Companies I didnt buy

[galumay]

HSN is another company I have looked at in the past, thought they were over valued in 2015 at around $1.80 and bought DWS instead, looked at them again this week, very rough range of value around $2.60 currently $2.90.

The biggest issue is that they dont seem to be creating any organic growth, so totally reliant on roll ups to create growth. CROIC is quite high at 15% but you would expect that with a capital light software business.

A pass for me.

[galumay]

GLB & HIT are 2 i had on watch list.

ended up buying both and doing well

[galumay]

As at March 2019, 14 businesses I analysed and researched to the point of considering taking a position, and chose not to. Of them 3 would have made me money, 1 of which was taken over, only 2 would have made meaningful returns. 10 would have made a loss. 1 break even.

[galumay]

SKT Sky NZ, $1.16. I think it is worth nearer $2.50 on current earnings and cash flow at a quick glance, but a fair bit of debt and consistently falling earnings put me off. A definite potential contrarian turn around play.

CROIC is not bad either, above 10%.

What would earnings have to drop to for $1 something to be fair value? My guess is under 10c EPS, thats a significant amount less than current earnings, in fact its half the guidance for 2019.

Its hard to see a near future where SKT isnt a viable business in NZ, they have 40% penatration and while the Netflixs of the world will eat away at their margins and revenue with a high quality and real NBN, as long as they have the rights for sports they will survive. So what are the odds of sport going to streaming? Well I dont think its happened on a national scale anywhere in the world so far, but it could happen.

The Rugby world cup should give them a bump in revenue for first half 2020, NZ is such a rugby mad country and the World cup is in Japan in October.

The market hated the impairment writedown last year, and I would imagine there are more of them to come, so that is a potential negative,

On the upside a price of $2.50 is not a stretch if they meet guidance, so probalistically, maybe a 10% chance of sport moving totally to streaming seeing a collapse of the business , 10% * 0 =0 plus a 20% chance they meet guidance & impair again, 20% * $1 = 20c plus a 60% chance they meet guidance, no impairment and market rerates - 60% * $2 = $1.20 and 10% chance they exceed and market rewards 10% * $2.50 = 25c for a total expectancy of $1.65
- which is a reasonable return.

Trouble is this sort of calculation is so wooly, I could easily modify, 10% * 0, 50% * $1.20 (no change) , 20% * $2, 10% * $2.50 for a total of $1.25 - about where it is now.

[galumay]

EOS

Makes military hardware and also positioned for space expansion. Biggest negative was discovvering Fred Bart was Chairman, I saw his work at Audio Pixels and thats enough to put me off! Also huge gap between reported NPAT & FCF, book a profit, no sign of cash flow.

3/5/19 $3.30

[galumay]

EAS an accounting services business that I had my attention drawn to by Matt Brazier, https://www.mattbrazierinvestmentdiary.com/2019/05/easton-investments-limited-asxeas.html#more and his linking to DX Capital report, https://www.dmxam.com.au/10_04_2019_easton_investments_limited_asx_eas_.html

Its currently trading at about 97c and in a quick look I couldn't see that it was at any discount to value even allowing for some pretty good growth, I can see them making about 6c EPS this full year, which would give them a value round 80c, even if they manage to double the EPS to 12c in the next couple of years I only see a value of around $1-60 so I couldn't get much enthusiasm for the business.

I also could only see single digit ROIC, which is a bit low for my liking.

[galumay]

PNV, the spinoff from CSIRO with the burns and wound mesh platform, great product, just about breakeven, but with 600m shares on issue I reckon it would need NPAT of over $50m to be anywhere near fair value at the $1 something price it is now. Thats a big ask.

[galumay]

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

[galumay]

VHT, following a write up from Owen on Rask Invest, https://invest.rask.com.au/2020/07/22/buy-volpara-health-technologies-asxvht/ i decided to have a look.

For me the article is filled with narrative, but no realistic outline of how the business would ever get to justifying its current price, let alone any higher. I just through in a reverse engineering on the DCF, assuming its scales up, becomes a mature business with steady slow growth potential after it reaches that sort of scale. That would require the business to generate FCF of around 8c per share, or getting close to $20m FCF, on a business that has revenue around $12m now, thats a huge ask, even if it managed to multiply that revenue by say 1000% to $120m, it would be a great business that had sufficient FCF margin to generate $20m FCF. As an example CSL generates 8x or 12% FCF yield.

It just seems to me to be a massive speculative bet in a sector that most bets fail.

I will watch from the sidelines, its $1.46 in July 2020

25/10/22 60c!

[galumay]

SSG Shaver Group, had a good look at this one and thought about it at 75c. Just couldnt get enough conviction to open a posistion august 2020

[galumay]

MYE, Mastermyne Group Limited, a mining services business, metrics looked really good, cheap, good ROE, ROIIC, FCF, EV/EBIDTA, low debt, revenue growth, dividend yield - everything i looked at was great! BUT, the killer is, its clients are nearly all in coal. When I ask myself, "what will this business look like in 10 years?" I cant help but think, maybe it doesnt even exist. 78c 16/2/21

Released their H1 results while i was writing this, big drop in revenue, profit & divvy. Market dumped it hard, down 12% to under 70c. If they get punished some more there is a point where its just too cheap to ignore, business will recover and its getting close to its NTA of 55c. Its priced like it made a loss rather than a drop in porfit.

This paper outlines a range of possible cases for met coal in the next 20 years,

https://s3.treasury.qld.gov.au/files/A-Study-of-Long-Term-Global-Coal-Demand.pdf

BHP's slide from their H1 2021 presso shows how badly coal is going for them as a producer,



Passed again at 61c

25/10/22 now at 25c!

[galumay]

AMO - this was one i discussed with Claude on twitter via DM, this was the conversation, (read from bottom up)





This is one Claude nailed, FY 2021 results,



Divvy up to 3.1c  - about 11% on current price!

[galumay]

Just had a squiz at CLX, it seems to have had a very good couple of years, largely due to Covid, has worked the debt down a fair bit, has an undervalued property PF, reasonable cash flow, (after adjusting for rent shown as lease repayments thanks to AASB-16 madness.)

Founder has 25% of shares and all directors have decent skin in the game, small float on a tight registry - just like I like!

Question is what happens after Covid, does it just revert to historical numbers or has there been structural change in the business?

Probably a month late to this one, at current price its basically round my range of calculated value - $1.30.  21/08/2022

[galumay]

Claude asked if I had looked at DUR. I hadnt.

My rolling commentary on twitter with Claude.

I have never looked at it! First glance, too new for me, too much debt. Interesting that 3 families hold exactly 11.04% each, assume they were the founding partners from 2010. Only 2 seem to be directors still. I like the business, its very unattractive boring work!!

Might go back and read the prospectus and earlier ARs from pre IPO to get more of a feel for why it went public and a bit of history.

Ok so 3 founders still involved, all with 11.04%, the IPO basically got them a $5.5m payday each! Nice work if you can get it.

The margins have been very compressed when you compare their FY 18, 19 & 20 numbers to the ones since listing. How much of that is Covid/supply/inflation/labour market and how much is structural?? Too hard basket.

42c 22/08/22

[galumay]

Chris had previously talked to me about ATP, Atlas Pearls and I had dismissed them as unprofitable with significant debt. He mentioned they had now turned a profit and also just paid out the rest of the debt. So I thought I would run the ruler over it again, no question its cheap by any metric, a P/E of about 4x, a range of value based on FCF of 10c compared to a current price of 4c.

The problem for me is the risks inherent in a agri(aqua)culture/commodity play, they spend pages in the annual report detailing the complexity of the risks and their potential impacts on bottom line - oyster value/life/disease risk, FX risx, size of pearls, production rates, price of pearl, margins, etc. . Also a question mark over capital allocation now debt gone, divvies? buybacks? consolidation? Also all of the operations are based in Indonesia so there is also sovereign risk to consider.

I think its a potential position for someone with a higher appetite for risk than me, there is quite a lot of upside if they continue to execute and it re-rates to reflect the turnaround in the business. I just found the downside risks too hard to quantify and qualify, so I assume its somewhat symmetric. Probabilistically i think maybe 30% chance it stays around the current price in the medium term, 30% some of that risk comes home to roost and earnings revert such that price drops back to the 1c range, and a 40% chance it continues to grow, no problems with the oysters and pearls, and it rerates to round 10c - so price expectancy of 1.2c+0.3c +4c = 5.5c which is not enough upside for me.

Lets see where it is in 3 years!