On the 19th of February, BigAir released their half year results for FY15. Let’s check it out:
Revenue $26.2M up 55%
EBITDA $8.5M up 28%
NPAT $3.5M up 22%
At current price of 0.795, BGL is selling for 20 times earnings. At these rates of growth, that’s a pretty good deal. Microequities have released a new report rating BigAir a Strong Buy with a price target of $1.06. However this is a reduction of their earlier price target of $1.12 off the back of lower Wimax revenues.
I am expecting BigAir to realise more earnings accretion from their acquisitions over the next couple of years, and will continue to hold unless the business experiences a major change to its fundamentals, or it becomes grossly overvalued, in the order of $1.50 per share.
BPF released their HY15 results this week, showing the following results on PCP:
- Revenue $11.9M (up 46%)
- Underlying EBITDA $1.2M (up 20%)
- NPAT $808k (HY14 $95.7k loss)
- Underlying NPAT $567k loss (Due to performance share revaluations)
So the business is now making money, having doubled staff in 12 months, and are growing revenues at a good rate. What’s going to create additional earnings upside is the following:
- Contract optimisation and automation reducing back-end cost
- Re-signing annuity revenue which lowers cost of sale
- Building out product portfolio to include PaaS (Platform as a Service)
It’s difficult to forecast where BPF will be in HY16, but I would expect revenues to grow another 50%, with improved profitability. As the business matures later this decade, we will see more of the annuity contracts enter a steady state, and get a good picture of new business growth vs continuing operations. I also anticipate seeing more acquisitions of other MSPs to either build scale or complement the existing business.
Every year when it comes out, I read Warren Buffett’s annual letter to shareholders. I’ve come to know the key businesses within Berkshire Hathaway, and it inspires me to think long-term as Buffett reflects on the performance of his own investment decisions over many decades.
The letter reflecting on 2014 celebrates 50 years of management, so there is more interesting commentary than usual. As always, it’s a recommended read for long-term investors.
Reverse Corp provided an earnings update for HY15 this week, and confirmed things were still moving in the right direction:
Revenue $4.51M (up 4%)
EBITDA $1.84M (up 16%)
NPAT $1.05M (up 56%)
So revenue nearly flat, with increased profitability thanks to more efficient operations at 1800 Reverse. OzContacts is now breakeven, so we can anticipate some earnings accretion from this in FY15.
Of note: Recievables have blown out from $658k to $900k (up 37%)
Current cash in bank sits at $6M though, meaning at a market cap of $14M, REF is generating $2M a year cash off a business valued at $8M, a P/E ratio of 4.
There is still the risk of revenues falling off a cliff, but as I said earlier, this is definitely in the cigar butt territory.
The upside is for improved profitability of OzContacts.com.au, and revenue growth from 1800-Reverse to remain flat at least, allowing REF to continue generating cash.
Now that Syriza have had the chance to get their feet under the desk, it is inevitable that Greece, and possibly the whole Eurozone, will face an unmitigated economic disaster. Here’s why:
What this points to is businesses quitting the country (particularly shipping), less disciplined Government spending, and weaker tax collection. This will lead to an unbalanced budget, and without bailouts from the EU, the country will go bankrupt. The Eurozone can’t set a precedent for debt renegotiation otherwise Spain will follow. Their only option will be to try and ally with Russia. Who knows what will happen after that.
I think it will be a while before the fundamentals reach Australia, but the Eurozone accounts for 23% of global economic activity. The first thing I suspect will happen is a stock market collapse in the Eurozone with other markets to soon follow as investors are spooked. So I’m staying in cash.
When I originally wrote about Colorpak, I saw it as a better investment than Amcor for several reasons. Now, looking at charts for both companies, Amcor as of today would have been a better investment. The share price fell 22% on Friday, the lowest it’s been since July 2012. So let’s review the numbers against HY14 and examine whether I should buy more, sell, or do nothing:
- Revenue $84.1M, up 2%
- Underlying EBITDA $6.5M, down 11.9%
- EBITDA margin 7.7%, down from 8.9%
Now to the commentary, and it’s not too bad. Profits are slightly up against PCP, though lower than expected due to slower uptake of benefits from the Victorian rationalisation. Inefficiencies have also been identified at their facility in Braeside which should lead to margin improvement. A positive free cash flow of nearly $3M was reported, much of which was used to reduce debt. Dividends were reduced.
The business should benefit from a weaker Australian dollar over the medium term, and Colorpak appear to be having success selling their new paper cups to Supermarket brands. I recently went to Coles and was impressed at the packaging of the Coles brand ice cream, which I’m assuming is Colorpak (Connoisseur brand is, their logo is on the bottom of the container). Management’s comment about Supermarket pricing power was also interesting and is a positive sign. Finally, there is a cost reduction opportunity for the NZ lease which expires in 2016.
My conclusion? This business is currently priced at $43M, about 13 times earnings. There should be additional cost improvements over the next 2 years. As I currently hold, I won’t be adding, although it’s a reasonable buy for a main street business. If the share price drops below 40c without a change to the company’s fundamentals, I would increase my position.
One of the best quotes I’ve read on value investing, which is applicable across an infinite number of domains, is the below from Joel Greenblatt:
“Prices fluctuate more than values—so therein lies opportunity. Why do the prices fluctuate so widely when values can’t possibly? I will tell you the answer I have come up with: The answer is I don’t know and I don’t care. We could waste a lot of time about psychology but it always happens and it continues to happen. I just want to take advantage of it. We could sit there and figure it all out, but I like to keep it simple. It happens; it continues to happen; the opportunities are there.”
The article is interesting throughout and serves as a good 10-minute introduction to value investing.
Greenblatt’s point is that while there might be use in finding out why prices move (for example, to identify whether it is likely to stop happening), knowing why they move is not important. As an investor it’s more important to identify those stocks which are mispriced, and try to make as few mistakes as possible. (after all, if it ever stops happening, you won’t find any more value stocks to buy)
Nassim Taleb also popularised a concept known as the Green Lumber Fallacy, which is similar. A successful lumber trader spent his whole career thinking green lumber was wood painted green, and not actually fresh cut timber. Knowing the difference was clearly not a requisite for success.
Greenblatt also wrote “The little book that still beats the market” which I have not read.