Sunday, November 24, 2019

Don't Get Trapped...

Yesterday, during our FATA Seminar's Stock Discussion, we discussed about some companies and I pointed out some of their issues in the financials.

Do note that for our FATA Seminar, we will allow participants to ask about some companies. After which we will discuss about these companies' FATA prospects.

Many of the issues came from S-Chips' financials, which many had already cautioned about.

However, we discussed about this Singapore company's in the F&B sector, where I mentioned about some figures in the financials that were presented very interestingly.

Income Statement

Balance Sheet

Cashflow Part 1

Cashflow Part 2

Share Price since IPO - Source: Yahoo
Let me explained some of the interesting findings:

1. Changes in financials occur due to SFRS 16: Leases
2. Previously, leases were stated under operating leases - these were expenses. Currently, they are capitalised - these became assets under PPE.
3. Under income statement, depreciation increases, property rental and related expenses decreases. In actual fact, total cost remained the same related to their leases.
4. When leases were capitalised, their deduction comes from "financing activities" and not "operating activities". 
5. These changes resulted in significant increases (in fact, almost 3 times) in net cash from operating activities. 
6. Free cash flow also increased significantly.
7. However, if the S$48 million of leases under "financing activites" were deducted, the free cash flow will have been lower.

Many investors who do not read financials but solely follow many website indication of PCF or PFCF, will not have known about this issue.

There are many other issues that I pointed out during the seminar, but I prefer not to write here.

Oh... just 1 more point - Period of Moratorium is usually 6 months. If you look closer at the share price changes, you will understand even more about the company. 

Anyway we hope to see more participants for our next FATA seminars. Do note that other than pointing out issues, I also provided an interesting company listed in US.

If you want to know more about other interesting finds in the company or other companies, feel free to join our Fundamental Scorecard Telegram Group.

Thursday, November 21, 2019

GSB Announced Good News + Other Existing Companies In Portfolio

Short Post

GSB, which I had just written about recently on 9 Nov 2019, has recently released some good news!


Yes! Shortly after I invested in the company, it announces a special dividend of US$3.35!

That more than 30% of return!

So far that is the 2nd piece of good news since the launch of the Crazy Portfolio. I do hope it continues!

As for other overseas companies, it is good to note that previously written companies like UVE, GDOT and IGG, still exists within the Crazy Portfolio.

Thus that is 5 companies that I have written about. Stay tuned for more!

This is the final call!


Join us this coming 23rd Nov (Sat)  |  10.30am to 5pm in understanding both FA & TA to make better trading decisions. 

iFAST@Ocean Financial Centre
10 Collyer Quay, #26-01 Ocean Financial Centre, Singapore 049315


Course Fee: SGD$30

Register Link Here

Thanks for your support!

Saturday, November 16, 2019

FATA Idea Room a.k.a The Trading Investor

Hi all,

It has been a while since I ran a seminar.

I have been trying to collaborate with a TA guru to come up with a Fundamental-Analysis-Technical Analysis (FATA) seminar/course.

As you can see...we have yet to decide on the name...

The reason for doing this is mainly to value add to our respective communities.

I do believe that having some TA knowledge can help an investor find a better entry point. For a trader, having simple FA knowledge can bring about better gains or what happens if you miss a stop loss?




The seminar structure will be as follows:
- Intro
- FATA Mental Framework
- FA - The Most Important Ratio
- TA - Her Unique Style
- Lunch
- Stocks Discussion (Highlight of the day)
- End

In my opinion, the stocks discussion is the highlight. For whoever that sign up, I will ask you for a counter. Then we will try our best to talk about all the counters during the seminar.

Course Date: 23 Nov 2019 (Saturday)
Course Time: 10:30 am - 5 pm (Apprx)
Course Location : iFAST@Ocean Financial Centre
Cost: $30
Address: 10 Collyer Quay, #26-01 Ocean Financial Centre, Singapore 049315

Please sign up using this LINK.

Appreciate your support. Look forward to meeting you!

Wednesday, November 13, 2019

KEM - The One That Got Acquired Before I Could Write Extensively

Short Post

With the start of Crazy Portfolio, TUBInvesting new direction is to be the diary of the portfolio and to put up post about my journey to eventually achieve my crazy target!

Thus, it was natural that I wanted to record down all the companies that was part of this portfolio.

However, this company, Kemet Corporation was acquired by Taiwan-based electronic component manufacturer Yageo for $27.20/share in cash, for a deal valued at $1.8B including the assumption of debt, before I could even do a proper write up.

Read about the acquisition here

I personally feel the purchase price is too low. Anything above US$30 will be more reasonable.

To give you some perspective, the 2018 10-k stated the following:

1. "...The Company has entered into agreements with three of its largest customers pursuant to which the customers have agreed to provide interest free loans to the Company in exchange for assurance of future supply. These interest free loans are being used by the Company to fund the purchase of certain production equipment and to make other investments and improvements in the Company and its operations in order to increase its overall capacity to produce various electronic components." Which customer, in the right mind, will give their supplier interest free loan?

2. "Our customer base includes most of the world’s major electronics original equipment manufacturers (“OEMs”)....Major OEMs: • Bosch Group, Cisco Systems Inc., Continental AG, Delphi Technologies PLC, Tesla Inc., and Denso in the automotive segment. • Apple Inc., Western Digital Corporation, Dell Inc., Nintendo, and Google LLC in the Computer and consumer segment. • ABB Group...." Just look at the customers!

Thus, I do hope some other company will come up with a better offer!

For those that is interested in the daily discussion of US, HK and SG companies, feel free to join our Fundamental Scorecard Telegram Group.

Saturday, November 9, 2019

GSB - Enhanced File Transfer On Cloud Services

This post is a reminder for myself of why I invested in the above company. I am vested and comments maybe biased.

For future posts, I will be talking about my positions in the Crazy Portfolio.

Numbers/Finance

Increasing Revenue, Net Profit – Over the last 3 years, the total revenue has just been increasing. So does the Net Profit. However, if you look at the TTM (Trailing 12 Months) figures over the last 5 years, it is very clear the company’s top line has been improving every quarter, so does the bottom line.
Data from Seeking Alpha - Annual Revenue

Data from Seeking Alpha - Annual Net Profit
Data from Seeking Alpha - TTM Revenue

Data from Seeking Alpha - TTM Net Profit
Reasonable Balance Sheet, but Great Returns – Balance sheet has been reasonable with very low debt. Its not exactly a NCAV company and it has significant intangible. But it has great returns.

Data from Investing.com
Low Capex, Good FCF – It has consistently generated FCF for the last 5 years.

Data from Seeking Alpha
Piotroski F Score – This is interesting. Based on the chart below, the F Score has improved over the last 3 years. Currently based on TTM figures, there are at 7.

Data from Finbox
Business Model

One of the leaders in Managed File Transfer Industry – It develops and sells managed file transfer software that provides secure information exchange, data transfer, and file sharing capabilities. Its flagship and main product, EFT, is highly reliable, easy to install, and is delivered as on-premise software or through cloud and hybrid deployments. Based googling thru the various review websites, this company is definitely one of the dominate players in the Managed File Transfer Industry.

1 Product, B2B and not B2C, Direct Sales and Partners – The company only has 1 product, or in this case over 97% of the FY2018 revenue comes from 1 product. It operates in the B2B and not B2C industry, since B2B requires less headcounts (B2C will generally requires higher operating expenses since need customer services). It uses direct Sales and partners to sell their products.

Stickiness of Business Model and Recurring Cashflow – As per FY2018, it was stated “when customers purchase our on-premise software, they almost always purchase the first year of M&S. At year two, customers are not required to purchase M&S, but the vast majority renew their subscription.” Remember when did you change your Anti-virus software?

Cataylst

New Product: EFT Arcus – It is a “pay-for-what-you-use” pricing model and a centralized platform to streamline the management of all data transfer activities in the cloud, on-prem and in between. It integrates with Azure and AWS (Read more here).

Focusing on Optimal Capital Allocation – The company has been focused on an optimal capital allocation strategy – doing share buyback and giving our dividend. So far its cash and cash equivalent has remained around US$10 million.

As stated in the FY2018 shareholder letter, “Globalscape embarked on a mission in 2018 to enhance the Company’s performance by improving cash flow per share. To achieve this objective, we focused on three things: revenue, operating expenses, and capital allocation. We are pleased to report that results of this three-part effort are evident in the Company’s superior fourth quarter financial performance. We believe shareholders and customers will be further rewarded as we continue to execute our revised business plan and capital allocation strategy.”

Risk

Side Agreement / Wire Fraud in 2018 – An investigation occurs in Mar 2018. After the investigation ended, there were 40 lay-offs and the CFO changed. There were various excuses used to describe the lay-off, but any layman should be able to see that it was related to the investigation. Although the event has been settled, but this has probably created some negative reputation to the company. 

Furthermore, as stated in the article here, “Most notably, on June 15, 2018 we regained compliance with NYSE American continued listing standards and on August 20, 2018 we announced the settlement of a class action lawsuit for $1.4 million related to our 2016 and 2017 financial restatements. While there continue to be legal matters that present risks, we are pleased to be past the matters that were resolved.” 

1 Product – What happens if the product is no longer required in the market?

Lower Revenue from New Product In Short Term – As highlighted in FY2018 on EFT Arcus, “For the first 24 to 36 months that a customer subscribes to EFT Arcus, we believe that the cumulative cost of ownership will typically be less than the total cost of purchasing an EFT platform perpetual license combined with an M&S contract. Accordingly, we expect the revenue we earn during that period from an EFT Arcus customer will be less than the revenue we would have earned from that same customer during that same period if the customer had purchased a perpetual license with an M&S contract. However, we believe thereafter and over the long term, the cumulative, recurring revenue stream we will earn from an EFT Arcus customer will exceed what we would have otherwise earned from the sale of a perpetual license combined with an M&S contract.” In my opinion, it’s a right direction, but there are short term consequences. 

Outsourced some development to Russia Firm – Not sure if this should be a risk? But will there be future implications?

Management Change – CEO unexpectedly passed away on 1 Apr 2019. He has been the CEO since 2016 and will this cause a change in the way the company is managed?

Competition – There are competition from direct competitors like Axway as well as major companies, like IBM, Citirix Systems and Progress Software, subsidiaries.

Intrinsic Value  

I will based my valuation solely on PE ratio because this company is all on its earnings.

Based on Finbox:
• GlobalSCAPE's latest twelve months P/E Ratio is 16.8x.
• GlobalSCAPE's P/E Ratio hit it's four year low in Dec, 2015 of 18.9x.
• Looking back at the last four years, GlobalSCAPE's P/E Ratio peaked in Dec, 2017 at 55.9x.
• GlobalSCAPE's operated at median P/E Ratio of 22.0x from fiscal years ending Dec, 2014 to 2018.
• GlobalSCAPE's P/E Ratio for fiscal years ending Dec, 2014 to 2018 averaged 27.2x.

With that, if we assumed the company about US$2.4 million (which translate to US$0.14) per quarter, it will make about US$9.6 million (~US$0.56) per year.

Based on last 4 years average PE ratio of 27.2x, it is US$15.232. 

Do note that competitors like Box or Axway has either negative PE or PE in the hundreds. 

For those that is interested in the daily discussion of US companies, feel free to join our Fundamental Scorecard Telegram Group.