ABS - ABC Learning Centres

[brendan87]

This would be funny if it wasn't meant to be serious. Put simply the value of a company is the value of it's equity. This equity value is adjusted to take account of future growth and returns to shareholders. A company that has to consistently raise equity to fund growth and which achieves the sub-par returns on that equity such ABS has been doing for some time now is a poor business.

Also PE's are an indicator of price but have nothing to do with value.

Dhukka, the “market” value of a company is the (market) value of its equity. This is calculated by multiplying the share price by the number of shares on issue – so the share price, ceteris parabis, measures ‘value’ as perceived by the market at any arbitrary point in time. But is subject to market failures such that one can argue there is an intrinsic or true value of a company’s equity, which, as you said, takes account of future growth and returns to shareholders. Growth in EPS is important because EPS = earnings/no. of shares on issue. So it in fact fully compensates for more shares on issue. The most recent equity raising was only about 12% of equity. So after the full year perhaps we could reconvene to look at ABS diluted EPS.

For a company such as ABS, in a fragmented market with high capital expenditure requirements – it needs to fund growth somehow. Debt or Equity? That’s not a question I purport to answer here – but I.M.O. a leveraged balance sheet is a sign of a company that is leveraging its opportunities. In the life-cycle of a business, ABS is still quite young – at the stage where its capital outlays are high, it is raising debt/equity and operating CF’s have not come through strongly yet.

Now also take into consideration the ABS model – buy the franchise, refurb. the centres, drive down vacancy rates (increase efficiency) then reduce overhead through synergy – don’t pass the cost savings to customers = betters CF’s a margins. This doesn’t happen overnight in any business. I can’t think of any strategy involving rapid and significant expansion into new markets not involving large initial outlays funded by either debt or equity – and no shareholders expecting ambitious growth in earnings without a higher s-t debt burden or EPS dilution. Nor are growth-through-acquisition strategies expected to yield high CF’s in its early stages. Perhaps our difference of opinion is due to differing investment time-frames. I.M.O. if you wait for ABS to become a mature business (achieving high ROE, high operating CF’s, lower debt etc), you won’t be paying under $7 a share. Simple.

 

[Bazmate]

Anyone know what happened to ABS at the end of trade today??

It looks like the share price built up all day, but then the gap in the buys and sells now is $6.60 and $6.80... I don't understand..

Baz

 

[Rainmaker2000]

Just on ABC guys....terrific growth story.....at the rate they are expanding and the shares they are issuing.......how long do people think this above average growth can last? Personally, I think there will be one bad half result coming soon when acquisition risk comes home to roost.......just on the quality of the childcare if that matters.....my girlfriend is a group leader and has worked at many ABCs over the years.....for what it matters, she can confirm that they are the absolute worst, worst place to care for your childs needs.......so own the stock but not the childcare place....leave that for the white trash with the govt. subsidy....

 

[TheAbyss]

Growth wont stop for a while yet.

They are now in USA, UK and NZ. Room for growth in those areas yet.

They are also capable of expanding their horizons into other areas outside childcare - Aged care, education etc.

When E Groves retires the growth might stop then.

Regarding the quality of the centres my view is they have grown very fast and the logistics took a while to catch up to the growth so there have been issues which will improve over time. if you look at how they have evolved they are improving all the time. They now have their own training colleges for staff etc.

I might end up with a job in marketing at ABC if i keep going so i will stop now.

 

[Rainmaker2000]

Funny thing, they pioneered the 'one sandwish' lunch instead of 3 in a community centre for the kiddies.......but maybe as you say, here in QLD they have to at least keep some standards since they are now so big that they have so much to lose from bad publicity.........at the same time, all these Eddie Wannabe centres are springing up around Brisbane own by fridge repairmen and the like and in aspiring to cut costs like Eddie, they serve up even lower standards......it is very much a funny 'industry'........for me, the low hanging fruit has definely been picked and I'm more inclined look for the next growth story.....not that ABC has filled its pond yet

 

[hector]

Growth wont stop for a while yet.

They are now in USA, UK and NZ. Room for growth in those areas yet.

They are also capable of expanding their horizons into other areas outside childcare - Aged care, education etc.

When E Groves retires the growth might stop then.

Regarding the quality of the centres my view is they have grown very fast and the logistics took a while to catch up to the growth so there have been issues which will improve over time. if you look at how they have evolved they are improving all the time. They now have their own training colleges for staff etc.

I might end up with a job in marketing at ABC if i keep going so i will stop now.

Not sure if there is a change in government policy driving this plummet in SP, or just a retreat to value SP. Whatever, I'm short ABS until this trend reverses.

 

[michael_selway]

Not sure if there is a change in government policy driving this plummet in SP, or just a retreat to value SP. Whatever, I'm short ABS until this trend reverses.

Hi maybe if labour wins, it will affect their earnings?

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 36.0 43.9 54.6 61.2
DPS 17.0 21.5 27.5 30.5

thx

MS

 

[UMike]

Not sure if there is a change in government policy driving this plummet in SP, or just a retreat to value SP. Whatever, I'm short ABS until this trend reverses.

I am also a holder and have no idea what is driving this recent downtrend.

Theres some fire around where this smoke is I fear.

 

[hector]

I am also a holder and have no idea what is driving this recent downtrend.

Theres some fire around where this smoke is I fear.

Well it's jumped up again. My short stop loss triggered and I'm out. If ABS opens higher tomorrow I might be tempted go long.

I have no idea why a stock like ABS plummets every day for a week (slight exaggeration) and then stages a huge comeback in one morning. It will be interesting to see if ABS builds higher tomorrow, or if it has merely paused and will resume its fall.

Good luck to all,

hector

 

[TheAbyss]

Two things to consider.

1. Eddie Groves stated that his acquisition program will be reduced for the rest of the financial year so growth will slow for a little while.

Currently they have 1084 centres in Australia and 1015 in US which is a year ahead of their 2006 annual report target so a breather can't hurt.

2. Debt - My guess is that the sell off is due to risk management. ABC do have a lot of debt which isnt a bad thing in itself however the funds provided by UBS are suffering due to the Sub prime contagion effect in my opinion. UBS are a provider to ABC of funding. See excerpt below of an article in The Australian recently for some insight.

Sharing it around

SAME deal at home. Although Wesfarmers has been bouncing nicely as it brings home the Coles deal, there is $8 billion in debt yet to be syndicated. The three trading banks that own this debt are looking to syndicate to another five or six, which in turn will sub theirs out to another 10 or so.

Elsewhere, UBS is said to be struggling to offload its MFS debt, ABC Learning and Terry Peabody's TPI still have big lumps of debt to refinance (although with a window open till next year) and Macquarie has a rash of deals to refinance, including MacMedia's Taiwan broadcasting asset.

Incidentally, if you were wondering why MFS seems to have gone quiet on the hyped sale of Stella resorts, there has apparently been a lukewarm reception from the private equity players who have run the numbers. So watch for an a flurry of good news about how Stella is going like the clappers, followed by word of a float.

Just as the investment banks need to recycle capital (deal velocity is the buzzword) the financial engineers need to recycle companies or face the irksome spectre of having to run them and fund them.

 

[Rainmaker2000]

Ok guys, who's up for some ABC........I've always watched this growth story from afar but I just love a plunging share price especially from a profit downgrade which did not look that material at all........currency and funtastic shares.....that's my kind of profit downgrade........I'm doing a bit of research and hope that the general down beat market will further rip the heart out of the share price.......there's nothing I like more than a growth story at a discount just after they tapped major investors for equity at much higher prices....

Does anyone follow ABC enough to know if the reasons for the downgrade is probably lies and it more relates to its US acquisitions, cause the share price certainly has showed no love at all

 

[UMike]

Ok guys, who's up for some ABC........I've always watched this growth story from afar but I just love a plunging share price especially from a profit downgrade which did not look that material at all........currency and funtastic shares.....that's my kind of profit downgrade........I'm doing a bit of research and hope that the general down beat market will further rip the heart out of the share price.......there's nothing I like more than a growth story at a discount just after they tapped major investors for equity at much higher prices....

Does anyone follow ABC enough to know if the reasons for the downgrade is probably lies and it more relates to its US acquisitions, cause the share price certainly has showed no love at all

To many disappointments over a protracted period of time has caused this Share to lose sustained buying enthusiasm.

 

[tronic72]

Ok guys, who's up for some ABC........I've always watched this growth story from afar but I just love a plunging share price especially from a profit downgrade which did not look that material at all........currency and funtastic shares.....that's my kind of profit downgrade........I'm doing a bit of research and hope that the general down beat market will further rip the heart out of the share price.......there's nothing I like more than a growth story at a discount just after they tapped major investors for equity at much higher prices....

Does anyone follow ABC enough to know if the reasons for the downgrade is probably lies and it more relates to its US acquisitions, cause the share price certainly has showed no love at all

Bad, bad timing. As one poster suggested, ABC could be hit hard if Labour wins the election. The people that work at these centres are on the low side of the the income scale and could be one of the first to cry poor.

Put it this way, Rudd won't have any incentive NOT to raise their pays and there won't be anyone to stop it happening with wall to wall labour.

IMHO, ABC will be much less attractive and a higher risk under a labour government. We are already seeing large amounts of large scale work being postponed in WA pending the federal election.

My 2c

 

[oremo]

Hi,
I'm just a dumb cluck father whose daughter owns a childcare centre in Sydney.

I thought the whole ABS concept was sound so I bought $12K of shares in ABS that are now valued at $9k. I know you seasoned veterans will laugh but the hammering hurts. Any kind soul out there willing to give me some geniune advice on what to do.

If you feel like giving this beginner a dose of "serves you right" that's ok because I deserve it.

Happy new year

 

[Rainmaker2000]

Mate Oremo, don't beat yourself up.......we've all had the stock market touch us up for 25% or more and that's on well functioning, profitable businesses........not that long ago, I had a stock which shall remain nameless which I bought at $2.20 and watched it go down to 80cents, bought some more and saw it taken over at $1.75...it was profitable all along.........there's no advice here but we can chat...

The point is less about what the market says or does but whether the stock or company has performed to your benchmarks.........ABS may have had a bit of bad news and there may be some bad news to come but in perspective.....My understanding is that ABC will make money this year......My understanding is that they will make more money this year than last year......my understanding although I don't follow it 'like an owner', is that ABC won't make as much money as they originally planned for.....at current valuation (P/E), each ABC share commands a pretty reasonable chunk of earnings...something like a forward PE of 12ish...the question for each investor to answer is how much will they earn next year and year after and what are the risks

If you need more solice, take it from the Singaporean institutional investor which I can't really remember but I think took 12% of the company at round $8 a share.....they think its a growth story and worth it.......

 

[hyperterminal]

Hi,
I'm just a dumb cluck father whose daughter owns a childcare centre in Sydney.

I thought the whole ABS concept was sound so I bought $12K of shares in ABS that are now valued at $9k. I know you seasoned veterans will laugh but the hammering hurts. Any kind soul out there willing to give me some geniune advice on what to do.

If you feel like giving this beginner a dose of "serves you right" that's ok because I deserve it.

Happy new year

Im sure no one would take pleasure in the growing hole in your pocket to what you should do in a second but firstly to ABS itself...


Over the last two years there has been numerous somewhat questionable company practices which raise concern, less than transparent accounting practices complicate earnings projections and add to mistrust in the market. Other Revenue this year will be increased by GBP20m (A$50m) due to a 'discount on acquisition' following the recent Leapfrog UK purchase. This is a large sum compared to the original GBP31m purchase price. ABS is also not as transparent as it might be in relation to related-party transactions with Queensland Maintenance Services (QMS), which is run by Eddy Groves' brother-in-law. QMS carried out $75m in maintenance and development work in FY06 but the value of work in FY07 is not disclosed because this is not required under new IFRS accounting standards. What to think of such party transactions?????? particularly if press reports are accurate, that the work was not put to tender, an overriding concern is the likelihood that further equity will be issued to fund US acquisitions, thereby diluting existing shareholders. Also levels of debt are rising to fund aggresive growth targets, In todays tight credit markets it remains to be seen whether such agressive growth is the right strategy for ABS


IMHO, I would get out even with somewhat favourable goverment childcare policies, I think ABS will continue to destroy shareholder value...

Cut your losses, deversify across different sectors and dont put all your eggs in one basket next time.... good luck and I hope your next trading experience is better then your first


hyper

 

[oremo]

Rainmaker thank you.

Kind of you to give me some solace

I will (here's my first attempt at market jargon)...go long...and hold.

Take care and catch you soon. Oremo

 

[dhukka]

Hi,
I'm just a dumb cluck father whose daughter owns a childcare centre in Sydney.

I thought the whole ABS concept was sound so I bought $12K of shares in ABS that are now valued at $9k. I know you seasoned veterans will laugh but the hammering hurts. Any kind soul out there willing to give me some geniune advice on what to do.

If you feel like giving this beginner a dose of "serves you right" that's ok because I deserve it.

Happy new year

Oremo,

We all make mistakes so don't beat yourself up about it. It would be interesting to hear why you thought an investment in ABS was sound. As stated on the first page of this thread ABS management have well and truly run this business into the ground. A once very profitable small business has become a large business generating mediocre returns on capital.

ABS keeps raising extra capital and debt to fund growth and continue to produce incrementally worse returns on that capital. You should take your medicine and move on unless you have good reason to believe the company can significantly raise their ROE. Forget P/E's, they are of no use in estimating the value of a business.

 

[Rainmaker2000]

Hyperterminal, you raise some interesting issues.......as you can see from previous posts....I considered this stock but its mainly the frequent equity raisings and high level of debt that turned me away...Also figuring in my decision is my chronic distrust and dislike of Eddie and his way of business...I may consider at lower price points however.....hehehe

Bottom line: do your research, don't just trust a broker or someone els's viewpoint........ABS could still be an outstanding performer, but it is certainly not the most conservative stock on the market.........imagine all the people who bought Centro thinking it was just a boring property trust.....ABC is not just a boring owner and operator of childcare centres......for example, I don't know if there are any hard assets on their balance sheet and I do know they run off something like a franchise model

 

[Real1ty]

Firstly.

I used trade ABS a lot and made really good money doing so.

It was quite volatile and made it reasonably easy to trade with a fair degree of confidence.

I got lazy, and got caught with the stock just prior to the profit downgrade.

What i think needs to be addressed so far that hasn't is the following.

The A$ is what has hurt earnings, not lack of numbers or high costs etc etc.

While they did downgrade eps, they have still forecast growth of 15%.

They have also restructured their debt facility for a 3 year period.

They have also hedged a lot more of their earnings 90% of 2008 and 79% of 2009, so this should smooth earnings.

They also have a lot of Funtastic shares, that are on their books at $1.85 but are now trading around .60c odd.

I notice they have purchased more though, so are trying to either average down their unit cost, or possibly are considering a takeover.

Eddie Groves is a continual on market buyer of his stock.

Do you believe in the story long term or not?

How important is that $3,000.00 loss to you?

How much would it hurt if that became $7,000.00?

Are you prepared to take the risk to see your share price slip further this year, as that is the likelyhood, for the chance IF they come out the other end you MAY end up making a profit.

Will the capital loss actually help you elsewhere?

It's all about risk vs reward and ABS are a high risk stock presently.

It's very hard for us to answer your question but i will hold as i believe in ABS.

Good luck oremo