Capital is cheap now - with low interest rates and stock markets booming in most parts of Asia, it is not surprising we are seeing so many capital raising. The frequency of bond or MTNs issuance in HK is so much higher now compared 2 years back.
But it seems like for Silverlake's case, this is not the first time Goh has been selling his stakes?
"Criticism is the fertilizer of learning." - Sir John Templeton
29-05-2013, 01:02 PM (This post was last modified: 29-05-2013, 01:05 PM by Nick.)
Goh has sold shares in the past to raise the free float and monetize his investments. Don't think this is a bad sign etc.
Personally, what I found to be unattractive about Silverlake was the placing out of large number of new shares which dilutes minority shareholders in the Company significantly. Since 2003, its share float has increased from 0.285 billion to 2.10 billion today. The increase in share float was mainly attributable to the placing out of shares to the Founder for shares in his private companies. While these acquisitions were timely and did strengthen the Group with a licensing business and a recurring maintenance arm, I didn't like the ten fold dilution minorities suffered. To put it in perspective, EPS-wise, it has increased from 5.60 sens (2003) to 7.73 sens (2012) despite profits increasing from RM 16 million to RM 162 million in the same period !
Perhaps this is now a thing of the past and we can look forward to sustained growth in the EPS ? Overall, I still think Silverlake is a great business to own especially if they start paying for M&A in cash. Please correct me if my figures are wrong.
(Not Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
(29-05-2013, 01:02 PM)Nick Wrote: Goh has sold shares in the past to raise the free float and monetize his investments. Don't think this is a bad sign etc.
Personally, what I found to be unattractive about Silverlake was the placing out of large number of new shares which dilutes minority shareholders in the Company significantly. Since 2003, its share float has increased from 0.285 billion to 2.10 billion today. The increase in share float was mainly attributable to the placing out of shares to the Founder for shares in his private companies. While these acquisitions were timely and did strengthen the Group with a licensing business and a recurring maintenance arm, I didn't like the ten fold dilution minorities suffered. To put it in perspective, EPS-wise, it has increased from 5.60 sens (2003) to 7.73 sens (2012) despite profits increasing from RM 16 million to RM 162 million in the same period !
Perhaps this is now a thing of the past and we can look forward to sustained growth in the EPS ? Overall, I still think Silverlake is a great business to own especially if they start paying for M&A in cash. Please correct me if my figures are wrong.
(Not Vested)
I looked into 10 years data of the company, and Nick is right on the finding.
There were two (2) rounds of dilution, in 2006 (from 286 mil shares to 1122 mil shares) and 2010 (1.1 bil shares to 2.1 bil shares).
The profit attributable increases from S$7 mil (2005) to S$65 mil (2012), almost 10x, but EPS only increases from 2.5 cents (2005) to 3.1 cents (2012), a 24% increment.
Placement versus debt, which one is more expansive to shareholders, especially minority shareholders? I am still searching for the exact answer, but i am incline to think that placement is more expansive.
Minority shareholder will get 22.8 cents instead of 3.1 cents, if outstanding shares remain as in 2005. Even after considering the cost of debt instead of equity to fund the growth, minority shareholders will get much better EPS than 3.1 cents IMO.
I agree with Nick, the company business model is fine. The capital management is the one holding me up. Anyway, the company still in my watch list, and a closely monitored one...
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
I have no idea why there's any need for a placement exercise to raise SGD 75 million when the company has RM 180 million net cash (SGD 75 million) on the balance sheet.
Here's the huge cash expense:
Q3 dividend - SGD 16 million
Merimen + CVSB Acquisition - SGD 39.4 million
Total - SGD 55.4 million
Given the strong FCF generation, it should not be a problem to pay for all of it. Cost of debt is also much cheaper than cost of equity. No doubt the share is really expensive now and it might make some sense to do some acquisition with expensive share or even pay cash and do placement. However, to place out 100 million shares is in excess of what's required unless they are thinking of doing much more deal.
If you have taken a ride since the listing of Axis System, you will not be better off considering the number of years you have held it. While I may not have access to the circular for 1st acquisition, the circular for 2nd acquisition of the maintenance segment is still available.
The deal was as such:
C1 = B1/A x E
Where:
A = Average PBT of the SAL Group for FY2007, FY2008 and FY2009
B1 = Proforma PBT of the SSB Group for FY2009
C1 = Number of SSB Consideration Shares (fractional entitlements to be disregarded)
E = Total number of Shares in the capital of the Company prior to Completion (excluding treasury shares)
A1 works out to approximately RM 73 million considering 2008 peak PBT of RM 110 million and 2009 trough PBT of RM 21 million.
If B1 is RM 73 million, total profit doubles and number of shares doubles. If B1 is RM 146 million, total profit triples and number of shares triples. The net impact to EPS is 0. Essentially, it is not an accretive deal or dilutive deal (unless the proforma PBT of SSB in 2009 was at its peak or continue to grow).
29-05-2013, 10:55 PM (This post was last modified: 29-05-2013, 11:24 PM by mosi.)
May I offer another perspective.
1. On the placement
Option A. All vendor shares
Investors will be screaming and wondering if Goh is selling out, or if there's anything wrong with the company that's causing him to sell. No further dilution though.
Option B. All new shares
Begs another question. Is the company in trouble? What happened to the supposed cash?
Also, Goh doesn't benefit as he doesn't get money into his pocket. Most dilutive for minorities.
Option C. Vendor shares + new shares
Probably the only real option given that Goh feels like/wants to monetise his shares in Silverlake and the least harmful in terms of signalling to the market.
Goh doesn't pay himself excessively as an Executive Director (Band 1 - <S$250k per annum). I assume most of his time/wealth is tied up in the company so I do not hold it against him for monetising his stake in Silverlake once in a while.
Think of it this way: 50m shares at $0.75/share is a cool S$37.5 million, before fees. That's like him drawing his salary/bonuses as executive director for 150 years. Actually this isn't too bad isn't it? The alternative would be he pay himself $2m/year.
2. On the repeated dilutions
On the repeated dilutions - Don't the REITs do it all the time? The main difference between Silverlake and them is that Silverlake hasn't asked the minority for any money at all.
A. If the argument is why pay with paper and not cash? Then I have no argument against that. But do note that paying with cash will leave the acquiring company with a huge level of debt and the pressure to pay off debt and meet the banks' terms. Also, with the increased risks, would the company have survived the crisis?
On the softer side, with Goh being paid off handsomely, in terms of motivation, who knows what that might do? In this case, he isn't outrightly cash rich and has alignment with minority shareholders.
B. As a OPMI, you are just that. You are an outsider. You are passive. You are the minority. Assuming you bought into the company early on. What else have you done? Zilch.
And during that time, the minority's share of profits has risen from RM6.35 million (FY2003) to RM39.337 million (FY2012).
Considering that you have done nothing, paid nothing more in terms of rights issue, and have received dividends along the way, even though the entity has increased profits 10x, minority's share of profit has also increased 6x. (My numbers have not been adjusted for all the treasury shares and sales of shares so I could be 1-2x off)
Reason to be not entirely happy about it? Possibly...
An analogy, maybe: Supposed you are a minority shareholder of McDonald's Singapore. The company then acquired KFC Singapore and diluted your stake to half of what it used to be.
The good? At no extra costs, you get a larger company, with more customers, in more consumer segments, more bargaining power with landlords and suppliers, maybe bankers too. A mad cow won't kill you (figuratively) nor can bird flu.
The bad? Your stake (in % terms) is now lower but the combined entity is doing well and EPS over the years have slowly increased.
Alright, maybe Goh could have offered minorities a chance to participate in the earlier acquisitions by offering them a chance to buy into some rights.
But then again, ex post, you would have preferred it. Would you be happy if it did really happen earlier?
30-05-2013, 10:43 AM (This post was last modified: 30-05-2013, 01:47 PM by CityFarmer.)
A note-able perspective indeed.
I am not so sure that the calculation reveals the "true" gain of an OPMI.
An OPMI, who invested on 2005, and no further injection of money, the increment of profit shared, was only 24% (EPS increased from 2.5 cents to 3.1 cents) in 2012, excluded all dividends received. This is quite a diff from 6x increase in share of profit or 4x-5x after discounted.
There were no "wrong" on Goh's placement, but as OPMI, the attractiveness of the company is greatly reduced with the dilutions which show no sign of stopping or even slowing down.
(29-05-2013, 10:55 PM)mosi Wrote: May I offer another perspective.
1. On the placement
Option A. All vendor shares
Investors will be screaming and wondering if Goh is selling out, or if there's anything wrong with the company that's causing him to sell. No further dilution though.
Option B. All new shares
Begs another question. Is the company in trouble? What happened to the supposed cash?
Also, Goh doesn't benefit as he doesn't get money into his pocket. Most dilutive for minorities.
Option C. Vendor shares + new shares
Probably the only real option given that Goh feels like/wants to monetise his shares in Silverlake and the least harmful in terms of signalling to the market.
Goh doesn't pay himself excessively as an Executive Director (Band 1 - <S$250k per annum). I assume most of his time/wealth is tied up in the company so I do not hold it against him for monetising his stake in Silverlake once in a while.
Think of it this way: 50m shares at $0.75/share is a cool S$37.5 million, before fees. That's like him drawing his salary/bonuses as executive director for 150 years. Actually this isn't too bad isn't it? The alternative would be he pay himself $2m/year.
2. On the repeated dilutions
On the repeated dilutions - Don't the REITs do it all the time? The main difference between Silverlake and them is that Silverlake hasn't asked the minority for any money at all.
A. If the argument is why pay with paper and not cash? Then I have no argument against that. But do note that paying with cash will leave the acquiring company with a huge level of debt and the pressure to pay off debt and meet the banks' terms. Also, with the increased risks, would the company have survived the crisis?
On the softer side, with Goh being paid off handsomely, in terms of motivation, who knows what that might do? In this case, he isn't outrightly cash rich and has alignment with minority shareholders.
B. As a OPMI, you are just that. You are an outsider. You are passive. You are the minority. Assuming you bought into the company early on. What else have you done? Zilch.
And during that time, the minority's share of profits has risen from RM6.35 million (FY2003) to RM39.337 million (FY2012).
Considering that you have done nothing, paid nothing more in terms of rights issue, and have received dividends along the way, even though the entity has increased profits 10x, minority's share of profit has also increased 6x. (My numbers have not been adjusted for all the treasury shares and sales of shares so I could be 1-2x off)
Reason to be not entirely happy about it? Possibly...
An analogy, maybe: Supposed you are a minority shareholder of McDonald's Singapore. The company then acquired KFC Singapore and diluted your stake to half of what it used to be.
The good? At no extra costs, you get a larger company, with more customers, in more consumer segments, more bargaining power with landlords and suppliers, maybe bankers too. A mad cow won't kill you (figuratively) nor can bird flu.
The bad? Your stake (in % terms) is now lower but the combined entity is doing well and EPS over the years have slowly increased.
Alright, maybe Goh could have offered minorities a chance to participate in the earlier acquisitions by offering them a chance to buy into some rights.
But then again, ex post, you would have preferred it. Would you be happy if it did really happen earlier?
So long as the company grows stronger, per share data does not deteriorate, I do not have a problem with placements. Placements are not a gd sign when they're done purely to increase working capital, but this is not the case here.
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