CSE Global

(15-11-2013, 09:45 AM)dzwm87 Wrote:

(15-11-2013, 12:47 AM)ARC Wrote: Maybe what is missing in the calculations is the value of its cash and the value of its debt headroom. If one just take ex-UK earnings x P/E + special dividend, you will most likely get a value +/- 10% of current price. But what happens if CSE take its cash and acquire a coy at 8x/10x/12x P/E tmr?

The fact of the matter is that Servelec was sold for 14x. To only capture the value of the portion you receive from the sale - i.e. special dividend - and ignoring the one that sits within the coy you own..that may be selling yourself short. How one choose to price/value/discount that cash pile is of course up to debate but a value of 0 may not be appropriate.

Yes, I do agree there is a possibility for mgmt to use their balance sheet for another acquisition. But their cash pile isn't that much. Gross debt of S$99mln in 9M2013 and after paying down with the proceeds, the company still have around S$24mln in gross debt. Net cash will be S$57mln which is really just 11% of market cap - nothing fantastic.

But like what egghead suggested, there is some addition to EPS from a lower interest expense - my calculation shows it to be an additional S$0.01 to EPS?

Anyway, my point is what's after Servelec? The spin-off would have been a lot more attractive if Servelec is unprofitable since post-spin off, CSE will be more profitable.

Net cash can go into net debt just as it is now. So cash at disposal for acquisitions is really more than the net cash number post debt repayment. Whether they can deploy the cash in an accretive manner is the question.

If Servelec was unprofitable, one wonders if they could have sold it for 14x. My view is that Servelec was not any more spectacular a biz than the other parts. And I won't miss Servelec with all the issues that come with it.

Life goes on post divestment. Nothing changed. CSE will remain a boring, hard to model, hard to understand biz, with some amount of earnings cyclicality. But despite all that, it will continue to throw off a good amount of free cash and some of that will make it way back into your pocket. Growth will come organically, subjected to cyclicality, but primarily through acquisitions.

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One could of course value the coy on what it is now or on what it could be. The former could be (overly) conservative and the latter (overly) hopeful. Mistakes of omission are as bad as mistakes of commission. Perhaps the answer is somewhere in between.

The question remains wide open on what is the right valuation method/multiples to apply for the biz.

The most important question that matters though is this - can you potentially make more $ than what you could potentially lose?

From the Investec web site

Investec acts as Sponsor, Financial Adviser, Broker and Bookrunner to Servelec plc on its £122 million IPO
Investec acted as sponsor, financial adviser, sole bookrunner and broker to Servelec Group plc (“Servelec” or the “Company”) on its IPO on the premium listing segment of the Official List of the London Stock Exchange.

CSE Global Limited, the Singaporean listed parent of Servelec, has sold 100% of the share capital of the Company for £122 million as part of the IPO.

This is the largest capital raise at IPO for a Software & Computer Services company since Autonomy Corp’s IPO in November 2000.

Servelec is a UK-based technology business which operates as two divisions: Servelec Healthcare and Servelec Automation.
Servelec Healthcare specialises in the design, development and implementation of Electronic Patient Record software within secondary care settings such as Mental Health, Community Health and Acute and is a market leader in Mental and Community Health in England.
Servelec Automation provides complex, mission-critical control systems to large, blue-chip companies mainly in the UK.
Servelec’s IPO remains conditional on the approval of CSE Global Limited’s shareholders later this month. Admission of shares is expected on 2 December.


Does this mean CSE has received £122m for Servelec ?

1.07 to 0.65 via yahoo & google finance

i wonder why in SGX, it did not reflect the same price value, cos highest i saw was only 0.80 in their interactive chart.

Suppose the special dividend 0.28 went XD on Dec 30.
From its close price on Dec 27 of 1.05, the adjusted price would be 0.77
It opened on Dec 30 at 0.80 and closed 0.78
However, it continued to fall below and hit a current low of 0.65 and hovered currently at 0.655/0.66

Anyways, it fell quite a lot, and i wonder if there was any mispricing by Mr Market that would provide an opportunity.

Attached table values from Yahoo finance
http://sg.finance.yahoo.com/q/hp?s=544.SI
31 Dec 2013 0.78 0.79 0.75 0.76 924,000
30 Dec 2013 0.80 0.80 0.77 0.78 2,591,000
27 Dec 2013 1.06 1.07 1.05 1.05 2,011,000
26 Dec 2013 1.05 1.07 1.05 1.05 1,754,000
25 Dec 2013 1.04 1.04 1.04 1.04 0
24 Dec 2013 1.05 1.05 1.04 1.04 1,146,000
23 Dec 2013 1.04 1.06 1.03 1.05 2,300,000
20 Dec 2013 1.03 1.03 1.02 1.03 3,216,000

I had divested fully on XD on the following reasons:

1. At 1.06, you are pricing close to 12x for CSE ex-Servelec which I think is somewhat fine for a business which has limited visibility into its earnings.

2. Concerns relating to the business has never gone away. The spin off of Servelec was just a distraction. Mgmt had been slow with their turnaround but this is normal. What concerns me is that they are finding it hard to sustain their business at similar margin. Yes, track record seem to suggest a somewhat above-average cash flow business but has the industry changed? I don't know and can't seem to figure that out. There is nothing I can grasp in terms of order book visibility. It can grow 10% next year, 15%, 20% or even the opposite. This is the downside for an order book driven business.

Not a one-bagger but this gave me a decent return (+ worthwhile knowledge) over a short period of time.

Just giving my views : Assuming CSE can achieve an estd EPS of $0.07 in FY14 post-servelec divestment, stock could now trading at about 9.4 times. With volume picking up after going XD, seems there are buyers who see value at current price. However, share may continue to drift lower but that would make it more enticing.

Share was hovering at about $0.85 before Servelec IPO announcement. Theoretically, it should be trading at about $0.60 assuming loss of 30% earnings from Servelec after divestment.

(16-01-2014, 07:43 PM)cyc Wrote: Just giving my views : Assuming CSE can achieve an estd EPS of $0.07 in FY14 post-servelec divestment, stock could now trading at about 9.4 times. With volume picking up after going XD, seems there are buyers who see value at current price. However, share may continue to drift lower but that would make it more enticing.

Share was hovering at about $0.85 before Servelec IPO announcement. Theoretically, it should be trading at about $0.60 assuming loss of 30% earnings from Servelec after divestment.

I think this is the wrong way of seeing it. Before the announcement of the IPO of Servelec, the stock price did take into account how much would Servlec contributes to its bottomline. After the announcement of the IPO of Servelec, it has been promised that a dividend would be given and as such, market is expecting a dividend of around $0.28.

Now, Servelec has IPO and $0.28 has been given and so it's stock price moves down as Servelec is no more contributing to CSE Global's bottomline. However, I did check that exclude Servelec, CSE Global has increasing earnings every year as well for the past 3 years.

I would hold on to it first and see what they intend to do and may diversify slowly if there are no catalyst. The good thing is that with the divestment, CSE Global has paid down all its debt and as such, they would be immuned to any interest rate increases.

One thing for sure, 4Q will see a huge profit recognition coming from their divestment gain but this is a one-off gain and the cash had already been paid out as dividends. If market is irrational, there can be some upward pressure on the share price.

They are going to use S$75mln to pare down debts which amounted to S$99mln as of 3Q 2013. So, some debt will remain but interest expense will drop. 9M2013's interest expense was S$4mln which is ~10% of PBT. So at max, PBT will improve by 10% but since not all debt will be paid down, it will probably be somewhere less than that.

We only know how CSE ex-Servelec performed from 2010 onward. 2011 was a bad year as they hit into a cost overrun issue so you can't really say earnings were increasing every year. The circular didn't adjust for that but it was a fact that their operations suffered in 2011. 2013, on an annualized basis, is unlikely to outperform 2012 since order wins have been flat. If you look across the 3 years, CSE ex-Servelec probably earns around S$380mln in revenue and margins averaged around 9%. This implied around S$34mln in average earnings which translated to 12x earnings on XD price.

IMO, i think the key lies in mgmt's long term target. Will they be acquiring more subsidiary? If so, how do they plan to combine their operations together? As much as CSE had successfully grew by organic growth and acquisitions, I suspect the same growth was also partly the cause for their mishap in mismanaging the Middle East projects. They have been acquiring too many subsidiaries that it become hard for them to manage it as a whole or to grow the CSE brand name.

I used to think with their superior cash flow track record, CSE should be at least 12x earnings but all order book driven companies have their discounts. These cash flows are not sticky and can disappear if order wins do not flow through. So eventually, I figured the exit was too tempting for me to ignore and there were also other better opportunities to deploy my cash as well.

Maybe it will become interesting again if they fall by another 30%

I think it will be interesting only for my case if management plans to sustain same dividend yield

19/9/13 Opinion that is not posted onto this thread

http://www.investorcentral.org/text_show...xtid=18388

Post $0.28 distribution and the recent market correction, CSE was trading at about $0.61 yesterday. Assuming $35m PAT post Servelec divestment (I think is probable), we are looking at EPS of about $0.067, and DPS of about $0.027, translating into PE of 9.1 and dividend yield of 4.4%; plus much reduced debt on its balance sheet.

Any buddy find this appealing enough yet?