The rationale for ARA is straightforward. The company is undergoing a takeover offer at 1.78. With the takeover targeting for completion by 1H2017, I am expecting a return of about 5% over the holding period of half a year. The downside is of course the failure of the takeover. However, ARA is a relatively strong company; given that it is dishing out annual divided of 4 cents and is in the business of a portfolio manager, I am inclined to continue holding the stock for its dividend.

__Ellipsiz__I am more interested in my latest addition and that is Ellipsiz. To summarize, the company main's business is the production of probe card for the semiconductor and electronics manufacturing industry and distribution of service solutions for the electronics manufacturing chain.

**Good Free Cash flow**

This is one of the main thesis for investing into Ellipsiz.

Ellipsiz Operating Cashflow

From its cash flow statement for the past few years, Ellipsiz's has been generating an increasing operating cash flow before WC changes. Given that the semiconductor industry it is serving is still going strong due to the demand of electronic goods, my opinion its current cashflow generation will be constant.

At current cash flow generation of about 13 mil, then deducting taxes, interest and its maintenance CAPEX of approx 2.7 mil, Ellipsiz free cash flow is about s$8.5 million.

At current share price of 0.375, Ellipsiz market capitalization is s$62.6mil. This means it is selling at a 13.5% FCF yield.

**Strong Balance Sheet**

At a debt ratio position of 19%, the company is relatively lowly geared. The company too has been paying down its bank borrowings which it had utilized due to the acquisition of a Japanese company in the past. Soon, the company will have negligible borrowings and that is definitely a positive sign.

With the recent disposal of an associate company, Kita, the company is in a net cash position of 78%.

<Vested 20,000 shares at 0.375>

Hi CY,

ReplyDeleteThanks for analysis on Ellipsiz.

I am new to investing and studying how to read financial report. May I know how you calculate "net debt position of 19%"?

Thanks in advance.

JF

Hi JF,

DeleteI was trying to imply debt ratio not net debt"; I have amended respectively. For educational purpose, "Net debt" follows the formula of "Net Debt = (Short-Term Debt + Long-Term Debt) - Cash and Cash Equivalents". The link can be found here for reading

http://www.investopedia.com/terms/n/netdebt.asp

Investopedia is a good source to learn more on investment calculations

Debt ratio calculation

http://www.investopedia.com/terms/d/debtratio.asp

Hi CY,

ReplyDeleteThanks for your reply. The Cash Flow picture in your post seems from Ellipsiz 2016 annual report. Based on which, total liability = 28,269K, total asset = 156,391K, so debt ratio = 28,269/156,391 = 18.75% = 19 (approx)? Is this how you calculate?

One more question, at end of post you mentioned "the company is in a net cash position of 78%', may I know how you calculate this figure? It's best you could indicate which figures (in the annual report) were used for the calculation. Thanks in advance.

Forgive me if I am too newbie. :)

Regards

JF

This comment has been removed by the author.

DeleteThe last number, I did not use annual report but instead the updated figures of Q1. This is because there was a recent disposal of an associate, Kita. This added approx s$8 mil of cash.

ReplyDeletehttp://infopub.sgx.com/FileOpen/1.%20FY17Q1%20Financial%20Information.ashx?App=Announcement&FileID=428421

Calculation of net cash is subjective because we need to discount items on the balance sheet. Using Q1 FY 17 results, total cash post disposal of associate is (44.6 + 8) mil. Trade receivable was 33.8 mil, but we have to discount this as margin of safety; applying a 35% discount, we get 21.97 mil. All other stated asset on balance sheet, I assumed as worthless.

Ellipsiz total liabilities is 26 mil. So 52.6 + 21.97 - 26.04 = 48.53 mil

Divide 48.53 mil by Market Cap of 61.83 mil, we get 78.4%.

If we use Q1 Fy 17 financial for Debt ratio. debt ratio has improved.

Thanks for your sharing. I can understand now.

ReplyDelete