2016 – The Great Irish Share Valuation Project (Part II)

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Circle Oil, CRH, Escher Group Holdings, First Derivatives, Galantas Gold Corp, IMC Exploration Group, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, iShares MSCI Ireland Capped ETF, Keywords Studios, TGISVP, The Great Irish Share Valuation Project, Total Produce, Tullow Oil

Continued from here:

Company:   First Derivatives   (FDP:LN)

Last TGISVP Post:   Here

Market Cap:   GBP 494 Million

Price:   GBP 2,038p

My last write-up was bang in the middle of a sickening price reversal. While FDP got nearly sliced in half at the time, my price target’s been massively adrift ever since. Clearly, I was wrong to speculate FDP’s consulting business* might eventually grind to a halt – as banks continue to retrench, we’re actually seeing an increasing reliance on IT outsourcing, while reduced head-count & market evolution demanded ever greater technology capacity & automation. [*Let’s not forget consulting (64% of revenue) remains FDP’s primary business, and its margins are far less scale-able than software]. And revenue’s continued to forge ahead, at an average 28% pa in the last three years, assisted by FDP’s serial acquisition strategy (three new acquisitions & a consolidation of Kx Systems in the last 18 months, or so). Earnings growth trailed though, as FDP essentially bought revenue/technology (rather than profits…with new Big Data & IoT opportunities also being touted) & the share count’s been diluted almost 25% in the last couple of years. [Even on a revenue basis, those acquisitions look damn expensive – averaging over 7 times sales, vs. a 4.2 P/S multiple for FDP]. But FY-2016 was clearly a real gang-busters year, boasting 41% revenue & 33% EPS growth.

However, we’re still seeing a huge disconnect between EBITDA & operating free cash flow margins (Op FCF: Operating cash flow, less net PPE/intangible expenditure). But presuming software is the ultimate driver of the business, EBITDA will become increasingly relevant: A decent compromise for now is to use an adjusted margin, averaging the latest 19.9% EBITDA margin & Op FCF margin of 7.2% (noting a prior year margin of just 2.6%) – a 13.6% adjusted margin deserves a 1.33 Price/Sales ratio. And noting FDP’s financial strength (with net debt of just £15 million), we can adjust for (surplus) cash & also add a debt adjustment. [Based on this adjusted margin, I calculate another £23 million in debt (at an assumed 5% rate, for acquisitions etc.) would still limit finance expense to 15% of adjusted margin – as usual, let’s apply a 50% haircut, just to be conservative]. Of course, we also need to value FDP as a growth stock: While earnings growth has accelerated to 33%, we should still recognise the huge/ongoing disconnect vs. cash flow (& reported earnings, which are now about 40% lower than adjusted diluted earnings) – limiting ourselves to a 20.0 Price/Earnings ratio, based on adjusted diluted EPS, seems only prudent (or maybe even generous):

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2014 – The Great Irish Share Valuation Project (Part VII)

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Botswana Diamonds, C&C Group, Formation Group, Irish Continental Group, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Kingspan Group, Minco, Orogen Gold, TGISVP, The Great Irish Share Valuation Project, Tullow Oil

Continued from here:

[NB: Worth revisiting Part I if you’re a new reader, or you’d like a refresher on TGISVP & my approach to the whole project.]

Company:   Tullow Oil

Prior Post(s):   2012 & 2013

Ticker:  TLW:LN

Price:   GBP 800p

Well, I’ve definitely offended TLW shareholders in the past two years – particularly in 2012, when I predicted a 339p price target (vs. a share price of 1543p at the time). WTF..?! But I must admit, their response was far more dignified than that of the junior resource hoi polloi – clearly a better class of people. [The other day, I was amused to read about a US small-cap CEO lamenting his shareholder base used to ‘include those nice guys at Fidelity’, but now it was ‘just guys in muscle tees from Jersey!’] Hmmm, maybe they just weren’t taking me too seriously? But at this point, I bet they’re taking their bloody losses seriously. 😉 Ouch, down nearly 50% in the past two years (after bouncing from a recent 736p low).

Well, Tullow obviously needs to pick up its game on the exploration front, results were decidedly mixed in 2013. [It’s interesting to see how exploration drilling success (or failure) is still such a primary share price driver for a company the size of Tullow]. At this point, continued exploration success in Kenya has become increasingly important for the company, with estimated gross recoverable resources of 600 million boe (potentially a billion boe plus) to tap. I suspect we’ll also see a continuing secondary focus on Atlantic Margins exploration, but other non-core exploration (& mature production) assets will be likely disposal targets. Which explains the latest annual report cover: Africa’s Leading Independent Oil Company – current production in West Africa, future potential in East Africa.

2013 – The Great Irish Share Valuation Project (Part I)

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Aminex, Aryzta, Connemara Mining, Continental Farmers Group, Independent News & Media, Irish shares, Irish value investing, iShares MSCI Ireland ETF, Kenmare Resources, Kerry Group, TGISVP, The Great Irish Share Valuation Project, Tullow Oil, UTV Media

I finished my last post with a question: ‘So, shall we continue with this TGISVP experiment in 2013..?!‘

Despite the relative comment silence, an emphatic ‘Yes!‘ appears to be in order. The success of the series was evidenced by the strong surge in Q1-2012 page views, and the significant level of out-performance enjoyed by each of the TGISVP Alpha & Beta Portfolios last year. I’d first recommend a quick review of my first TGISVP post last year as a primer, but we need to cover some important points here:

– I’m planning to (briefly) review & set a price target for all Irish companies.

– An Irish company is any company which conducts a major portion of its business in Ireland, is (genuinely) headquartered in Ireland, and/or whose management/directors/shareholders/history are predominantly Irish.

– Sure, it would be marvelous if I covered all companies simultaneously. But life (& investing) are never so convenient… I reckon there’s about 70 companies to cover, so I’ll give myself an end-March completion deadline.

– This is TGISVP-Yr II, so perhaps this will all move along much quicker this year – who knows?! To add some spice, I plan to cover companies in random order this time ’round.

The Great Irish Share Valuation Project IX

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2P Reserves, Alkermes, Amarin, Anadarko, Andor Technology, Botswana Diamonds, Circle Oil, Clontarf Energy, Connemara Mining, Cooley Distillery, Cove Energy, Dragon Oil, Escher Group, Galantas Gold, Interior Services Group, iShares MSCI Ireland ETF, Jazz Pharmaceuticals, Jim Beam, John Teeling, Kentz, Minco, Ovoca Gold, Petrel Resources, PTT, Royal Dutch Shell, Siteserv, TGISVP, Tullow Oil, USPS, Worldspreads, Xstrata, Xtierra

Continued from here.

As I’ve mentioned, we’ve another 20 odd non-ISEQ listed Irish stocks to work through still. I should first note I’ve eliminated Alkermes (ALKS:US) and Amarin (AMRN:US) (and Jazz Pharmaceuticals (JAZZ:US) never even made the cut*). Clearly, an Ireland HQ is particularly attractive for pharma companies! Any reader care to enlighten us further..? I wasn’t fooled by this shell game, but they had some Irish directors/management/locations, so I planned to include them in TGISVP. Now I look again, their Irish ‘representation‘ is pretty small, and sure to get even smaller… So they’re out – unless someone wants to email and persuade me otherwise!?

I’ve also revised valuations for Worldspreads (WSPR:LN) and Siteserv (SSV:LN) – in fact, they kind of swap places in the rankings! I was briefly commenting here on both companies, and their respective scandals, and it got a little out of control..! I had to upgrade to a separate article. Note I’m keeping a file of all original share prices and valuations, which I’ll use for any performance/evaluation exercises at a later date. Right, let’s see if we find anything interesting in this batch:

TGISVP VIII – ISEQ Recap

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Allied Irish Banks, FBD Holdings, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Petroneft Resources, Prime Active Capital, Russia, TGISVP, Total Produce, Tullow Oil, Zamano

Continued from here. I highlighted we’ve another 20 or so stock valuations to work through, but we’re now finished with all the ISEQ-listed Irish stocks. Whenever you consider Irish stock performance or are investing in some type of Ireland focused fund/product, it’s only these ISEQ stocks that will (likely) be relevant. We’re therefore at a good point to pause and provide some interesting stats & comments. I’ll use the TGISVP V Excel file from this post, but I’ve updated it here with current market prices as of March 7th (and included my TOT & FBD valuation updates):

TGISVP V (Mkt Prices Updated Mar 7th)     (xlsx file)

TGISVP V (Mkt Prices Updated Mar 7th)     (xls file)

The Great Irish Share Valuation Project V

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Better Capital, Dart Group, FL Partners, Irish Continental, Jon Moulton, Marketspreads, Paddy Power, Pageant Holdings, Petroneft Resources, Ryanair, Siteserv, Smurfit Kappa, TGISVP, Total Produce, Tullow Oil, TVC Holdings, United Drug, UTV Media, Worldspreads, Zamano

Continued from here:

Before tackling the next batch of stocks, some readers may want to revisit my first TGISVP post. This project’s not about doing a detailed writeup/valuation on each stock. Sure, I spend ample time on each stock (on a best efforts basis)**, but less than if I were making an investment and/or doing a detailed writeup. That’s why I label these rough and ready valuations! On average, yes I’d expect detailed and rough & ready valuations to be similar, but ‘average‘ is key here..! Take a closer look at any company, and my new valuation could be (possibly significantly) higher, lower or unchanged vs. my original valuation.

What this project is designed to do: i) Illustrate the wide variety of valuation assumptions/approaches that can be applied depending on each individual company/situation, and ii) provide a cheatsheet to highlight the potentially best (and worst!) Irish stocks, on an absolute (or relative) basis, that may merit further research and potential purchase/sale.