Delcam Share Discussion Threads

[staverly] 28/2/2013 20:56

Numis initiated today - TP £16.30

[staverly] 01/2/2013 12:30

Additive manufacturing IMO is going to be a slow burner for all participants, which explains DLC's intention to progressively take closer order in this potentially lucrative field. The management's track record speaks volumes - unlike so many other small cap growth stocks they can be trusted to run the company in the interests of the shareholders.

[quantumx] 31/1/2013 08:32

Happy to hold Staverly. Your analysis is always welcome. The 3D-stuff is the icing in the cake IMO.

[staverly] 30/1/2013 23:46

quantumx: Fair play. It does seem rather aggressive for FY2014 earnings. I thought the News Bites article was worth regurgitating as it presented a balanced view. I don't have a clue how the 9.6 figure was reached. Though IMHO it has to be more on the money than some of the high double digit P/Es that abound. I noted tonight's ShareScope data with surprise as it reflects revised numbers for sales & earnings that appear wrong in the context of yesterdays announcement.

To explore your reasoned point further, let's reverse engineer the income statement by assuming that operational gearing from past 18m persists at same level. Each additional £1 of sales then increases PTP by 30p. So then it would require FY2014 revenue of ~£63M (15% CAGR over next two years) to produce 128p ps PTP. We then have our P/E of 9.6. Reaching maybe, but not ridiculous if global economic conditions continue to improve. There is plenty to play for and DLC are well-equipped to exploit the situation globally. Looking further out, Delcam is poised nicely on the fringes of a potential game changer - 3D manufacturing. Their acquisition of a minority stake of Fattify in 2011 suggests intent to position the business to take advantage of the progressive move from subtractive to additive manufacturing.

There's is a still a lot to like about this stock. It is hard for a value investor to buy in when a share price has moved so strongly. £24 a share only equates to an EV of £180m ...... that doesn't sound crackers to me.

[quantumx] 30/1/2013 14:33

Where did the forecast EPS come from? The numbers seem to imply 120p EPS 1 year out. Would be great if these are true. Conservative PE of 20 implies £24 1 year on. IMO clearly.

[staverly] 29/1/2013 18:58

This appeared on News Bites newswire a short while ago (note the forward year P/E of 9.6 ...... is that expensive for a high quality growth stock?):

Delcam PLC (DLC.L), the 15th largest software & programming company by market capitalisation in the United Kingdom, surged GBX95.0 (or 8.4%) to close at GBX1,232.50. Compared with the FTSE 100 Index, which rose 44.8 points (or 0.7%) on the day, this was a relative price change of 7.6%. The volume was 2.3 times the average trading of 3,731 shares.

RELATIVE VALUATION INDICATORS [RVI] FUNDAMENTALS

Bullish Signals:

Valuation

- Price/Sales of 2.3 versus sector average of 2.4 and market average of 0.7. We estimate the shares are trading at a current year Price/Sales of 2 and a forward year Price/Sales of 1.7.

- The company is cash rich with Cash to Market Capitalisation at 10.5%

Performance

- Return on Equity of 20.1% versus sector average of 8.3% and market average of 11.5%.

- Year-on-Year Earnings growth of 25.8% versus sector average of -25.0% and market average of 15.0%.

- Return on Assets of 10.1% versus sector average of 4.7% and market average of 1.4%.

- Return on Capital Employed of 20.4% versus sector average of 11.0% and market average of 15.5%.

- Interest cover defined by EBIT/I is 56.7 times. This indicates it is less leveraged.

Bearish Signals:

Valuation

- Price/Earnings of 31.4 versus sector average of 23.5 and market average of 10.0. We estimate the shares are trading at a current year P/E of 17.3 and a forward year P/E of 9.6.

- Dividend Yield of 0.2% (based on trailing 12 months dividends of GBX2.50) versus sector average of 2.1% and market average of 2.1%.

- Tobin"s Q Ratio, defined as MCap divided by Total Assets, is 3.2. Compared with the rest of the market the stock is overvalued and ranks in the bottom 10% of stocks by value of Q Ratio.

DYOR

[staverly] 29/1/2013 15:32

Ferret - you're so right, Lord Lee of Trafford is a wise old bird. It sounded like Delcam was his favourite LSE stock. His Investor column is greatly missed.

[friendly ferret] 29/1/2013 13:07

Wow, another earning's upgrade! Well done Stav you were right. What a shame the venerable John Lee no longer pens his FT Money column. Delcam was one of his favourites.

[staverly] 29/1/2013 10:49

Westcountryboy: Broker estimate was not "exactly on the money", hence this mornings announcement. You weren't alone as the respected blog, Small Cap Report, surprisingly seemed to misinterpret the corporate speak.

The reason for today's TS was to guide the market as to improved sales/earnings for yet to be reported FY12 (latter revised up 8% to 62.1p from 57.1p) and presumably increased expectations for the current year. Suggest you take a look right now at Sharescope, Stockopedia or whatever data provider you favour and then compare metrics in a day or two. I suspect you will see that "consensus" estimates will have been moved up materially.


varies: To judge any share on a simple P/E basis is foolhardy. The best investment opportunities (multi-baggers) invariably have high/no P/Es. Just because a stock has risen like an "Indian rope trick" should not be a basis of an over-valued assumption - remember Warren Buffett and Coca-Cola.

Additionally there are 3 interesting short term drivers in play here. The first one is the recent appointmentt of Numis as Nomad, who will presumably initiate their research shortly. It will be interesting to see how their analyst values the stock (bear in mind, the man in question is David Toms whose scribblings are well respected - unusual for a sell-side equity analyst). The other two are momentum related.

[varies] 29/1/2013 09:46

Having held DLC shares for many years (in at about 130p which I see as the price in 2002 at the head of this thread)I am, of course, delighted with its progress. I was misguided enough to sell some at prices between 650p and 850p last year and sold a few more last week at 1126p.
The price seemed high enough to me at 650p and I am lucky that CGT deterred me from selling more. At 1190p I find it incomprehensible, this being about 24x pre-tax profits and presumably some 30x net.To my mind an increase in profits of about 40% in 2013 over 2012 would be required to bring us down to a sensible multiple.
Is this what the optimists here are expecting ?

[bonzo] 29/1/2013 08:15

Many thanks...

[westcountryboy] 29/1/2013 07:57

Broker estimate was of £5.03m PBT so exactly on the money

[bonzo] 29/1/2013 07:40

29 January 2013

AIM: DLC

DELCAM PLC

("Delcam" or "the Company")

Pre-Close Trading Update

The Board of Delcam, the UK's leading developer and supplier of advanced software solutions for metrology, product development and manufacture, today reports on trading as it enters the close period in respect of its preliminary results for the year ending 31 December 2012, which are due to be published on 26 March 2013. Revenue is expected to be at least GBP47m and profit before tax is expected to be approximately GBP5m (stated after share option and pension charges of GBP0.2m and GBP0.2m respectively).

Are these good, bad or indifferent? Look to be substantially up on last year?

[quantumx] 17/1/2013 17:13

I have just been asked by Fat Prophets to part with £10K for 3 years 'platinum' advice - anyone have any thoughts on this 'offer'? Experience of Fat Prophets? All comments welcome.

[sleepy] 16/1/2013 01:41

Staverly - much appreciated. Will study it tomorrow

[staverly] 16/1/2013 00:09

Sleepy, Your nomenclature belies your impressive observational powers. And thank you for your comments. I decided to simplify things a little. The revised copy beneath is shorter but still in keeping with my original arguments albeit without the qualitative angle. To be fair, any self-respecting value investor should be able to see this as a stand out opportunity (why else would RSW own 20%).

P/Es can be poor arbiters of value; let's hope so given that the FTSE SmallCap index currently trades on a price-earnings ratio of 37 (source: Economist 12th Jan 2013. All other data sourced from ShareScope). Delcam's current (FY2013) earnings estimate of 62.1 per share, using last Friday's closing price of 1155, gives a P/E of 19.
My expectations for Delcam, as you know, are somewhat higher. Their "consensus" numbers being produced by only a single research analyst (no sponsored equivalent exists) greatly excites the possibility of persistent market pricing anomalies. Unsurprising then, that this steady little slow burner has estimates that, in the past few years, have had to be materially revised on a regular basis.
Take FY2012 for example: this time last year (so barely one month into their last fiscal year as Dec year-end) 38.8p earnings were predicted. Less than eleven months later 38.8p had become 57.1p – only the small matter of a 47% increase during 2012. You should note that FY2012 is not yet in red ink but figures are unlikely to be materially different when released in March as evidenced by recent trading update.
FY2013 earnings target of 62.1p may not receive such a pronounced hike over the next eleven months, nevertheless it appears too modest. Now that their material R&D spend has been assuaged due to consistent organic top line growth, the consistently high margins (~70%) have created an operational gearing powerhouse . FY2013 estimates might well appear anomalous to a keen eyed investor. Ever since H2 2010, 30p out of each additional £1 turnover has dropped straight down to profits. However, FY2013 operational gearing appears to only produce 12p profit for each additional pound of revenue. That doesn't seem right. Of course the world is far from a certain place but unless some unexpected macroeconomic issue develops I expect there to be on-going improvements to these numbers throughout the year. I have pencilled in earnings of around 79p per share for the current year. That is the equivalent of the "consensus" only needing to be corrected by 29% this time. My seventy-nine pence calculation equates to a P/E of 14. Too low a valuation given the high quality of earnings, capital structure, the honest and competent management, a durable competitive advantage and not least the on-going stellar capital reinvestment rate of around 55% . So in relative and absolute valuation terms Delcam, imo, is still attractively priced despite the recent share price rise. As ever please undertake your own research. Apologies to all of you who don't use ShareScope, the same data maybe available for free at finance.yahoo or Digital Look.

[sleepy] 15/1/2013 22:29

Staverly

Thank you for your post which I read very quickly on Sunday morning and intended to return to study it later. I thought it very interesting.

[friendly ferret] 12/1/2013 15:39

Staverly - Did you mean to indulge us?

[sleepy] 11/1/2013 18:32

staverly - why do you think stock is still massively undervalued?

[staverly] 11/1/2013 18:30

imo You ain't seen nothing yet, this stock is still massively undervalued and i don't know of a better growth stock on LSE - imagine there were ~78m shares in issue (x10) thereby share price would have climbed to 117p from 93p in the past fews weeks - that equivalant % rise would, i suspect, have gone all but unnoticed. It would be interesting if board were to split the stock. imvho! 6m TP conservatively >£16.20 ;)

[quantumx] 11/1/2013 16:49

MMs have no stock, no wonder the price keeps on going upwards. At this price there will be some sellers to bring DLC back down to earth. Long term holder.

[m.t.glass] 11/1/2013 16:28

GWR7 - I've seen it described as 'overbought' on numerous occasions throughout the past 3 years. Anyone clinging to it regardless will have enjoyed a gain of 62.8% in 2010, plus 58.5% in 2011, plus 85.5% in 2012 ;o)

[cockneyrebel] 11/1/2013 16:01

Up nice today :-0

CR