ORL - OrotonGroup Limited

McCoy Pauley · 18 March 2011

There's no question that Sally McDonald has achieved a fantastic turnaround story for ORL over the past few years. Her management of ORL has been exceptional and I wish I jumped aboard even 12 months ago.

My concern with ORL going forward, however, is that the return on equity has been extraordinarily high - upwards of 80%. I doubt that such a high return on equity is sustainable in the medium to long-term, particularly with the headwinds confronting the retail sector.

In the current environment, to be flat on the NPAT compared to the previous first half is a good result, but I'm inclined to see whether the price will drop further before buying into ORL.

drlog · 18 March 2011

VSntchr and McCoy Pauley, you make excellent points.

I am holding now (bought around $7) and I have no intention of selling. If you are right and the sp falls below $7, it will be irresistible to buy based on dividends alone! Also, when the Australian retail industry picks up again, ORL will be in an advantageous position.

If the NPAT stays flat but equity increases (exactly what happened in this report) then the ROE falls but the book value increases. Therefore IV does go down but not by as much as if the book value stayed the same which is why my IV hasn't fallen too far.

It's going to be very interesting to see what happens over the next few years.

Noddy · 18 March 2011

Why would you hold onto a falling share.
Has dipped from $9.40 to $7.80, about 17% or so.
If the share is so good, why wouldn't you sell around $9.00, take a profit or avoid a loss, and then buy it back at a lower price ?
Don't you guys use a stop loss ?

drlog · 18 March 2011

Noddy said:
Why would you hold onto a falling share.
Has dipped from $9.40 to $7.80, about 17% or so.
If the share is so good, why wouldn't you sell around $9.00, take a profit or avoid a loss, and then buy it back at a lower price ?
Don't you guys use a stop loss ?

Simply put, I have no idea where it is going to go from day to day. If I knew with 100% certainty that it would fall from $9.4 to $7.8 then yes, I would sell and buy back. But I never did know that.

If I were to sell at $9, the share price would have to be guaranteed to fall to $8 in order for me to buy the same number of shares after paying tax. If I use a stop loss, its another way of crystallising losses. If I know that the company is of high quality (as is ORL), long term holding will give the best return.

I don't expect the sp to fall below $7 - all I'm saying is that if it does, it will be cheap and I will buy more.

Noddy · 18 March 2011

drlog said:
Simply put, I have no idea where it is going to go from day to day. If I knew with 100% certainty that it would fall from $9.4 to $7.8 then yes, I would sell and buy back. But I never did know that.

If I were to sell at $9, the share price would have to be guaranteed to fall to $8 in order for me to buy the same number of shares after paying tax. If I use a stop loss, its another way of crystallising losses. If I know that the company is of high quality (as is ORL), long term holding will give the best return.

I don't expect the sp to fall below $7 - all I'm saying is that if it does, it will be cheap and I will buy more.

Nobody knows where the share price will go tomorrow, thats why it's a good idea to trade with a stop. Recent trailing stops for ORL would have been $8.50 then $8.97 then $9.10. When it broke $9.10 it would have been sold. Can always buy it back.

What would you do if the price fell to $5.00 or $3.00, would you still buy more ?
It was trading at $2.00 in March 09 only two years ago.

Doesn't make sense to trade without a stop IMO.
It keeps losses small, and barring complete disasters, locks profits in.

drlog · 18 March 2011

Noddy said:
Nobody knows where the share price will go tomorrow, thats why it's a good idea to trade with a stop. Recent trailing stops for ORL would have been $8.50 then $8.97 then $9.10. When it broke $9.10 it would have been sold. Can always buy it back.

What would you do if the price fell to $5.00 or $3.00, would you still buy more ?
It was trading at $2.00 in March 09 only two years ago.

Doesn't make sense to trade without a stop IMO.
It keeps losses small, and barring complete disasters, locks profits in.

That is the difference between you and I. I don't trade, I buy to hold. If the price falls to $5 or below, I would definitely buy more. It was undervalued a week ago and it is undervalued now. When it becomes very very undervalued, I will buy more.

The reason it has gone from $2 to $9 in two years is the Sally factor - it's all in the fundamentals!

Each to their own though, good on you if you made money on ORL recently and I am happy because I hold shares in a quality company.

skc · 18 March 2011

drlog said:
VSntchr and McCoy Pauley, you make excellent points.

I am holding now (bought around $7) and I have no intention of selling. If you are right and the sp falls below $7, it will be irresistible to buy based on dividends alone! Also, when the Australian retail industry picks up again, ORL will be in an advantageous position.

If the NPAT stays flat but equity increases (exactly what happened in this report) then the ROE falls but the book value increases. Therefore IV does go down but not by as much as if the book value stayed the same which is why my IV hasn't fallen too far.

It's going to be very interesting to see what happens over the next few years.

You are investing based on price < IV which is great. What happens if price stays below IV at the same time IV is falling? Especially if the share price keeps leading the fall in IV...What is the contingency plan in your strategy?

May be some holders are looking too hard to find some positive, while the market is just saying the results are poor. Period. And that's over 3 days when the market rallied 200 points...

Noddy said:
Doesn't make sense to trade without a stop IMO.
It keeps losses small, and barring complete disasters, locks profits in.

I think when you are investing on fundamentals it is acceptable to trade without a price-based stop, but it is unacceptable to not have a event- / fundamental-based stop. E.g. IV falling 2 reports in a row might trigger that, as your growth assumptions are no longer valid.

ORL is not a stock that warrants buy and hold imo. It just hasn't got any sustainable competitive advantages imo. But buying when profits and IV are rising can certainly make good returns. You just need to know when the party ends.

Noddy · 18 March 2011

But how do you know what the I/V is ?
Because somebody prints a formula in a book and charges $50 for it.
Yet everyone who tries to use the formula gets a different answer.
If all share prices are based on the ROE, shares trading at a loss wouldn't trade at anything more than book value. Just not so.

And many shares are trading at multiples above ROE valuation.Woodside & Leightons for example.

Shares aren't traded according to some formula from a book. Most shares change price every day. Surely their intrinsic value doesn't change daily or even hourly throughout the year. No one knows where a share will trade next trading day, or next week.
IMO there's no value in trading without a stop, and buying into falling share prices (averaging down) because they are "cheap". Next week they may be even cheaper.

VSntchr · 18 March 2011

With all due respect Noddy, nobody here has attempted to start an argument whether or not their method of choosing/valuing/investing in companies is the best/right/wrong.

You have your thoughts on stops and others have their thoughts about conducting valuations...the point of the threads are to discuss the relevant stock..

If you want to have a debate over whether or not value investing works, why not start a thread in the general investment and economis section?

tothemax6 · 18 March 2011

Noddy said:
But how do you know what the I/V is ?
Because somebody prints a formula in a book and charges $50 for it.
Yet everyone who tries to use the formula gets a different answer.
If all share prices are based on the ROE, shares trading at a loss wouldn't trade at anything more than book value. Just not so.

And many shares are trading at multiples above ROE valuation.Woodside & Leightons for example.

Shares aren't traded according to some formula from a book. Most shares change price every day. Surely their intrinsic value doesn't change daily or even hourly throughout the year. No one knows where a share will trade next trading day, or next week.
IMO there's no value in trading without a stop, and buying into falling share prices (averaging down) because they are "cheap". Next week they may be even cheaper.

Noddy, the point of gauging the value of the company based on discounting its equity-per-share with its ROE (IV) is to give an idea of what its currently worth. It is not a precision thing simply because the ROE is not precisely predictable. A company like AUT, for instance, which probably still has a negative ROE, is valued highly because of an anticipated high future ROE.
So whilst people do buy and sell the stock according to 'how good the news is', or 'the chart has such and such a squiggle pattern', in the end the company will start paying a dividend out of its profits or repurchasing shares with its excess cash - and the dividend yield / stock price increase when this happens will of course be tied to the IV.

moreld · 18 March 2011

skc said:
I think when you are investing on fundamentals it is acceptable to trade without a price-based stop, but it is unacceptable to not have a event- / fundamental-based stop. E.g. IV falling 2 reports in a row might trigger that, as your growth assumptions are no longer valid.

skc, just wanted to say that is the best thing I've read here in a while. It is a critical point that most newbies and some experienced investors forget.

As Peter Lynch said "There’s no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or , worse, to buy more of it, when the fundamentals are deteriorating."

While Warren Buffett and a score of other investors may be sure enough of their IV calculations to double down, most investors are delusional about their prowess in calculating IV. And hey, I mainly a fundie guy!

Excuse me that I'm off the Oroton topic, so let me say hey love those bags, so glittery.

Noddy · 18 March 2011

tothemax6 said:
Noddy, the point of gauging the value of the company based on discounting its equity-per-share with its ROE (IV) is to give an idea of what its currently worth. It is not a precision thing simply because the ROE is not precisely predictable. A company like AUT, for instance, which probably still has a negative ROE, is valued highly because of an anticipated high future ROE.
So whilst people do buy and sell the stock according to 'how good the news is', or 'the chart has such and such a squiggle pattern', in the end the company will start paying a dividend out of its profits or repurchasing shares with its excess cash - and the dividend yield / stock price increase when this happens will of course be tied to the IV.

Straying off the track here. AUT has had no revenue to speak of for more than 10 years, has a book value of 22c, and yet is trading around $2.70. Nothing to do with I/V.
Is being priced on sentiment or potential. Not relevant to Oroton at all.
Trying to find out why ORL has fallen in the market this week, and at what price it would be a reasonable buy. How else would you know except by following the chart ? Would assume ORL announcement has disappointed, and has been punished by the market. Knowing I/V for Oroton would be valuable, I agree, if the calculation was reasonably reliable, and could form the basis for an informed investment decision.
Have traded ORL three times in the past, but thought it became too expensive to deal with, particularly in an area of declining profits (retailing). With a big dose of reality to the share price at present, am looking for an opportunity to buy in.
If I/V is so easy to calculate, what is it ?

robusta · 19 March 2011

Noddy said:
). With a big dose of reality to the share price at present, am looking for an opportunity to buy in.
If I/V is so easy to calculate, what is it ?

Somewhere between $7.00 and $11.00 depends on who you ask :

IMO I think it is about $9.70

tothemax6 · 19 March 2011

Noddy said:
Straying off the track here. AUT has had no revenue to speak of for more than 10 years, has a book value of 22c, and yet is trading around $2.70. Nothing to do with I/V. Is being priced on sentiment or potential. Not relevant to Oroton at all.

I'll just assume you didn't even read my post.

fanger · 3 April 2011

robusta said:
Somewhere between $7.00 and $11.00 depends on who you ask :

IMO I think it is about $9.70

I hope your right because I just sold all my JBH and bought ORL at $7.98.

Tightwad · 3 April 2011

I jumped in at $7.80, I should have checked the reasons behind this first - latest results a bit average.

VSntchr · 22 September 2011

Report out today, numbers all looking good. CODB is up a bit, but thats expected with the initiation of the Asian rollout.

The only dampener ive found after a 10 minute look was the ~$3m loss in fair value of FX hedge...

tothemax6 · 1 October 2011

This stock seems to be holding rather steady even though ORL is in the luxury retail sector. How can their earnings and outlook be holding steady when economic storm clouds are floating around and everyone is tightening their belts.
Insights?

Uni · 1 October 2011

tothemax6 said:
This stock seems to be holding rather steady even though ORL is in the luxury retail sector. How can their earnings and outlook be holding steady when economic storm clouds are floating around and everyone is tightening their belts.
Insights?

My wife's just asked me 5 mins ago to gift her a bag. Looking good vs EU default, what is more important (to our beautiful missus)?

But watch closely for Coach/Oroton competition, I think they play the same field.

Klogg · 24 January 2012

Just been looking @ the ORL cash flow...

(2011 FY Annual Report here:
http://www.aspecthuntley.com.au/asxdata/20111028/pdf/01234962.pdf)

Can someone tell me why they've decided to increase the dividend @ the end of the 2011 FY, thus bringing the cash flow balance from (675) to (1221)... (pg 52 of the report)
All while the inventories have gone from ~23mil to ~30mil... and then needing to draw a little more on their loan.

Am I overlooking something here?

I know the figures aren't bad (it's only an extra 600k), but I'd imagine this is how bad habits begin.

Thanks in advance,
Klogg

ORL - OrotonGroup Limited

McCoy Pauley

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drlog

Noddy

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skc

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Noddy

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