Good Results Triggered Re-Rating ?
Publish date: Mon, 24 Mar 2014, 12:38 PM
This company attracted my attention in early 2013. They undertook a private placement of approximately 20,000,000 new shares at RM1.00 per share while the market price at that time was 65 sen.
The placement gave rise to a lot of specultation of what was actually going on at the back. But for me, I can only see goods and no evil. Who am I to complain when the shares are placed out at steep premium ?
(1) Strong Results in the Latest Quarter
London Biscuits latest two quarterly results achieved a breakout. Over the past few years, quarterly net profit ranged from RM2 mil to RM3 mil.
However, in the latest two quarters, the group reported net profit of more than RM4 mil per quarter.
Management attributed that to intensive promotional and advertising activities, which helped to increase demand for the company's products.
(2) In the Process of Being Re-rated ?
The stock has been hovering at about 70 sen over the past few years. Following the release of the latest quarterly result, there was evidence of active buying.
One possibility is that fund managers had spoken to management post release of quarterly result and they like what they heard.
Trading volume spiked over the past two weeks and share price had gone up to 79 sen as I write this article.
I did a quick check with a Technical Analysis expert here in i3 and he confirmed the stock had achieved a positive breakout. He had also given me consent to mention it in this article.
(3) Corporate Governance Issue ?
London Biscuits incurred certain capital expenditure in the past few years to build up their production facilities (production lines, warehouse, etc). This has caused their gearing to go up and limit their capacity to pay dividend.
There were speculation of bad corporate governance. But nobody is able to prove it. For me, it could be somehing fishy, or it could be an honest mistake, or it is too early to tell whether it is a mistake at all.
In an interview with the press recently, management mentioned that they are now reaping the benefit of earlier capex as they now rely less on labour input, which is a major headache for a lot of manufacturing companies nowadays due to difficulty to hire workers at competitive salary.
Anyway, I think all these are water under the bridge. I believe the stock price has fully absorbed the abovementioned info, and now the market is looking ahead to the future.
(4) Gearing
The group does have a bit of gearing. With net loans of RM250 mil and net assets of RM300 mil, net gearing is approximately 0.8 times.
Having said so, RM94 mil of the borrowings are bankers' acceptances, which is trade related and common for companies that import raw materials for production.
The gearing is also mitigated by the fact that consumer business is evergreen and not so vulnerable to business cyclicality.
(5) Conclusion
This is a stock that has been forgotten by investors. Recent strong quarterly results had triggerd a re-rating. Technical signals looked good.
As usual, I suggest put it in your watch list.
Have a nice day.
The placement gave rise to a lot of specultation of what was actually going on at the back. But for me, I can only see goods and no evil. Who am I to complain when the shares are placed out at steep premium ?
(1) Strong Results in the Latest Quarter
London Biscuits latest two quarterly results achieved a breakout. Over the past few years, quarterly net profit ranged from RM2 mil to RM3 mil.
However, in the latest two quarters, the group reported net profit of more than RM4 mil per quarter.
Management attributed that to intensive promotional and advertising activities, which helped to increase demand for the company's products.
| March 2013 | June 2013 | Sept 2013 | Dec 2013 | |
| Revenue (RM mil) | 63.8 | 97.6 | 73.2 | 92.3 |
| Net profit (RM mil) | 2.5 | 2.7 | 4.4 | 4.9 |
| EPS (sen) | 1.79 | 1.97 | 3.06 | 3.45 |
(2) In the Process of Being Re-rated ?
The stock has been hovering at about 70 sen over the past few years. Following the release of the latest quarterly result, there was evidence of active buying.
One possibility is that fund managers had spoken to management post release of quarterly result and they like what they heard.
Trading volume spiked over the past two weeks and share price had gone up to 79 sen as I write this article.
I did a quick check with a Technical Analysis expert here in i3 and he confirmed the stock had achieved a positive breakout. He had also given me consent to mention it in this article.
(3) Corporate Governance Issue ?
London Biscuits incurred certain capital expenditure in the past few years to build up their production facilities (production lines, warehouse, etc). This has caused their gearing to go up and limit their capacity to pay dividend.
There were speculation of bad corporate governance. But nobody is able to prove it. For me, it could be somehing fishy, or it could be an honest mistake, or it is too early to tell whether it is a mistake at all.
In an interview with the press recently, management mentioned that they are now reaping the benefit of earlier capex as they now rely less on labour input, which is a major headache for a lot of manufacturing companies nowadays due to difficulty to hire workers at competitive salary.
Anyway, I think all these are water under the bridge. I believe the stock price has fully absorbed the abovementioned info, and now the market is looking ahead to the future.
(4) Gearing
The group does have a bit of gearing. With net loans of RM250 mil and net assets of RM300 mil, net gearing is approximately 0.8 times.
Having said so, RM94 mil of the borrowings are bankers' acceptances, which is trade related and common for companies that import raw materials for production.
The gearing is also mitigated by the fact that consumer business is evergreen and not so vulnerable to business cyclicality.
(5) Conclusion
This is a stock that has been forgotten by investors. Recent strong quarterly results had triggerd a re-rating. Technical signals looked good.
As usual, I suggest put it in your watch list.
Have a nice day.
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