FDY - Findlay Securities

[prawn_86]

i thought i'd start this one off with a very quick, basic analysis.

please feel free to ask any questions or add any info

FDY – Findlay Stockbrokers​

Stockbroking firm – website is out of date.
“Findlay & Co Stockbrokers Limited is a highly specialised and experienced stockbroking firm providing a wide range of services to Institutional, Private, and Corporate clients. The combined skills and years of experience of its members provide a strong foundation for general advice on many types of investment opportunities. Findlay & Co offers quality general investment guidance for all its clients, ranging from sharetrading and placements to complex capital raisings and listings.”


Structure

Recently floated.

54mill shares – 70% held by top 20 holders. Therefore low volumes traded, similar to FWL

@ 19c = $10.2mill
@ 25c = $13.5 mill
@ 30c = $16.2mill

2007 annual report put nett assets at $400k and profit at $2.8mill.

Therefore EPS = 5cents per share, indicating price should be around 50c.

Conclusion

It seems these guys picked a bad time to float and that now may be a good time to pick some up at 19c and hopefully it kicks up towards its ‘true’ value on the back of better market conditions and more news regarding their earnings/profits etc.

 

[prawn_86]

has anyone had a chance to have a look at these guys?

they seem well undervalued in my opinion. current pe is only 4

 

[prawn_86]

well the companies annual report released yesterday showed that profit was 7% over what was predicted in the prospectus.

currently have $3mill in the bank and a NPAT of 3.2mill gives an EPS of 5.9c per share.

Strong buy in my opinion as over the long term, with continued good results the market will realise this should be priced closer to 50c rather than the 20c it is at now.

look at EZL for a comparison, its in the exact same industry. Market was slow at first but once steady results and growth came the price has increased by nearly 400% in 2 years.

also is an illuiquid stock, which can be boh good and bad. Good for a long term hold as it will have few sellers, but bad for short term, as a lot of traders wont get on board.

enjoy! and if no response i promise i wont post any more on these guys!

 

[Joe Blow]

Strong buy in my opinion

Prawn, please don't refer to companies as a 'buy' or a 'sell'. ASIC consider this to be the provision of financial advice and as you are not a licensed financial adviser you really shouldn't be advising people to buy or sell anything.

If you wish to make a case for this companies future growth, or if you consider it to be undervalued in some way then that is different, and you are welcome to post your views or analysis.

But please, no more 'buy' or 'sell' recommendations.

Thanks!

 

[prawn_86]

no worries, sorry Joe.

i believe that these guys offer potential growth opportunities which will continue, as was stated today in the chairmans review

 

[prawn_86]

News that Findlays brokerage income has exceeded $1mill for the month has put a bit of a kick into them today.

One trade of over $100k went through so someone was impressed.

I still maintain the opinion that these are an excellent long term hold and should be trading well above their current prices.

 

[stoxclimber]

Hey prawn,

In my opinion this looks like a very good stock. Explanation follows. Not really sure why people aren't too keen on it.

Shares on issue: 54,000,000
Market cap @ 21c: 11.34mm

Market cap @ 50c: 27mm

Core Business
Brokerage: 70% of revenue
Underwriting: 30% of revenue


Two good things about these businesses:
1) If you believe in the mineral supercycle then this underwriting revenue is going to keep growing because small cap miners are going to keep issuing rights..and its a really high margin business

2) Days with high volatility are GREAT for brokerage firms..so when you're crying about the 2% All Ords drop, at least you can know FDY is having a good day


Value

Last year FDY made $3.1m
Their market capitalisation is $11.34m (as at close of trade yesterday), AND, it has $3m cash!

That's a P/E ratio of 3.62!!!!

And this was not a bumper year that will not be repeated..in fact, brokerage revenue is forecast to rise 15% this year (and is currently beating that expectation)...so there's every chance that next year's profit could be up near $3.6m, a P/E ratio of 3.15!!

Its EBITDA (a measure of the profitability of the operational side of the business) for 06-07 was 4.2m...meaning an EV/EBITDA ratio of 1.99; and a forward EBITDA estimate of 1.87x!! most MATURE businesses trade at 6-8x, with growth assets trading significant higher...FDY is a growth stock trading at a much lower EBITDA multiple than a mature business!

In my opinion Findlay should be trading at a minimum of 6.5x earnings conservatively speaking..which implies a price of 43c. This imo is a quite conservative target..after all it was up in the 30s not long ago.

That would be valuing it as a risky mature business. So it really is a conservative valuation; as you identify there are several growth opportunities, and the business isnt really that risky.

 

[stoxclimber]

Prawn, one thing you forgot to mention which I just found out is:

Findlay own 25 MILLION options in CNF!!

See CNF's annoucement here: http://imagesignal.comsec.com.au/asxdata/20070619/pdf/00730892.pdf

These 25 million options expire June 2010 and are exercisiable at 15c..on today's market price of 20c for CNF, they'd be worth about 7c fair value (including a illiquidity discount) - that's $1.75M worth of options! For this $11mm market cap company that is already trading on a forward P/E of just over 3 and a forward EBITDA of just under 1.9

 

[prawn_86]

Possibly the safest undervalued stock i have found. And that was before I knew about the CNF options (thx stox)!

Considering it is already making profits, does not need any infrastructure, does not need expenditure to explore or anything like this, like mining co's need.

Bottom drawer stock. The market has to realise its potential at some time.

 

[stoxclimber]

I agree prawn...FDY's performance is pretty predictable unlike that of a spec miner or so, so it's easier to say with confidence what the fair value of the stock is. Plus all this up down turbulent market activity is great for brokerage

On a bit of a run today, up 12% last traded 23.5

 

[nomore4s]

Good find.

Very promising stock, considering it is making a profit already, has cash in the bank and has the options as well. Seems undervalued, being a newly floated stock in the current market probably hasn't helped it. Could be a good longer term investment.

 

[anne]

I like FDY too.

Nice chart pattern now - a break of a rounded bottom.

One of FDY's directors has been buying since the float in July - he picked up a big parcel on 31 July for 21.5c and even more on 1 September for average 19.6c.

I also noticed how similar FDY is feeling to EZL in the early days - EZL was as cheap as chips and caused me no end of anxiety until it finally took off. FDY isn't as solid a story as EZL was then though.

FDY is mentioned on HotCopper, Share Scene and here and everyone makes the same comment - incredibly cheap so what's the catch?

I don't know why they floated so cheaply - and I don't know who keeps selling. Why would a canny stockbroker undersell his own company?

Beats me. I've bought in but I'm mighty nervous.

Cheers Anne

 

[stoxclimber]

Hi Anne,

One factor that is contributing is that a significant amount of Findlay's net profit came from underwriting rights issues. If the smallcap miners stop issuing rights due to a downturn in the economy etc., then Findlay's profit would be substantially reduced (although it should still make a decent profit as its brokerage arm is pretty scale-adjustable with lowish fixed costs). Alternatively they could cop it on an underwriting issue if the shares fall but not enough to trigger the opt-out clause.

However, I think these risks still don't justify that cheap a company.

 

[stoxclimber]

Director buying today...seems like the directors agree

Low volume day but not a lot of volume out there for FDY...although obviously the market hitting a record high is good for their business

 

[stoxclimber]

Profit upgrade annoucement today - they are on track for a 50% profit growth..on their P/E of about 4, not bad! Brokerage income was stronger than my expectations, corporate income was obviously low due to low underwriting business over the period, although the Tasman GF IPO seems to be proceeding well - and the GWR/FAS deal if successful will provide a MOUNTAIN of fees for FDY, but it seems a long shot at the moment.

 

[Rainmaker2000]

Interesting reading the thread......You've reminded me of FDY which fell off my watchlist after it floated so well......although like some of you, I can't believe my luck as I look at the accounts more closely......It appears to be a bloody goldmine.....just further on your PE analysis to make it more ridiculous.....

With last years profit being $3.2, it's about a PE 4........+ 50%...profit should be around $4.5 million which would be forward PE of less than 3....butnever forget the cash holdings which should be subtracted from capitalisation to get a 'pure' PE ration...........apparently, back in end of Aug there was 3 million in cash, now there is more........that brings us close to a PE of 2

I know the market underprices small companies due to their inherent higher risks but this is ridiculous......I actually prefer smaller cause they grow quicker and have more open space to run into...this baby could easily be a 10 bagger.......I would not look a gift horse in the mouth on this......the fact is the 'professional' are not permitted to buy company's as small as this so the regular trading is left to the day traders cause all the smart money has already gone in in the float and just after it.....now they are just waiting for people to discover it.....I certainly hope my order can quietly sneak through the door tommorrow morning

 

[prawn_86]

Yeh, for a company already in a profit this is very under the market radar imo.

A solid defensive stock to put in the bottom drawer if you ask me.

Plus the more turbulent the market is the more they make. Its kind of like a hedge share

 

[stoxclimber]

Hi prawn rainmaker and all,

I'll be constructing a model of FDY over the next few days, will post it up when I complete. Anyone know if their advisory mandate on the FAS/GWR deal was an active pitch or FAS came to them?

 

[gtsman_05]

Profit upgrade annoucement today - they are on track for a 50% profit growth..on their P/E of about 4, not bad! Brokerage income was stronger than my expectations, corporate income was obviously low due to low underwriting business over the period, although the Tasman GF IPO seems to be proceeding well - and the GWR/FAS deal if successful will provide a MOUNTAIN of fees for FDY, but it seems a long shot at the moment.

What???

Profit growth???

It says profit is 50% of FY07... meaning its running at roughly half of last years profits...

 

[prawn_86]

What???

Profit growth???

It says profit is 50% of FY07... meaning its running at roughly half of last years profits...

From the ann:

Findlay's Securities profit for the 4 months to 31 October 2007 , before the expensing of employee share issue expenses,is running at approximately 50% of the profit levels of the 2007 full year result

Meaning to me, that in 4 months they have acheived what it took them 6 months to achieve last FY.