Tuesday, 5 April 2011

CWT Financial Health

Does the financial health of CWT looks good? Worth to buy?

PE ratio based on 1.35 today is = 4.48. Cheap? But can the sudden increase in revenue sustain?

Updated new sheet


Musicwhiz said...

Hi there,

The Company has consistently negative FCF? That's what I gather from the table you prepared. :)

Also, what is the debt level for CWT? And how does the Company manage to raise cash for operations and capex if FCF is negative all these years?

What is the net profit margin? I think your table only stated gross margins.

Gearing seems pretty high at 40% yet interest expense is so low, any explanations?

ROE also seems rather erratic, with fluctuations below 10% for 2004-2005, then surging to >25% for 2010. Any reasons for this? Is ROE fuelled by debt?

I think using PER for CWT may not be indicative as its business seems cyclical, and thus one must identify the "highs" and "lows" in order to properly invest in it. Not sure if dividend is consistent throughout but it seems FY 2010 had a "bumper" dividend.


OT83 said...

A question: For the debt calculations, for long term debt:

Should we use everything under non-current liabilities (Financial liabilities, Deferred tax liabilities, Deferred gain) etc?

OR just financial liabilities such as borrowings

If it is the second option, I think I make mistakes in my excel sheet.

OT83 said...

For the gearing portion, I used Total liabilities/Total Asset.

The liabilities include deferred gain and taxes. Not just pure loans and borrowings. That's why gearing seems high and borrowing low. The borrowing is only 2,666 (Yr 2010) 13,792 (Yr 2009).

OT83 said...

What I learn so far are all from books and internet, I don't have any financial or accounting background. Still struggling to interpret the financial statement.

This is my first few attempts using this excel sheet and try to interpret the financial statements. Any suggestions for improvement? Please advise me. Thank you very much :)

OT83 said...

I use FCF = Net cash from operations - CAPEX

2007 (the Capex make the cash flow from investing negative)

2008 (the Capex is funded by proceed from sale of available-for-sale financial assets 120m)

2009 (the Capex make the cash flow from investing negative)

2010 (the Capex is funded by proceed from sale of available-for-sale financial assets 430m)

To be honest, I still don't quite understand the usefulness of FCF. Any guidance?

Thank you.

Musicwhiz said...

Hi OT83,

I usually just use LT Debt for gearing computations. Then again, most of the companies I scrutinize do not have much gearing, so I hardly use the formula haha.

Gearing in this case basically is trying to tell you how much each $ of debt is supported by a $ of assets. I think using just debt and borrowings would suffice, since deferred taxation is just a timing difference between tax and accounting conventions, and deferred gain is simply revenue to be recognized at a later period. All these should be removed.

Considering you have no accounting background, I think you're doing a very good job already! Just keep up the reading, and learn more about accounting from books such as "Value Investing for Dummies" (I have this book myself); or take a short accounting course to familiarize with the concepts.

The formula for FCF is accurate, and FCF basically measures how much "free cash" the corporation is generating after accounting for capital acquisitions. This free cash can either be distributed as dividends or recycled back as working capital without reliance on external funding (e.g. secondary placement or borrowings). Hence, a company generating consistent FCF is in a position to pay increasing dividends, yet is able to grow its core business organically (and also acquisitively) as it is building up a cash hoard slowly but steadily. If you want it to be more rigorous, use FCF minus dividends to see if the company retains cash for working capital and expansion.

AFS investments are short to medium term investments which may include shares or private equity investments. These are fairly liquid during normal times (example of abnormal times was the recent sub-prime crisis) and thus can be liquidated to fund capex should the need arise.

Since CWT had sold off its logistics assets into a Trust called Cache Logistics Trust, this freed up a lot of cash for it to fund capex and fuel expansion.

Other than this, I do not know much about the company per se, therefore cannot comment further.


OT83 said...

Hi MW,

Thank you very much for the guidance. I had updated the excel sheets.

I will continue to learn more, hopefully one day I will be as good as you.


Musicwhiz said...

Hi OT83,

Haha you flatter me, seriously. Like you, I am also always learning and improving myself. It's a continuous journey and I can never say I know enough to be a good investor. I just hope I can get a decent return on my investment and at the same time, enjoy the process of investing.

Good luck!

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