Purchased 16,500 shares of Silverlake Axis at a weighted
average of 0.55 per share (after commission) today.
Brief description of Silverlake Axis
Silverlake Axis's main competency lies in the core banking system industry. It produces a software which is used to run the operations of banks. After a bank purchases it, Silverlake helps to maintain the software and charges a recurring annual maintenance fee to the bank. As the core banking system is a critical system for the bank, there is a high risk and high cost nature involvedif banks switch from one core banking system product to another. Hence, this is where Silverlake's business moat lies. It is difficult for customers to switch out.
Based on my guess estimate, banks will only change these system about every 20 years or never at all.
Customers
Silverlake customers are mainly in Malaysia and Singapore.
Main Customers are CIMB, Hong Leong Bank, OCBC, UOB and Siam City Bank.
Business Fundamentals
Due to the nature of its business as a software company
doing maintenance, Silverlake generates consistent free cash flow and needs little
working capital. From its recent FY results, the company was able to generate
RM 270 Mil of free cash flow. Adjusting for exchange rate and no of shares, the
company’s free cash flow generation is about 3.3 Singapore cents per share. Furthermore,
the company has frequently given out its entire free cash flow as dividends.
Balance sheet wise, the company has little debt and its
gearing ratio is less than 20%.
Using the above information, I have assumed Silverlake will
not grow further; hence projecting that Silverlake gives out 3.3 cents dividend constantly in the future. At its current price of 0.55, it is selling at a 6% dividend yield. This is better than most REITS who are giving
dividends yields in this region but are more heavily geared.
Risk
There is an ongoing accusation that Silverlake has inflated
its results through a series of related party transactions. As the verdict is
unknown, this is the risk I am assuming when investing in Silverlake. If it
turns out to be true, a large amount of capital is likely to be lost.
As on Silverlake's part, I sincerely hope the company puts up a detailed report to rebut the accusations after Deloitte Singapore's investigations.
<Vested at 0.55>
Personally feel all the analysis are in vain if the financial figures are not to be trusted. Example: https://apenquotes.wordpress.com/2015/08/14/huabao-international-holdings-limited-my-take/. Great Financials, increasing dividends every year for the past 5+ years. It was attacked by short sellers also back in 2012, and the company also came up with a rebuttal. Would advise to exercise due caution, as your last statement signalled a speculative intent.
ReplyDeleteThe post is worth reading. Thank you for sharing.
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