XMH Holdings

[CityFarmer]

I chanced upon this counter and found something quite unusual - ROE consistently around 20%+ for the last 4 years, and yet Owner's Earnings (OE - Buffett's Way) have not grown at all in this period - I find this highly unusual (first time I come across). On closer examination of its balance sheet, I discovered that its dividend payout ratio is around 45%, so for each year of its $8M net earnings, about half is paid out as dividends. Then it also engages in quite aggressive share buy backs (good thing?) of around $2M; not sure what are the dynamics of doing this; hence only $2M left as retained earnings which explains why its OE growth is not happening! I also noticed its $11.4M goodwill booked on acquisition of MPG and the FY13 foreign exchange translation loss of $5.87M. This is the first case where I see high ROE in a company but dare not jump in to invest. Thanks to all my value-buddies for your contributions!

The company operates mainly distributorship business. The WC is the key part of analysis on cash flow. Owner Earning (OE) is just another name for FCF, IMO.

The company's OCF is cyclical, due to the working capital. An average of last 4 years (2x the 2-years cycle) FCF is about 9m, which sufficiently sustains the dividend payout of 4 mil, and 2m share-buy-back if needed.

ROE/ROA of 26%/14% (as FY2013) means the share-buy-back is pretty meaningful. Investing in a company with ROE of 26%, is definitely making good use of the money.

There is no goodwill accounted in AR 2013.

High ROE means growth in FCF? May be you means cash reserve. Cash reserve was 44 mil in FY 2013, up from 33 mil in FY 2010.

The reporting currency is S$, while key functional currency is Yen, thus the FX losses, due to swing of Yen recently. FYI, it is an accounting losses, not real cash losses, since most cash reserve is in Yen.

(not vested)