OKN - Oakton Limited

[skc]

...the only bit I don't really understand is why receipts from customers are up, employee costs are down - yet revenues from customers is down on the previous year (my financial statement forensics aren't good enough obviously).

It's all a matter of timing.

Revenue is accrual accounted - i.e. recorded at the time the work is done. While customer receipts are actual cash being paid to the company. A company may have done a lot of work before 30 June 2011 (hence booking the revenue), yet the customer didn't pay the bill until 1 July 2011. That payment will be recorded in customer receipts for FY12 without corresponding revenue or employee costs.

 

[Vader]

It's all a matter of timing.

Revenue is accrual accounted - i.e. recorded at the time the work is done. While customer receipts are actual cash being paid to the company. A company may have done a lot of work before 30 June 2011 (hence booking the revenue), yet the customer didn't pay the bill until 1 July 2011. That payment will be recorded in customer receipts for FY12 without corresponding revenue or employee costs.

Thanks skc... makes sense as the last two months to end the financial year were the strongest two months of the year (compared to the same time last FY which was very quiet)... and the presentation also pointed out that the 'days debtor' increased to 55days this year from 52days last year which wouldn't help timing wise either.

(btw, just to be clear - while the last couple of months of FY12 were (from what I understand) very strong, that was an above average period, very high utilisation etc. and not a rate I would expect to continue unchecked)

 

[robusta]

Guidance updated today at the AGM seems the incumbents in Canberra have stopped spending money, I expect this will be temporary, next year is a election year....

The rest of the business seems to be travelling OK considering the state of the economy.

 

[ROE]

Guidance updated today at the AGM seems the incumbents in Canberra have stopped spending money, I expect this will be temporary, next year is a election year....

The rest of the business seems to be travelling OK considering the state of the economy.

No this is the trend reversing, out-sourcing under Lib, in-sourcing under labor, they hire their own staffs or contractors ...much cheaper...

they are out of cash so IT is an easy target for saving

 

[Smurf1976]

Not a specific comment on the company, but I've heard quite a few stories from the inside which back up the "outsourcing is dead" notion.

The new trend seems to be that of identifying work which is of a regular, ongoing nature then bringing the skills and physical resources in house. Governments are certainly leaning that way and I know that energy company AGL has done something similar too and for the same underlying reasons. Outsourcing rarely works out cheaper in the long run unless it's intermittent or on-off work.

We're not at the point of reinstating the PWD (Public Works Dept) yet, but the trend does seem to have turned. As a taxpayer I'd say thank heavens someone's woken up although shareholders of contracting companies would obviously have a different viewpoint.

 

[robusta]

Ok I take your point with someone like AGL but governments doing something cheaper in house???? I will have to think about that one, normally the opposite argument is put forward when they want to privatise something.

 

[RottenValue]

No idea why "outsourcing" and Oakton are being used in the same sentence given the very small amount of outsourcing they actually do.

The key problem with Oakton will be revealed if you look back over the announcements made over the period since the GFC. Always excuses why things are not as good as they should be but bottom line is that they peaked back in 2007 / 2008 before the ill fated Acumen acquisition to gain a foothold in Canberra.

And as far as Government "insourcing" or Utilities companies for that matter - let me say that I am not seeing it and my company does plenty of work in this space.

 

[Vader]

Personally I don't think there is too much wrong at this stage... they aren't exactly starting to rocket away, and yes there are a number of excuses popping up here and there, but when you compare it to other competitors, OKN are in pretty good shape really (certainly fairing a heck of a lot better than SMX!).

I can't comment much on the situation in the ACT (I work in a different location and don't have much visibility at all there), but as an employee and a shareholder (well, temporarily sold off last week*), I'm reasonably happy with how things are tracking.

...However, I'm not expecting any big upswing for at least a few months though as it's almost impossible to get a read on things over Dec/Jan as historically things are pretty slow in terms of new projects starting up in most sectors during that period.

*I sold off my remaining shares last week ($1.22) after the announcement that the slow down of ACT office was having an effect on overall earnings (not sure if I acted a bit hasty or not). I do intend to buy some more though, probably about late January as I can't see them spiking on anything before then... kind of hoping that things will get silly and they'll dip below $1, lol). Adjusting for the recent announcement though, I still have a target price of about $1.20 - $1.40 over the next 12 months, so I'm expecting it'll probably hover around it's current price for a little while at least.

 

[Knobby22]

i did the same Vader.
Reduced my holding and have a buy order at a lower price. if it gets to $1 I will be surprised however you never know. i went to the AGM and there weren't many there. It is off the radar.

 

[Julia]

Vader and Knobby: do either of you still have OKN?
I note a healthy, fully franked yield and the chart was OK until 19 Feb. What happened then?
Looks like a tentative recovery since then. Pretty low volumes.

 

[Vader]

Vader and Knobby: do either of you still have OKN?
I note a healthy, fully franked yield and the chart was OK until 19 Feb. What happened then?
Looks like a tentative recovery since then. Pretty low volumes.

I don't hold any at the moment - the half year results were pretty disappointing I thought (that was what happened 19th-Feb) and I'm a little surprised about how well the share price has held up (will see if it stays that way once the ex-div date arrives).

On the plus side, the results from the Vic office showed some nice improvement and definitely appears to have turned around nicely. ACT is going to continue to have a hard time until after the Fed election, so that remains a worry. The NSW result was a bit worse than I was expecting to see (didn't realise their numbers had dropped that much), so that's probably the key to the next period. Everywhere else is performing well and the Indian office places the company in a good spot if the conservative governments and price conscious private sector around the country start to look for that lower price point from consultancies that can blend some onshore/offshore capability.

The balance sheet is still very strong though and that probably remains the biggest plus.

Nothing wrong with holding for the long term, banking the dividends and waiting for things to pick up again IMO... results may fluctuate a bit in the next year or two, but overall when the economy picks up, business should ramp up quite quickly. I'm still looking to buy back in at some point, but I'm waiting for the price to drop back down a bit first

 

[Julia]

Vader, your detailed comments are much appreciated. Thank you.
I'm just going through looking at stocks which have done pretty well for me in the now distant past, OKN amongst them.

 

[Knobby22]

I hold and bought more a few months ago.
I went to the AGM in October and feel this company has a lot of upside.

It is Canberra and Queensland governments that have stopped investment in IT hurting this company.

Queensland is now getting back on track.

The present Federal government is trying to look good for the election by reducing the debt and IT is an easy way to do it. They will need to spend however and that will probably start to improve after June 30 and further improve 6 months after the election.

Their offshoring of programming and agressive expansion into WA appears to be working.

 

[Julia]

Thanks, Knobby. Appreciated.

 

[RottenValue]

It may be useful to read the last 5 annual reports - the excuse of lack of Government Spending has been used many times. Otherwise, issues with Tenix, issues with Victoria, and so on.

Company made a bad acquisition to get into Canberra just before the GFC, timing was unfortunate but no synergy between the two groups.

Basically a steady down hill slide ever since. Plenty of better uses for your money than this one

 

[Knobby22]

They took over a company in Victoria and ended up having to sack the manager but that has turned around.
They won the Tenix lawsuit and got paid out.
The Canberra issue is real and caused by the Feds cutting funding.

Business is never smooth in consulting but I believe they will get a massive turnaround in a about a years time.

We shall see who is right.

 

[ROE]

They took over a company in Victoria and ended up having to sack the manager but that has turned around.
They won the Tenix lawsuit and got paid out.
The Canberra issue is real and caused by the Feds cutting funding.

Business is never smooth in consulting but I believe they will get a massive turnaround in a about a years time.

We shall see who is right.

The are not the only player in town in Canberra, there are dozen of players all very competitive...all fighting for
the same pie with less money and less jobs for them to compete....

I dont think the IT spending cut is coming back, it's on a down trend ...

the last good time was when Liberal was in power and the coffer is full of cash from mining and business boom
so to fix any issue they blame it on IT system and throw money at them...

we are now out of money, mining slowing down and the tax receipt getting smaller by the month...

Obviously you wont see IT tape turn off but the the sort of money you see in the past will never return
until the next boom arrive, Australia is debt free and full of cash...

They came to the Canberra party just as the music stop but they keep thinking to themselves maybe it will play again soon...a year later no music but they again said soon and on and on

 

[Vader]

There wasn't any company taken over in Vic... Vic is the head office and largest of the locations - it had a bit of a downturn around all the Tenix stuff going on, that manager left, one of the original management team went in and has turned its results around over the past couple of years.

The ACT business was purchased in 2006, and apart from some wobbles in the last year or two has been (and still is) a significant contributor to the bottom line.

It's only been in the last 12-24 months where the company has paid off all debt (a result of the takeover in 2006) and is in a net cash position and buying back shares.

I think it's pretty fair to say the next 12 months or so are still looking a bit unstable, but compared to competitors in this sector I think the results and balance sheet are pretty good and better than most.

 

[Muschu]

Not holding but doing well today on the back of an announcement.

 

[piggybank]