Ft Cesg Discussion Threads

[glasshalfull] 29/6/2008 10:23

longsight - Both rivaldo & I picked up on the trade receivable increase, per our earlier updates.
Hopefully the CFO will see fit in responding to me.

Regards,
GHF

[longsight] 29/6/2008 10:17

I do think CESG is a great business. Real quality as I posted before - i.e. check out their expertise, top end customers, infrastructure based service bus & the dynamic growth of China software services mkt. Add in v low pe / good track record & good BS / cash pile.

The only reason I haven't bought in - besides lack of cash - is the cash flow from ops. I spent a very long day a few mnths ago researching this Co - I really liked what I read about it. But the cash flow characteristics put me off. I did mention the cash flow issue before the results came out - and the big jump in trade receivables in the Accounts did show that this is a genuine negative.

I do think that the jump in receivables merits some comment. Disappointing no one wants to mention the unmentionable.

Great bus if they get on top of this issue. But I am certain that this will prove a major stumbling block in share price performance until CESG do get on top of it - or at least acknowledge the importance of good financial housekeeping.

[glasshalfull] 27/6/2008 21:52

Stegrego,

Possible explanation for the share price weakness rather than the stock market gloom is contained in Seymour Pierce's update following results:-


"Our fundamental valuation of this stock, based on its growth potential and
peer group comparison, is unchanged at 60p. However, we have reason to
believe that there is a possible share overhang from some of the early stage
investors from the end of July this year, when the initial lock-in period
expires. Consequently, in the short term, we do not expect the shares to
make strong progress until this situation is fully resolved. However, we
reiterate our BUY recommendation."


Potential overhang is not good news for short term traders, but long term story remains intact.
Forecasts appear unchanged from the comprehensive note issued on 16th June, still 7.3p EPS forecast for yr ending 28/02/09.

I've noticed several 25k & 50k sells over the last few months and was attempting to elicit a response from the company as to who was selling and reasoning behind it.
Looks like this has been answered....

Regards,
GHF

[stegrego] 27/6/2008 19:13

Well ive managed to start this share with a 20% down - not exactly the greatest

Will certainly be looking to add and hopefully it will let me average down a bit..

Bloody evil market at the mo

[glasshalfull] 27/6/2008 17:25

Agree Hectcorp.

Thought recent results may produce a fillip to the share price.
Everything is getting hammered indiscriminately in this market.

Sentiment will turn in due course and companies such as CESG will have their time in the sun, IMHO.

Regards,
GHF

[hectorp] 27/6/2008 17:02

Surprised to see the fall today it can only be due to general market sentiment.
China Eastsea is going to do very well over the next 2-3 years and thats the timescale I will have to accept.

[explorer88] 25/6/2008 09:31

Art - well spotted.

fwiw, my current revenue forecasts for CESG from this contract are (very approximately), £6m (2008), followed by £6m, £4m, £2m, £2m in subsequent years :-).

It's one of the main reasons why i believe that Seymour's 2008 forecasts and 60p target are very conservative.

[glasshalfull] 25/6/2008 09:22

Thanks Art & Orb1t

Sentiment will turn in due course and an investment in CESG around the current levels will undoubtedly reap rewards with a medium term view.
I'm sure there are quite a few who will have them on their watchlist now.

Regards,
GHF

[arthurly] 25/6/2008 09:14

Thanks for that Orbit. It looks like none of this is in the share price If we were still in a bull market PI's would be all over this like a rash imho.

[0rb1t] 25/6/2008 09:05

Hi Arthurly, Good point about the Sinopec contract. This is an extract from the CityIR Oct 2006 report:

"The bulk of the IT work should be completed between 2008 and 2010, resulting in a total of £9.6m in pre-tax profits.".

Assuming £3m a year then we could have a doubling of profits this year. It also gives great earning visibility and makes a good case study to show the capabilities of the company.

[arthurly] 25/6/2008 08:51

Interesting that non Sinopec turnover grew by nearly 70% last year whilst Sinopec turnover fell. But presumably Sinopec turnover should rise sharply again in the near future. Something to think about - see below.


27 November 2006
CHINA EASTSEA BUSINESS SOFTWARE LIMITED
("CHINA EASTSEA" OR "THE COMPANY")

TRADING UPDATE

China Eastsea, a leading IT outsourcing service provider for the petrochemical
and petroleum industry in China, announces that Sinopec - the holding company
of Sinopec Zhenhai Refining and Chemical Company ("ZRCC") - has commenced
construction of a large scale ethylene project for which China Eastsea will
undertake the software, service, consultancy and system installation of the new
facility. Excluding the hardware component, this is estimated to be worth
STG18-STG25 million over a five year period. Sinopec is investing STG1.5
billion in the project.

Located in the southern part of Hangzhou Bay petrochemical industrial zone in
Zhejiang Province, eastern China, the new ethylene facility will have an annual
production capacity of one million tonnes and is expected to be completed by
2009. Ethylene is a colourless flammable gas derived from natural gas and
petroleum used in the manufacture of various chemical products such as plastic,
chemical fibre and synthetic rubber. In 2005 China produced more than 7.5
million tonnes, second only to the United States and only one tenth of the
global production.

Eric Zhu, Chairman of China Eastsea, said "This is a very exciting opportunity
for China Eastsea and we have been expanding our own infrastructure over the
past twelve months to ensure that we can win valuable mandates and deliver on
projects of this scale. We expect work to commence in 2008 and it is likely to
have a significant impact on our future results. There is also likely to be
further investment in the associated industry chain in the future, creating
further opportunities for our business."

[0rb1t] 24/6/2008 22:10

Hi riv, I guess CESG thought Evo were not doing enough to promote the company. The estimates produced by Evo were poor in their broker note, especially seeing it was compiled post year-end (this does not help with negotiations for acquisitions). It might also be linked to the upcoming roadshows.

Hopefully this will start to get re-rated as investors have a chance to digest the results.

[rivaldo] 24/6/2008 21:30

Hey longsight, see my post 262 at 7.39 a.m - beat you to it about the debtors and cash flow :o))

It's slightly better than at first sight as there are £449k of AIM listing costs expensed which won't reoccur, and of course CESG is swimming in a cash pile. It would be nice not to have to comment on these things for a change though!

Another matter that no-one's discussed is the change of adviser - I could understand certain companies changing to Seymour Pierce as NOMAD due to SP's having extensive experience as regards Asia and because of its stated intention to go for dual listings in that region for Asia-based clients. However EVO already has a long-established Chinese/Asian arm so should be more than capable of looking after its clients. Orb1t, I'd be interested to know why CESG changed NOMAD?

But these were excellent results and I echo the praise of most on this thread. The shares are surely very cheap on any level, particularly if you take the cash and asset positions into account.

[affc21] 24/6/2008 19:40

Seymour Pierce brokers note is now on CESG website (pre-results dated: 16.06.2008):





Will be interesting if we get any updated figures (post results) from Seymour Pierce.

[glasshalfull] 24/6/2008 17:14

Strong set of results IMHO.

The adjusted EPS figure was somewhat higher than my best estimates.
They also seem to have formed very strong relationships with several large corporations and Government Depts which augurs well for the coming years.

Will look through the full set of results later but only negatives to my eye are the fact that I expected slightly stronger cashflow on a full year basis, and also the high trade receivables figures as already noted by longsight.

I felt the organic growth decent given the changes implemented by the management team this year in establishing an AIM listing and embarking on a strategy of vertical integration into other markets through a couple of acquisitions.

Yep, good results and a very inexpensive stock.

Regards,
GHF

[explorer88] 24/6/2008 12:45

steg - i think many investors have "sold in may" and are not going to come back until market conditions improve. In several years time, i think we'll look back at the opportunity to buy companies like CESG at under 30p, GNG at under 50p, and SFT at under 10p and wonder why we didn't buy more...

[stegrego] 24/6/2008 12:18

Im a bit suprised by the price action today, had a right job earlier getting any but the price is well down since.

Im guessing its the China factor thats keeping at a p/e of 5/6??

[0rb1t] 24/6/2008 11:22

Hi GI,

CESG headcount for this year is already 50% higher than at year end along with this and the 3 acquisitions bought this year I would be supprised if the TO growth this year is less than 50%. If you look at the likes of Capita, Wipro, Tata then you can realise the size that this company could grow to.

[greek islander] 24/6/2008 09:49

Yes your assessment is spot on longsight.
Comparing companies like this is not an exact science and often comes down to instinct. Just feel that the potential for GNG for increasing revenues 50-100% per year is exceptional and that with China Eastsea, maybe the best we can hope for is 25-30% growth.
Let us hope they both continue to prosper - good luck to all shareholders.

[longsight] 24/6/2008 09:33

Thanks GI but I wd put a bit more weight on CESG's quality. Very top end expertise. Impressive client list & profitability. Operates in infrastructure industries in China - excellent. These guys are set to grow.

However, since they are service based rather than having the possibility of developing licencsed software (with its upfront cash fees) then cash flow remains a key test for the business. Note as well that since t/o growth was at 28% then disappointing that receivables grew so much. GNG did after all have a 70% + t/o growth - some mitigation for their receivables growth.

[greek islander] 24/6/2008 09:22

Yes longsight well noticed, interesting to compare the two and my take on the them makes GNG considerably the better bet. Especially with its share price artificially lowered because of the accounting error and the lack of action by the board in not appointing a senior FD.


I closed my spreadbet today on China Eastsea, at break even plus a teence, because I now think the share price will creep backwards though probably end up ahead of last nights close. I don't really see any signs of a revaluation taking place.
Good company but there are better out there.

[longsight] 24/6/2008 08:52

Agreed very h quality business. Agreed share price is low.

However very minimal cash flow statement. No one on here has commented on trade receivables - about 70% of turnover - the very reason GNG were marked down imo. Also organic growth of CESG is lo in comparison with GNG.

[0rb1t] 24/6/2008 08:49

Excellant results.

Here was the article on share price listing AIM shares on the Hang Seng:



The share price note said that they now employee 450 staff so thats an extra 140 staff hired since year end (in under 4 months)!

Also interesting that their aim for this year is to "Promote offshore capabilities". I wasnt expecting them to look outside China so early for outsourcing work.

[explorer88] 24/6/2008 08:30

sp 27p
eps 4.08p
growth 68%

PEG = 0.097 ! :-)

sp 27p
eps (adj) 4.93p
growth 68%

PEG = 0.08 !!! :-)


cash over £4m

n.b. 68% increase in eps achieved though just 16% increase in staff numbers

change to new nomad, Seymour Pierce, who have (conservative) share price target of 60p

imo, even in current market, share price deserves to be re-rated to at least 60p now (which would still only be a PEG of 0.18 and 0.22 !!! :-))


p.s. it is good to see that two of their six aims for this year are:

1. improve relationship with investors through PR and new NOMAD
2. raise profile of business with two roadshows.