Comparable companies - Boustead & CSE Global

although the two companies have different operations(Boustead has energy related engineering/real estate solutions/water engineering/geo-spatial, CSE has heathcare/oil&gas/mining/infrastructure) , they do exhibit some similarities in term of certain investment merits, I believe.

similarities:

1. both are global diversified engineering company

2. both are project based company with lumpy earning and depending on order book

3. both have 500+ million shares outstanding and are illiquid counters.

4. for FY ended in 31/03/2011 Boustead earned NP('000) 52,235. for FY ended in 31/12/2010, CSE Global earned NP('000) 52,477

5. both had net cash generated from operation of 50+ million and low capex (removing one-off acquisition), thus strong FCF.

6. Boustead got setback from Libya while CSE Global had project cost over-run from its telecom project in middle east

7. both has high adjusted ROE (Boustead removing its cash while CSE Global removing its intangibles)

8. both has current ratio of around 2.

differences
1. balance sheet, Boustead is stronger, having 200+ million cash and around 25 million loan (but quite a lot of other liabilities), while CSE Global has less than 60 million cash and less than 60 million loan. net net Boustead still has a much higher tangible equity.

2. order book, CSE Global has a stronger order book of around 400 as end of 31/12/2010, Boustead has less than 300 mil as end of 31/03/2011

3. profit margin, CSE Global was higher than Boustead.

4. ...


As of market close @21/10/2011, Boustead closed at 0.81, CSE Global closed at 0.76, 5 cents difference. with gloomy economy outlook, will the difference be wider in the future?

For me CSE business seem easier to understand, they are doing IT system selling IT equipment to oil & gas, healthcare, etc. And i guess they have a little niche in the IT system because those are quite specialized system like control system or operation management.

For Boustead, i don't really understand what they are doing, like those boilers, or those pipe setup machine in their annual report. Really don't know what are those. These are out of my knowledge domain, and guess not quite easy for me to understand.

my question for CSE is whether they have an unassailable client base and market leading tech. that is what is important in the IT industry.

if they have that we have a pretty good business.

Boustead is a more diversified turn key solutions i feel. not an expert.

Well, I know quite a bit about Boustead off-hand as I have been a shareholder for 5 years, but as I don't know much about CSE Global at all, I can't really do a meaningful comparison.

Perhaps one can start with:-

1) ROEs for both companies, using 5-year averages
2) Dividend yields for both companies
3) Dividend history for both companies, using 5 year average too

Will post more when I think deeper on the issue.

just found another interesting similarity between them.

they both have Chartered Asset Management as a substantial shareholder. (Boustead: 8.8% while CSE Global: 12.7%).

wonder who is the Chartered Asset Management

I was a shareholder of CSE Global from last year to early this year. I always imagined it to be a 'tech' system coy who decided to get their hands dirty. Their business has transformed over the decade - just look at what they have been doing since 2000 to now. I guess the key difference between them is management style/strategy. One consistently uses a mixture of internal cash and debt to acquire companies all around the world to boost its earnings while another hoards away cash, focus on organic growth and distributes growing dividends to shareholders (semi-annually). As long as both Management stick to what they have been doing for the past decade, both set of shareholders will be happy. Since CSE derives > 90% of its earnings outside of Singapore, it bears forex risk.

I believe that it is not boustead wanting to hoard cash and not doing acquisitions. It is more like ff Wong is very cautious about acquisitions. Of course, with caution, a lot of opportunities slipped away

As of Dec 2, Boustead was traded @0.805 after xd(2cents dividend) vs 0.67 of CSE Global.

CSE and boustead all have project delivery risks.

At 0.67, CSE is still trading at around 9x P/E. IMO, it's still too expensive despite it being a good and reputable business.

Downside possibility is still there as they might be pushed down from more bad EU news. Might enter if it hits $0.50 or less.