Category Archives: Articles

Iress Limited (ASX:IRE) is a leading supplier of share market and wealth management systems in Australia, Asia, New Zealand, Canada, South Africa and the United Kingdom.

Iress operate two core products being IRESS and XPLAN which comprise an equity information and trading platform and an extensive suite of financial planning and associated tools.

Iress products manage and monitor industry information which meets the needs of a large range of clients from big corporations through to independent operators.

Iress employs over 600 personnel in 14 offices.  Their offices are located in the centre of major financial districts in each of their domiciled countries worldwide.

Does this business have a sustainable competitive advantage?
Iress’s competitive advantage comes from the strong relationships it has developed with its clients. Iress provides ‘global coverage, local support’ which keeps their clients up to date with local developments while maintaining global information flows.

Not so much a competitive advantage but a sustainable business model is in place with Iress enjoying recurring revenue via its supply of information and trading platforms.

Iress has a history of growing in scale by acquiring similar businesses across various parts of the world. I suspect this pattern looks set to continue.

What are the risks facing this business?
The obvious risk is volatility in share markets around the world. Volatility and negative sentiment would reduce the level of recurring revenue from some clients reducing head count and therefore reducing the need for Iress’ information subscriptions.

A second risk comes from the possibility of a new entrant competing with Iress. While it wouldn’t be an easy task, it is not impossible for a new player to enter their market and try to compete with some new technology or initiatives for instance.

Is it run by able and trustworthy management?
Management has done a wonderful job in growing this business to hold a significant presence in many leading financial districts around the world.  With $55 million of cash on the balance sheet, the company appears in a great position to continue this acquisition process in order to grow future earnings.  The company also reports cash flow similar to that of net profit levels.

Is it trading at a bargain price?
On an intrinsic value basis, the company is rarely good value which is the case at the moment.  Other valuation models suggest it is slightly over-priced.  However, the technical case is good with a third cup and handle pattern in the past 12 months making this stock a good ‘value trade’ or ‘quality trade’.  I usually don’t look for price targets preferring the market to tell me what to do.  However, the pattern suggests a target around the $9.60 mark.

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Summary
In summary, Iress is a wonderful business that has grown into a leading provider of share market and financial information in the countries it operates within.  The company is leveraged to the performance of share markets around the world.  The company has great management who have grown the business by acquisition while maintaining an extremely strong balance sheet.  The company has scope for more acquisition and earnings growth as a result.  The company is rarely cheap on a valuation basis which is a compliment to the quality of the company.

This article is published by Dean Mico.

Disclosure: Dean Mico owns shares in Iress Limited as a ‘value trade’ more so than a long term investment.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Tabcorp Limited (ASX:TAH) is Australia’s leading wagering, racing media and Keno operator.

Tabcorp manages leading customer brands in Australia, including TAB.com.au, Keno, Luxbet, Tabcorp Gaming Solutions, Sky Racing and Sky Sports Radio. These brands serve millions of customers every year.

Tabcorp’s four businesses are:

1. Wagering – totalisator and fixed odd betting
2. Media and International – broadcasting of sporting and horse racing events
3. Gaming – electronic gaming machine operations
4. Keno – operating Keno in clubs and hotels within Victoria, New South Wales and Queensland

In June 2011, Tabcorp completed the demerger of its Casinos Business to form the newly listed Echo Entertainment Group Limited.

Does this business have a sustainable competitive advantage?
Tabcorp has a sustainable competitive advantage across part of their business with a 10 year licence to provide Keno operations in Victoria which began in April 2012.  And, they possess a 12-year Victoria Wagering and Betting Licence which started in commenced in August 2012.

These licences should ensure that Tabcorp will generate continuing streams of income over the next 12 years from two of its four business divisions.

Tabcorp’s other easy-to-see advantage comes from the broad range of distribution channels and brands that it promotes.  Their betting products being their brands are distributed at TAB outlets, clubs, pubs, hotels, race tracks and online across your internet connected device of choice.

What are the risks facing this business?
The biggest risk is the growing competition particularly in the digital/online space for their wagering business.  With seemingly little barrier to entry to set up an online betting/bookmaking service, providing a profitable point-of-difference in this space will continue to be difficult.

A second risk comes from the debt levels the business carries.  The licence wins in Victoria have come at a cost and the company holds 80% of their equity as debt as of December 2012.

Is it run by able and trustworthy management?
Management has done a great job to secure licences in Victoria in recent years. This bodes well for the longevity of the business.

Is it trading at a bargain price?
On a fundamental balance sheet view of the business and considering the current debt levels, it is expensive.  However, I wonder if the share price improvement since November is merely:

1. A function of a rising tide lifting most boats including Tabcorp, or

2. The market pricing in a restructure of online gambling given the negative media coverage afforded this year to arguably Australia’s highest profile online gambling provider

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Summary
In summary, Tabcorp is a business that will be operating for at least the next 12 years given the licences it holds.  The company has taken on more debt in recent years and while profitable, has not produced cash flow that reflects that profitability.  The company will face continuing changes due to the impact of online gambling and I will watch this space with interest.

This article is published by Dean Mico.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Job Application Unsuccessful

The Reject Shop Limited (ASX:TRS) operates in the discount variety retail sector in Australia serving a broad range of value-conscious consumers who are attracted to low price points, convenient shopping locations and the opportunity to purchase a bargain.

The Reject Shop offer a wide variety of general consumer merchandise, with particular focus on:  everyday needs – such as toiletries, cosmetics, homewares, personal care products, hardware, basic furniture, household cleaning products, kitchenware, confectionery and snack food; and lifestyle and seasonal merchandise – such as seasonal gifts, cards and wrapping, toys, leisure items and home decorations.

The Reject Shop started with a single store in 1981 in Melbourne Victoria and has since grown to over 250 stores operating in New South Wales, Victoria, South Australia, Queensland, Western Australia and Tasmania.  The company’s stores are located in shopping centres and standalone sites within shopping precincts in metropolitan areas, major regional centres and smaller country towns.

The Reject Shop listed on the Australian Stock Exchange in June 2004 and currently employ over 5000 people.  The number of employees brings me to linking the title of this article with the plagiarism of a joke by Arj Barker (pictured), one of my favourite comedians.  To paraphrase Arj’s joke, “Imagine how bad you would feel about yourself if you couldn’t even get a job at The Reject Shop”.

Does this business have a sustainable competitive advantage?

1. The Reject Shop has a well-defined target market of consumers who are conscious of value, want to save money and enjoy a bargain.  The nature of The Reject Shop’s business is that they are relatively immune from periods of lower economic activity as tough times will see more consumers become interested in finding bargains from their stores.
2. The Reject Shop enjoys brand awareness from over 90% of the community.  This is helped by the majority of stores being located in convenient shopping locations.
3. The Reject Shop has developed a significant barrier to entry.  This can be seen by the difficulties seen by one of their main competitors Go-Lo in recent times. Go-Lo’s parent company Retail Adventures went into administration in October 2012.  It might seem easy to compete with The Reject Shop by simply opening a shop front and selling similar products cheaply.  However, behind the shop front is a 250+ strong store network and what appears to be a very well run distribution centre giving The Reject Shop significant scale and cost advantages over would be competitors.
4. The company presents that it will have 280 stores opened by June and it has a plan in place to have 400 stores nationwide in the longer term.

What are the risks facing this business?
One of the risks with the plans to open more than another 100 stores will be getting the right locations in targeted areas.  Location, location, location will prove very important to The Reject Shop.

And, a second risk will be the potential to deviate from the right product mix for their customers.

Is it run by able and trustworthy management?
The Reject Shop’s management has run this business very well for a number of years.  The company’s operations were significantly affected in late 2010 as a result of the Queensland Floods.  The floods were extremely disruptive as they forced the closure of the Ipswich Distribution Centre.

The floods also damaged about 80% of the stock held in the distribution centre at the time and created a logistical nightmare for the company.  This put a big strain on operating cash flow at the time and forced the company to take on debt and to restructure their distribution centre in order to mitigate against the risk of any future floods.

Management has down a remarkable job since the impact of the floods. The strong cash flow the company generates has enabled The Reject Shop to not only pay back the debt quick smart, but they now sit on a significant cash balance in the vicinity of $20 million as of December 2012.

Is it trading at a bargain price?
In 2011, the share price was beaten up once the full extent of the damage of the floods was known.  This created a situation where the share price was excellent value due to some very unfortunate and temporary circumstances.

It is about this time of year that I start looking towards 2014 financial year valuations and The Reject Shop still has some legs into 2014 based on my assessment.

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Below is a 12 month price chart for The Reject Shop showing a jump from what was a temporary setback.

Summary
In summary, The Reject Shop is an awesome business operating consistently profitably.  The company has more growth ahead of it courtesy of new store openings, competitive advantages, astute management and a very strong balance sheet courtesy of the cash the business generates.

This article is published by Dean Mico.

Disclosure: Dean Mico owns shares in The Reject Shop Limited.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Flight Centre Limited (ASX:FLT) is a global travel agency business.  The company provides a complete travel service for leisure and business travelers in Australia, New Zealand, the United States, Canada, the United Kingdom, Africa, the Middle East, Asia and Europe.

Flight Centre began in the early 1980’s with one shop and has enjoyed outstanding growth to become the business it is today.  The company operates over 30 distinct travel brands across their business.  These brands not only encompass the Flight Centre brand, but also include brands such as Escape Travel, Student Flights, Corporate Traveller and 99Bikes.com.au.

Flight Centre employs more than 15,000 people and operates more than 2,500 stores globally.

Does this business have a sustainable competitive advantage?
Flight Centre has a number of competitive advantages that appear sustainable.

The first advantage is in their geographic diversity.  The company operates about 2,500 stores directly in 11 countries.  And, it has licensing agreements in another 75 countries.  This gives Flight Centre a geographic advantage over many of its competitors.

A second advantage comes from brand awareness.  A recent presentation by the company suggested Flight Centre was the 14th most recognised brand in Australia.  It is likely in this country that when people and businesses are looking for travel, that Flight Centre will be a consideration.

This brand awareness in Australia is providing the company with an opportunity to grow organically into more global markets across many of their brands.

Flight Centre presents another advantage which is their people.  Staff numbers apparently grow at about 10% per annum with the majority of staff in sales roles.  The company appears to have the right mix of incentives for staff to perform.  This creates business momentum as more staff incentivised to sell more will naturally equate to business growth.

What are the risks facing this business?
Volatile economic conditions will have an impact on Flight Centre.  Economic conditions may be felt more acutely in areas that Flight Centre is attempting to grow such as the USA and the UK.  Recent economic reports suggest the UK has ‘triple-dipped’ into another recession which may dampen short-term momentum for the business.

Is it run by able and trustworthy management?
Flight Centre’s management has done a remarkable job to grow the business since humble beginnings in the 1980’s.  The company’s managing director Graham Turner has directed this business and been a driving force for the company’s growth.  I read recently that one of Mr Turner’s hobbies was marathon running, a hobby of my own which surely makes him able and trustworthy.

Flight Centre report each year an amazing amount of cash on their balance sheet each year. This is largely due to a concept called ‘float’.  Flight Centre’s float essentially comes from the time lag between when they receive payments and deposit payments from customers and when they have to pass those payments on to suppliers such as airlines and hotels.  This float essentially means that the business can utilize this constant flow of money from customers to run their business and also earn short term income from this cash flow.

Is it trading at a bargain price?
The share price has had an amazing run over the past 14 months or so and is now a touch expensive compared to my estimate of intrinsic value.

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Below is a 12 month price chart for Flight Centre showing that amazing run.

Summary
In summary, Flight Centre is a wonderful business operating consistently profitably.  The company has competitive advantages, great growth prospects, experienced and able management and a very strong balance sheet courtesy of its float.  As the company grows it does become more difficult for per share valuation to increase if the rate of growth slows.  The company has outperformed expectations in recent years and if this form continues, the future estimates of value would increase accordingly.

This article is published by Dean Mico.

Disclosure: Dean Mico owns shares in Flight Centre Limited.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Fleetwood Corporation Limited (ASX:FWD) provides a range of fixed and mobile accommodation for the retirement, recreation and resource markets.  The company commenced in 1964 selling caravans which still forms a large part of their business today.

Fleetwood sell a range of recreational vehicles, accessories and caravans under four brands being:
1. Camec (caravan and marine spare parts)
2. Coromal Caravans
3. Flexiglass (fiberglass ute canopies, liners and lids)
4. Windsor Caravans

Fleetwood also manufacture and sell accommodation for the retirement and resource markets under:
1. Fleetwood (transportable home and portable accommodation)
2. BRB Modular (prefabricated homes)

Fleetwood is head quartered in Perth, Western Australia and listed on the Australian Stock Exchange in 1987.

Does this business have a sustainable competitive advantage?
Fleetwood’s recreation business holds a good percentage of market share due to selling three distinct brands across their caravan range (Camec, Coromal and Windsor Caravans).  And, Flexiglass are the market leaders in Australia for manufacture and sale of ute canopies.

Fleetwood have large well positioned manufactured accommodation in resource dominant locations such as Karratha and Port Headland in Western Australia and Gladstone in Queensland.  The Searipple Village in Karratha provides 1,320 rooms of accommodation, the Osprey Village in Port Headland currently has 300 mobile homes and the Gladstone Village will provide about 1,000 rooms when completed in 2014.  This accommodation provides Fleetwood with recurring revenue streams potentially for decades.

What are the risks facing this business?
One risk to the recreation division selling Caravans is what appears to be the collective diminishing penchant of Australian’s for driving a caravan around the place.

A risk to the manufactured accommodation revenue comes from the cyclical nature of resource projects.  Reduced resource demand and the reflective demand of worker activity on resource projects can reduce occupancy levels at Fleetwood’s accommodation villages.  This risk has been seen in the last six months with Rio Tinto and Woodside both completing projects which resulted in their staff no longer being accommodated at Searipple Village.

Is it run by able and trustworthy management?
Fleetwood’s management has done a wonderful job for the past decade.  However, I do wonder if the recent headwinds experienced by the business, is causing management decisions to lose their shine.  The company earned 8.6 cents a share in the six months to December yet the company paid out 30 cents in dividends last month.  While all investors love being paid dividends in the short run, doing so when they haven’t been earned by the business is a worrying sign as it is not sustainable in the long run.

As at December 2012, the company’s balance sheet is strong as it holds little debt.  However, the half yearly cash flow was negative reflecting difficult trading conditions.

Is it trading at a bargain price?
Given the most recent half year results and outlook, Fleetwood’s share price is expensive at present.

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Below is a 12 month price chart for Fleetwood Corporation Limited


Summary
In summary, Fleetwood is a stable business operating profitably in a changing environment.  The company has experienced management in its field and a tidy balance sheet.  The company presents that it is operating in the growing area of ‘resources and recreation’ and there is two sides to that story.  The company has a long history of producing good profits and good cash flow.  Whether the current performance is a short term blip or a longer term trend remains to be seen.

This article is published by Dean Mico.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Wellcom Group Limited (ASX:WLL) is a technology based marketing production company with operations in Australia, the United Kingdom, Asia and New Zealand.  Wellcom create, manage and deliver content for corporations and advertising agencies.

Wellcom offers its clients a total range of services along the marketing supply chain.  Wellcom take a brand concept and create design services and cross-media adaptations, 3D and 2D illustration, photography and creative retouching, online and digital services, TV Commercial production, video and animation, Pre-media, image and asset libraries as well as online workflow processes.

Wellcom began in 2000 as a private company employing 12 people in Melbourne and listed on the Australian Stock Exchange in 2005.  Today, Wellcom employ about 400 people in their offices situated in Melbourne, Sydney, Adelaide, London, Auckland, Singapore and Kuala Lumpur.

Does this business have a sustainable competitive advantage?
A competitive advantage that Wellcom offer to their market is the ability to provide their clients with solutions to communicate across multiple media channels with speed and consistency.

A second advantage is that Wellcom offers a vast array of products across the entire marketing supply chain in order to meet their client’s needs.

Wellcom also offer a clever project management software tool ‘Knowledgewell’.  Knowledgewell helps corporations manage the entire marketing workflow.  Knowledgewell also incorporates financial planning tools that can measure the success of a particular marketing campaign.

What are the risks facing this business?
One obvious risk to Wellcom is the ever-changing world of media content and delivery. Traditional print and TV advertising are less influential than they used to be.  Wellcom has been built by utilising technology as the foundation of its business.  The company will need to stay abreast of the changing media landscape and relevant technological implications in order to maintain that strong foundation.

Is it run by able and trustworthy management?
Wellcom Group was founded by Wayne Sidwell in 2000 who is currently the company’s Executive Chairman.  Mr Sidwell has continued on the Sidwell family tradition.  The Sidwell family has been a leader in the graphic arts industry in Australia for over 50 years.

As at June 2012, the company boasts a net cash position of about $15 million which equates to about 28% of the equity of the business.  This cash gives the business options.  A good option for the cash held would be to grow the business organically either via new technological innovations or the growth of existing and new offices around the world.

Is it trading at a bargain price?
Wellcom group is around my estimate of fair value at present.  This estimate of value will most likely change once the company reports their half yearly results.

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Below is a 6 month price chart for Wellcom Group

Summary
In summary, Wellcom Group is a growing business operating profitably in an ever-changing environment.  The company has experienced management in its field and a tidy balance sheet.  The company has a history of producing consistent profits and good cash flow.

This article is published by Dean Mico.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.