"I Found A Catalyst In This Company"
Update on 6 Dec 2016: Do read the comments on additional information from SG Thumbtack Investor. I will also be doing an amendment to this post following some inaccurate information I may have placed in the scorecard. Sorry for the inconvenience caused. However, my conclusion stands - there is no turning back!
Recently this company caught my eye when someone compared it to TTJ Holdings Ltd on valuebuddies.
Recently this company caught my eye when someone compared it to TTJ Holdings Ltd on valuebuddies.
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| This comment is by Ksir on valuebuddies |
After reading the comment, I took a look at its latest financial statements and spotted this specific paragraph;
This paragraph amazed me. This is because I remembered I read SG Thumbtack Investor blog posts (here and here) on this company before.
Quoted from the 2nd post, SG Thumbtack Investor stated that "...upon TOP, the company’s income statement will show a nice boost to earnings of approximately 6.5 cents, and the balance sheet will have a mega boost to cash and cash equivalents of ($19.9 mil due to it’s 35% stake + $19.3mil due to loans extended to the JV) = $39mil approximately."
Then I remembered B's post on catalyst plays working out for him. So, I started thinking if I should enter into this company AGAIN. Yes, I had invested in this company before, using the deep value stock strategy, and made a gain of about 16%.
If you still do not know which company I am talking about, it is BBR Holdings (S) Ltd.
As per my usual standard, I did my analysis starting with Enhanced Triple S Scorecard with Dividend Scorecard Portion (Present Price of $0.181 as of 3 Dec 2016):
Yes, as per the pictures above, this stock fails the Enhanced Triple S Scorecard with Dividend Scorecard Portion.
However, I decided to do something different - This will be the first I try something new on the scorecards.
Since we understand from the above thoughts on the possible changes to the financials, I will try to change the financials' figures to incorporate the expected changes if Lakelife Executive Condo TOP at the end of 2016.
1. Expected Net Cash From Operating Activities and Capital Expenditure For the 4th Quarter of 2016
As of 3rd Quarter of 2016, the company already has $22 Million of Net Cash from Operating Activities. After adding the expected $39 Million of cash (as indicated by SG Thumbtack Investor), the total net cash from operating activities can be as high as $61 Million.
For prudence sake, let's deem it as only $50 Million.
As of 3rd Quarter of 2016, the company's capital expenditure has been $4 Million. Let's take the total capital expenditure as $15 Million. This figure is enlarged for prudence sake.
2. Expected Revenue and Net Profit For the 4th Quarter of 2016
Let's say Revenue for 4th Quarter of 2016 will be $50 Million, which is slightly less than $53 Million in 3rd Quarter of 2016.
As for Net Profit for 4th Quarter of 2016, let's just deem it as $19 Million.
3. Expected Cash, Current Assets, Non-Current Assets, Current Liabilities, Total Liabilities, Shareholder Equity and Bank Borrowings
Firstly, let's predict the Cash amount - $33 Million + $20 Million (Amount Returned from Loan from An Associate). The profit of Lakelife Executive Condo will be deem to fully pay off the Bank Borrowing.
Thus, Current Assets will add another $20 Million.
Loan from An Associate of $20 Million will then be deducted from Non-Current Assets.
Since Bank Borrowings are deem to be fully paid off, bank borrowing of $3 Million will be deducted from Current Liabilities and $15 Million deducted from Non-Current Liabilities.
As per formula, Asset = Liabilities + Shareholder Equity:
Since there is no change in Asset and a negative of $18 Million in Liabilities, then Shareholder Equity will be an increase with a positive $18 Million.
With the above changes, let's test out the Enhanced Triple S Scorecard with Dividend Scorecard Portion (Present Price of $0.181 as of 3 Dec 2016):
Amazingly, BBR Holdings (S) Ltd passed the portion of the Enhanced Triple S Scorecard.
In Short
The above result meant that if I purchase BBR Holdings (S) Ltd at the current price, AND THE FINANCIALS TURNS OUT THE WAY AS I PREDICTED, the company will be deem to be undervalued at the current price.
I will not be talking about the other qualitative aspect of BBR Holdings (S) Ltd, as there are enough said in the forum and SG Thumbtack Investor post.
Finally, with the above positive change in score of the Enhanced Triple S Scorecard with Dividend Scorecard Portion, I intend to invest in BBR Holdings (S) Ltd if the price stay below 0.181.
Current Price: $0.180 as of 5 Dec 2016.
Please do your own due diligence before you invest in this stock.
Do note the author is intend vested in this stock/company.
For those who are interested in the Enhanced Triple S Scorecard, do not hesitate to contact me directly.
Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.
Hi TUB
ReplyDeleteNow, you should be expecting me to comment. You can't write a post about BBR and not expect me to comment right... haha
OK, don't take this the wrong way, but I gotta point out quite a number of inaccuracies in your analysis, some of it is due to inaccuracies in your concept, some due to outdated figures, and some, ashamedly, due to my own errors in my work (since you took and quoted my figures). Here goes:
1) Cash from associate doesn't show up in "Cash from operating activities". It'll classified under "investing activities", probably in the form of a dividend from associate
2) Upon TOP, the profit will be proportioned out and recognised, but BBR may not get the full cashflows as yet. The cash will only show up after the associate distributes $$$, which may not be in FY16Q4. It may be later. As a part owner of BBR, it really doesn't matter if you get the $$$ in Dec or in 1Q17... But since you are banking on this being a "catalyst", that may matter
Hi SG TTI,
DeleteThanks for reading my post again! Haha... I was expecting some comments from you. So there is no issue.
Please do not take the latest outburst on other platform as my natural self. haha... It was because I may have misread what others wrote. But that's that. I always like a debate, such as 1 which people point out my inaccuracies.
So let me see if I can explain point by point:
1) This is totally my fault. However, I just need the FCF that year to be positive.
2) Do note that I understand this. I can always hold it for the next 1 year if required. At least, I know that something positive will definitely happen next year.
3) The loans to associate is now just over $20mil (increased as of FY16Q3). My calculation was done about 6 mths ago so the figures are accurate as of then.
ReplyDelete4) Corrrespondingly, the cash that BBR will receive, may not be $39mil.
BBR will receive the loan of $20mil, but the $19mil+ may not be accurate.
This is a mistake on my part (it's been pointed out somewhere in the comments section, but I didn't write an update post about BBR since June 16).
BBR will receive 35% of the associate's remaining cash AFTER paying off the loans. I have worked out an estimation of how much $$$ the associate will have, but I have neglected to account for the fact that the OTHER shareholders of the associates, eviva for example, could've also extended loans to the associate. Hence, their loans will have to be returned first, before this 35% can be applied.
I don't know the extent of loans because the other shareholders are private.
3) I also align these figures with 3rd Quarter financials. Don't worry. :)
Delete4) Ops.. must have miss out on the comments portion. Most probably, I will make some other amendments to the scorecard to test it again.
5) Your figures are also not updated because the calculation assumes 100% sold. For a long while that looks like it as Lakelife was 98% sold not too long ago. However, as it is an EC, and EC has rules, some of the owners now do NOT qualify for the units. As of the time of writing this, there are now 7 units unsold.
ReplyDeleteBased on the listed price, we've to back out approximately $8mil + for these 7 units.
That leaves us with a reduced PBT of $87.3mil, and assuming 20% tax, a NP of $69.84mil.
35% stake means the corresponding profit proportioned to BBR would be $24.4mil, which is actually higher than my previous calculation because I previously erroneously took out the loan due to BBR first.
In any case, to summarize, my estimation for BBR's earnings from Lakelife, is still around the 6 cents region, but the cashflow figures are now wrong.
BBR will get the $20mil loan back + 35% of whatever cash the associate has, after paying off it's other obligations, including loans from other shareholders.
So your calculation based on the CF could potentially be very far off the mark
5) No problem. I will reduce my FCF for 2016. I just need it to be positive to get something out of the scorecard.
Delete6) Finally, I didn't really write an update because again, in my comments section, I don't view the lakelife as a catalyst. This information has been widely available for a long time, I suspect the markets already understand this.
ReplyDeleteOn top of that, BBR has reported losses in earlier quarters, this Q4 boost will likely bring the full year earnings to +ve, but not something impressive. I'm guessing conservatively, 2-3 cents EPS?
definitely higher than last year, but below long term average EPS.
My own idea of a catalyst for BBR, is simply when they stop bleeding money in the general construction arm. And I think that should be seen in FY17 onwards. Once that stops bleeding, their remaining projects are currently looking good.
6) Actually my view is the same. I believe for the 4th quarter, BBR will report positive earnings and these will overwrite all the losses in the previous years.
DeleteIf they happen to make more losses and share price got a hit, I will be more than happy to scoop some for myself.
7) Broadly speaking, you are right in working out that after repayment of loans and proportioning out CF from the associate, BBR's BS will look very strong. In fact, currently, as of FY16Q3, the 33mil can already pay off all loans. And we're still going to see $20mil + XXX mil from associate.
ReplyDeleteAlso, since it is an associate, not a subsidiary, currently the associate's results are NOT consolidated in BBR's.
So it follows that after TOP, BBR's shareholder equity will also receive a nice bump when the associate is disbanded and given out proportionally to all shareholders.
As mentioned, it may not happen in Q4 though, but could be in 1Q17, esp since 7 units are still unsold.
7) I will have to do another re-test of the scorecard. Realise I forget to change the dividend for 2016... my bad.
Delete