Monday, August 27, 2007
Shaw Communications a buy??
A recent story in the Globe and Mail caught my eye and mind. Shaw Communications, a $10.5B market capitalized company with it's footprint in Western Canada, has a dividend yield of 2.7%, and that has been growing very strongly lately.
In the story, CEO Jim Shaw said that he can't see any reason why the dividend couldn't be doubled in a five year period, which would imply that the business continues it's strong growth trend. Cable companies, if not over-burdened by debt, have a very favourable business model.
Free cash flow was described as $300 million, profit of $500 million, and debt has been paid down, as the good times have continued to roll.
This is essentially a monopoly business, although there's minor infringement around the edges by other competitors. This stock is worth investigating more, in my opinion.
Don't be stupid! Read the disclaimer!
In the story, CEO Jim Shaw said that he can't see any reason why the dividend couldn't be doubled in a five year period, which would imply that the business continues it's strong growth trend. Cable companies, if not over-burdened by debt, have a very favourable business model.
Free cash flow was described as $300 million, profit of $500 million, and debt has been paid down, as the good times have continued to roll.
This is essentially a monopoly business, although there's minor infringement around the edges by other competitors. This stock is worth investigating more, in my opinion.
Don't be stupid! Read the disclaimer!
Sunday, April 01, 2007
Divestco Inc. DVT on the TSX
Divestco describes themselves thusly:
Divestco actively acquires companies in the same or complementary businesses and so far appear to have been able purchase companies which are positively accretive to earnings. Another proposed acquisition, BlueGrouse Seismic (BGH), is scheduled for approval by the various parties. This is about a $18m all-stock deal, plus acquired debt; the transaction has a value of about $38m. Management reports that they anticipate that this will provide positive accretive earnings per share in 2007.
The company also has found the seismic business to be very profitable, after its start as a technology company, and (aside from current revenues showing it's really a seismic company), aims to acquire the most seismic data of any company in western Canada in 2007/08.
Here are some recent notes I made about the company (based mostly on its' recently released 2006 annual report):
Recent price: $3.66
Shares O/S: 35.7m
Market capitalization: $131m
Business Factors:
Acquisitions of companies in the same business certainly appear to be an important part of the this company's growth strategy, and given the improvement in earnings and funds from operations per share, it appears to be working out very well to date.
The company has significant value in its data library, consisting mostly of seismic ($97m cost, $59.9m net book value) and log & drill library ($12m cost, $10.7m net book value). While these assets are written off (typically over a 7-10 year period), these assets may actually be increasing in value, suggesting, like Pulse Data, possibly hidden balance sheet value.
The company has spent $87m over the past two years acquiring data libraries.
Accounts Receivable now total some $21.9m (2005 - $28.7m) while Accounts Payable & Accrued Liabilities total some $14.5m (2005 - $17.6m), which illustrates a positive trend on both accounts.
The company has minimal ($1.4m) cash laying around the balance sheet, which doesn't provide much of a buffer, but has credit facilities totalling $22m, of which $6.5m is drawn on. However, it isn't known whether the company could access this, since the company was in a negative working capital position for part of 2006, but this situation was rectified by year end. However, the company remains in technical default against loan covenants related to working capital, but the bank has agreed to "provide forbearance over the covenant breach as of December 31 2006".
This is clearly a risk factor; however, the company is producing copious quantities of cash, due primarily to its data libraries. The working capital situation must be regarded as a relatively low risk activity, given current oil prices and cash-flows over the past several years from oil producing and exploration companies which are increasing the demand for data information (thereby producing the prodigious cash-flow the company is currently experiencing).
The company also suggests that the recent income trust decision of the federal government should favour further revenue growth, as many companies trend back to an exploration model that'll require access to seismic and other related/ancillary data.
Year-over year:
The company reports financial highlights as follows (click to enlarge):
As can be seen above, the company has added remarkably to the revenues and net earnings, without significant dilution from newly issued shares. The company has used some bank debt, but this too has been remarkably subdued, with only ~$13m outstanding there.
The company reports its segmented financial information as follows:
Taxes appear to be accruing or paid at normal or near normal corporate rates.
Share overhang issues:
There exists some 2.8m options outstanding, at prices ranging from $0.83 to $6.10, with an average price of $2.87. Some of these were given out to facilitate retention of key personnel during recent corporate acquisitions.
Value/Valuation/Shareholder Alignment: Positive/Negative
A 2007 presentation relating to some valuation and other issues is located here (pdf file), which illustrates the dramatic value proposition that the company offers at these prices.
Overall positives:
Just about everything.
Overall negatives:
Volatility of commodity market. Working capital situation, indicating that the company occasionally "lives on the edge". This negative working capital situation also occurred in prior years.
Expectation (overall upside/downside):
There's reasonable opportunity for multiple expansion here, but the company doesn't anticipate earnings growth to be as much as in 2006.
The share price doesn't seem to have much room for further decline, and a growth of share price of 50% to 200% within the next year appears reasonable, given the very cheap valuation metrics that the company is trading on, compared to most competitors. You don't find very many companies selling at under 21/2 times cash-flow, unless the cash-flow been inflated by one-time factors, or there's serious problems with the company.
I see neither issue, and that's why Divestco shares have been added to the Small, Smaller, Smallest portfolio.
Don't be stupid! Read the disclaimer!
Divestco is a growth-oriented company that provides a comprehensive and integrated portfolio of software, services, data and consulting to the oil and gas industry. Through our continued commitment to align and bundle products and services to generate value for our customers, we are creating an unparalleled set of integrated solutions and unique benefi ts for the marketplace.Divestco is similar to Pulse Data (another company owned by the Small, Smaller, Smallest regime), in that it is in the oil business, and is primarily a seismic company. Approximately 2/3 of it's revenues and 90% of it's operating income comes from the "data" portion of the business (seismic or log & drill libraries plus new seismic shoots). It also features software, consulting and services solutions, that add about 1/3 of the revenue, but less than 10% of the operating income.
We have the breadth and uniqueness of software, services, data and consulting solutions along with the expertise that offers our customers the ability to access and analyze information and make business decisions to optimize their success in the upstream oil and gas industry.
Divestco has developed its business model based on a plan of strategic acquisition and organic growth.
Divestco’s aim is to be a single source provider for oil and gas companies by offering a diverse range of innovative, complementary and attractively priced products and services with unique bundling and integration options.
The Company will continue to focus on delivering growth and shareholder value both through strategic acquisitions and aggressive organic growth. The pursuit of new bundling opportunities, enhanced integration and cross-selling to meet customers’ needs as well as deliver value to the industry, will also be emphasized.
Divestco actively acquires companies in the same or complementary businesses and so far appear to have been able purchase companies which are positively accretive to earnings. Another proposed acquisition, BlueGrouse Seismic (BGH), is scheduled for approval by the various parties. This is about a $18m all-stock deal, plus acquired debt; the transaction has a value of about $38m. Management reports that they anticipate that this will provide positive accretive earnings per share in 2007.
The company also has found the seismic business to be very profitable, after its start as a technology company, and (aside from current revenues showing it's really a seismic company), aims to acquire the most seismic data of any company in western Canada in 2007/08.
Here are some recent notes I made about the company (based mostly on its' recently released 2006 annual report):
Recent price: $3.66
Shares O/S: 35.7m
Market capitalization: $131m
Business Factors:
Acquisitions of companies in the same business certainly appear to be an important part of the this company's growth strategy, and given the improvement in earnings and funds from operations per share, it appears to be working out very well to date.
The company has significant value in its data library, consisting mostly of seismic ($97m cost, $59.9m net book value) and log & drill library ($12m cost, $10.7m net book value). While these assets are written off (typically over a 7-10 year period), these assets may actually be increasing in value, suggesting, like Pulse Data, possibly hidden balance sheet value.
The company has spent $87m over the past two years acquiring data libraries.
Accounts Receivable now total some $21.9m (2005 - $28.7m) while Accounts Payable & Accrued Liabilities total some $14.5m (2005 - $17.6m), which illustrates a positive trend on both accounts.
The company has minimal ($1.4m) cash laying around the balance sheet, which doesn't provide much of a buffer, but has credit facilities totalling $22m, of which $6.5m is drawn on. However, it isn't known whether the company could access this, since the company was in a negative working capital position for part of 2006, but this situation was rectified by year end. However, the company remains in technical default against loan covenants related to working capital, but the bank has agreed to "provide forbearance over the covenant breach as of December 31 2006".
This is clearly a risk factor; however, the company is producing copious quantities of cash, due primarily to its data libraries. The working capital situation must be regarded as a relatively low risk activity, given current oil prices and cash-flows over the past several years from oil producing and exploration companies which are increasing the demand for data information (thereby producing the prodigious cash-flow the company is currently experiencing).
The company also suggests that the recent income trust decision of the federal government should favour further revenue growth, as many companies trend back to an exploration model that'll require access to seismic and other related/ancillary data.
Year-over year:
The company reports financial highlights as follows (click to enlarge):
As can be seen above, the company has added remarkably to the revenues and net earnings, without significant dilution from newly issued shares. The company has used some bank debt, but this too has been remarkably subdued, with only ~$13m outstanding there.
The company reports its segmented financial information as follows:
Taxes appear to be accruing or paid at normal or near normal corporate rates.
Share overhang issues:
There exists some 2.8m options outstanding, at prices ranging from $0.83 to $6.10, with an average price of $2.87. Some of these were given out to facilitate retention of key personnel during recent corporate acquisitions.
Value/Valuation/Shareholder Alignment: Positive/Negative
A 2007 presentation relating to some valuation and other issues is located here (pdf file), which illustrates the dramatic value proposition that the company offers at these prices.
- Dividends or significant stock buy-back: No dividends, some stock buy-backs, but more recently equity issues to fund growth by acquisition. Overall neutral, given dramatic growth and relatively limited equity infusion.
- Insider ownership: >30%. Very positive.
- CEO tenure at senior position in company: CEO Stephen Popadynetz was appointed to the position on May 1 2002. Essentially, since inception of Divestco inc. Positive.
- Options issues: Neutral.
- PE Ratio: 6.3. The company is also only trading at about 2.5x expected 2007 cash-flow. (very positive)
- PS Ratio: 1.2 (positive)
- Growth: >100% depending upon measure considered.
Overall positives:
Just about everything.
Overall negatives:
Volatility of commodity market. Working capital situation, indicating that the company occasionally "lives on the edge". This negative working capital situation also occurred in prior years.
Expectation (overall upside/downside):
There's reasonable opportunity for multiple expansion here, but the company doesn't anticipate earnings growth to be as much as in 2006.
The share price doesn't seem to have much room for further decline, and a growth of share price of 50% to 200% within the next year appears reasonable, given the very cheap valuation metrics that the company is trading on, compared to most competitors. You don't find very many companies selling at under 21/2 times cash-flow, unless the cash-flow been inflated by one-time factors, or there's serious problems with the company.
I see neither issue, and that's why Divestco shares have been added to the Small, Smaller, Smallest portfolio.
Don't be stupid! Read the disclaimer!
Labels: DVT
Saturday, March 31, 2007
QIS Capital buys more Pacific Insight PIH
QIS Capital, an investor relations and small/micro cap research company, has recently added shares of PIH to its' portfolio consisting of about 10% of the value of the portfolio.
It also issued a brief research report on the company indicating that, after adjustment for a large positive working capital position, it was trading at only six times earnings.
Given QIS's track record of picking micro and small cap winners, this is perhaps a sign to pay attention to.
Due to some pressing commitments, I have not updated my portfolio lately. I'll do that soon, but intend to turn this into a monthly, rather than weekly, event.
Until then, stay safe, practice due diligence, and don't get your knickers in a knot over market gyrations. The key to market outperformance remains as always: attractively-priced stocks with attractive growth potential, or undervalued balance sheet items.
Don't be stupid! Read the disclaimer!
It also issued a brief research report on the company indicating that, after adjustment for a large positive working capital position, it was trading at only six times earnings.
Given QIS's track record of picking micro and small cap winners, this is perhaps a sign to pay attention to.
Due to some pressing commitments, I have not updated my portfolio lately. I'll do that soon, but intend to turn this into a monthly, rather than weekly, event.
Until then, stay safe, practice due diligence, and don't get your knickers in a knot over market gyrations. The key to market outperformance remains as always: attractively-priced stocks with attractive growth potential, or undervalued balance sheet items.
Don't be stupid! Read the disclaimer!
Labels: PIH
Friday, March 09, 2007
Portfolio Report - March 9 2007
Music time! Tick, tock, it's time to face the music, as it were.
Over the past week, both the TSX Venture Exchange and the TSX Composite Index are up, by +1.99% and 1.51% respectively.Over the same period, my portfolio is up, by +3.61%, which beats both benchmarks.I made a couple of changes through the week; as I mentioned last week, I was thinking of selling out of Addenda Capital (analysis). I indeed pulled the trigger and upped the ante in Rifco (RFC), and in Pulse Data (PSD). Again, I believe Addenda (ADV) is a fine company, but I think that the risk/reward is better for these two companies, given what I see as the continually improving circumstances and modest valuation levels of Rifco, and the somewhat improved circumstances (and current sales ahead of targets) and the attractive cash-flow valuation of Pulse.
I also believe that the inflation threat has now tapered off in Canada, which was a situation I saw as potentially inflating demand for bonds. I no longer perceive the same inflationary forces I thought were beginning to manifest themselves in the summer, something I thought would favour Addenda as bond capital managers.
Time will tell, of course, how well I read those respective situations.
In the interim of deciding whether my actions were brilliantly prescient, unbelievably obtuse, or something in between, I offer up the usual thought that no matter what happens in the market, I have many blessings in my life. I count them, and don't forget to count yours too!Don't be stupid! Read the disclaimer!
Labels: ADV, portfolio report, PSD, RFC
Saturday, March 03, 2007
Portfolio Report - March 2 2007
Well, time to report how I did over the past couple of weeks (I was away last week at a hockey tournament, and that's why I didn't update last week). However, it's now time to face the music, as it were.
For the past two weeks, the story here is ... as the song goes ... down, down down, doobee doobee, down, down, down ... etc. The TSX Composite sild down by -3.37% over the past two weeks, the TSX Venture, down by -0.77%; and my portfolio, down by -2.05%, beating the inferior of my two benchmarks.I am considering some further portfolio rebalancing, adding to my position in Rifco, which I see the recent results...
For the third fiscal quarter ending on December 31, 2006, the Company reported net income of $277K bringing year-to-date net income to 524K. These results represent a substantial improvement over the corresponding $76K... as indicating this stock is a better and better buy.
quarterly loss and the corresponding $289K loss for the first nine months of the prior year. Revenue for the first nine months increased by 82% to $4.7M from $2.6M with loan originations increasing by 86% in the same period.
I'm also considering adding to my position in Pulse Data, as their early sales results this year ...
The Company has exceeded its internal data sales targets for the month ofare suggesting that perhaps this stock remains - in my opinion - mis-priced , particularly given the yield at nearly 6.5%.
January 2007 by achieving $4.3 million in 2D and 3D data library sales, which
is approximately 30% higher than in January 2006.
Given that the position changes will have to come from somewhere, I'm considering a reduction in Addenda Capital. I still think this is a fine company, but just that the upside/risk equation is better for these two stocks.
I'm also pondering actually moving into Clarke Inc. which I wrote about in November 2006, when the stock was priced at $12.10. It's now at $14.75.
It's things like this that drive you wild as an investor/trader: since the summer, I have written about just three stocks I saw as potentially good investments given their price (but didn't add them to the portfolio). These are Exceed Mortgage on Sept 1 2006, Wisdom Tree on October 7 2006, and Clarke Inc. on Nov 13 2006. Since the middle of those articles (Oct 7/06), my concentrated small cap portfolio has moved up by +6.0%, while these stocks have moved up by, respectively, +19.7%, +68%, and +21.9% since the dates I wrote about them. If I'd had them in my portfolio, then I would obviously been able to report better results ...
However, I'm trying to stay with a theme of patience ... will I have been off better in the long run ... yet to be determined ...
As usual, I offer my typical sign-off that no matter what happens in the market, I have many blessings in my life. I count them, and don't forget to count yours too!Don't be stupid! Read the disclaimer!
Labels: patience, portfolio report
Saturday, February 17, 2007
Portfolio Report - February 16 2007
Well, time to report how I did this week. Time to face the music, as it were.For the week, the TSX Venture Exchange (the best benchmark to this portfolio) is up, by +3.10. A good week people.The TSX Composite Index - the next best benchmark to portfolio - is also up, but to a lesser degree, by +1.74% this week.For the week, my portfolio is down, significantly lagging both benchmarks, at -2.93%. Yes, the market, my skills, or just plain luck, is administering a severe beating to me:
Owie ....Pacific Insight reported earnings early this week; revenue was up very marginally, but earnings slid somewhat, from $876,000 to $781,000 ($0.13 per share down to $0.12). The stock had risen somewhat in recent weeks, in anticipation, I suppose, of increased earnings. When that didn't happen, the stock slid back.
As usual, I offer my typical sign-off that no matter what happens in the market, I have many blessings in my life. I count them, and don't forget to count yours too!Don't be stupid! Read the disclaimer!
Saturday, February 10, 2007
Portfolio Report - February 9 2007
I have been away for a while, dealing with a personal matter, which is why I didn't update this last week. So, it's a two-for-one week, in other words, we look at how I did over the past two weeks! Again, it's time to face the music, as it were.Over the past two weeks, both the TSX Venture Exchange and the TSX Composite Index are up, by +3.3% and 0.81% respectively.For the same two week period, my portfolio is up, by +2.64%, which lags the Venture Exchange, but easily beats the larger TSX Composite.It was kind of interesting in the US over the past week, wherein several sub-prime and second mortgage lenders stated that they are making larger allowances for defaults than previously estimated by analysts.
While many analysts previously thought that the housing situation has stabilized, I just believe that's wishful thinking. The cycle hasn't even really entered any sort of downturn, and I just don't think it's possible to have turned the corner back into sunny days and blue skies, when there were so many crappy-quality low-rate mortgages out there. The next phase is for more lenders to book the same sorts of default allowances, the defaults begin occurring and the foreclosures occur.
The next phase will last awhile, possibly a year or two, and prices in the highest prices areas will finally begin to noticeably tumble, as lenders begin driving the market with their foreclosure sales. While I've never studied the matter extensively, I have to think that the drop in prices is probably similar to what happens in a bear market in stocks: that is, about two-thirds of the value loss occurs during the last one-third of the cycle. Watch for that happening, before jumping into any of the homebuilders stocks (or ETF "XHB"), if you're so inclined.
In any case, no matter what happens in the market, I have many blessings in my life. I count them, and don't forget to count yours too!Don't be stupid! Read the disclaimer!
Labels: portfolio report
