L&g Efund Cash Discussion Threads

[joe moon] 23/4/2012 10:47

Would an Extra Turnkey Income of £2000 per week be of interest?


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[liarspoker] 14/10/2010 17:38

I tend to agree with you re SAVG DesWalker. It is amazingly undervalued if you strip out cash and look at the underlying business. They do share buybacks at the current price too.

There are a few good articles at the bottom of the SAVG thread which are worth a read:

[sportsauto] 29/9/2010 19:03

KIBO & KEFI - UNDERVALUED GOLD SHARES

plenty more upside

News due on both soon

[zangdook] 29/9/2010 18:59

perhaps there are less such companies around these days?

[muzoman] 25/9/2010 11:08

Fairdeal,

This was such a good idea. Any reason why there are no more contributions to this thread?

Regards,

M

[deswalker] 22/9/2010 08:05

A good example of the stuff I've been talking about above is MOU which I hold and which has net-cash about a fifth of the market cap (so approaching a share 1 rather than a share 2).

Today it has been taken over at what appears to be a fairly measly price, but when one views things in EBITDA/EV terms this price looks more in line with its true value, if still a touch light IMO.

I do prefer some net debt in situations like this.

[deswalker] 21/9/2010 08:47

Moathunter,

A share like share 1 is SAVG which issued its numbers this morning as is worth a look.

I have a few others with smaller net cash or very small net debt positions than SAVG but which are also attractive. Stuff like MUBL & PRES.

However, I do have one share like share 2 which I already own quite a lot of (more than SAVG which is my share 1), but am keeping quiet at the moment as I may buy more. It reports in the next few weeks and I'll probably have more to say then.

Des

ps give the algebra a go :o) It isn't tough but it illustrates my point. Cheers.

[moathunter] 21/9/2010 08:07

My algebra ends at a x b = c (and b = c/a etc.) so you quite lost me on the bleeding obvious, Des.
But I'd love to buy share #2 if you could give the EPIC code! Share #1 is all yours.

Perhaps we should be wary of metrics and data created for the stock market's consumption: price multiples, ebitda/ev etc. ratios, latest RNS snippets, PEG etc. Surely the more an investor relies upon simplified and popularised data, the less likelihood there is of finding a mispriced (cheap) company.

Said differently, the better an investor can understand the fraction of a company that differentiates it from rivals, the bigger the mispricings that can be found (creating bigger returns).

[deswalker] 20/9/2010 16:53

Moathunter,

Thanks for your comments. I shall study them later.

In my example I am implicitly using EBITDA as a proxy for FCF. In reality I price shares on a "discretionary capex and interest" adjusted form of EBITDA and a more sophisticated form of EV too but that is another story.

---

I might as well finish my post with some algebra to prove the bleeding obvious ...

When I buy share 1 it has a market cap of X, an EV of X - X/2 = X/2 and an EBITDA of Y/2 giving an EBITDA/EV = Y/X = Q say.

When I buy share 2 it as a market cap of X, an EV of X + X/2 = 3X/2 and an EBITDA of 3Y/2 giving an EBITDA/EV = Y/X = Q.

Now suppose I set a target ratio of Z to be the level at which I want to sell each share.

For share 1 this leads to a market cap of 1/2*(Y/Z + X) and a percentage uplift in share price of 1/2*(Y/ZX + 1) = 1/2*(Q/Z + 1).

For share 2 this leads to a market cap of 1/2*(3Y/Z - X) and a percentage uplift in share price of 1/2*(3Y/ZX - 1) = 1/2*(3Q/Z - 1).

Suppose I buy the shares at Q = 20% and sell at Z = 15% then share 1 only needs to appreciate by 16.6% to reach my target level whereas share 2 needs to appreciate by 50%.

I know this is rather obvious but thought I'd do it anyway :o)

But the upshot for me when doing this type of investing for microcaps, (which have their own distinct risks of being taken over on the cheap when there is too much Net Cash hanging around), is to look for shares with some Net Debt. I believe the risks probably outweigh the rewards.

Des

[deswalker] 17/9/2010 18:59

That was the answer I expected. Thanks :o)

[liarspoker] 17/9/2010 17:25

Des - sorry for delay in reply but I'd put my money into the first share. It seems to me that this company is better able to generate a return on its equity without debt. The second company might have a higher return on equity but that is due to the debt situation.

I agree that excess cash leads to a lower target price as cash can only generate a certain % of return ( bank interest, bonds, gilts etc ). However if you have a company that is underpriced and is utilising cash for share buybacks then that is ok with me ( ie SAVG ). There is also always a chance of a capital return to holders as well. If the returns of this company are equal to a similar company ( ie share one and share two above ) then the remaining assets of the cash rich company after cash is stripped out generate a higher level of return ( sorry for repeating myself ).

Does that answer your question or have I misinterpreted it ?

[deswalker] 14/9/2010 19:37

Hi LP,

Here's a question for you about EBITDA/EV investing.

Suppose one finds two shares with the same EBITDA/EV ratio. The first share has an EV exactly half the market cap (net cash = half the market cap) whereas the other has an EV = 1.5 times the market cap (net debt = half the market cap). Consequently the second share generates three times the EBITDA as a percentage of market cap vs the first share in order to give the same ratio.

Everything else being equal into which share would you put your money ?

It's an interesting question and one I continue to ponder. Right now I'm looking for higher EBITDA with some net debt (but not as much as half the market cap) rather than a smaller EBITDA with a large net cash position.

Too much net cash leads to a lower target price when one fixes a target EBITDA/EV and sometimes I wonder whether the net cash cushion sufficiently compensates for this reduced upside. SAVG is a case in point here.

Des

ps possibly something up at MDY. Was really starting not to like it after PSK's drop and unlike you I don't buy the idea that it is too cheap on NAV grounds due to funding issues and fairly racey valuations of some of the unquoteds. But this rise has the look of good news IMO.

[liarspoker] 14/9/2010 18:24

CHNS Cash less debt GBP 40m Market Cap GBP 45m

[liarspoker] 14/9/2010 18:22

Please list cash rich companies on this thread so that others can do more research on the mentioned companies.The basic premise is that we'll list companies were the market cap is less than 2 X cash less bank debt. Please use diluted share numbers in your calculation.For example:SAVG Cash less debt = GBP 3.5m Market cap = GBP 5.34mABBY Cash less debt = Euro 108.35m Market cap = Euro 113.28m ( also listed on AIM )CPS Cash less debt = Euro 42m Market cap = Euro 89m ( just over 2 X I know, I know )GNG Cash less debt = GBP 6.36m Market cap = GBP 11mMy Net Working Cap thread is here:

[clubman] 18/8/2010 10:58

Best UK airline very cheap flights.

[liarspoker] 03/5/2010 18:34

Two companies trading below net cash value are CAO & GBP.

[fairdeal2008] 03/5/2010 14:48

Thanks backwoodsman - will check out

[backwoodsman] 03/5/2010 06:53

Just for a few weeks...
PMHL recently sold its cement interests in PRC. There was some nervousness as to the deal completing and the price drifted downwards especially after the first date was passed. Cash received last week - £300m with a further £50m to come in a couple of months - the price rose 20% and market cap still under £200m. The company also owns 33% of Anhui Choung a Shanghai quoted cement producer rated highly at present and a thriving (one believes in this current market) iron ore trading business.

[pillion] 17/4/2010 22:23

Llandudno for me
Great Orme -- far from the Midnight Crowd !!

[pillion] 17/4/2010 21:08

I can't see what people see in the Caribbean and all them Chav foreign destinations

Hello, Hello, Hello -- breezy Blackpool every time

[maxk] 17/4/2010 21:04

Yep, Blackpool rock and candyfloss, what more could you ask?

[pillion] 17/4/2010 20:54

I'll be having a shower in Blackpool not Benidorm
The Imperial is on a water meter



nb, it's mostly booked up already