Saturday, November 14, 2015

Business Analysis blind spots

This is a consolidation of "mistakes" I made.

For every business, I want it to be FCF generating, profit resilent (no loss even during AFC or GFC) with clear growth drivers or cyclical on a potential upturn, last but not least a consistent dividend payout. 

Thereafter, I would like to know its challenges and how it might be overcome. 

1) ST engineering

Growth drivers are in smaller segment of revenue contribution. I correctly think the growth will come from electronic - LSG, but it is too small to offset weakness in aerospace.

It is not a real beneficiary of strong US dollar although it has a 20% contribution in revenue from US. Although there is no specific breakdown between segment and country, my guess is the US business is mainly Marine, Land Sysetm, which are both weak currently.

Venture on the other hand, should benefit form currency weakness of ringgit and strength of US.

2) accordia golf trust

Seasonality. Q2 is a seasonal weak quarter, I believed we should not annualise the weak Q2 neither should we do so with the stronger Q1. 

Volality of weather is underestimated. Q1 has cancellation due to inclementweaker, but number is still solid, Q2 has weather problem too, but the numbers is horrible.  

The biggest blind spot is the low margin for operating numbers during "ok"
Time is recipe for disproportional weak numbers for weaker time as I believe there is no significant buffer from the minimum fixed expenses. 

As such, I am glad Lee metals exit its merchandise business, which is based on high volume and low margin 

3) Cogent holdings

Growth drivers that are driven by debts. Cogent holdings reported a good set of Q3 results. Every year, cogent need to pay close to 8 mio to repay its debt. Which is still better than reits because it's loans are ammortized. 

Ther is no details as of whether the debt interest is fixed or floating. The growth driver is the POSSIBLE development of logistic hub in jurong island. It's debt will properly balloon further and be a drag on short term earnings while it is being built 

The good thing is it's OCF is getting stronger 
 

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