Ft Cesg Discussion Threads

[arthurly] 01/10/2008 10:50

GHF - totally agree with your post. This would certainly appear to be extremely cheap, even in this market. When the market does finally turn it will be impossible to build any sizeable investment in this without the share price jumping very quickly into the 30's or even 40's imho.

And it would seem that the management is probably very unhappy with the current price - my biggest worry would be that they might buy out the small holders before listing in China - would that be possible or likely ?

PS the cash at end Feb at today's rate of exchange would amount to £4.7m and I presume the estimate for cash next Feb would be around £7m. Likely to make somewhere between £4-5m after tax this year imho. So stripping out the cash we may be on a P/E of 2-2.5. !

[glasshalfull] 30/9/2008 16:58

Well finally CESG succumbed to the general market malaise.
Down 11% on 26k traded....and I can confirm 20k are buys :o)) therefore there has been no sell off as some may have first thought (unless trades confirmed after the bell).

CESG now with a market cap of £16.93m (23.5p mid).
Forecast to produce earnings of £5.3m in the current year which equates to 7.3p EPS, so prospective PER for the year of 3.2
As there is a current flight from small caps and also indiscriminate mark downs, especially today, the prospective PER itself will not encourage buyers.

However, when you add the strength of the Rmb (or weakness of the £) which isn't factored into the EPS figures and strength of the B/S which had £4.1m net cash as at end Feb 2008, with brokers pointing to cashflow generation of approx. £2m this year and end year net cash of £6m (when taking into account the small acquisition in June).

I've also been researching the composition of holders in the stock and note that the company web site indicates that the top 20 holders had 93.39% of stock at at 9th May 2008....so tightly held.
Looking through the composition of holders via the AIM listing document and last years annual results on PLUS I'm also confident that London Asia have sold their holding or at worst 5% of it with v small amount left.
My rationale being that the top 20 holdings of 9/5/08 don't include London Asia and show the no. 20 top holder as having 1m shares or 1.39% of the stock , while in January 2008 they held 4.275m shares or 6.15%....so no overhang.

There has been little selling over the last few months and I reckon I have counteracted most of it....so conclude indiscriminately marked down.

Operating predominately in China also provides significant comfort in terms of market size and opportunities, which should persist even if there is some softening via Western economy woes.

There are several negatives such as projected growth in trade receivables, operating in a state controlled country, lower cash generation via last published results, but the management appear ready to explain their strategy and answer these questions amongst others when they meet the city next week during their roadshow.

I'm certainly not advocating one buys, but even in this market still believe that it is as good a place as any to park ones investment.

All IMHO.

Regards,
GHF

[glasshalfull] 04/9/2008 08:47

Hi Stegrego,

Possibly the time and manner of my writing.
They have developed considerably via a few select acquisitions both during their time on PLUS and now AIM.
I simply think they are under the radar and many will have started their stopwatch on the AIM listing at the beginning of the year rather than the lightly regulated PLUS.

Which ever way you look, they are cheap on all metrics, IMHO.

Regards,
GHF

[0rb1t] 04/9/2008 08:45

Hi Stegrego, Yes they have been trading since Sep 05 on PLUS. I agree with GHF on the risk/reward element. Perhapes the potential Shezchen listing will have the same affect on CESG as what is happening to RCG.

I am hoping to meet the management in October when they come to England.

[stegrego] 04/9/2008 00:24

I thought these had traded on Plus for several years before moving to AIM?
Surely therefore not as new and unproven as you imply?

[glasshalfull] 03/9/2008 23:37

Hi rivaldo,

Still early in the cycle for CESG.
RCG have proven themselves year in, year out IMO but I think that both GNG and CHNS have to demonstrate a consistency of performance when it comes to reporting.
I'm not knocking either and I'm sure you know where I'm coming from.

CESG has only reported one set of Annual figures which were good but had some issues which required to be addressed.
They will hopefully prove that they can maintain this impressive debut on AIM when releasing the interim figures and perhaps meeting both institutional and PI's to explain their strategy.

I happen to think that CESG are a better risk/reward play than CHNS or GNG at the present time in that the downside is limited given their growth, cash balance and estimated cashflow and derisory PER they are trading on.
As you note they are on a PER of 3.6 for this year and that excludes net cash of £4.1m !!!

I would argure that GNG has far greater upside than these though, but again given the "mistake" made during their trading update earlier this year and fact that they are still on a historically high PER I maintain that CESG is a better risk/reward play at this time, although a holding in both may be the ideal ticket :-)
You are aware that I've held CHNS a fair few times in the past and they also look attractive. The debt levels however put me off at the moment and I would rather build a holding in cash rich and cashflow positive companies,preferably growing earnings in the Far East during the present climate....with PER's in low single digits......while I still can.
Mr Market will cotton on soon enough that such companies will also get the additional benefit from the currency appreciation vs the £.

I'm unsure whether I can meet up with the CESG management in October but certain that they would welcome contact with other like minded PI's if you're interested.


Kind regards,
GHF

[glasshalfull] 03/9/2008 15:59

Well another piece of good news for the company as it shows their diversification away from their historical market and opportunities in other vertical markets.
My interpretation from the statement is that they expect further contracts and repeat business in the future.

David Tsui has also informed me that the company plan to come over to the UK from 6th October for 4 days.
This is possibly in conjunction with the release of their interim results and a visit to the city and institutional investors.

I continue to increase my holding and reckon that it has been missed by the market.
You only have to witness the appreciation in RCG to realise such anomalies don't last forever ;-)

Regards,
GHF

[stluke] 02/9/2008 09:11

Very muted response so far to news today, i also notice that share price have reiterated the buy recommendation for CESG today unfortunately i dont have any commentary to go with it.

[pec2004] 02/9/2008 07:09

I wonder if the fundie from L&G that bought into Geong is watching CESG.

Todays new may get a few peoples attention.

[longsight] 01/9/2008 17:02

Glasshalfull - thanks v much for that. I'll probably monitor CESG's progress in its next results - I'm obviously tempted to buy them {as ever, I wouldn't explore the "negatives" unless I thought the business looked really good]

Best wishes

Longsight

[glasshalfull] 01/9/2008 14:26

Hi longsight.

I had a look at my correspondence with David Tsui several months back re. the same issue and post the response below.

Firstly, with the company's high operating margins I am surprised at the slightly lower level of cash generation than I expected and high level of trade receivables on the B/S.
I would have thought that the high level of net cash would have allowed some factoring of the receivables. Are you able to clarify the high level of trade receivables on the B/S please and lower level of cash generation?

"I understand your concern that from the cashflow statement, the net cash generated was in fact a negative of 216K ( 400K – 196K ) but it did generate about 482K from the normal operating activities. Though the cash of 679K and 203K were in investing and financing activities which lead to the lower level of cash.
As we had some higher monetary receivables at the end of the year, the level of receivables would be high comparing to the normal and the settlement will then flow in after the post balance date. This would also be related to the seasonal factors as we have slower months in the beginning of the financial year i.e. March then stronger billing in the second half so this would build up the receivables and translate into the cash."


During further correspondence I again enquired into whether the company would consider factoring and received the following response;

"... factoring costs is quite high in China and besides, we are not desperate for cash right now, I'd rather not use factoring..."

He is clearly comfortable with brokers forecast of cash generation this year - ---- £2.7m cash generated per the Evolution note and Feb '09 net cash of £6.9m.
They deal with a number of blue chip companies as orb1t intimated and was reiterated during my dialogue with the CFO.

I would recommend that you contact him if you require further clarification. Very approachable.
I like what I see and have been building a holding.
I do however hold considerably more RCG :o))

You pays your money.....

Best wishes, hope this assists.
GHF

[longsight] 01/9/2008 12:26

0rb1t, thank you for your response. I accept your first point [my recall about CESG is slightly hazy since I looked into them in detail about 6 mnths ago - so apologies].

However, whilst I accept that all their customers are absolute top notch & very probably creditworthy, I still think cash flow is terrible & at least merits comment from the management / analsysts about how they might improve it. Granted they have cash in the bank but this cannot last if they continue to grow the business yet do nothing to speed up payment. Contrast GNG, where I am a holder yet gave the management a terrible earbashing on this score when results came out. At least GNG took this point really seriously & this is reflected in the recent AGM statement - they are cleaning up their act. Frankly, if CESG got on top of cash flow - I wd buy tomorrow bigtime & hold them long term. For me it is the real issue here.

[0rb1t] 01/9/2008 11:27

londsight, I would be concerned too if it was purely government based but it looks like most of their work is predominantly industrial (this is where their key expertise is). The Infa Group acquisition this year is involved with telecom and power sectors. The share of work this year to ZRCC is going to increase substantially as they start the £25m IT project for the large scale ethylene plant. They have completed several port handling systems. And now there is the future prospect of outsourcing from Japan.

Cash flow is more difficult to analysis for such a fast growing company. But they do have 4m GBP in the bank and their customers should be more creditworthy than the average.

[longsight] 01/9/2008 10:11

The positives on CESG are quite substantial i.e. the quality clients & hi end work they provide. Also they appear to have a number of classy institutional investors. Obviously the pe is very low & the scope for growth considerable.

The issues which have put me off investing are the atrocious cash flow & the strategy of growth thru acquisition - esp the businesses which do most of their software work for Chinese gov agencies. In these areas, CESG looks a lot less attractive than say GNG which relies on organic growth, is aimed entirely at the private sector & has far healthier cash flow. I think the analysis on here & indeed by the various brokers/ analysts totally overlooks these negatives. Until I see evidence of better cash flow, I won't be buying. Interested to hear what you guys can say to make me think differently. [I did spend a very long day looking into CESG with a view to investing - so I am open to persuasion]

[0rb1t] 28/8/2008 20:28

Hi Tole, Thanks for that. Not sure about the contracts bit. They have reported quite a few contract wins on their website. Also the £25m IT project for the large scale ethylene project kicks in this year. As a result this company is likely to double turnover and profits and that's before winning any more contracts.

[tole] 28/8/2008 19:40

Gets a few lines as a possibility in Trendwatch this week.

Nothing that we don't know already - Points out its 'astonishingly' low PER and excellent track record as positives; and that it still needs to win contracts as negatives.

Good to see a few publications starting to get on board with this one though. Still under the radar at the moment though.

[0rb1t] 26/8/2008 12:11

"China software industry's annual output value topped 583.4 billion yuan in 2007, making it the world's fourth largest software producer. The country's share of the global software market rose to 8.7 percent in 2007 from 1.2 percent in 2000, with an annual growth rate of more than 30 percent.


The country exported $4.12 billion worth of software in the first five months of this year, up 45 percent year-on-year. Software exports grew swiftly from $720 million in 2001 to $10.24 billion in 2007."

[0rb1t] 26/8/2008 12:09

We seem to be developing an uptread. Any slight buying now forcing up the share price. But we are still only on a historic PE of 6. If this gets dual listed on the Shezchen stock market I think a lot of Chinese will be willing to pay at lot more than that.

[philjeans] 26/8/2008 09:05

Strong start for this one despite an awful market today.

[arthurly] 24/8/2008 16:42

12.66 yuan to the £ now.

There are going to be some fantastic results reported by Chinese companies on AIM next year imo. Share prices in no way reflect the prospects.

[philjeans] 24/8/2008 08:26

Best to have both (and RCG and WCC too!) as I do; been holding CESG from the early PLUS days and have bought SFT several times during the fall from grace. Recently back into the other two after banking some very good gains a few months ago now.

You have to be very lucky to pick the winner from many good candidates currently; huge number of quality plays out there - better to spread the risk and return.

[0rb1t] 23/8/2008 22:16

Hi siwel100, With IT services in China forecast to grow by 40% per annum over the next few years I think both companies will have plenty of opportunities and should do well!

[siwel100] 23/8/2008 21:26

Orb1t...If SFT is not for you then fine, personally I prefer the far larger cash pile with SFT, the high margin contracts, the fact it can afford to pay a divi which means I am paid for the hold while I wait for a full revaluation, that they work with the National government and have a national contract, that they are diverse into the commercial contracts as well...and that they are very cheap.....But if its not for you then I wish you luck with CESG and I hope it does ok for you.