ABS - ABC Learning Centres

[MRC & Co]

For true long term fundamental investing, there are two issues
1) buying the right company
2) buying at the right price.
Many people confuse fundamental investing with just buying a company cause its price has gone down. The most important criteria is to make sure that the company itself is 'good'. This maximises the chance of preserving your capital.
The second is the buy in price and this will determine your rate of return.

Yes, here is an example.

JST or DEX. Both strong brands, growing EPS, good ROE, bright growth forecasts, excellent management. Yada yada, these are the basic principles of fundamental anslysis and both looked very good prices a few months back. However, they kept falling? Why not wait until the trend turns upwards and buy the stock even cheaper?

Both, I calculated as good value, using intrinisic value equations, but both kept falling.......

This is why you need to use some T/A!

Those who only use F/A and buy once their trigger price is hit, can really miss maximising their long-term returns by buying in at higher short-term prices.

 

[ghostworld]

Yes, here is an example.

JST or DEX. Both strong brands, growing EPS, good ROE, bright growth forecasts, excellent management. Yada yada, these are the basic principles of fundamental anslysis and both looked very good prices a few months back. However, they kept falling? Why not wait until the trend turns upwards and buy the stock even cheaper?

Both, I calculated as good value, using intrinisic value equations, but both kept falling.......

This is why you need to use some T/A!

Those who only use F/A and buy once their trigger price is hit, can really miss maximising their long-term returns by buying in at higher short-term prices.

MRC & Co,

I'm a beginner when it comes to T/A. How do you know when it 'trends upwards'? is there a definition of this? Like 5 days of consecutive increases? Hope you or anyone else in this forum can give me a better idea.

 

[ithatheekret]

If a margin call caught the parties out , was there an original allocation at listing that was previously sold ?

and .....

If there was a previous allocation , at what level was the margin facility used and when ?


Who was privvy to the actions ?

Should know in a few years when ASIC gets around to it ...............

 

[MRC & Co]

MRC & Co,

I'm a beginner when it comes to T/A. How do you know when it 'trends upwards'? is there a definition of this? Like 5 days of consecutive increases? Hope you or anyone else in this forum can give me a better idea.

Hi ghost,

Basically, if a stocks price (looking at its chart) is moving down, wait until it starts making higher highs and/or higher lows. This may happen straight away, or after a period of consolidation.

Of course if it shoots up instantly following a downtrend, it could be an exhaustion rally (running out of sellers as it becomes extremelly oversold, you can use MACD, RSI etc to see this), or it could be due to a fundamental reason (check out the DEX chart and its profit release and ex div date).

Its also good if it starts moving back up on strong volume.

This is simply something I have learnt from buying "value stocks" (which WERE good value at the time IMHO), but not looking at the trend.

There are no definitions, its really a matter of interpretation. But its better that its at least moving upwards to buy in, that if its been on a multiple week/month or even year slide.

Any corrections or opinions welcome.

Cheers

 

[dhukka]

Yes, here is an example.

JST or DEX. Both strong brands, growing EPS, good ROE, bright growth forecasts, excellent management. Yada yada, these are the basic principles of fundamental anslysis and both looked very good prices a few months back. However, they kept falling? Why not wait until the trend turns upwards and buy the stock even cheaper?

Both, I calculated as good value, using intrinisic value equations, but both kept falling.......

This is why you need to use some T/A!

Those who only use F/A and buy once their trigger price is hit, can really miss maximising their long-term returns by buying in at higher short-term prices.

No, this is why you need to use TA. If you are buying for the long term and you buy a good company at a reasonable price, what does it matter if it falls another 10 - 15%? Waiting for a stock to put in a series of higher highs and higher lows could mean you miss the bottom by that much anyway. Put more effort into picking good companies than picking bottoms and you'll do well.

Personally, DEX would not have been on my list of undervalued stocks given it's latest results. The company pumped in a boat load of new capital into the business and managed to squeeze out a 20% increase in profits, halving return on equity in the process. That would have been enough to keep it off my radar.

Now JST definitely does show up on my undervalued radar, however their earnings growth has slowed in the last year, they've taken on more debt and they've decided to diversify outside their core competence with the Smiggle acquisition. Still, the company looks attractively priced.

However, we are looking down the barrel of higher interest rates in the short term which means more pressure on households and thus less discretionary spending power. Like financial stocks, there just doesn't seem to be any compelling reason to rush in and buy retail stocks given the headwinds they face. See, no TA necessary.

 

[gstrauss]

Hi Guys,

Thanks for your confirmation that I was on the right track in terms of analyzing the factors that lead to the down turn.

What about the carve out process? Nobody commented much on that. Do you think PE will buy the American businesses, do you think the property could be parceled off as trusts to repay debt?.... what do you think the roles of the Investment Banks will be in this scenario?

If this is such a dog stock, then why is Tamasek buying in even further?

Also, like someone else mentioned, do you think the stock prices will bounce back up because the short will need to be closed out.

Perhaps I'm looking at an aspect of this that isn't relevant for this forum/thread. I dunno. If this is so, could someone recommend a better one that would have more discussion on this aspect of the stock (the corporate finance implications).

Cheers.

 

[MRC & Co]

No, this is why you need to use TA. If you are buying for the long term and you buy a good company at a reasonable price, what does it matter if it falls another 10 - 15%? Waiting for a stock to put in a series of higher highs and higher lows could mean you miss the bottom by that much anyway. Put more effort into picking good companies than picking bottoms and you'll do well.

Personally, DEX would not have been on my list of undervalued stocks given it's latest results. The company pumped in a boat load of new capital into the business and managed to squeeze out a 20% increase in profits, halving return on equity in the process. That would have been enough to keep it off my radar.

Now JST definitely does show up on my undervalued radar, however their earnings growth has slowed in the last year, they've taken on more debt and they've decided to diversify outside their core competence with the Smiggle acquisition. Still, the company looks attractively priced.

However, we are looking down the barrel of higher interest rates in the short term which means more pressure on households and thus less discretionary spending power. Like financial stocks, there just doesn't seem to be any compelling reason to rush in and buy retail stocks given the headwinds they face. See, no TA necessary.

Ok, thanks for the opinion, however I note you are speaking from hindsight. DEX based on current figures a few months ago, appeared attractive to me, as did JST. A small diversification in Smiggle for JST and no idea just how bad this inflation problem was going to become.

Which are your strong performers and investments as far as value stocks in the past few months which could not be ripped apart by hindsight?

 

[MRC & Co]

Hi Guys,

Thanks for your confirmation that I was on the right track in terms of analyzing the factors that lead to the down turn.

What about the carve out process? Nobody commented much on that. Do you think PE will buy the American businesses, do you think the property could be parceled off as trusts to repay debt?.... what do you think the roles of the Investment Banks will be in this scenario?

If this is such a dog stock, then why is Tamasek buying in even further?

Also, like someone else mentioned, do you think the stock prices will bounce back up because the short will need to be closed out.

Perhaps I'm looking at an aspect of this that isn't relevant for this forum/thread. I dunno. If this is so, could someone recommend a better one that would have more discussion on this aspect of the stock (the corporate finance implications).

Cheers.

I dont think you are getting many answers, because the first part is speculation and nobody probably has much of an idea.

As far as Tamasek buying further, you have a valid point. This may be oversold and we could see a bounce IMO, hence again, no answers, nobody knows. As far as fundamentals, ABS needs to clean out some of its debt, sell off some assets and get back to its core business before it could be properly analysed and become a viable long-term investment. Like many companies that try to grow too fast, they come crashing to their knees.

You are in the right forum and thread.

 

[investorelse]

gstrauss, I think you will do well, asking good questions...

Can anyone comment or shed some light on ABS shorts / options and if they remain valid as the Trading Halt went past EOM?

Cheers,

 

[dhukka]

Ok, thanks for the opinion, however I note you are speaking from hindsight. DEX based on current figures a few months ago, appeared attractive to me, as did JST. A small diversification in Smiggle for JST and no idea just how bad this inflation problem was going to become.

Which are your strong performers and investments as far as value stocks in the past few months which could not be ripped apart by hindsight?

Isn't using hindsight stock picking exactly what you're doing? You claim that DEX & JST were good value some months ago but you would have been better off waiting until they fell further before buying them.

My view on DEX has to be hindsight as I've never looked at the numbers before today. Although the capital raising was almost a year ago so the half year should have given you an idea that the business performance was deteriorating. The JST info has been around for some time. Evidence that retail and financial stocks would come under pressure has been around for months and I've been blogging about such issues for the best part of a year.

I don't have any strong performers right now. I bought a stock (REF) last week that has fallen more than 60% from its highs. Maybe it will go further but I'm happy with the price I paid. Time will tell if I'm right.

 

[MRC & Co]

Isn't using hindsight stock picking exactly what you're doing? You claim that DEX & JST were good value some months ago but you would have been better off waiting until they fell further before buying them.

My view on DEX has to be hindsight as I've never looked at the numbers before today. Although the capital raising was almost a year ago so the half year should have given you an idea that the business performance was deteriorating. The JST info has been around for some time. Evidence that retail and financial stocks would come under pressure has been around for months and I've been blogging about such issues for the best part of a year.

I don't have any strong performers right now. I bought a stock (REF) last week that has fallen more than 60% from its highs. Maybe it will go further but I'm happy with the price I paid. Time will tell if I'm right.

I am talking hindsight, as this is what my market activity has taught me. Learning from past experiences. At the time, without knowing what I do now, I could have waited on the sidelines due to the SP of each trending downwards. Would have been a lot more beneficial than trying to pick the bottom and buy at good value (according to my calculations and opinion).

DEX reports even a few months ago, looked good value for its price. Even after this "disappointing" report was released, it still rose 20% plus div?

As for JST, I would say the banking sector was more prone to come under perssure than retail. It was a matter of if this mess could be contained within the banking sector, without it spilling over into retail. At the time, this was still unknown, especially within Australia. I beleive the latest retail figures I saw, remained very robust. See link below:

http://www.stgeorge.com.au/resources/sgb/downloads/treasury/eco_outlook/February_2008.pdf

Page 5.

Good luck with REF, fundamentally, looks like a very good buy, technically not bad either, you should do well!

Cheers

 

[gstrauss]

I dont think you are getting many answers, because the first part is speculation and nobody probably has much of an idea.

As far as Tamasek buying further, you have a valid point. This may be oversold and we could see a bounce IMO, hence again, no answers, nobody knows. As far as fundamentals, ABS needs to clean out some of its debt, sell off some assets and get back to its core business before it could be properly analysed and become a viable long-term investment. Like many companies that try to grow too fast, they come crashing to their knees.

You are in the right forum and thread.

In your opinion, what would an acceptable level of debt or debt/equity be for a company like ABS?

Also, how did it diverge from its core business?

 

[MRC & Co]

In your opinion, what would an acceptable level of debt or debt/equity be for a company like ABS?

Also, how did it diverge from its core business?

I dont look at debt/equity ratios, I simply look at profits in relation to debt. How many years of net profits, would it take to repay debt?

Diverge, in that it tried to grow too big too quick. Not diversify in essence, but simply load up with debt and raise as much capital as possible through shareholders, then buy up everything in its path. Not sustainable IMHO and too complex to really value. As soon as growth slows, its in big trouble, which we saw. Core business = what it does best. Obviously these new aquisitions are not as profitable as what it started with.

Anyways, Im out of this thread, I have no interest in ABS whatsoever.

Good luck!

 

[ROE]

I dont look at debt/equity ratios, I simply look at profits in relation to debt. How many years of net profits, would it take to repay debt?

Diverge, in that it tried to grow too big too quick. Not diversify in essence, but simply load up with debt and raise as much capital as possible through shareholders, then buy up everything in its path. Not sustainable IMHO and too complex to really value. As soon as growth slows, its in big trouble, which we saw. Core business = what it does best. Obviously these new aquisitions are not as profitable as what it started with.

Anyways, Im out of this thread, I have no interest in ABS whatsoever.

Good luck!

I disagree, debt is the major factor in all company going bell up..you dont get a corporation with little debt or no debt go bankrupt.

High Profit in relation to debt can only works when you get cheap debt..you will be struggling when debt rise and game over.

Consider average corp get a return of around 10-15 cents in a dollar.
The closer the debt cost to that level the closer you go bankrupt with high debt company.

And high debt company are usually bad business anyway.. if you make so much money, you can fund your expansion from your cash flow don't need to go to the bank. It's ok if you go to the bank for a one off capital expenditure but if you keep coming back then it is definitely a bad business.

And it looks like Margin call and Greed cost Eddie his family.

http://www.news.com.au/business/story/0,23636,23322592-462,00.html

 

[Rainmaker2000]

Is anyone taking bets on when Eddie and the former lord Mayor of Brisbane will be sacked or move along from their positions........I'm pretty amazed I have not read such suggestions in the media yet....Eddie is still taking the line 'the business is fundamentally sound so we will see how it goes

I suspect Eddie himself still thinks its 'his baby', but I guess when you run your personal shareholding down through acquisition after acquisition, so does your influence....still nice pay cheque for creating 'shareholder value'....

 

[Aussie2Aussie]

ABC pair split as firm faces

March 05, 2008 12:00am

ABC Learning founders Eddy Groves and his wife Le Neve have separated, and are under renewed pressure to ease fears the company is on the verge of collapse.

The childcare giant yesterday asked for its shares to continue a trading halt put in place last week after a huge profit downgrade caused widespread panic among investors.

Mr Groves and his wife are now believed to be living in separate Queensland cities - the former on the Gold Coast and the latter mainly in Brisbane. Despite the split, the couple continue to work on the board.

The pair, who have two daughters, married in 1985 when Mr Groves was 19 years old. Three years later they opened their first childcare centre in southeast Queensland. Company insiders say the pair have lived apart for many years.

There were fresh calls yesterday for them to come clean about their relationship after ABC Learning's value halved to around $1 billion last week.

"You wouldn't be wrong suggesting that was the case," one company insider told The Daily Telegraph when asked about the separate living arrangements.

ABC Learning spokesman Scott Emerson refused to deny that the pair were living apart, saying he "declined to comment".

The pair was among four directors who were forced to sell $45 million worth of stock last week, when the share price dived as much as 70 per cent.

The Groves are also selling off three Gold Coast waterfront houses for about $12 million. Sources say Mr Groves had planned to build a "dream home" on the three lots but abandoned that plan last year.

The Australian Shareholders Association said any split in the board should be made public to the 35,000 shareholders.

"In any company, it is absolutely vital that the members of the board work together well as a team," ASA deputy chairman Stephen Matthews said. "Otherwise there is always a risk that the whole thing will fall apart."

Mr Matthews said one of the "key responsibilities" of a company chairman is to ensure the smooth operation of the board.

Another ABC Learning insider said it had been "pretty common knowledge" across the company that the relationship between the Groves started to sour last year.

"The view within the company is that she's the brains of the gang," the insider said.

"She's got the educational and child development background and he's always been more into the money side.

"Since they separated obviously they haven't been working as well as a team."

Mr Groves is overseas, talking to investors about selling off some of the firm's more than 1000 childcare centres in the US.

http://www.news.com.au/dailytelegraph/story/0,22049,23319795-5001021,00.html

 

[dhukka]

Is anyone taking bets on when Eddie and the former lord Mayor of Brisbane will be sacked or move along from their positions........I'm pretty amazed I have not read such suggestions in the media yet....Eddie is still taking the line 'the business is fundamentally sound so we will see how it goes

I suspect Eddie himself still thinks its 'his baby', but I guess when you run your personal shareholding down through acquisition after acquisition, so does your influence....still nice pay cheque for creating 'shareholder value'....

I think this is a scenario that becomes increasingly more likely. Groves will be forced out for his gross incompetence along with others. An asset stripper is appointed, comes in sells assets, pays down some debt and halts the growth for growth's sake policy. The company moves on with a smaller but more stable capital base.

Of course Groves will claim that he has been wronged. It was the hedge funds, short sellers, the media. They were shortsighted, they couldn't see the grand vision of global childcare. Noone understands his genius, his passion, afterall, he did it all for the kids!

 

[Prospector]

The Groves are also selling off three Gold Coast waterfront houses for about $12 million. Sources say Mr Groves had planned to build a "dream home" on the three lots but abandoned that plan last year.

I was in the Gold Coast (I live in Adelaide) when the story of the multi-million $ dream home on the foreshore was done in the local paper. May last year I think. I do feel so sorry for him Maybe some bargains to be had?

 

[MRC & Co]

I disagree, debt is the major factor in all company going bell up..you dont get a corporation with little debt or no debt go bankrupt.

High Profit in relation to debt can only works when you get cheap debt..you will be struggling when debt rise and game over.

Consider average corp get a return of around 10-15 cents in a dollar.
The closer the debt cost to that level the closer you go bankrupt with high debt company.

And high debt company are usually bad business anyway.. if you make so much money, you can fund your expansion from your cash flow don't need to go to the bank. It's ok if you go to the bank for a one off capital expenditure but if you keep coming back then it is definitely a bad business.

And it looks like Margin call and Greed cost Eddie his family.

http://www.news.com.au/business/story/0,23636,23322592-462,00.html

Dont get me wrong ROE, I DEFINATELY look at debt, its one of the biggest things I look for, low debt, strong cash flows.

However, how do you think the debt/equity ratio is a better measure of a companies ability to repay than debt/net profits?

Cheers

Rainmaker, I agree, I have no idea how his head hasnt been put on the chopping block! He is obviously incompetent with no idea about realistic and sustained growth!

 

[TheAbyss]

I for one would appreciate it if contributors to this thread could stick to the business of shares and investments. Discussions on marital seperation etc are ridiculous (they have lived in seperate residences for at least 5 years so who cares if it is now official) and nothing but rumour mongering. It seems some on this thread take great delight in sinking the boot in while someone is down. I am not saying you should not state anythiing that isnt positive however stick to the business at hand please.

Bottom line is will Eddie sell the US centres at a loss, a gain or for what he paid for them? That will decide the SP action short term not where he is sleeping or who with.

Whether Eddie and the board should be removed is premature. Sure he over exposed the business in the US however it was done with board approval so you cant hold him solely responsible however if the US arm goes at a loss to PE then he may very well be removed as Global COO as someone does have to be responsible. If that happens though ABC will become a nice steady dividend bearing stock with little capital growth.


An old axiom that i feel applies, you do not weaken a strength to strengthen a weakness. Sanction him and move on.