VED - Veda Group

[Klogg]

Emotional attachment - you gota be kidding me.

I tend to like stocks that have been very good to me, like the 7 or so stocks i have that have given me 200% - 300%+ gains, VED is far from that, potential (blue sky) VED has lots of...blue sky is a wonderful thing, every 300%+ winner needs it.

I agree that if you buy right and hold, you can make a lot of money - or quoting one of the best on this forum "buy right, hold tight".
That said, if one does see a 300%+ gain, one starts to wonder if it has exceeded any reasonable valuation; and that 300%+ gain may cause us to create an emotional attachment that blinds us from making this assessment.

I know I've done it before (for companies which I don't intend on holding for a long time).

 

[galumay]

Emotional attachment - you gota be kidding me.

Ok, i was just posing the question because in the lack of further detail, it seemed to be rejecting a profit of 40% purely because you believed the company had the potential, if the blue sky was realised, to be worth more than that.

I wasnt aware you were targetting it as a multibagger!

Sorry, couldn't just let this go..blue sky is impossible to measure and there is a speculative aspect to it but it is a very real thing, potential is what it is...have a look at XRO and ACX that price action is pretty much all blue sky.

I agree there are many shares with a price that is based purely on blue sky, the tech crash is a salient reminder of the danger of treating blue sky as anything other than specualtive potential! I also agree that if you can get lucky with your picks and a few of them actually realise that blue sky then it can be a massive wealth creator - the down side is of course just as steep!

I think that right through the discussion about VED I have been approaching it from a completely different perspective to you, I saw a number of member's whose views i very much respect, (including yourself), posting positive stuff about VED as an investment. I struggled to see it as an investment grade opportunity and for that reason didnt take a position.

The only way I could see any justification for the price was if there was very strong and sustained growth in earnings and I was unable to be convinced that there was a strong probabiility of that.

From there my interest was to follow through on my decision and try to understand if I got it wrong - and in one sense the takeover offer implies i did get it wrong - i struggled to see value at $2, a large foreign company that knows much more about the business and its realisable potential than me, has valued it at $2.825.

It might not be a multibagger, but i dont like missing out on the opportunity to make 40% on my capital in that time scale!

 

[skc]

From there my interest was to follow through on my decision and try to understand if I got it wrong - and in one sense the takeover offer implies i did get it wrong - i struggled to see value at $2, a large foreign company that knows much more about the business and its realisable potential than me, has valued it at $2.825.

The buyer valued VED at much higher than $2.825. They are offering a price below their own valuation because they need to make a return themselves. Granted that some of those synergies (not quantified in this deal) is not really available to the current holder without a deal.

A 40% return over a short term is certainly very palatable... but that's the historical view.

The correct question is whether one can re-deploy that money and make better returns elsewhere.

 

[ROE]

There isn't many quality business on the ASX to put your money into, where you just ignore most of the day to day noise and dividend comes every year.

Where the share price at isn't much of a concern for me.. it just give me an option to cash out or keep in or buy more

I rather have most of these business stay in the ASX it give me options to buy more, sell out or what ever during my accumulation phase, else our index end up with junk miners, money losing argi business, boom and bust commodity business ... all stuff I don't want any part of it

 

[Faramir]

There isn't many quality business on the ASX to put your money into, where you just ignore most of the day to day noise and dividend comes every year.

Excuse my ignorance as I still very much a beginner.

This a new experience for me. I wanted to buy for the long term. Should I treat this like a forced sale? I brought in around $1.91 and now I am forced to sell the shares to Equifax for $2.825. They can at least pay the brokerage.

So in a few weeks or months, there will be money coming back to me? Money that I rather have in Veda. How am I going to find another quality company? I know nothing about Equifax and it is not like we are going to buy Equifax overseas? Maybe someone will?

I thought good investing is deciding to sell when things suit the investor - regardless of price fluctuations due to buying with a good safety of margin. Not via a forced takeover. If I was smart enough to find another company like Veda, I probably wouldn't whinge but now I have no idea of what to do. There are a few companies on my watchlist but I think Veda is better. Are my thoughts wrong?

 

[galumay]

There are a few companies on my watchlist but I think Veda is better. Are my thoughts wrong?

Maybe you were just lucky? You will pick up something like a 50% capital gain. Maybe it would have still been around $2 in a couple of years? What makes you think VED was better than the other companies on your watchlist? Were your reasons correct?

It seems you are off to a wonderful start, you will now have ½ as much money again to reinvest, if you keep up that performance you will quickly become very wealthy!!

 

[luutzu]

Excuse my ignorance as I still very much a beginner.

This a new experience for me. I wanted to buy for the long term. Should I treat this like a forced sale? I brought in around $1.91 and now I am forced to sell the shares to Equifax for $2.825. They can at least pay the brokerage.

So in a few weeks or months, there will be money coming back to me? Money that I rather have in Veda. How am I going to find another quality company? I know nothing about Equifax and it is not like we are going to buy Equifax overseas? Maybe someone will?

I thought good investing is deciding to sell when things suit the investor - regardless of price fluctuations due to buying with a good safety of margin. Not via a forced takeover. If I was smart enough to find another company like Veda, I probably wouldn't whinge but now I have no idea of what to do. There are a few companies on my watchlist but I think Veda is better. Are my thoughts wrong?

From memory, if owners of 90% of the shares agree to the takeover, all other shareholders have to sell at whatever price was agreed to. That's the law, might seem unfair but you can't please everyone's idea of fair value.

I'm sure there are plenty of better businesses on the ASX out there than Veda. Its margins point to a somewhat passable business, its returns on capital and equity is nothing to write home about. With last year's earnings of 78M, some idiot is offering something like $2.5 billion for and we're serious about it being underpriced?

They might make that number work if those synergies and market dominance leading to hike in price, that with lowered Aussie... so it might work for them if all turns out as their consultants and presentation assumes. For normal people, I'd take the money and run.

Look at ASX limited itself... profit margin of some 55%, operating margin of 80 something (comsec ratios) and selling at 18.5 times earnings. This little credit check company is being offered 28.8 times earnings and that's cheap?

Sometime we get lucky, sometime we get it right, sometime the market can be wrong, sometime corporate titans can also be wrong on synergies and growth projections too... Just have to have some idea of reasonable value to know who's right and who might be wrong. Or better yet, who's having the cash and who's living the dream.

 

[So_Cynical]

I'm sure there are plenty of better businesses on the ASX out there than Veda. Its margins point to a somewhat passable business, its returns on capital and equity is nothing to write home about. With last year's earnings of 78M, some idiot is offering something like $2.5 billion for and we're serious about it being underpriced?
.

We were talking about 'blue sky' earlier, clearly Equifax can see some otherwise they wouldn't be prepared to pay so much for such a 'passable' business...blue sky is an intangible that not everyone can see.

 

[Klogg]

We were talking about 'blue sky' earlier, clearly Equifax can see some otherwise they wouldn't be prepared to pay so much for such a 'passable' business...blue sky is an intangible that not everyone can see.

You're assuming that all M&A activity is beneficial to the acquirer - that's far from reality.
Pretty sure 'do something syndrome' plays a role here.

 

[skc]

You're assuming that all M&A activity is beneficial to the acquirer - that's far from reality.
Pretty sure 'do something syndrome' plays a role here.

Yes... that's what the acquirer assumed, but history suggests that most takeovers turn out to value destructive for the acquirer. So selling into any takeover offer will at least give the existing holder a statistical edge. Whether this will be the case with VED remains to be seen (assuming takeover proceeds and that Equifax reports the Australian bussiness going forward).

If I was a holder... I wouldn't be too upset. The price isn't exactly lowball on a number of measures. You are swapping the certainty of cash today against the uncertainty of future growth. And you get a chance to redeploy more cash than you had previously... so even if you were to earn a slightly lower return on the alternate investment you can still potentially come out ahead.

 

[McLovin]

If I was a holder... I wouldn't be too upset. The price isn't exactly lowball on a number of measures. You are swapping the certainty of cash today against the uncertainty of future growth. And you get a chance to redeploy more cash than you had previously... so even if you were to earn a slightly lower return on the alternate investment you can still potentially come out ahead.

I agree. I see a lot of talk about blue sky, and it being a great business, but no one seems to have quantified what this business is worth to justify rejecting the offer. $2.4b for $80m fcf seems like a pretty decent premium, imo. How many saying the offer isn't high enough would be buying at $2.825?

 

[Ves]

I agree. I see a lot of talk about blue sky, and it being a great business, but no one seems to have quantified what this business is worth to justify rejecting the offer. $2.4b for $80m fcf seems like a pretty decent premium, imo. How many saying the offer isn't high enough would be buying at $2.825?

Current EBIT is about $120m.

Net capital invested (I've adjusted for goodwill) is about $175m.

So historical ROIC is say about 70%. Give or take a few %.

At a required return of 15%, and assuming current earnings are sustainable and representative over the cycle, my calculations suggest that they'd have to reinvest about $400m in present day dollars back into the business at historical rates of return to justify a $2.4B enterprise value.

That's in excess of tripling their current invested capital.

Obviously there's lots of embedded assumptions within (you can adjust the forward ROIC or lower the required return blah blah) but it gives you some picture as to the task ahead.

 

[So_Cynical]

You're assuming that all M&A activity is beneficial to the acquirer - that's far from reality.
Pretty sure 'do something syndrome' plays a role here.

Well aware of the blunders, see my comments on the Slater & Gordon thread Equifax is a 13 Billion dollar company and they think the current offer is a fair deal...your right in the sense that Equifax wants to grow globally and so in has a choice to either spend money and time to set up here and grind away at market share or buy VED - do something.

 

[luutzu]

We were talking about 'blue sky' earlier, clearly Equifax can see some otherwise they wouldn't be prepared to pay so much for such a 'passable' business...blue sky is an intangible that not everyone can see.

Intangibles of any value will have already shown itself in the returns and the margin and the market dominance.

I'm sure the buyer see more value than what they're forking out... they might be right. But as business transaction goes, investor shouldn't really expect to extract all the value out of the deal and left nothing to the other guy.

Say I think VED should be at $3 a share if all the synergies and future potentials are realised. A bit unrealistic for me to be asking for $3 a share now and left nothing but the risks and effort on the buyer. If the buyer is that silly, yea I'd be lucky... but people are generally smarter and know a thing or two about investing and risk too.

 

[ROE]

Excuse my ignorance as I still very much a beginner.

This a new experience for me. I wanted to buy for the long term. Should I treat this like a forced sale? I brought in around $1.91 and now I am forced to sell the shares to Equifax for $2.825. They can at least pay the brokerage.

So in a few weeks or months, there will be money coming back to me? Money that I rather have in Veda. How am I going to find another quality company? I know nothing about Equifax and it is not like we are going to buy Equifax overseas? Maybe someone will?

I thought good investing is deciding to sell when things suit the investor - regardless of price fluctuations due to buying with a good safety of margin. Not via a forced takeover. If I was smart enough to find another company like Veda, I probably wouldn't whinge but now I have no idea of what to do. There are a few companies on my watchlist but I think Veda is better. Are my thoughts wrong?

Well $2.825 isn't the best deal but it aren't bad either, for someone who want quick profit and short term gain
it is a good return, for someone with longer horizon and don't really need the money it may not be something
you want to sell but

that the way of the share market for retail investors, we don't hold enough shares to influence M&A
but on the other hand you can be agile, in and out of stock without effecting the price.

so if it get the majority vote you be force to sell your share at 2.825 and you get them all in cash, no script
so you so you don't worry about holding stock in the other mob.

I don't want to sell really but I am not that upset if the deal goes ahead and I get my 60% capital gain plus bagging 2 dividend since, what upset me more is the board is recommending the bid and let them have exclusive access to the

book, they should leave it open for possible rival bid or at $2.825 have a decent break fees that waste management time if the deal doesn't go ahead... sound like TPG iinet Bid all over again, hope PPT kick some up some noise and maybe get to $2.90

 

[McLovin]

hope PPT kick some up some noise and maybe get to $2.90

I doubt it...

"It's a fair price. The Veda board is doing the right thing by shareholders to recommend it," Perpetual head of equities Paul Skamvougeras said.
Perpetual is Veda's second-largest shareholder with 10.7 per cent.

Read more: http://www.smh.com.au/business/bank...om-equifax-20151005-gk1zay.html#ixzz3o1yczm4b

 

[Ves]

Yes it does. 15% is a pretty decent hurdle though for most. But like you say if you play around with the numbers it's hard to believe they could deploy all that much more capital at those historical ROIC and would probably need to get some growth by acquisition, once you add back indefinite life intangibles the growth profile/capital required equation changes quite a bit. I admit I haven't really done much more than rolled a few numbers around in my head and scratched a few things on a pad, but $2.825 looks very fair to me. A good company, but always seemed a bit dear for me.

That being said, the bull argument isn't without merit.

The expansion of data types that credit reporting agencies can report (see the CCR regime) hasn't hit the top or bottom line of VED yet (really working off the top of my head here, but I think it was 2-3 years from really ramping up).

The argument is that VED have already spent most of the capital required to comply with and take advantage of the CCR regime. Incidentally, this is great in a control situation, buy the business after all the ground work has been done. I guess in that context, it is possible for incremental ROIC to be far higher than historic ROIC, especially given there isn't much competition in Australia.

If incremental ROIC is double historical ROIC, then the future investments required are only about 4-5 years current growth capex spend ($40-50m per annum). Doesn't look all that expensive if you look at it that way.

That all being said, I don't know enough about this industry to tell you what incremental ROIC is achievable, so I'd basically be pissing into the wind trying to come up with a reliable valuation.

This isn't really a blue sky situation IMO. The future direction of the credit reporting industry in Australia has been known for a few years now, but like all valuations you still have to come up with ball park return metrics.

 

[McLovin]

If incremental ROIC is double historical ROIC, then the future investments required are only about 4-5 years current growth capex spend ($40-50m per annum). Doesn't look all that expensive if you look at it that way.

I'd argue that is such an outlier it is basically an impossibility. Especially for a mature business that isn't reinventing the wheel.

That all being said, I don't know enough about this industry to tell you what incremental ROIC is achievable, so I'd basically be pissing into the wind trying to come up with a reliable valuation.

This is where I get stuck too. We don't have full cycle, or even some sort of steady state, to be able to understand how much capital this biz needs, aside from knowing it's capital light. They've talked about a 50%-70% payout ratio (which in itself makes me think acquisitions are far from off the table), but at a ROIC of 70% (or higher) that makes for some pretty heroic growth estimates! Hell, at ROIC of 70% they could just borrow the money rather than use equity. There is lots of growth coming from their marketing segment (albeit from a small base), which I'd hazard doesn't have the same sort of returns as their traditional business lines. I guess what I'm saying is, imo, future ROIC will likely be to the downside not up.

 

[skc]

AFR's take on VED's deal.

http://www.afr.com/business/banking...are-case-where-everybody-wins-20151009-gk5nq3

 

[JTLP]

Price at 2.65. T/O offer at 2.825. That's about a tick over 6.5% difference.

Market saying there's a bit of a hurdle? Anyone buying in to take advantage?