliance on mining (~95% at the peak) multiple may be capped at 10-12x earnings. If they can continue to reduce the mining reliance (58% 1H19) I think the market will pay up a little more, maybe 14-15x.
 
Also nice work with the LBL buying. I havenít spoken to Wayne for a couple of months, but I follow him on LinkedIn and they have been postings stuff about new equipment and work. I reckon they are flying, hoping for guidance of $4.5m-$5m EBITDA for FY19 and then some guidance on FY20, particularly on Tech sales.


Hi Luke,

My mate says the 80% market share for Australia sounds about right, he is less sure that it would be as high as that globally. Edge is geographic, Australian mines and refiners bought XRF Scientific because of local support and supply. One fusion machine is much the same as another, I have used several different ones over the years, they are all good when they work well, they are pieces of shit when they play up! (Pouring molten ore and flux into the gas burners and blocking all the orifices is one favourite trick. The Lab trainee gets the job of cleaning them!)

He says Labs usually use platinum ware from same supplier, consumables more likely just from whatever bulk chemicals supplier they use, so could be anyone.

I dont know about the non-mining, customisable labware, I imagine its a tiny market, probably already serviced by someone, tough to break into I would have thought with not much growth potential. But thats just gut feeling. As an example I see they are doing a product for milk producers, well they will already be using someone else's labware at this point, its not stuff that wears out or breaks easily, so why would you buy from XRF?

My questions to your dot points would be,

The expansion, new products, new offices may well move margins upwards somewhat, but were they ever good enough to make it a great business?

I would be careful extrapolating growth in machine sales to platinum ware and consumables, any replacement of old machines wont have that effect. Is it just a short term growth in machine sales, given the life of them and how few new mines or refineries come on line, this could be an unsustainable spike in revenue.

I think the low multiple reflects a basket of stuff, lumpy earnings, not much growth over the years, unpopular sector, small, unnoticed business, I suspect it would have to be able to have more than just one good set of numbers to move the dial much!

Ok, so thats a really negative response to your summary, but I suspect thats what you are looking for.

On the other side of the coin, I have a really quick and dirty set of metrics that i put a company through before I do any sort of deeper research, I end up with a FCF that I then use to feed into a ROIC or (CROIC as some call it). On that basis it sneaks in with an assumed ROIC for the full year in the range of 6%. From there I need to convince myself its going to improve over time from that lowpoint, and that there are reasons to have a level of conviction about earnings growth. I reckon I could work up a case for investment at current prices based on those very rubbery numbers, but so far I actually think there are more productive homes for the capital by adding to positions I already hold.

I have found that is one of the hardest biases to overcome, the thrill of becoming a part owner of a new business as opposed to the boring thing of just adding to an existing part ownership!

Another way I try to think about investments is probabilistically, and XRF looks ok from that perspective, I dont see much downside from here, the market has very low expectations as it is, so its likely that even flat sales and earnings would see the price stay much the same. If they can put a couple of halves of solid growth in revenue and have that flow right through to the cash flow then its certainly not hard to see maybe 50-100% upside over a couple of years.

Thanks again for entertaining my amateur thoughts on XRF and investing in general, I feel I have so much to learn and its a bit awe inspiring sometimes being in discussions with seasoned professionals like yourself - but its great to get a chance to articulate my thoughts to a critical audience!


My very quick and dirty valuation predicts a range around 20c for the full financial year based on a guesstimate of FCF at about 1.5c. I also calculate a ROIC for the full year of about 5.5% (using FCF)

I dont feel they are cheap enough at 16c to justify buying now, but if the full year figures come in around my expectation I may reconsider.

Worked up a full analysis and research on XRF, and still cant see much more upside than 20c - if they execute to expectations, also some downside if they dont meet guidance. Well worth keeping on the watchlist, if they can finish the year strongly may be worth looking at taking a position.
 
« Last Edit: April 06, 2019, 08:26:56 PM by galumay »