Jump to content



Recommended Posts

In reply to: crookers on Thursday 30/11/06 08:09pm

Hi Crookers - on the plus side is low current P/E of 9.9 at 40.5cps. Good margins. Good growth history. Good return on capital. Exposed to buoyant resources sector. Last outlook statement was "favourable" with forecast of "expected increase in profitability". Subsequent Stace acquisition stated as eps accretive from date of acquisition. Plugged into three different valuation models and using a conservative growth rate c.f. historic rates, gives me an average of 75cps. But these are models only and limited to assumptions that the business can continue to perform.


On the negative side, margins have declined, tax rates seem to vary markedly, they have insufficient listed history to provide evidence of reliability, they are small, they have information risk (insufficient releases), they may be impacted by timing of one-off large automation contracts (not possible to tell), the consumables side of the business could be increasingly competitive.


Overall, market seems to be pricing in only very limited or no growth in profitability. My reading of the evidence is that this is less probable than moderate to good growth. Just a simple continuation of 2H06 profits into the coming year would given them a NPAT of $2.16m, giving a P/E of 8.3. But this is just my logical conclusion based on releases to the ASX and perhaps the lead manager has access to more direct information to justify their more pessimistic conclusion.

Link to comment
Share on other sites

  • Replies 43
  • Created
  • Last Reply

Top Posters In This Topic

thanks Lizard i guess the key and the great unknown , as always, is the growth factor. by the way the lead brokers report was early this year so a lot of water under the bridge. still looks cheap based on your figures and it has a very good history albeit recent thanks still havent made up my mind http://www.sharescene.com/html/emoticons/wub.gif procrastinator which has cost me heaps!!!!!!
Link to comment
Share on other sites

A correction of last years first half problems, and a little bit of growth had me predicting EPS at around 5.1-5.2cps. This is excluding the STACE acquisition so I believe there is some safety in this EPS prediction I hav emade.


That is approx 25% growth in EPS and I think the ESS will be re-rated to a forward P/E of around 10....pushing the share price forward to about 55c come the end of this financial year.


Based on my purchase price:

- 9.2% yield (I have grossed this up for imputations)

- 41% capital growth


Plenty of safety here to make some money - investing in these small caps in a good market seems like stealing candy from a baby?!?! Don't know why more people don't focus on value investing in proftiable small caps in a market like this one?


Liz - your 75c valuation may very will be right...IMO it is probably a top end prediction for this financial year, but trust me I'd like it to be hit http://www.sharescene.com/html/emoticons/smile.gif I do believe however, that it demonstrates the safety inherent in ESSs current SP.



Link to comment
Share on other sites

Stockpanther Couldnt agree more that investing in small/micro caps in the current market can be very profitable. the problem of course is finding them. i made a post on AMA which i feel falls into this category and would appreciate some feedback from yourself or any others that may be interested. cheers http://www.sharescene.com/html/emoticons/rolleyes.gif
Link to comment
Share on other sites

Based on this latest earnings forecast (at least $1.5m EBIT, $12m revenue for the half year), my estimate is that full year NPAT should be in the region of $2.4-$2.6m, with dividend of around 3cps. At 50cps, this is a forward P/E of 8.5 - 9.2 and dividend yield of 6.0% plus franking credits.



Link to comment
Share on other sites

All good crookers - you never want to overpay for a company so you're better off taking the cautious approach IMO!!


Liz - I think your NPAT figures are definately achievable based on the guidance provided by management - $2.5m NPAT equates to eps of 5.7cps.....if this was to happen we'll definatly see the share price sale north of 60c.


I always seem to take a very pesimistic "worst-case scenario" approach to my investments...in light of this here is my postings from sharetrader for the benefit of others!!


Well guys - it is nice to hear some decent news to confirm our beliefs!! up 28% in the last month!



No surprises in this announcement...

I think we can conservatively extrapolate the first half and say that full year EBIT will not be lower than $3mil, less about 200k for interest (remember STACE was partially funded by debt so i've just picked a conservative higher amount), less $800k in tax gives NPAT of $2m (4.5cps).


This is conservative I believe because:

- my extrapolation only accounts for 6 months of earnings from STACE

- my extrapolation uses the low side of guidance provided (management have stated at least $1.5mil EBIT of 1H07


Based on the guidance, my personal view is I would be happy with (and I think ESS will achieve this) full year NPAT of about $2.2mil (or 5cps) which is just below my previous estimate of 5.2cps. I think we are looking at anywhere between 4.5cps (worst case) and 5.5cps (good case)


We have probably cashed in on the best part of the pricing discrepancy now I think, but I'll continue to hold as the price is still good, the company has solid growth potential and their management have demonstrated that ability to run a profitable organisation year after year.

Link to comment
Share on other sites

QUOTE (stockpanther @ Saturday 09/12/06 10:42pm)

Meets my criteria for a potential growth stock.


EBITA/total assets (excl cash) is a ratio I find useful for estimating the potential for growth and for ability to use debt to expand. ESS scores highly.


What they actually achieve will come down to management and markets. But they have a history of strong revenue/profit growth and a currently buoyant market for their products. So I'm optimistic for a multi-year hold and 25%+ pa returns, even at current share price of 50cps (and allowing for 60% payout ratio).

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Create New...