More thoughts on the MBA

At the end of last year I graduated with an MBA from the University of Queensland (UQ).  I previously wrote an article about what I’d learned at the halfway point, this is part 2.

 

Don’t do it full-time, or remotely.

While the lecturers have PhDs, much of the value is in peer learning, and you only get that when everyone’s in the same room sharing knowledge.  Doing it in a vacuum, without the opportunity to work with your peers face to face, is just nuts.  Doing the degree full-time means you’re taking yourself out of the workforce (where you would have been able to apply your knowledge day by day), and then need to find a job after you complete from a standing start.  Right now in Australia that’s a more challenging proposition as many of the usual employers (Management consulting firms) don’t have the same levels of intake.

 

Complement your degree with some outside learning (books, Coursera)

Course coordinators should prescribe at least a dozen quality autobiographies along with the program.  Coursera is also a great way to fill in gaps, or make up for a poor lecturer (they are often a mixed bag).  The UQ program is pretty light on Competitive Strategy, and I regard the concepts as critical in management, particularly in large firms or industries which are oligopolistic.  To complement my MBA, I did a course of Competitive Strategy on Coursera, which gave me the background on game theory and competitive strategy I needed.  Coursera has a range of quality business courses you can do for free, to broaden your knowledge and fill in the gaps.

 

Do Toastmasters in parallel

Toastmasters should be compulsory for MBA students for the duration of their program, due to the amount of presentation required, and also for their personal development.  It should not be done via a club at the school, but at mainstream clubs in a student’s local area, so that they have to work with different people from a broader cross-section of society.  I’ve attended several clubs (again, they can be a mixed bag), most meetings are a good combination of a social evening with personal development and peer coaching.

 

Do a broad course.

Some programs allow you to specialise, mine was common with no electives.  I think this is the better model, and discourages accountants from building an accountant-specific program, for example.  You’re supposed to build a broad knowledge base for management, and tailoring a program to focus on your current skills is not going to achieve that.  I liken the 12 courses of the MBA to 12 different lenses you can look at a business through, and understanding different perspectives will help you make better decisions.

 

Continue to educate yourself

The idea that you might be able to do an MBA, instantly walk into senior management, and never continue your education again, is a complete joke.  Completing an MBA is like doing a Black Belt (Shodan in Japanese), which means “beginning degree”.  You have the foundation, but the real education begins.  I plan to (and am currently doing) the following:

  • Taking courses on Coursera (not just in Business but topics I find interesting.  I just completed Terrorism and Counterterrorism, which is run by Leiden University in The Hague.  Just because the content is in a different domain, doesn’t mean concepts can’t be applied in business)
  • Reading business books.  I’m currently reading Treacey & Wiersema on Value Disciplines which will be the foundation of another personal project I’m working on.
  • Online resources: I’m doing a lot of reading about Startups at the moment, and the best resources for this is reading contemporary content about new and recent startups like Tesla.  Some of what I read include inc.com, and Kevin Rose’s Foundation podcast.

Colorpak – Disappointing HY14 numbers (CKL)

Colorpak’s management chose an upbeat tagline for their FY14 earnings presentation:

 

Heavy lifting of the final rationalisation all but complete – the stage is set.

 

So imagine my horror at seeing sales and EBITDA collapse after a positive FY13 result: Sales down 11% and EBITDA down 31%.  Why?  I suspect they are losing more CHH customers and finding challenges in the general market.  Debtor days have also blown out from 48 to 56, which is starting to look pretty bad when mid 40s is about average for the IT industry (I can’t comment on the packaging business but assume most contracts are net 30 days as well).

 

EBITDA margins have now fallen to 8.9% from 10.6%, which is actually not that horrifying, although management are now outlooking a long-term EBITDA around 12%, which, if maintaining the same ratio as currently would correspond to a NPAT ratio of 4.3%, a far cry from my earlier prediction of 8%.  Colorpak’s business has changed structurally since the CHH acquisition.  My hypothesis is without this they might have lacked the scale to remain competitive, and be stuck with the choice of either shrinking and remaining profitable, or getting killed by an industry that has become too competitive.  It’s interesting to reflect on this because I originally thought I was buying a quality business with some big upside, rather than a firm who needed to make a big acquisition to remain viable.  All these ideas are pure speculation by me.

 

Bottom line for me is do I hold or fold?  I can bin my shares now for a moderate profit.  My plan is to continue holding for the following reasons: Management have done a pretty good job absorbing the CHH acquisition and they can see light at the end of the tunnel.  They are almost complete transforming the business through plant rationalisations and other investments.  They have flagged stable profit for FY14 with some underlying restructuring costs.  FY15 profits are flagged as growing.  New investments continue to be made in better plant and equipment.

 

After a 6 month period which is basically breakeven, CKL have managed to continue driving the business forward and now appear to be positioned well for the future.  I maintain my faith that management will be able to get it done, and will re-evaluate in FY14.

BigAir HY14 numbers (BGL)

BigAir released their HY14 numbers today, and while the topline numbers are growing at a steady rate (19% against PCP) the bottom line continues to accelerate with NPAT up 44% and operating cash flow up 25% to $5.6m.

My concerns around a different balance sheet profile don’t seem too big a deal now as management has indicated they will pay down debt facilities quickly using their cash flows.   The acquisitions also seem to be achieving critical mass due to the cross sell opportunities between the Telco, Managed Services, and Accommodation facilities parts of the business, using BigAir’s common core and low-cost access network.

The pipeline is also strong.  This should come as no surprise, in my own experience many firms are realising that managing IT infrastructure is not their core business, and they can cost-effectively outsource this job, complete with SLA.  BigAir have just won their first 2 sites in the retirement facility market but have a pipeline of 70 sites.  With specialist providers offering better reliability, lower cost, and still making healthy margins (due to their scale), and days of the in-house IT technician are numbered.

BigAir acquisition of Anittel’s telco division (BGL, AYG)

When I wrote an analysis of BigAir as part of my MBA, I figured that the Intelligent IP acquisition would keep them busy for the time being and future acquisitions wouldn’t be as large.  So imagine my surprise when just before Christmas, management announced the acquisition of Anittel’s (AYG) telecommunications business for $6.5M.  This is expected to add $12M of revenue and $2M of EBITDA.  This will increase the size of the business by a third, albeit with a small increase to EBITDA due to lower margins of Annitel’s telco business.  There hasn’t been a huge amount of detail on the acquisition, and we’ll have to see how things pan out after a full year’s integration (FY15), but here are some thoughts:

 

  • After having no debt (I’m assuming this will be 100%debt-funded) BigAir will have $13.5m of debt which is a big change to balance sheet.
  • Anittel’s business is not in great shape.  Their market cap is only $10M, and the investors section of the website hasn’t been updated since October 2013.  If you look at their FY13 report, the Telco business is doing pretty well, growing 18% albeit on low margins, compared to the products part of the business which continues to shrink.  The company’s FY13 presentation lacks hard numbers in terms of outlook, and does not inspire confidence.  They are transitioning to a cloud/managed services model which is the future of ICT, but they need to continue investing, and may not end up getting it done.
  • Anittel have a lot of regional customers and regional offices so it’s likely BigAir can evaluate a few towns like Bathurst and Orange, see whether it’s cheaper to keep paying Telstra for tails or build a WiMax POP in the town, and optimise their telco business accordingly.
  • BigAir probably got a good deal on this.  The company was desperate for cash and have offloaded the best part of their business – Remember BigAir have a significant play in regional accommodation facilities and mining camps so there is additional chunks of revenue to win there.

 

I’m going to suspend judgement of the results until FY15 figures come out, BigAir’s track record of absorbing acquisitions is pretty good although there’s every possibility they will choke on these two.  Still holding and still positive on the future of the company, we are probably sitting at an inflection point in terms of growth and changes to the balance sheet but I wouldn’t be that surprised to see them as a $200M company by the end of FY15.  Share price would be $1.17, a 45% premium on today’s close of 80 cents.