# Calling all Fundamental Analysts



## Ganyeka (20 May 2015)

I am currently doing an MBA and this task has come up. Any assistance in terms of commentary, input or suggested resources to obtain relevant information would be greatly appreciated. I have financial reports etc from the ASX but would love to get more specific third party analysis to cross check my own findings and opinions.

Any and all assistance greatly appreciated.  

I am looking at TAH and TTS

Your task is to compare and contrast the historical (for the last 2 years) and expected future performance of a listed company and a competitor in a similar line of business, and present your findings in the form of a report which will cover both qualitative and quantitative performance elements in a logical cohesive format.
The qualitative component of your discussion should include (but is not constrained to):

•	A BRIEF background on each company including how they are placed within the industry.
•	A BRIEF overview of the recent stock price movements for both companies.
•	The impact of general local and global economic conditions on the companies (if any).
•	Industry trends and an assessment of each company’s ability to cope with these.

The quantitative component should include:

•	An initial analysis of trends in the items contained in the profit and loss statements, balance sheets and statements of cash flows; appropriate relevant ratios ( do not use multiple ratios which measure the same thing) measuring profitability, liquidity, working capital management, leverage/gearing and financial risk (market-based ratios).
•	A highlighting of the most important changes within these ratios and an identification of the reasons for these changes.
•	A comparison of the quantitative analysis for the two companies and an identification of the reasons for any differences.

Taking into account the quantitative and qualitative analysis you are then required to make a recommendation which will fall into one of the following three categories:

1.	Invest in the company
2.	Invest in the competitor
3.	Invest in neither

You should include a conclusion in which you comment on the strengths and weaknesses of your overall analysis encompassing what your analysis has accomplished and what are its limitations


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## VSntchr (20 May 2015)

Ganyeka said:


> I am currently doing an MBA and this task has come up. Any assistance in terms of commentary, input or suggested resources to obtain relevant information would be greatly appreciated. I have financial reports etc from the ASX but would love to get more specific third party analysis to cross check my own findings and opinions.
> 
> Any and all assistance greatly appreciated.
> 
> I am looking at TAH and TTS




To generate some discussion I think you would be best to offer up some analysis yourself. From there, other members can make comments on agreement or disagreement and why. 

With regard to TAH and TTS, I note the big issue they are both involved in at the moment is the claims against the State of Victoria. TAH is appealing to the high court the decision not to pay their claim, while the State is appealing the decision to force them to pay TTS. 
These claims are for a sizeable amount of money ~$680m is 16% of TAH's market cap! So no doubt the near term future will be impacted by the outcome of these legal proceedings.


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## Boggo (20 May 2015)

Ganyeka said:


> Taking into account the quantitative and qualitative analysis *you* are then required to make a recommendation which will fall into one of the following three categories:
> 
> 1.	Invest in the company
> 2.	Invest in the competitor
> ...




Give a man a fish etc etc.
Show a man how to fish etc etc



VSntchr said:


> To generate some discussion I think* you* would be best to offer up some analysis yourself. From there, other members can make comments on agreement or disagreement and why.




Agree with VS, show us what you have come up with.


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## galumay (20 May 2015)

Many forums have a rule against posting 'homework' problems. I think they are correct, as the other posters have pointed out its *your* assignment and *you* should research and write it.


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## Ganyeka (21 May 2015)

I have only just been allocated this task, so my progress so far is reading everything I can get my hands on and trying to decide how I'm going to structure my approach. Not a lot to share at the moment, but happy to do it as I progress. 

Galumay, THIS forum has no such rule, but thanks for the life advice. If you've got nothing relevant to add, or think I'm sponging information to plagiarise out of academic laziness, then just skip on past the thread mate. This is my second degree, I'm halfway through, getting a high credit average while working full time and this is the only time I've asked for any input whatsoever, on the basis I thought there might be some insights to be had here that would offer a different perspective. 

I asked for "commentary, input or suggested resources to obtain relevant information", not someone to write the damn assignment for me. Getting that input while I'm doing my research could be valuable. It could send me down a path I hadn't thought of and shape the type of information I focus on, reveal a source of information I hadn't discovered etc, early in the process, rather than when I've already written most of it. 

So if you find this type of thing interesting and there's something you can add that could be useful, I'd be appreciative and grateful, if what you want to do is preach at me, stow it. With respect.


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## Ganyeka (21 May 2015)

VSntchr said:


> To generate some discussion I think you would be best to offer up some analysis yourself. From there, other members can make comments on agreement or disagreement and why.
> 
> With regard to TAH and TTS, I note the big issue they are both involved in at the moment is the claims against the State of Victoria. TAH is appealing to the high court the decision not to pay their claim, while the State is appealing the decision to force them to pay TTS.
> These claims are for a sizeable amount of money ~$680m is 16% of TAH's market cap! So no doubt the near term future will be impacted by the outcome of these legal proceedings.




Thanks VS, I'm getting what I can on these via Austlii and other sources. The CEO of Tatts Group is an old friend of mine and he's been helpful, but there's only so far he can go, ya know?


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## luutzu (21 May 2015)

Ganyeka said:


> Thanks VS, I'm getting what I can on these via Austlii and other sources. The CEO of Tatts Group is an old friend of mine and he's been helpful, but there's only so far he can go, ya know?




I'll give my 2 cents, soon.

Just looked at Tabcorp and it's no good.

I'm a bit surprised since it's a gambling company and you'd expect those to cause miseries and also make a lot of money, not just cause miseries to both users and shareholders 

Its current price is way overpriced. Should be around half that $4.60.
Though it's getting better, it still hasn't made back its shareholders money in 20 years. Gotta really recheck that because that's quite hard to believe.


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## luutzu (21 May 2015)

btw, why only go back two years?

At least 5 I'd say... can't really know and gauge a business with just two years' worth of performance.
Tabcorp just demerged Echo or something in 2011, so maybe start there to 2014 to see performance in its "current" state.


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## craft (21 May 2015)

luutzu said:


> Though it's getting better, it still hasn't made back its shareholders money in 20 years. Gotta really recheck that because that's quite hard to believe.




Yep maybe you should - considering it listed 20 years ago for $2.70 and has since spun out Echo(EGP) to shareholders for nix and paid grossed up dividends of $15.20.


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## luutzu (21 May 2015)

craft said:


> Yep maybe you should - considering it listed 20 years ago for $2.70 and has since spun out Echo(EGP) to shareholders for nix and paid grossed up dividends of $15.20.




Yea, I'll take a close look. But so far, it's not screaming "great company" at me.

Dividends is misleading. You could just borrow money or raise money to pay dividends... and you could do it with dividend reinvestment plan too. So it could be one big ponzi scheme. 

Its margin, sales is in decline since 2010; doesn't seem to be able to pay its bills from operating cash. Maybe that's how the industry works normally, good companies could managed to delay payments... Well, it collect money real quick but takes 80days or so to pay suppliers... ROE is OK but done with a lot of leveraging, not with greater efficiency or higher margin.

But yea, let's go through it one by one and see where I am out of my depth. But so far, it's not good enough that I'd explain away the social ills gambling cause and buy it


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## craft (21 May 2015)

luutzu said:


> Dividends is misleading.




How is receiving back $15.20 on a $2.70 investment misleading?  In addition you still have your share currently valued by the market at $4.70 an EGP share currently valued by the market at $4.40 and EGP have also paid out 32c grossed up div.  Historical fact, I would say – what’s misleading is your assertion 







> that it still hasn't made back its shareholders money in 20 years



– what sort of analysis is that?


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## luutzu (21 May 2015)

craft said:


> How is receiving back $15.20 on a $2.70 investment misleading?  In addition you still have your share currently valued by the market at $4.70 an EGP share currently valued by the market at $4.40 and EGP have also paid out 32c grossed up div.  Historical fact, I would say – what’s misleading is your assertion – what sort of analysis is that?




Yea you receive all those dividends and Echo if you held on since 1994 and never put in any new capital. Most won't have held on for 20 years, and those that do would either have to fork up more capital or see their holdings diluted. That's from an individual shareholder perspective...

Taken as a group then, you can't say shareholders have gain all those divvys and capital gains and Echo. Not without seeing how much more capital they have to additionally add to the company etc. 

Hence, dividends interpret from simple initial purpose price to current could be misleading. It's kinda like I buy a house for $500k, sold it for $1M and say I gain $500 in profit - ignoring that I may have spent $200k over the years fixing up the place, paid $x in taxes and rates etc.

----

My thoughts so far are just based on 1 hour of quick data, purely quantitative analysis. Very sure there's a bunch of stuff I miss. It's also a new industry I'm looking into so don't know much about how it's structured etc.... But so far, not impressed and if I were looking to buy I'd be off to another.

The negative earnings I said were from the Retained Earnings in the balance sheet. They might have put it in the Reserves or treasury... but let see later.

There's also way too much intangibles... the licenses I can sort of get. The "Other" intangibles I have to look at the notes, but it's a large part of the assets.

Also, its net operating cash couldn't fund dividends, net capex and interests. The only year it could do - barely - was in 2014 (probably explains the share price gains). But a company that couldn't fund capex and divvy and interests will borrow or raise capital - maybe borrowing isn't such a terrible thing now, but for all these work its sales haven't gone up and neither are its margins. 


The market currently expect TAH to grow at about 7%+ per year over next decade. Historically it grew around 2.3% or so... So either a lot more Aussies will start gambling, or the market is way too optimistic. That or there's some massive overseas expansion in the works... will know when I read the glossy bits


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## craft (21 May 2015)

luutzu said:


> Yea you receive all those dividends and Echo if you held on since 1994 and never put in any new capital. Most won't have held on for 20 years, and those that do would either have to fork up more capital or see their holdings diluted. That's from an individual shareholder perspective...
> 
> Taken as a group then, you can't say shareholders have gain all those divvys and capital gains and Echo. Not without seeing how much more capital they have to additionally add to the company etc.
> 
> Hence, dividends interpret from simple initial purpose price to current could be misleading. It's kinda like I buy a house for $500k, sold it for $1M and say I gain $500 in profit - ignoring that I may have spent $200k over the years fixing up the place, paid $x in taxes and rates etc.




Absolute luutzu.


There has been no non-renounceable capital raisings - DRP are optional. *If* people have contributed more capital there would be a separate earnings stream from that additional capital to the provider of it starting from the date added. (ie compounding of the earnings stream)


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## galumay (21 May 2015)

Ganyeka said:


> if what you want to do is preach at me, stow it.




Given your attitude, I suspect you will get just what you deserve out of this thread!


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## Craton (21 May 2015)

All the best with the degree and commiserations on the flak Ganyeka.

Just a thought or two.
I've no real FA to offer per se but the two stocks you mention would probably be given a wide berth by the growing "ethical" investment community. I certainly won't sneeze at the strength of this trend which is gaining more and more traction. Didn't some bloke fall off a CBA building trying to put up a protest banner the other day?

In this age of much social consciousness spread via social media (read herd mentality), perhaps this is an avenue oft forgotten when trying to assess future expectations. 

Having said that, I'd look into the online presence of the stocks with the prevalence of mobile devices and how much easier it is for the punter to access gaming, I'd see this as a growing trend. M&A seems to be the way forward in this space IMHO.

Gaming being such a regulated industry and at the whim of knee jerk policy making is a sector that's not on my radar. I'm probably missing out in this nation of gamblers. 

Sorry I don't have anything of real substance to offer but sounds like you're on top of it anyways. Again, all the best with it.


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## get better (21 May 2015)

Craton said:


> Having said that, I'd look into the online presence of the stocks with the prevalence of mobile devices and how much easier it is for the punter to access gaming, I'd see this as a growing trend. M&A seems to be the way forward in this space IMHO.




That's an interesting point.

Come to think of it, my last few visits to the casino and local pokies showed that the majority of customers were of the older generation. This is particularly evident in pokies where 100% of customers seem to be 50+ years old. 

The people around my age (mid twenties) also seem to be more attracted to mobile device gaming (think clash of clans/candy crush) and if they do enjoy gambling, they tend to use online poker/blackjack/sportsbet than go to the casino or local pokies. Could be a generational thing but as Craton suggested, online is definitely a trend worth considering for this industry.


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## TPI (21 May 2015)

This is an easy analysis for me, I don't like the sector/industry or it's future prospects, so wouldn't invest in either.

Quantitative factors aside, to the original poster, what do you think about the industry in general and future competitive pressures locally and globally?


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