From a reader "Lex",
"Hi Seng, I came across Investssmart chatroom and your blog accidentally early this year, ...
I am new in stock market invest and started to trade around end of year 2005. I know nuts about FA and TA. But can understand certain accounting term like NAV or NTA. I invest by buying low and hold (with certain percentage of stop loss) then sell once the price move up around 15% ...
Currently, I holding ... Ramunia LA @ RM1.159 and Ramunia WA @ RM0.855 which I slowly accumulated starting early this month. Of course the reason I start to invest in Ramunia is after go through your blog on Ramunia. I also agree and believe that the future of global oil and gas sector is very promising and got great potential that crude oil price will hit US$100 per barrel.
I still have around xxx capital set aside for share investment, and I plan to use all of it to invest in either Ramunia LA or WA for short term and long term.
Are you able to advise is it wise to do so? As I don't have time to monitor a few counters and so far each time I invest, I bought 1 or the most 2 counters only. Thanks."
________
Dear Lex,
Thanks for your email. I hope you won't mind me replying here, as it may be useful to the other readers with similar questions as you are. I have taken the liberty to remove any data that might identify you, as well as the more sensitive numbers relating to your actual stock and cash holdings. My thoughts follows. Please treat these as merely second opinion. At the end of the day, I am not a licensed investment advisor, I do not charge any fees, and it is your hard-earned money which is at risk.
Ramunia-LA vs Ramunia-WA
1. At the time of writing, Ramunia closed (prior day) at $1.42, Ramunia-LA $1.10, Ramunia-WA $0.865. At these prices, I still prefer the LA best, and would avoid both the WA and the mother share.
2. The reasons I would avoid the mother share is because come Sep 2007 and 20 Dec 2007, I expect the mother share price to fall as a result of the planned share dilution.
3. The reasons I would avoid the WA is because I expect the WA price to track mother reasonably closely. If the mother price falls, the WA should fall also. Worse, since the WA provides gearing, I expect the WA to fall proportionately larger than the mother. If I'm not buying the mother, I am certainly not buying the WA.
4. It may be counter-intuitive as to why when 20 Dec 2007 comes, both mother and WA falls but LA rises. The reason is simply because the rules of the game says that 1 LA stock gets to convert into 1 mother share, and for all intent and purpose, 1 LA stock is equivalent to 1 mother share comes 20 Dec 2007. As the LA price is significantly below current mother price, I expect the LA price to go up come 20 Dec 2007.
5. I would consider disposing some/all of the WA during strength before the planned September dilution.
6. There may be a smaller outside chance that the mother share might rise after the 20 Dec 07 dilution process completes causing the WA to rise proportionately faster than mother. That I cannot fully discount either as I do not have a reliable crystal ball into the future. Notwitstanding this, I would still prefer the LA, since in my opinion, the potential reward does not appear to fully offset the potential risk.
Asset Allocation
You mentioned you are planning to use all (100%) of your capital to just hold 1 (or 2) stocks. There are 2 separate issues here: 1. Asset Allocation (100%% invested in stocks), and 2. Diversification (1 or 2 stocks).
For the first part, I'm afraid I don't know you well enough to know whether you are still working, whether you expect to be a net saver over the next 6 or 12 months say, your savings rate or access to other sources of savings, your liabilities / planned expenditure, etc.
But assuming you don't plan to increase your capital, then, 100% of capital into stocks is not prudent. Whilst the market is bullish right now, noone really knows when the party will end. Especially if you do not have a history to time the market successfully.
In the Intelligent Investor book, Graham advocates a 50/50 asset allocation. In other words, if you have $100,000 to invest, consider investing $50,000 into stocks and the other half into bonds (or for practical purposes, fixed deposits and cash). Especially since you don't have time to monitor the market.
Under this approach, the defensive (or busy) investor may choose to review his portfolio say on weekends or every fortnight, and updates the % invested in shares.
If after a period of time, the % invested in shares has risen to say $60,000 at the next review date then, the total portfolio is now $110,000 (= $50,000 cash + $60,000 stock). The stock % is now 60/110 = 54.5% which exceeded 50%. The investor could consider rebalancing to 50/50 by selling approximately 4.5% x 110,000 = 4,950 or say $5k the following week. This would then result in stocks of $55k and cash of $55k, or roughly 50/50.
Conversely, if the % invested in shares fell to say $40,000 at the next review date, then, the total portfolio is $90,000 (= $50,000 cash + $40,000 stock). The cash % is now 50/90 = 55.6%. The investor could consider rebalancing to 50/50 by buying approximately 5.6% x 90,000 = $5k the following week. This would then result in stocks of $45k and cash of $45k, or roughly 50/50.
Of course, this is not the most optimal strategy to maximize returns. But Graham is of the view that it forces the investor to buy when prices are depressed, and to sell some when prices goes up, thereby, doing the right thing not to get a poor investment result.
The 50/50 approach may be tailored depending on your risk apetite and individual circumstances and preferences. E.g. if you expect to have say $10,000 worth of future savings coming in over the next 6 months that you plan to commit into stocks, then, you might start to consider this as part of your cash holdings in the above calculations. In other words, effectively, you have tilted towards $55k stock /$45k cash (since actual cash is only $45k and exclude the $10k cash which has not yet come in), or 55% stock, 45% cash allocation.
You may also choose not to act when the stock % is only a small variation from your 50% target, since the amount to rebalance may become too small.
You may also vary the % invested in stocks (from 50%) to another figure such as 55% or 60% especially when market prices has fallen and you are really bullish about the stock market in the future. However, this is potentially riskier since it is inherently difficult to predict future market movement, and more of your wealth is at risk should your assessment turned out to be wrong.
Diversification
You mentioned you would like to hold just 1 (or 2) stocks.
My general advise is to not to this, even if Warren Buffett himself have personally recommended a stock to me (which he won't).
Why? Because there are no guarantees in the stock market. Despite the best research today, noone can reliably predict the future, and that includes what is going to happen to the company and the stock price during the investment period. Owning a single company is not prudent. One of Buffett's famous quote (and I am paraphrasing him, in a similar context of employing leverage) is that even if there is a 99% chance of enhanced profits, and just a small 1% chance of having a terrible result, he would not take that risk. I think the same principle applies here, when it comes to being 100% invested (instead of 50/50 suggested above).
Perhaps an exception could be considered if the stock is a closed-end fund such as I-Capital, or a carefully selected mutual fund outside the stock market, since the funds in theory holds a diversified group of stocks. For the former, I would consider spreading my buys across lower prices if I am considering entry. For the latter, you need to consult a professional investment adviser.
If you still want to select stocks yourself, consider diversifying into 5-10 stocks at the very least. Apparently, Graham recommends 10 to 30, even though he himself holds nearly 100+ stocks. If you have $100k of capital, and plan to invest $50,000 into stocks, 5 stocks means roughly $10,000 investment each. The actual amount invested can be varied slightly around these rough yardsticks, to make it round lots, or to reflect your varying degree of confidence in the stock.
Other Comments
As this is already a lengthy reply, I think I will leave it at that, even though I have some relatively minor difference in opinion on stop loss when applied to sound, fundamental stocks, or on your sell targets.
Disclaimer: As usual, please treat this as merely second opinions. Always use your own judgement, consult a professional if you are still unclear, and invest (buy, hold, sell) at your own risks since at the end of the day, it is your own money.
Tuesday, July 31, 2007
Friday, July 13, 2007
EUROSP - Business P/E
From "starter" ...
"Seng, how you can get a PE of 3.5 for EUROSP? Correct me if I'm wrong but I think the PE should be around 8 base on the current price."
Dear starter,
Here are some simple facts about EUROSP:
1. Last night, EUROSP closed at $1.16. At this price, the stock is capitalized at $46.4M.
2. The TTM (Trailing Twelve Month) net earnings (PAT) is $7.2M, or 18.1 sen per share.
3. At the last Balance Sheet date (28 Feb 2007), the stock has a Net Cash of $22.2M, or 56 sen per share and nil borrowings.
4. This implies that EUROSP's underlying business is available for sale for only $46.4M - $22.2M = $24.2M
5. So, the Business P/E is 24.2M / 7.2M = 3.4, which I've simply rounded up to 3.5. Compared to its listed competitors, I believe EUROSP is trading at a very undemanding multiple.
6. Superficially, if one doesn't put any value on its $22.2M cash hoard, then, you could say the P/E is 46.4 / 7.2 = 6.4 times.
7. Superficially, if you prefer to use outdated 2006 Financial Year earnings, then, the P/E is 46.4 / 5.8 = 8 times. But to me, this is not the right way to value a business - and is potentially dangerous when applied to other stocks - since it gives no credit to recent earnings growth (EUROSP Financial Year ends 31 May), as well as not giving credit to EUROSP's strong cashflow and its large cash hoard.
8. If you think such a business, in the current environment, deserves a P/E multiple of 7, then, the Target Price could be 18.1 sen x 7 + 56 sen = $1.83, say between $1.50 to $2. Whether EUROSP actually reaches this price or not will depend to a large extent on the market.
For more details, you may refer to my previous writing on EUROSP here - http://fusioninvestor.blogspot.com/2007/04/eurosp-business-proposition.html
Cheers,
Seng.
Disclaimer: As usual, use your own judgement and invest (buy, hold, sell) at your own risks.
"Seng, how you can get a PE of 3.5 for EUROSP? Correct me if I'm wrong but I think the PE should be around 8 base on the current price."
Dear starter,
Here are some simple facts about EUROSP:
1. Last night, EUROSP closed at $1.16. At this price, the stock is capitalized at $46.4M.
2. The TTM (Trailing Twelve Month) net earnings (PAT) is $7.2M, or 18.1 sen per share.
3. At the last Balance Sheet date (28 Feb 2007), the stock has a Net Cash of $22.2M, or 56 sen per share and nil borrowings.
4. This implies that EUROSP's underlying business is available for sale for only $46.4M - $22.2M = $24.2M
5. So, the Business P/E is 24.2M / 7.2M = 3.4, which I've simply rounded up to 3.5. Compared to its listed competitors, I believe EUROSP is trading at a very undemanding multiple.
6. Superficially, if one doesn't put any value on its $22.2M cash hoard, then, you could say the P/E is 46.4 / 7.2 = 6.4 times.
7. Superficially, if you prefer to use outdated 2006 Financial Year earnings, then, the P/E is 46.4 / 5.8 = 8 times. But to me, this is not the right way to value a business - and is potentially dangerous when applied to other stocks - since it gives no credit to recent earnings growth (EUROSP Financial Year ends 31 May), as well as not giving credit to EUROSP's strong cashflow and its large cash hoard.
8. If you think such a business, in the current environment, deserves a P/E multiple of 7, then, the Target Price could be 18.1 sen x 7 + 56 sen = $1.83, say between $1.50 to $2. Whether EUROSP actually reaches this price or not will depend to a large extent on the market.
For more details, you may refer to my previous writing on EUROSP here - http://fusioninvestor.blogspot.com/2007/04/eurosp-business-proposition.html
Cheers,
Seng.
Disclaimer: As usual, use your own judgement and invest (buy, hold, sell) at your own risks.
Thursday, July 5, 2007
RAMUNIA Shares and Analyst Recommendations
Further to my article on RAMUNIA-LA, more than one reader mentioned the concern on the potential dilution of shares for RAMUNIA. Also, readers have requested for more analyst information. I will attempt to cover both topics below:
Potential Share Dilution
I have summarized the potential dilution with time frame and other information for easy reference.
A few points worth noting:
1. The above prices are at lunch time today (5 Jul 2007). Prices will vary over time.
2. The first line - mother share of 285m - includes the 45.5m private placement shares recently completed.
3. There are a couple of new share issues this month and in Sep 2007 as noted above (Line 2 & 3). Whilst Ramunia cash coffers are going to be increased by approximately $48m and $68m respectively after the placement of these new shares, there will be some dilution effects since the prices are done at below market price. The new theoretical price (assuming all things equal) should come out at around $1.43, or say 3 sen below current market price as a rough yardstick.
4. The next dilution will occur 20 Dec 2007 from the LA stock. It is important to note that this is not a new issue, but conversion of existing LA stock into mother shares. As such, it is not a true "new information", but something that has already known to the market for a long time (even though it may appear new to some of us). The LA stock also has a certain price and a certain market capitalization. To assume extreme dilution (with nil LA stock value) would be equivalent to "magic", that come 20 Dec 2007, total market capitalization can suddenly dissappear into thin air. To me, that is not rational. So, the theoretical diluted price, assuming lunch time prices is $1.31, or say 15 sen below current market price. This still represents a safety margin of 1.31/1.19 - 1 = 10% approximately gross of brokerage expenses, based on lunch time prices. Note the safety margin has decreased since my last article, since I didn't know about point 3 above at the time. Still, the safety margin does its function, which is to act as a buffer in case I was wrong ... :-)
5. The next 2 dilution will occur on 20 Dec 2009 and 2014, both events are relatively far away.
Approaching 20 Dec 2007
It is worthwhile to ponder a little what will happen to both share prices as we approach closer to 20 Dec 2007. 20 Dec is a Thursday, for some people, around the start of Christmas holidays. Some of you may be wondering what sort of prices should the LA and the mother stock trades on the day before (Wed), or even a few days before then ...
1. Assuming everything equal (and real life is never equal), then, prior to conversion, presumably some mother shareholders would be nervous that prices would fall, and start selling out. Maybe mother price falls a little from $1.46 to $1.45, 1.44, 1.43, etc. It might not happen yet, but as the conversion date gets closer and closer (say end of this year, in addition to this month and Sep dilution), then, we may start to see the effects.
2. Around the same time in 1. above or earlier, the large gap between LA and mother share price induce more and more buyers to buy more LA, driving the LA share price up, from $1.19 to $1.20, 1.21, 1.22 ... reducing the gap... Again, this might not happen much yet, and I suspect we'll see more activity happening as we get closer to the conversion date.
3. Come the day before conversion, I guess there should still be a gap, but smaller than what we see today ($1.46-$1.19 = 27 sen). It's hard to put a precise figure. Immediately after conversion, my expectation is that the reference price for mother share gaps down, and LA cease trading. Holders of LA can either sell out earlier when LA prices rise in early Dec, or wait for conversion to complete, and then sell. I suspect there may be advantages to wait after conversion, since the next conversion is a long time away - 2 years - and the best of Ramunia's future earnings are still to come. I.e. I expect after 20 Dec, the market will be relieved that the conversion is over, and then bid the prices up back to old levels to offset the earlier effects stated in 1. above.
Of course, this assumes everything else is equal, and real life is almost guaranteed to be unequal. So, take the above with a big pinch of salt.
Analyst Recommendations
First of all, thanks to everyone who wrote in and provided me with analyst reports. I have done a compilation of 5 analyst reports below.
A few notes:
1. Interestingly, the analysts actually have differing views on what should be the appropriate number of shares outstanding to use to calculate P/E! Target Prices are usually 12 months, but the number of shares outstanding seem to reflect different time-frames!
2. The latest report is by S&P, with a TP of $1.6. S&P actually assumes 662m shares i.e. exclude the WA due in 2014, as it is a long time away. But that would include the PA, which is due in 2009, which is different from other analysts. I suspect the difference is time-frames. But if one has a 12 month time frame, then, it is borderline ...
3. Aseambankers report is 28 June, which is still fairly recent. The TP is $1.80. Aseambankers assume 807m shares outstanding, which exclude PA, but include WA. This approach treats the PA holders under "minority interest", and takes a fully diluted shares at 807m. I can understand this approach too as preference shareholders are assumed to be paid first, and whatever profits left belong to ordinary shareholders. The time frame is definitely after 2014.
4. AmResearch report is dated 5 June, slightly dated. The TP is $1.95. AmResearch assumes nearly 1 billion shares outstanding, i.e. the time frame is after 2014.
5. ZJ Advisory report is dated, on 18 Apr. The TP is $1.41. ZJA does not include ICULS, i.e. only 556m shares. This is probably a weak assumption.
6. OSK report is the oldest, dated 18 Oct. The TP is $1.51, but because it is a very old report, one should not put much weight on it. In fact, RAMUNIA year end is 31 Oct, and so, its estimate of 2006 PAT of $22.8m is actually over-stated. Actual is $16.8m based on Bursa announcement dated 8 Jan 2007, but unaudited. We can expect slightly different results after audit. In fact, even the 2006 PAT differ slightly between the analysts - I suspect the analysts were given different figures after auditing and after company visits. S&P 2006 PAT include minority interest.
So, 5 different reports, with 5 different Target Prices. How do we make sense of this? To me, a few principles:
1. Superficially, all gives target prices which are higher than current LA stock price of $1.19. Superficially, there is comfort in this sense.
2. All 5 analyst predicts much higher PAT for 2007 vs 2006, as well as 2008 vs 2007. What is happening here that is causing all 5 analyst to be so bullish about Ramunia's future prospects? To use the word of one reader, do all 5 analysts believe in "magic"?
3. Point 2 highlights the fact that RAMUNIA is widely regarded as a growth stock by the market. The market is willing to pay a very high trailing P/E. Based on my standardized number of shares outstanding for all 5 analyst of 556m shares (i.e. using a time-frame up to 6 months), the trailing P/E ranges from 37 to 66!
4. One key principle in investing in growth stocks is to be certain of its future growth! This is because if the company fails to deliver the higher earnings, then, the market will not be kind to the stock, and the stock can expect a large price fall. This is definitely a high risk/high return play.
5. The O&G sectors is currently a market darling sector. Make no mistake about it. Even fellow bloggers and investment community are generally bullish about O&G at this point in time. Could they be wrong? Your guess is as good as mine.
6. But if the company delivers the earnings growth, then, the 2007 P/E falls to 14 to 22 range, and the 2008 P/E falls further to 8 to 14 range.
7. So, it all boils down to how reliable are the analyst projections for 2007 and 2008 earnings for Ramunia specifically. In other words, why are the analysts so bullish about Ramunia's future prospects? For this, stay tuned to a future article, if I have the time ... :-)
Disclaimer: The purpose of this article is not to promote RAMUNIA. Please read an earlier article on RAMUNIA-LA for context. I own RAMUNIA-LA, and so, my views may be biased. Always use your own judgement, and invests (buy, hold, sell) at your own risks.
Potential Share Dilution
I have summarized the potential dilution with time frame and other information for easy reference.
A few points worth noting:
1. The above prices are at lunch time today (5 Jul 2007). Prices will vary over time.
2. The first line - mother share of 285m - includes the 45.5m private placement shares recently completed.
3. There are a couple of new share issues this month and in Sep 2007 as noted above (Line 2 & 3). Whilst Ramunia cash coffers are going to be increased by approximately $48m and $68m respectively after the placement of these new shares, there will be some dilution effects since the prices are done at below market price. The new theoretical price (assuming all things equal) should come out at around $1.43, or say 3 sen below current market price as a rough yardstick.
4. The next dilution will occur 20 Dec 2007 from the LA stock. It is important to note that this is not a new issue, but conversion of existing LA stock into mother shares. As such, it is not a true "new information", but something that has already known to the market for a long time (even though it may appear new to some of us). The LA stock also has a certain price and a certain market capitalization. To assume extreme dilution (with nil LA stock value) would be equivalent to "magic", that come 20 Dec 2007, total market capitalization can suddenly dissappear into thin air. To me, that is not rational. So, the theoretical diluted price, assuming lunch time prices is $1.31, or say 15 sen below current market price. This still represents a safety margin of 1.31/1.19 - 1 = 10% approximately gross of brokerage expenses, based on lunch time prices. Note the safety margin has decreased since my last article, since I didn't know about point 3 above at the time. Still, the safety margin does its function, which is to act as a buffer in case I was wrong ... :-)
5. The next 2 dilution will occur on 20 Dec 2009 and 2014, both events are relatively far away.
Approaching 20 Dec 2007
It is worthwhile to ponder a little what will happen to both share prices as we approach closer to 20 Dec 2007. 20 Dec is a Thursday, for some people, around the start of Christmas holidays. Some of you may be wondering what sort of prices should the LA and the mother stock trades on the day before (Wed), or even a few days before then ...
1. Assuming everything equal (and real life is never equal), then, prior to conversion, presumably some mother shareholders would be nervous that prices would fall, and start selling out. Maybe mother price falls a little from $1.46 to $1.45, 1.44, 1.43, etc. It might not happen yet, but as the conversion date gets closer and closer (say end of this year, in addition to this month and Sep dilution), then, we may start to see the effects.
2. Around the same time in 1. above or earlier, the large gap between LA and mother share price induce more and more buyers to buy more LA, driving the LA share price up, from $1.19 to $1.20, 1.21, 1.22 ... reducing the gap... Again, this might not happen much yet, and I suspect we'll see more activity happening as we get closer to the conversion date.
3. Come the day before conversion, I guess there should still be a gap, but smaller than what we see today ($1.46-$1.19 = 27 sen). It's hard to put a precise figure. Immediately after conversion, my expectation is that the reference price for mother share gaps down, and LA cease trading. Holders of LA can either sell out earlier when LA prices rise in early Dec, or wait for conversion to complete, and then sell. I suspect there may be advantages to wait after conversion, since the next conversion is a long time away - 2 years - and the best of Ramunia's future earnings are still to come. I.e. I expect after 20 Dec, the market will be relieved that the conversion is over, and then bid the prices up back to old levels to offset the earlier effects stated in 1. above.
Of course, this assumes everything else is equal, and real life is almost guaranteed to be unequal. So, take the above with a big pinch of salt.
Analyst Recommendations
First of all, thanks to everyone who wrote in and provided me with analyst reports. I have done a compilation of 5 analyst reports below.
A few notes:
1. Interestingly, the analysts actually have differing views on what should be the appropriate number of shares outstanding to use to calculate P/E! Target Prices are usually 12 months, but the number of shares outstanding seem to reflect different time-frames!
2. The latest report is by S&P, with a TP of $1.6. S&P actually assumes 662m shares i.e. exclude the WA due in 2014, as it is a long time away. But that would include the PA, which is due in 2009, which is different from other analysts. I suspect the difference is time-frames. But if one has a 12 month time frame, then, it is borderline ...
3. Aseambankers report is 28 June, which is still fairly recent. The TP is $1.80. Aseambankers assume 807m shares outstanding, which exclude PA, but include WA. This approach treats the PA holders under "minority interest", and takes a fully diluted shares at 807m. I can understand this approach too as preference shareholders are assumed to be paid first, and whatever profits left belong to ordinary shareholders. The time frame is definitely after 2014.
4. AmResearch report is dated 5 June, slightly dated. The TP is $1.95. AmResearch assumes nearly 1 billion shares outstanding, i.e. the time frame is after 2014.
5. ZJ Advisory report is dated, on 18 Apr. The TP is $1.41. ZJA does not include ICULS, i.e. only 556m shares. This is probably a weak assumption.
6. OSK report is the oldest, dated 18 Oct. The TP is $1.51, but because it is a very old report, one should not put much weight on it. In fact, RAMUNIA year end is 31 Oct, and so, its estimate of 2006 PAT of $22.8m is actually over-stated. Actual is $16.8m based on Bursa announcement dated 8 Jan 2007, but unaudited. We can expect slightly different results after audit. In fact, even the 2006 PAT differ slightly between the analysts - I suspect the analysts were given different figures after auditing and after company visits. S&P 2006 PAT include minority interest.
So, 5 different reports, with 5 different Target Prices. How do we make sense of this? To me, a few principles:
1. Superficially, all gives target prices which are higher than current LA stock price of $1.19. Superficially, there is comfort in this sense.
2. All 5 analyst predicts much higher PAT for 2007 vs 2006, as well as 2008 vs 2007. What is happening here that is causing all 5 analyst to be so bullish about Ramunia's future prospects? To use the word of one reader, do all 5 analysts believe in "magic"?
3. Point 2 highlights the fact that RAMUNIA is widely regarded as a growth stock by the market. The market is willing to pay a very high trailing P/E. Based on my standardized number of shares outstanding for all 5 analyst of 556m shares (i.e. using a time-frame up to 6 months), the trailing P/E ranges from 37 to 66!
4. One key principle in investing in growth stocks is to be certain of its future growth! This is because if the company fails to deliver the higher earnings, then, the market will not be kind to the stock, and the stock can expect a large price fall. This is definitely a high risk/high return play.
5. The O&G sectors is currently a market darling sector. Make no mistake about it. Even fellow bloggers and investment community are generally bullish about O&G at this point in time. Could they be wrong? Your guess is as good as mine.
6. But if the company delivers the earnings growth, then, the 2007 P/E falls to 14 to 22 range, and the 2008 P/E falls further to 8 to 14 range.
7. So, it all boils down to how reliable are the analyst projections for 2007 and 2008 earnings for Ramunia specifically. In other words, why are the analysts so bullish about Ramunia's future prospects? For this, stay tuned to a future article, if I have the time ... :-)
Disclaimer: The purpose of this article is not to promote RAMUNIA. Please read an earlier article on RAMUNIA-LA for context. I own RAMUNIA-LA, and so, my views may be biased. Always use your own judgement, and invests (buy, hold, sell) at your own risks.
Thursday, June 28, 2007
RAMUNIA-LA: Another Mispricing?
RAMUNIA is a small cap stock, listed on the Second Board about 2.5 years ago. The company is primarily involved in the fabrication of offshore Oil and Gas related structures, engineering works and provision of offshore services for the Oil and Gas industry. Like most Oil and Gas stocks, the stock price has done well in the past year.
In recent times, the company has also been getting favorable mention in the press. One of the more recent is from the Star (click here http://www.biznewsdb.com/english/newspage/newspage1.asp?ID=7060920&file1=7&bulan=06&kw=Ramunia ). Ramunia’s business prospects over the next few years seems exciting!
Aseambankers is bullish on Ramunia, citing a Target Price of $1.80 (cf. yesterday's close $1.45). It assumes a P/E of 15 times FY08 EPS, which is approximately 12 sen per share. In the latest quarter (Q2/08, Ramunia's financial year ends 31 Oct, not 31 Dec), the company earned 3.4 sen per share, so, Aseambanker’s estimate of 12 sen per share does not seem unreasonable. Aseambanker further noted that “…we believe there is further upside potential to Ramunia's earnings and target price beyond FY08, which is when growth will really kick in as the majority of its yard is expected to be fully-loaded …”. Sounds enticing isn’t it?
However, when I looked at the share price in greater detail since its listing date, I note that the share price was 75 sen when first listed on 28 Jan 2005, sank briefly to all time low of 38 sen (end May 2005) before quickly rebounding and rising above $1 in early July 2005. Since then, the stock price has largely moved sideways between $1 and $1.5 longer-term trading range. Very recently, the stock price broke out, but failed to sustain its breakout and came back within the range … At current price of $1.45, it seems to sit at a higher end of that major sideways trading range. This puts me off from buying the mother stock, even thought its future prospects look exciting!
Fortunately for me, I was recently alerted in investssmart chatbox, that maybe the Loan Stock (which is also listed and is called Irredeemable Convertible Unsecured Loan Stock, or ICULS) is a possible cheaper entry into the mother share … At first, I must admit that I was skeptical, since mistakes and misunderstanding on loan stocks are common, and have been made by more than one participant in investssmart chatbox before. However, for some unknown reason, I found myself investigating deeper to see if the comment had any real value. And I must admit I was surprised with my findings!
The following is an extract of the loan stock’s salient terms (RAMUNIA-LA) from Bursa website (see 25 Jan 2005 announcement, which I convert into Excel):
The key points are highlighted in red above and summarized below.
1. One loan stock will be automatically converted into one mother share at 5 PM, 20 Dec, 2007, which is less than 6 months away.
2. No conversion price mentioned. All seems to be done automatically apparently.
3. A coupon of 1% will also be payable on 20 Dec 2007.
Looking at the share price, I’m surprised to see the LA traded at $1.18, well below mother at $1.45. The difference is 1.45 / 1.18 – 1 = 23%, which looks fairly significant. Why so large, when it is only less than 6 months away? I mean, if one buys mother at $1.18, hold it for 6 months, then, on 20 Dec 07, one should get a mother share which if market price doesn't fall, then, gives a 23% return in less than 6 months.
I thought maybe I had misunderstood the salient terms, and there might be a conversion price to pay, or maybe, there might have been changes made to the loan stock salient terms since 2005 … so, I checked for subsequent updates and couldn’t find any. I also double-checked its annual report and found exactly the same terms and conditions. See extract from its latest 2006 Annual Report Note 7.
So, what do you think? Is our understanding of the salient terms correct? Well, if it turns out to be different, then, I believe LA shareholders can reasonably sue both Bursa and Ramunia in the court of law and probably win!
Then, I had another thought that maybe this might be a temporary phenomena … - maybe the LA stock price behaved more “rationally” in the past. So, I decide to tabulate the historical mother share price against the LA share price over the last 2 years to see if this pattern of discount has persisted for a long time or not … this is what I found:
Mother share price in blue, LA stock price in green, Difference (which is defined as Mother Price / LA Price – 1) in pink.
Huh??? Such persistently high discount?? (Note - it was never negative in last 2 years) Can a stock be mispriced so consistently over the last 2 years? The key point is that the discount was high – around 50%-60% - in 2nd half of 2005, before coming down gradually over time (like a 3-step ladder?). There are smaller fluctuations, and the gap has come down quite a lot in the last few weeks. Still, as of yesterday, the discount still stood at 23%.
So, dear readers. What do you think? Should the LA stock be priced at 23% discount to its mother share with only 6 months to go?
(I don’t know about you specifically, but I do know that a 23% potential return in less than 6 months is fairly decent to me … - certainly beats F.D.)
What is interesting is that Ramunia haven't paid dividends on its stock yet (and doesn't intend to up to 20 Dec 2007, as far as I know), and yet, the LA stock holders receives 1% coupon ... And yet, the LA trades cheaper than the mother share … ! If this is not mispricing, then, show me one that is mispricing (and we will thank you more for that!).
As with any derivative instruments such as warrant, loan stock, etc., a substantial discount to these instruments is useless if one does not like the mother share during the investment time period. In the case of Ramunia, I’ve been eyeing an O&G stock for quite some time, but have always rejected them because of what I perceive (rightly or wrongly) as “high price” and just slightly insufficient “margin of safety”. But with the loan stock giving me not only 23% discount, as well as 1% coupon as additional safety of margin, I decided to take the plunge and bought Ramunia-LA at $1.18.
As usual, don’t put all your eggs in 1 basket because I could be wrong. In my case, I insist not to invest more than 5% of my stock portfolio in Ramunia-LA, just in case I turn out to be wrong.
Still, a potential gain of 23% in 6 months is not a bad thing if mother share price don’t move … and if Aseambankers Target Price of $1.80 is correct, then, the potential gain could be even greater! If you are considering entry into Ramunia and intend to hold Ramunia for the long-term, then, buy the LA stock instead of the mother … at current price of $1.18, it still looks under-valued.
Disclaimer: I own Ramunia-LA and so my views can naturally be biased. As usual, use your own judgement and invest (buy, hold, sell) at your own risk. Comments welcomed, especially if they are different from mine above.
PS. If you have any other research reports on Ramunia (or any other stocks covered in this blog), I would be grateful if you could pass a copy to me for perusal. Thanks in advance.
PS2. If my understanding turn out to be wrong, don't hesitate to correct me immediately! :-)
Acknowledgement: This one is for "dylan" who first brought the LA stock to my attention. Sorry for brushing aside the idea too soon. You could be right! It seems under-valued to me.
In recent times, the company has also been getting favorable mention in the press. One of the more recent is from the Star (click here http://www.biznewsdb.com/english/newspage/newspage1.asp?ID=7060920&file1=7&bulan=06&kw=Ramunia ). Ramunia’s business prospects over the next few years seems exciting!
Aseambankers is bullish on Ramunia, citing a Target Price of $1.80 (cf. yesterday's close $1.45). It assumes a P/E of 15 times FY08 EPS, which is approximately 12 sen per share. In the latest quarter (Q2/08, Ramunia's financial year ends 31 Oct, not 31 Dec), the company earned 3.4 sen per share, so, Aseambanker’s estimate of 12 sen per share does not seem unreasonable. Aseambanker further noted that “…we believe there is further upside potential to Ramunia's earnings and target price beyond FY08, which is when growth will really kick in as the majority of its yard is expected to be fully-loaded …”. Sounds enticing isn’t it?
However, when I looked at the share price in greater detail since its listing date, I note that the share price was 75 sen when first listed on 28 Jan 2005, sank briefly to all time low of 38 sen (end May 2005) before quickly rebounding and rising above $1 in early July 2005. Since then, the stock price has largely moved sideways between $1 and $1.5 longer-term trading range. Very recently, the stock price broke out, but failed to sustain its breakout and came back within the range … At current price of $1.45, it seems to sit at a higher end of that major sideways trading range. This puts me off from buying the mother stock, even thought its future prospects look exciting!
Fortunately for me, I was recently alerted in investssmart chatbox, that maybe the Loan Stock (which is also listed and is called Irredeemable Convertible Unsecured Loan Stock, or ICULS) is a possible cheaper entry into the mother share … At first, I must admit that I was skeptical, since mistakes and misunderstanding on loan stocks are common, and have been made by more than one participant in investssmart chatbox before. However, for some unknown reason, I found myself investigating deeper to see if the comment had any real value. And I must admit I was surprised with my findings!
The following is an extract of the loan stock’s salient terms (RAMUNIA-LA) from Bursa website (see 25 Jan 2005 announcement, which I convert into Excel):
The key points are highlighted in red above and summarized below.
1. One loan stock will be automatically converted into one mother share at 5 PM, 20 Dec, 2007, which is less than 6 months away.
2. No conversion price mentioned. All seems to be done automatically apparently.
3. A coupon of 1% will also be payable on 20 Dec 2007.
Looking at the share price, I’m surprised to see the LA traded at $1.18, well below mother at $1.45. The difference is 1.45 / 1.18 – 1 = 23%, which looks fairly significant. Why so large, when it is only less than 6 months away? I mean, if one buys mother at $1.18, hold it for 6 months, then, on 20 Dec 07, one should get a mother share which if market price doesn't fall, then, gives a 23% return in less than 6 months.
I thought maybe I had misunderstood the salient terms, and there might be a conversion price to pay, or maybe, there might have been changes made to the loan stock salient terms since 2005 … so, I checked for subsequent updates and couldn’t find any. I also double-checked its annual report and found exactly the same terms and conditions. See extract from its latest 2006 Annual Report Note 7.
So, what do you think? Is our understanding of the salient terms correct? Well, if it turns out to be different, then, I believe LA shareholders can reasonably sue both Bursa and Ramunia in the court of law and probably win!
Then, I had another thought that maybe this might be a temporary phenomena … - maybe the LA stock price behaved more “rationally” in the past. So, I decide to tabulate the historical mother share price against the LA share price over the last 2 years to see if this pattern of discount has persisted for a long time or not … this is what I found:
Mother share price in blue, LA stock price in green, Difference (which is defined as Mother Price / LA Price – 1) in pink.
Huh??? Such persistently high discount?? (Note - it was never negative in last 2 years) Can a stock be mispriced so consistently over the last 2 years? The key point is that the discount was high – around 50%-60% - in 2nd half of 2005, before coming down gradually over time (like a 3-step ladder?). There are smaller fluctuations, and the gap has come down quite a lot in the last few weeks. Still, as of yesterday, the discount still stood at 23%.
So, dear readers. What do you think? Should the LA stock be priced at 23% discount to its mother share with only 6 months to go?
(I don’t know about you specifically, but I do know that a 23% potential return in less than 6 months is fairly decent to me … - certainly beats F.D.)
What is interesting is that Ramunia haven't paid dividends on its stock yet (and doesn't intend to up to 20 Dec 2007, as far as I know), and yet, the LA stock holders receives 1% coupon ... And yet, the LA trades cheaper than the mother share … ! If this is not mispricing, then, show me one that is mispricing (and we will thank you more for that!).
As with any derivative instruments such as warrant, loan stock, etc., a substantial discount to these instruments is useless if one does not like the mother share during the investment time period. In the case of Ramunia, I’ve been eyeing an O&G stock for quite some time, but have always rejected them because of what I perceive (rightly or wrongly) as “high price” and just slightly insufficient “margin of safety”. But with the loan stock giving me not only 23% discount, as well as 1% coupon as additional safety of margin, I decided to take the plunge and bought Ramunia-LA at $1.18.
As usual, don’t put all your eggs in 1 basket because I could be wrong. In my case, I insist not to invest more than 5% of my stock portfolio in Ramunia-LA, just in case I turn out to be wrong.
Still, a potential gain of 23% in 6 months is not a bad thing if mother share price don’t move … and if Aseambankers Target Price of $1.80 is correct, then, the potential gain could be even greater! If you are considering entry into Ramunia and intend to hold Ramunia for the long-term, then, buy the LA stock instead of the mother … at current price of $1.18, it still looks under-valued.
Disclaimer: I own Ramunia-LA and so my views can naturally be biased. As usual, use your own judgement and invest (buy, hold, sell) at your own risk. Comments welcomed, especially if they are different from mine above.
PS. If you have any other research reports on Ramunia (or any other stocks covered in this blog), I would be grateful if you could pass a copy to me for perusal. Thanks in advance.
PS2. If my understanding turn out to be wrong, don't hesitate to correct me immediately! :-)
Acknowledgement: This one is for "dylan" who first brought the LA stock to my attention. Sorry for brushing aside the idea too soon. You could be right! It seems under-valued to me.
Wednesday, June 13, 2007
ONASTEL - Some Charts
At investssmart chatbox this evening, someone mentioned that ONASTEL has made a "triangular break-out". Since there was more than one person who aren't sure exactly what that meant, let's take a closer look at the daily charts.
2. The "triangle" is quite visible on the charts above.
3. This evening's closing at $1.54 appears to have broken the top line. Normally, this is considered a bullish signal.
4. However, I think the "break-out" has actually happened earlier than today, on June 1, when the stock price closed above the 20 day MA at $1.49. But then again, everyone uses different MAs, so, I don't think there is necessarily an exact answer, although ideally, different methods should "converge" and provide a close answer.
Other quick fundamental comments:
1. ONASTEL is a steel counter with fairly decent fundamentals.
2. Q1/07 (Quarter ending 31 Mar 2007) earnings are decent at $22.7M. At $1.54, the stock is capitalized at $585M. If we simply annualize Q1/07 earnings (and this is definitely inaccurate, but serves as a rough guide), then, the stock is trading at a P/E of 6.4, which is not over-valued.
3. FYE2006 earnings = $71.4M, which implies a P/E of 8.2.
4. Q1/07 earnings of $22.7M is a substantial improvement over Q1/06 earnings of $1.8M. On a forward basis, there is good reason to think that ONASTEL should post much higher earnings for 2007 than 2006. The P/E is likely to fall below 5-6 with improved 2007 earnings. I believe most analysts (that follows ONASTEL) is probably going to say that this is a fairly undemanding P/E.
5. ONASTEL balance sheet is not perfect, but reasonably decent. Borrowings are at a fairly low level, although at one stage, it was in a net cash position. Nevertheless, it still looks reasonably decent compared to some of its peers.
6. Whilst ONASTEL future earnings prospects looks bright over 2007, and possibly extending to most of 2008, beyond that, I expect it to be secularly cyclical, i.e. some lean years mixed in between some really good years.
7. ONASTEL just announced a decent dividend of 10 sen per share less 27% tax. Ex-dividend date is 27 June, which is less than a fortnight away.
8. ONASTEL AGM is going to be held this Friday, 15 June. There may be some speculative activity happening, to boost the share price up prior to AGM, although this is only a speculative conjecture, and the recent share price increase might be due to the dividend effect.
Concluding Remarks
If you currently own ONASTEL like me, I am planning to enjoy the ride (up and down). This is because, my original purpose of buying ONASTEL is based on fundamental considerations (and not technical), although I use technical considerations to assist me in my entry and exit timing. If I believe the fundamentals are deteriorating, then, I would not hesitate to exit (despite good technicals), but chances are the technicals are probably going to show me danger signals first, if past experience is indicative of the future.
I am probably unlikely to sell yet, as today's closing is rather bullish and there's no immediate danger sign yet (although with TA, the signals can easily change potentially overnight).
I am unlikely to pyramid up tomorrow, but that's only because I prefer to buy during pullbacks, even if it means missing an opportunity. Nevertheless, it will be interesting to see if there are many (or any?) buyers buying on this "triangular break-out" tomorrow.
The stock has a reasonably sound set of fundamentals, although bear in mind the stock price has run up signficantly since Jan 2006 (but so has the stock market). The risk/reward is no longer as favorable as last year, although steel prospects still looks good, and the company looks set to produce a spectacular 2007 earnings result over the next 3 quarters, compared to 2006.
Disclaimer: I own ONASTEL, and so, my views can naturally be biased. Please use your own judgement and invest (buy, hold, sell) at your own risks.
Observations:
1. The key line is probably the top line that connects the 2 recent highs on 9 May ($1.58) and Jun 6 ($1.54).
2. The "triangle" is quite visible on the charts above.
3. This evening's closing at $1.54 appears to have broken the top line. Normally, this is considered a bullish signal.
4. However, I think the "break-out" has actually happened earlier than today, on June 1, when the stock price closed above the 20 day MA at $1.49. But then again, everyone uses different MAs, so, I don't think there is necessarily an exact answer, although ideally, different methods should "converge" and provide a close answer.
5. Volume has been fairly low over the last month (since early May).
6. Personally, I would much prefer to see a much higher volume today than yesterday. This didn't happen today, but let's see what happens tomorrow, to see if there is a really bullish breakout.
Other technical comments:
1. The stock has been on a long-term uptrend since Jan 2006 (see weekly chart below), when it traded below $0.50. An investor who had bought it then would have done extremely well today.
2. Since May 31 (see chart above), the stock has been trading above the 20 day MA. Someone who is late into this stock could have bought it around then, when the price pulled back closer to the MA.
3. The Bollinger Band looks to be narrowing, suggesting that a possible break-out could soon be in the cards ... (although I don't really know exactly when).
4. What I find interesting is the positive "divergence" between ONASTEL good performance today, vs other steel counters and the CI. Today, the CI closed lower by 0.6% (7.55 pts), steel counters like MASTEEL and KINSTEL closed lower by 2.2% and 1.8% respectively, yet, ONASTEL closed higher at 1.3%. Some might say that the divergence is proof that something is happening to ONASTEL ... It's hard to say at this juncture - the divergence extent is not so large, but then, there's no harm either to ONASTEL isn't it? ...
5. If one already has exposure in ONASTEL, should one consider pyramiding tomorrow? That I think depends on one's personal style. For me, I prefer to add during pull-backs, so, I will probably not "pyramid" tomorrow. In any case, if one is thinking of doing this, then, you'll need to set your own stop loss level in case something unexpected happens (although I'm not expecting this to happen).
Other quick fundamental comments:
1. ONASTEL is a steel counter with fairly decent fundamentals.
2. Q1/07 (Quarter ending 31 Mar 2007) earnings are decent at $22.7M. At $1.54, the stock is capitalized at $585M. If we simply annualize Q1/07 earnings (and this is definitely inaccurate, but serves as a rough guide), then, the stock is trading at a P/E of 6.4, which is not over-valued.
3. FYE2006 earnings = $71.4M, which implies a P/E of 8.2.
4. Q1/07 earnings of $22.7M is a substantial improvement over Q1/06 earnings of $1.8M. On a forward basis, there is good reason to think that ONASTEL should post much higher earnings for 2007 than 2006. The P/E is likely to fall below 5-6 with improved 2007 earnings. I believe most analysts (that follows ONASTEL) is probably going to say that this is a fairly undemanding P/E.
5. ONASTEL balance sheet is not perfect, but reasonably decent. Borrowings are at a fairly low level, although at one stage, it was in a net cash position. Nevertheless, it still looks reasonably decent compared to some of its peers.
6. Whilst ONASTEL future earnings prospects looks bright over 2007, and possibly extending to most of 2008, beyond that, I expect it to be secularly cyclical, i.e. some lean years mixed in between some really good years.
7. ONASTEL just announced a decent dividend of 10 sen per share less 27% tax. Ex-dividend date is 27 June, which is less than a fortnight away.
8. ONASTEL AGM is going to be held this Friday, 15 June. There may be some speculative activity happening, to boost the share price up prior to AGM, although this is only a speculative conjecture, and the recent share price increase might be due to the dividend effect.
Concluding Remarks
If you currently own ONASTEL like me, I am planning to enjoy the ride (up and down). This is because, my original purpose of buying ONASTEL is based on fundamental considerations (and not technical), although I use technical considerations to assist me in my entry and exit timing. If I believe the fundamentals are deteriorating, then, I would not hesitate to exit (despite good technicals), but chances are the technicals are probably going to show me danger signals first, if past experience is indicative of the future.
I am probably unlikely to sell yet, as today's closing is rather bullish and there's no immediate danger sign yet (although with TA, the signals can easily change potentially overnight).
I am unlikely to pyramid up tomorrow, but that's only because I prefer to buy during pullbacks, even if it means missing an opportunity. Nevertheless, it will be interesting to see if there are many (or any?) buyers buying on this "triangular break-out" tomorrow.
The stock has a reasonably sound set of fundamentals, although bear in mind the stock price has run up signficantly since Jan 2006 (but so has the stock market). The risk/reward is no longer as favorable as last year, although steel prospects still looks good, and the company looks set to produce a spectacular 2007 earnings result over the next 3 quarters, compared to 2006.
Disclaimer: I own ONASTEL, and so, my views can naturally be biased. Please use your own judgement and invest (buy, hold, sell) at your own risks.
Saturday, June 9, 2007
CRESBLD: Commentary
I used to trade this stock before, but has since disposed it at a decent profit. Recently, there was an interest in the stock in investssmart chatbox. As I had some time this weekend, it may be worth taking a closer look to see if this is a stock that can be purchased / held from a private business investing perspective.
QUARTERLY EARNINGS
Quick Observations:
1. Last close $1.12 (with implied market cap of $139M).
2. Q1/07 EPS grew decently from Q1/06 EPS - 0.063 vs 0.045 or 40% growth.
3. P/E = 1.12 / 0.184 = 6.1. Looks low.
4. P/NTA = 1.12 / 1.52 <>
5. A traditional equity analyst may recommend a Buy / Strong Buy, based on the above observations. E.g. Bursa eResearch.
BALANCE SHEET
Quick observations:
1. I must admit I am rather worried looking at the Balance Sheet.
2. Amount due from Contract Customers has ballooned by $136M (Q1/07) - $99M (Q1/06) = $37M.
3. Total PBT (Profit Before Tax) over the same period is less than the increase, at $36M. In other words, the entire profit in the last 12 months is smaller than the increase in the Amount due from Contract Customers alone ... so, what is this amount anyway?
3. Receivables increased by $77M (Q1/07) - $55M (Q1/06) = $22M. Hmmnn ... not sure I like the look at this too.
4. Amount due to Contract Customers is very, very small, in comparison to the amounts due from the same class of customers ... again, not sure I like the look of this.
5. Payables increased. Normally, a good sign, but in view of the potential cashflow problems of this company, is this a sign that company is having difficulty paying their debts promptly? ...
6. Long term debts increased ... again not a good sign.
7. Total debts increased ... again, not a good sign, since debt has increased by $143M (Q1/07) - $92M (Q1/06) = $51M, whereas the capacity expansion (say those represented by PPE increase) is much smaller, at $15M. The debts seemed to be needed in order to provide interest free loans to 2. and 3. above, which is not usually a sign of a company with superior business economics.
Amount Due/From Contract Customers
Since this is a large and important item, let's see what the latest Annual Report (2006) has to say about this.
Quick Observations:
1. So, what do you think?
2. For me, I'm afraid I am none the wiser, as to who represents these contract customers, why there is such a significant increase, when can we expect these debts to be fully settled, has there been sufficient provisions set aside for possible bad debts, age of these debts, etc. In other words, I have many question marks about this very large and possibly most important item. Why is a most important item given so little information? Certainly, if one were to consider buying the company in its entirity, one should direct one's due diligence team to investigate in detail what this item is.
Trade Receivables
Quick Observations:
1. According to the company, the maximum trade credit term should be 60 days.
2. According to my simple Receivable / Revenue ratio check, the latest receivable averages at around 87 days, which seems longer than the 60 days ... No explanation given ... hmmnn ...
3. So, what do you think?
4. Personally, I don't like the look of this. I wonder why the company bother to state in its annual report that maximum trade credit term should be 60 days, when it is probably irrelevant here. Is this negligence by the company? Or a deliberate attempt at misleading investors? Either way, I don't like what I'm seeing here.
Liquidation Valuation
I have done 2 scenario. Both scenarios assumes that not all the asset values stated in the balance sheet are worth their stated values. On the other hand, the scenarios assumes that the entire liabilities are real, as stated in the Balance Sheet. The company is likely to disagree with my basis, but the purpose of this valuation is a personal one, to form an opinion as to the degree of "margin of safety" in CRESBLD.
Case 1 assumes 100%, 95%, 75% of Cash, Receivables (including amount due from Contract Customers), Fixed Assets less Intangibles respectively.
Case 2 assumes 100%, 85%, 60% respectively.
The results (the liquidation price per share) is shown in the Balance Sheet above.
Quick observations:
1. Liquidation prices are well below Net Assets (NA). There are several reasons for this.
3. Liquidation price 2 = $0.06. Oh dear, so small compared to current market price of $1.12 ...
4. Both liquidation prices seemed to be trending south ...
5. I feel rather uncomfortable with the entire picture.
CONCLUSION
At last close of $1.12, CRESBLD is capitalized at $139M. If a private investor were to purchase the company in its entirity, what would the investor get in return?
Well, what seems certain is that there will be debts of $143M that comes together with the company. I'll be owning assets that I am uncertain about on its value as stated in the Balance Sheets. Worse, the entire business enterprise will be generating Profit Before Taxes that is smaller than the increase in values of certain items such as Amount Due From Contract Customers and Receivables ... Yes, the traditional equity analyst and fundamental ratios such as P/E and P/NTA looks low and compelling. Yes, many equity analyst have called CRESBLD a Buy / Strong Buy, with fairly high Target Prices. However, from a business investing perspective, I am unlikely to "buy and hold" this company, based on the above observations.
Disclaimer: The above merely represents a personal view from a business perspective investing. As a "fusion investor", I have traded stocks before based on non-business perspectives when the odds and the risk/reward ratio favors such a trade. As usual, comments welcomed on the above stock. Always use your own judgement, and invest (buy, hold, sell) at your own risk.
QUARTERLY EARNINGS
Quick Observations:
1. Last close $1.12 (with implied market cap of $139M).
2. Q1/07 EPS grew decently from Q1/06 EPS - 0.063 vs 0.045 or 40% growth.
3. P/E = 1.12 / 0.184 = 6.1. Looks low.
4. P/NTA = 1.12 / 1.52 <>
5. A traditional equity analyst may recommend a Buy / Strong Buy, based on the above observations. E.g. Bursa eResearch.
BALANCE SHEET
Quick observations:
1. I must admit I am rather worried looking at the Balance Sheet.
2. Amount due from Contract Customers has ballooned by $136M (Q1/07) - $99M (Q1/06) = $37M.
3. Total PBT (Profit Before Tax) over the same period is less than the increase, at $36M. In other words, the entire profit in the last 12 months is smaller than the increase in the Amount due from Contract Customers alone ... so, what is this amount anyway?
3. Receivables increased by $77M (Q1/07) - $55M (Q1/06) = $22M. Hmmnn ... not sure I like the look at this too.
4. Amount due to Contract Customers is very, very small, in comparison to the amounts due from the same class of customers ... again, not sure I like the look of this.
5. Payables increased. Normally, a good sign, but in view of the potential cashflow problems of this company, is this a sign that company is having difficulty paying their debts promptly? ...
6. Long term debts increased ... again not a good sign.
7. Total debts increased ... again, not a good sign, since debt has increased by $143M (Q1/07) - $92M (Q1/06) = $51M, whereas the capacity expansion (say those represented by PPE increase) is much smaller, at $15M. The debts seemed to be needed in order to provide interest free loans to 2. and 3. above, which is not usually a sign of a company with superior business economics.
Amount Due/From Contract Customers
Since this is a large and important item, let's see what the latest Annual Report (2006) has to say about this.
Quick Observations:
1. So, what do you think?
2. For me, I'm afraid I am none the wiser, as to who represents these contract customers, why there is such a significant increase, when can we expect these debts to be fully settled, has there been sufficient provisions set aside for possible bad debts, age of these debts, etc. In other words, I have many question marks about this very large and possibly most important item. Why is a most important item given so little information? Certainly, if one were to consider buying the company in its entirity, one should direct one's due diligence team to investigate in detail what this item is.
Trade Receivables
Quick Observations:
1. According to the company, the maximum trade credit term should be 60 days.
2. According to my simple Receivable / Revenue ratio check, the latest receivable averages at around 87 days, which seems longer than the 60 days ... No explanation given ... hmmnn ...
3. So, what do you think?
4. Personally, I don't like the look of this. I wonder why the company bother to state in its annual report that maximum trade credit term should be 60 days, when it is probably irrelevant here. Is this negligence by the company? Or a deliberate attempt at misleading investors? Either way, I don't like what I'm seeing here.
Liquidation Valuation
I have done 2 scenario. Both scenarios assumes that not all the asset values stated in the balance sheet are worth their stated values. On the other hand, the scenarios assumes that the entire liabilities are real, as stated in the Balance Sheet. The company is likely to disagree with my basis, but the purpose of this valuation is a personal one, to form an opinion as to the degree of "margin of safety" in CRESBLD.
Case 1 assumes 100%, 95%, 75% of Cash, Receivables (including amount due from Contract Customers), Fixed Assets less Intangibles respectively.
Case 2 assumes 100%, 85%, 60% respectively.
The results (the liquidation price per share) is shown in the Balance Sheet above.
Quick observations:
1. Liquidation prices are well below Net Assets (NA). There are several reasons for this.
- NA included a large amount of Intangibles ($67M, or $0.54). NA is $1.52, but when one exclude this item, the NTA = $1.52 - 0.54 = $0.98.
- NA assumes that 100% of the Receivables and Fixed Assets are worth their stated values. Whereas, Case 1 and 2 assumes a smaller % than 100%, to provide a measure of prudence.
3. Liquidation price 2 = $0.06. Oh dear, so small compared to current market price of $1.12 ...
4. Both liquidation prices seemed to be trending south ...
5. I feel rather uncomfortable with the entire picture.
CONCLUSION
At last close of $1.12, CRESBLD is capitalized at $139M. If a private investor were to purchase the company in its entirity, what would the investor get in return?
Well, what seems certain is that there will be debts of $143M that comes together with the company. I'll be owning assets that I am uncertain about on its value as stated in the Balance Sheets. Worse, the entire business enterprise will be generating Profit Before Taxes that is smaller than the increase in values of certain items such as Amount Due From Contract Customers and Receivables ... Yes, the traditional equity analyst and fundamental ratios such as P/E and P/NTA looks low and compelling. Yes, many equity analyst have called CRESBLD a Buy / Strong Buy, with fairly high Target Prices. However, from a business investing perspective, I am unlikely to "buy and hold" this company, based on the above observations.
Disclaimer: The above merely represents a personal view from a business perspective investing. As a "fusion investor", I have traded stocks before based on non-business perspectives when the odds and the risk/reward ratio favors such a trade. As usual, comments welcomed on the above stock. Always use your own judgement, and invest (buy, hold, sell) at your own risk.
Saturday, May 26, 2007
LITRAK News - Commentary
The Star posted an article on LITRAK today - http://www.biznewsdb.com/english/newspage/newspage.asp?ID=7052616&file1=7&bulan=05&kw=wwqq.
My usual highlighting and comments in italics below:
________________
Litrak sees rebound after toll hike
Updated : 26-05-2007
Media : The Star
Story By : DARSHINI M. NATHAN via www.biznewsdb.com
LINGKARAN Trans Kota Holdings Bhd (Litrak) was thrust into the limelight early this year after the scheduled 60% toll hike for the Damansara-Puchong Highway (LDP) triggered a backlash among consumers.
But with uncertainties over the toll rate hike now resolved and traffic volume on the highway recovering somewhat after suffering in the first few months of the year, the investment case for Litrak is starting to look a lot more appealing.
[As I highlighted earlier in my first posting on LITRAK, as well as others who called LITRAK before me, the investment case for LITRAK looked really appealing when its stock price fell to as low as $2.60 in February this year.]
At the heart of it all is the fact that the toll concessionaire is fast turning into a cash cow. Its rising free cash flow (FCF) has emerged as the key driver of several research houses' "buy" ratings and revised target prices.
Most of the analysts tracking Litrak are banking on the company announcing a second capital repayment exercise as early as the second half of this year.
[To the best of my (limited) knowledge, this is not confirmed by LITRAK yet. However, I would not be surprised if it occurs in 2nd half of this year.]
Litrak embarked on its first capital repayment in November 2005, when it announced a distribution per share of 25sen.
This time around, analysts say the quantum is likely to be much higher. Most of them reckon a distribution of at least 50 sen per share could be on the cards.
[It pays to be a little skeptical whether it will really be 50 sen. Below, AmResearch is projecting 26 sen EPS for FYE 2008. My own projection is around 31 sen. There needs to be a very strong reason to make a capital repayment that is larger than the yearly earnings, since this would most likely mean that LITRAK would need to take on extra borrowings. Personally, I would be more than satisfied with a capital repayment of say 25 sen, same as last year, as it would imply a yield of 0.25/3.5 = 8.3% net of tax ... very, very nice].
There are several reasons for their optimism. The government-approved toll hike that took effect on Jan 1 this year means that motorists using the highway now have to pay RM1.60 compared with RM1 previously.
With that, some expect the LDP to generate an operating cash flow (before debt obligations) of about RM200mil per annum for Litrak in financial year (FY) March 2008.
[Most likely an error by the journalist. Already, the operating cash flow reported in LITRAK's latest quarterly report is larger than $200M, and closer to $300M. I don't expect LITRAK's cashflow to reduce in 2008 after the toll rate hike. ]
The agreed toll rate under the concession agreement however was much higher at RM2.10.
The government has agreed to a compensation package, which comprises a cash payment of RM150mil, to be paid in two tranches this year and in 2008, and a one-year extension to the concession period. Litrak received the first tranche of the compensation worth RM75mil in January.
[Most likely another error by the journalist. If LITRAK has already received the $75M, how can its quarterly "Revenue" be reported as only $69M? Also, how can its "Other Income" be reported as only $13M? Examining LITRAK's quarterly reports and studying its notes in detail, I believe LITRAK has not yet accounted for this in its earnings statement.]
This would boost its revenue and earnings in the fourth quarter of FY07. A local research house estimates that this would lead to a revenue growth of 3% and 12% in FY07 and FY08, respectively.
[There is no need to estimate FY07 revenue growth, as it is already reported by LITRAK last night. The actual revenue growth is $256M / $243M, or approximately 5.3% growth for FY07. Another poor reporting by the journalist.]
Litrak, which also operates and maintains the SPRINT or Sistem Penyuraian Trafik KL Barat highway for a period of 36 years ending December 2034, is set to announce its results for FY07 this week.
[Again, LITRAK already announced its results last night]
Apart from the compensation, the latest figures will also reflect the net gain of about RM11mil it realised from the disposal of all its investments in quoted shares in the third quarter of the last financial year.
AmReaserch, however, notes that higher losses at SPRINT following a staggered step up in its finance cost since the second quarter of FY07 could throw a dampener on Litrak's FY07 earnings.
Litrak's share of SPRINT's losses is expected to peak in FY07 at RM21mil, before falling to RM9mil-RM11mil over FY08-09. The research house, nevertheless, says SPRINT's cash flow would gradually improve if it successfully restructures its Islamic bonds. It is also up for a toll rate increase on the Kerinchi and Damansara links next year.
Milking the cow
Until then, the focus remains on the LDP. Traffic volume on the LDP has fared better than expected after the toll rate increase. According to AmResearch, daily traffic volume declined 8%-10% in the first two months of the year, compared with last December. However, the figures for March and April apparently suggest that volume has rebounded slightly.
[I have some doubts about the 8%-10% decline. I believe it is larger. Q3/07 Revenue (for 1 Oct - 31 Dec 06 period) reported was $62.4M, at $1 per entry (or approx 62.4 million entries). Q4/07 Revenue (for 1 Jan - 31 Mar 07 period) was $69.6M, at $1.60 per entry, or approx 69.6/1.6 = 43.5 million entries. So, reduction is 1-43.5/62.4 = 30% from Q3/07. So, 8-10% decline seems a bit on the small side. Nevertheless, despite the decline, net earnings still grow significantly due to the large toll rate hike.]
As pointed out by Aseambankers, there is limited downside risk to the LDP's traffic volume growth ahead owing to the lack of an alternative route to the LDP. The 40km toll road also stands to benefit from the frantic pace of development in the Bandar Sri Damansara, Damansara Perdana and Mutiara Damansara areas.
[Good points. Nice economic moat so far. Nice potential for growth / limited downside risks.]
This has prompted AmResearch to upgrade its FY08 traffic forecast to a growth of 1.5% from 7% contraction previously. Its analysis shows that every 1% increase in LDP traffic volume would lift FY07-FY09 earnings by 2%-4%.
"Factoring in a nine-month impact from the 60% hike in LDP toll rates, we project Litrak's FY08 core earnings per share to rise 60% to 26 sen,¨ it says.
[It's unclear what is meant by "core earnings", but if 26 sen is the full EPS, then, I believe AmResearch is too conservative with the 26 sen EPS. FY2008 (1 Apr - 31 Mar 2008 period) will reflect the toll-rate hike fully. My personal estimate is at least 31 sen, including $37.5M government compensation. However, if anyone has AmResearch report, I would appreciate receiving a copy for further perusal. Thanks.].
Early this month, the investment research outfit issued a report on Litrak to highlight its revised target price of RM4.50 per share.
[Not unreasonable, although I think a bit lowish since my own target price is $4.70 to $5.60 - see my earlier posting for the basis. Interestingly, the implied P/E is 4.50 / 0.26 = 17.3, which is within the range of 15-18, and not unreasonable compared to investssmart P/E of 15, Deutche Bank P/E of 18, and my earlier P/E range of 14-17, although bear in mind that P/E are not absolutes, and it may be better to apply a relativity principle rather than an absolute principle to P/E.]
The higher net asset value (NAV)-based target price reflects the lower discount to NAV of 15% it has now ascribed to the shares, as opposed to 35% previously.
AmResearch reckons that with uncertainties over the LDP toll rate hike resolved, the company's FCF is likely to rise to anywhere between 33sen and 50sen per share from FY07-FY09, compared with 16 sen per share in the latest financial year.
That the toll concessionaire's parent company Gamuda Bhd has raised its stake in the former to 43% from 38% a year ago supports the case for the capital repayment. Gamuda started accumulating shares in Litrak since January last year. The idea is to bring its stake closer to 50%.
[Interesting, although I have not personally heard yet that GAMUDA intends to raise its stake to 50%. I would appreciate it if any readers can help confirm this, e.g. from past press releases, etc.]
However, under the Securities Commission's ruling, Gamuda can only acquire up to 2% of Litrak shares every six months or it will trigger a mandatory general offer for the rest of the shares it does not own.
[Interesting ... although I am surprised since other companies could do this without triggering an MGO - e.g. OSK's shareholding of OSKVI is higher, and it increased its shareholdings more than 2% in 6 months without triggering an MGO ... Appreciate comments from more knowledgeable readers.]
On its part, Gamuda has guided that it would reward its shareholders with a dividend of 46 sen per share or net dividend per share (DPS) of 33 sen going forward, from 12 sen per share net DPS currently.
It is understood that part of this dividend payment would have to be financed using the higher dividends it receives from Litrak.
The toll concessionaire's management is also working on extending the maturity of some of the debt taken on for the LDP to match that of the concession's lifespan. Whereas the LDP's debt expires in 2016, the concession ends in 2030.
If this happens, and given that the company has no significant investment capital expenditure plans in the near to medium term, it would free up cash that could be returned to shareholders.
A foreign research house suggests that Litrak may also choose to take on additional debt, given its net gearing of slightly above one time is backed by some solid recurring concession earnings.
[In the earlier posting, I note that LITRAK has actually reduced its debt in Q4/07. So, IF LITRAK were to take on additional debt in 2008, then, it could mean several things, including the possibility that it may wish to make a higher capital repayment than supportable by current year's earnings & cash holdings.
The speculative reason that GAMUDA wants to pay higher dividends to its shareholders is interesting... hmmnn ... since I don't yet know for sure, let's wait and see since to me, LITRAK's business case is already so good that I'm more than happy if LITRAK pays the same amount as last year.
Unfortunately, the name of the foreign research house is not supplied. Does anyone know?]
At this juncture, it is still not tax efficient for Litrak to pay out dividends, as it does not have enough tax credits to frank the dividends. As a result, the toll operator's dividend yields are below the regional average.
Given those circumstances, a foreign research house says it is important that Litrak embarks on a capital repayment exercise to enhance return to shareholders.
My usual highlighting and comments in italics below:
________________
Litrak sees rebound after toll hike
Updated : 26-05-2007
Media : The Star
Story By : DARSHINI M. NATHAN via www.biznewsdb.com
LINGKARAN Trans Kota Holdings Bhd (Litrak) was thrust into the limelight early this year after the scheduled 60% toll hike for the Damansara-Puchong Highway (LDP) triggered a backlash among consumers.
But with uncertainties over the toll rate hike now resolved and traffic volume on the highway recovering somewhat after suffering in the first few months of the year, the investment case for Litrak is starting to look a lot more appealing.
[As I highlighted earlier in my first posting on LITRAK, as well as others who called LITRAK before me, the investment case for LITRAK looked really appealing when its stock price fell to as low as $2.60 in February this year.]
At the heart of it all is the fact that the toll concessionaire is fast turning into a cash cow. Its rising free cash flow (FCF) has emerged as the key driver of several research houses' "buy" ratings and revised target prices.
Most of the analysts tracking Litrak are banking on the company announcing a second capital repayment exercise as early as the second half of this year.
[To the best of my (limited) knowledge, this is not confirmed by LITRAK yet. However, I would not be surprised if it occurs in 2nd half of this year.]
Litrak embarked on its first capital repayment in November 2005, when it announced a distribution per share of 25sen.
This time around, analysts say the quantum is likely to be much higher. Most of them reckon a distribution of at least 50 sen per share could be on the cards.
[It pays to be a little skeptical whether it will really be 50 sen. Below, AmResearch is projecting 26 sen EPS for FYE 2008. My own projection is around 31 sen. There needs to be a very strong reason to make a capital repayment that is larger than the yearly earnings, since this would most likely mean that LITRAK would need to take on extra borrowings. Personally, I would be more than satisfied with a capital repayment of say 25 sen, same as last year, as it would imply a yield of 0.25/3.5 = 8.3% net of tax ... very, very nice].
There are several reasons for their optimism. The government-approved toll hike that took effect on Jan 1 this year means that motorists using the highway now have to pay RM1.60 compared with RM1 previously.
With that, some expect the LDP to generate an operating cash flow (before debt obligations) of about RM200mil per annum for Litrak in financial year (FY) March 2008.
[Most likely an error by the journalist. Already, the operating cash flow reported in LITRAK's latest quarterly report is larger than $200M, and closer to $300M. I don't expect LITRAK's cashflow to reduce in 2008 after the toll rate hike. ]
The agreed toll rate under the concession agreement however was much higher at RM2.10.
The government has agreed to a compensation package, which comprises a cash payment of RM150mil, to be paid in two tranches this year and in 2008, and a one-year extension to the concession period. Litrak received the first tranche of the compensation worth RM75mil in January.
[Most likely another error by the journalist. If LITRAK has already received the $75M, how can its quarterly "Revenue" be reported as only $69M? Also, how can its "Other Income" be reported as only $13M? Examining LITRAK's quarterly reports and studying its notes in detail, I believe LITRAK has not yet accounted for this in its earnings statement.]
This would boost its revenue and earnings in the fourth quarter of FY07. A local research house estimates that this would lead to a revenue growth of 3% and 12% in FY07 and FY08, respectively.
[There is no need to estimate FY07 revenue growth, as it is already reported by LITRAK last night. The actual revenue growth is $256M / $243M, or approximately 5.3% growth for FY07. Another poor reporting by the journalist.]
Litrak, which also operates and maintains the SPRINT or Sistem Penyuraian Trafik KL Barat highway for a period of 36 years ending December 2034, is set to announce its results for FY07 this week.
[Again, LITRAK already announced its results last night]
Apart from the compensation, the latest figures will also reflect the net gain of about RM11mil it realised from the disposal of all its investments in quoted shares in the third quarter of the last financial year.
AmReaserch, however, notes that higher losses at SPRINT following a staggered step up in its finance cost since the second quarter of FY07 could throw a dampener on Litrak's FY07 earnings.
Litrak's share of SPRINT's losses is expected to peak in FY07 at RM21mil, before falling to RM9mil-RM11mil over FY08-09. The research house, nevertheless, says SPRINT's cash flow would gradually improve if it successfully restructures its Islamic bonds. It is also up for a toll rate increase on the Kerinchi and Damansara links next year.
Milking the cow
Until then, the focus remains on the LDP. Traffic volume on the LDP has fared better than expected after the toll rate increase. According to AmResearch, daily traffic volume declined 8%-10% in the first two months of the year, compared with last December. However, the figures for March and April apparently suggest that volume has rebounded slightly.
[I have some doubts about the 8%-10% decline. I believe it is larger. Q3/07 Revenue (for 1 Oct - 31 Dec 06 period) reported was $62.4M, at $1 per entry (or approx 62.4 million entries). Q4/07 Revenue (for 1 Jan - 31 Mar 07 period) was $69.6M, at $1.60 per entry, or approx 69.6/1.6 = 43.5 million entries. So, reduction is 1-43.5/62.4 = 30% from Q3/07. So, 8-10% decline seems a bit on the small side. Nevertheless, despite the decline, net earnings still grow significantly due to the large toll rate hike.]
As pointed out by Aseambankers, there is limited downside risk to the LDP's traffic volume growth ahead owing to the lack of an alternative route to the LDP. The 40km toll road also stands to benefit from the frantic pace of development in the Bandar Sri Damansara, Damansara Perdana and Mutiara Damansara areas.
[Good points. Nice economic moat so far. Nice potential for growth / limited downside risks.]
This has prompted AmResearch to upgrade its FY08 traffic forecast to a growth of 1.5% from 7% contraction previously. Its analysis shows that every 1% increase in LDP traffic volume would lift FY07-FY09 earnings by 2%-4%.
"Factoring in a nine-month impact from the 60% hike in LDP toll rates, we project Litrak's FY08 core earnings per share to rise 60% to 26 sen,¨ it says.
[It's unclear what is meant by "core earnings", but if 26 sen is the full EPS, then, I believe AmResearch is too conservative with the 26 sen EPS. FY2008 (1 Apr - 31 Mar 2008 period) will reflect the toll-rate hike fully. My personal estimate is at least 31 sen, including $37.5M government compensation. However, if anyone has AmResearch report, I would appreciate receiving a copy for further perusal. Thanks.].
Early this month, the investment research outfit issued a report on Litrak to highlight its revised target price of RM4.50 per share.
[Not unreasonable, although I think a bit lowish since my own target price is $4.70 to $5.60 - see my earlier posting for the basis. Interestingly, the implied P/E is 4.50 / 0.26 = 17.3, which is within the range of 15-18, and not unreasonable compared to investssmart P/E of 15, Deutche Bank P/E of 18, and my earlier P/E range of 14-17, although bear in mind that P/E are not absolutes, and it may be better to apply a relativity principle rather than an absolute principle to P/E.]
The higher net asset value (NAV)-based target price reflects the lower discount to NAV of 15% it has now ascribed to the shares, as opposed to 35% previously.
AmResearch reckons that with uncertainties over the LDP toll rate hike resolved, the company's FCF is likely to rise to anywhere between 33sen and 50sen per share from FY07-FY09, compared with 16 sen per share in the latest financial year.
That the toll concessionaire's parent company Gamuda Bhd has raised its stake in the former to 43% from 38% a year ago supports the case for the capital repayment. Gamuda started accumulating shares in Litrak since January last year. The idea is to bring its stake closer to 50%.
[Interesting, although I have not personally heard yet that GAMUDA intends to raise its stake to 50%. I would appreciate it if any readers can help confirm this, e.g. from past press releases, etc.]
However, under the Securities Commission's ruling, Gamuda can only acquire up to 2% of Litrak shares every six months or it will trigger a mandatory general offer for the rest of the shares it does not own.
[Interesting ... although I am surprised since other companies could do this without triggering an MGO - e.g. OSK's shareholding of OSKVI is higher, and it increased its shareholdings more than 2% in 6 months without triggering an MGO ... Appreciate comments from more knowledgeable readers.]
On its part, Gamuda has guided that it would reward its shareholders with a dividend of 46 sen per share or net dividend per share (DPS) of 33 sen going forward, from 12 sen per share net DPS currently.
It is understood that part of this dividend payment would have to be financed using the higher dividends it receives from Litrak.
The toll concessionaire's management is also working on extending the maturity of some of the debt taken on for the LDP to match that of the concession's lifespan. Whereas the LDP's debt expires in 2016, the concession ends in 2030.
If this happens, and given that the company has no significant investment capital expenditure plans in the near to medium term, it would free up cash that could be returned to shareholders.
A foreign research house suggests that Litrak may also choose to take on additional debt, given its net gearing of slightly above one time is backed by some solid recurring concession earnings.
[In the earlier posting, I note that LITRAK has actually reduced its debt in Q4/07. So, IF LITRAK were to take on additional debt in 2008, then, it could mean several things, including the possibility that it may wish to make a higher capital repayment than supportable by current year's earnings & cash holdings.
The speculative reason that GAMUDA wants to pay higher dividends to its shareholders is interesting... hmmnn ... since I don't yet know for sure, let's wait and see since to me, LITRAK's business case is already so good that I'm more than happy if LITRAK pays the same amount as last year.
Unfortunately, the name of the foreign research house is not supplied. Does anyone know?]
At this juncture, it is still not tax efficient for Litrak to pay out dividends, as it does not have enough tax credits to frank the dividends. As a result, the toll operator's dividend yields are below the regional average.
Given those circumstances, a foreign research house says it is important that Litrak embarks on a capital repayment exercise to enhance return to shareholders.
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