VRS - Veris Limited

[Triathlete]

Re: OTC - OTOC Limited

This one popped into my companies of interest recently, wary of roll-ups, but still quite interesting. Anyone else looked at it lately?

Here is the comment from Lincoln:


Strategic Comment

Last Updated: 17 August 2016

OTC is in a Strong Financial Health position, but fails our management assessment criteria as the company does not currently meet Return on Assets and Earnings Per Share requirements for a small cap company , preventing the company from being a Star Growth Stock. The company provides construction and turnkey camp/village installations, environmental, surveying, mapping, town planning, engineering, project delivery and specialist consulting services across the infrastructure, resources and energy sectors . OTC remains unsuitable for most retail and institutional investors due to the below average liquidity .

Thomson Reuters June 17 (A) Forecast........ June 18 (A) Forecast

ROA...............12.59 ............. 13.44
ROE...............171.33............. 164.44
REV GRTH..........0.20 ............. minus -6.28
EPS GRTH.......minus -58.60 .............. 13.79

Consensus price target $0.42

Returns (inc div)

1 year...109.80%
3year...46.54%
5year..9.49%

Technically seems to be in a sideways pattern 3 months

14 day free membership...www.lincolnindicators.com.au

 

[galumay]

Re: OTC - OTOC Limited

Thanks Triathlete, but I have no interest in Lincoln's opinion, they are no different to other similar companies selling advice. I am sure like the others the owners are getting richer by the day!

Anyhoo, back to OTC, I have been having a closer look at OTC, so far the only real concern I have is that the profit for last year is inflated by about 100% or $10m by tax benefits- including a one off due to overpayment of tax previously.

I have tried to price the impact of the tax benefit. Overall the income statement shows tax benefits of $9.75m, when you break this down its hard to separate out the way the $7m tax credit impacts the bottom line - the AR says the impact is $4.2m on income and $4.2m as a deferred tax asset on the balance sheet. (which i can't get my head around, I suspect they are offsetting the $3m tax that otherwise would be owing)

I have assumed an impact of $4.2m on NPAT which means when you take the one off out EPS drops to 5.8c from 7.4c

It still looks very cheap on those metrics, EV/E is still only about 5x on the adjusted numbers and my conservative range of IVs is from $1.00-$1.20.

I just wonder how the market will react when the next report shows a significant drop in NPAT due to the normalising of tax benefits.

 

[Triathlete]

Re: OTC - OTOC Limited

Thanks Triathlete, but I have no interest in Lincoln's opinion, they are no different to other similar companies selling advice. I am sure like the others the owners are getting richer by the day!

Anyhoo, back to OTC, I have been having a closer look at OTC, so far the only real concern I have is that the profit for last year is inflated by about 100% or $10m by tax benefits- including a one off due to overpayment of tax previously.

I have tried to price the impact of the tax benefit. Overall the income statement shows tax benefits of $9.75m, when you break this down its hard to separate out the way the $7m tax credit impacts the bottom line - the AR says the impact is $4.2m on income and $4.2m as a deferred tax asset on the balance sheet. (which i can't get my head around, I suspect they are offsetting the $3m tax that otherwise would be owing)

I have assumed an impact of $4.2m on NPAT which means when you take the one off out EPS drops to 5.8c from 7.4c

It still looks very cheap on those metrics, EV/E is still only about 5x on the adjusted numbers and my conservative range of IVs is from $1.00-$1.20.

I just wonder how the market will react when the next report shows a significant drop in NPAT due to the normalising of tax benefits.

With stocks like these I tend to let them go because of the liquidity myself....that is just me though.

It has had a good run up from $0.07 in July 2015 to $0.35 in August 2016....If you are correct about its value then from my technical perspective it may have another run up if it closes above $0.36 and then starts a run from there, but I like to see EPS growing which by the reports is not happening until into 2018.

My quick view is if the break occurs above $0.36 then a run to $0.46 would be what I would look for so about 27%.

 

[galumay]

Re: OTC - OTOC Limited

With stocks like these I tend to let them go because of the liquidity myself....that is just me though.

It has had a good run up from $0.07 in July 2015 to $0.35 in August 2016....If you are correct about its value then from my technical perspective it may have another run up if it closes above $0.36 and then starts a run from there, but I like to see EPS growing which by the reports is not happening until into 2018.

My quick view is if the break occurs above $0.36 then a run to $0.46 would be what I would look for so about 27%.

The liquidity doesn't concern me too much, but then I have no interest in trading.

I don't look at charts so the rest doesn't mean much to me. EPS growth has already been very strong, although part of that is a result of the tax benefit I mentioned. Its a bit hard to extract the true picture because historical EPS was depressed by tax they shouldn't have paid and this years is increased because of it. I am still trying to fully understand the tax benefit situation. Even discounting the tax benefits EPS growth has been strong and I can't see any indication of that changing.

As I said earlier, the biggest issue I see is that once the tax benefits are expired there will be a negative impact on EPS and Mr Market may punish the share price in ignorance. I guess that just presents an opportunity to accumulate!

 

[Triathlete]

Re: OTC - OTOC Limited

The liquidity doesn't concern me too much, but then I have no interest in trading.

I don't look at charts so the rest doesn't mean much to me. EPS growth has already been very strong, although part of that is a result of the tax benefit I mentioned. Its a bit hard to extract the true picture because historical EPS was depressed by tax they shouldn't have paid and this years is increased because of it. I am still trying to fully understand the tax benefit situation. Even discounting the tax benefits EPS growth has been strong and I can't see any indication of that changing.

As I said earlier, the biggest issue I see is that once the tax benefits are expired there will be a negative impact on EPS and Mr Market may punish the share price in ignorance. I guess that just presents an opportunity to accumulate!

I can understand that.....but surely if you have a decent position in whatever stock you may have you would like to know that you can get out....this particular stock only trades $70K a day......I mean what if their is some bad announcement?? with no liquidity it may be difficult if everyone is trying to get out????

If the stock checks out based on your analysis and you start to accumulate do you have a price where you would exit..??? or does that depend on the Fundamentals staying within your selection criteria???

and if the stock continues to go sideways for an extended period of time say 1 to 2 years are you happy to continue to accumulate and just picking up the dividends as long as the analysis continues to hold up????

 

[galumay]

Re: OTC - OTOC Limited

I can understand that.....but surely if you have a decent position in whatever stock you may have you would like to know that you can get out....this particular stock only trades $70K a day......I mean what if their is some bad announcement?? with no liquidity it may be difficult if everyone is trying to get out????

If the stock checks out based on your analysis and you start to accumulate do you have a price where you would exit..??? or does that depend on the Fundamentals staying within your selection criteria???

and if the stock continues to go sideways for an extended period of time say 1 to 2 years are you happy to continue to accumulate and just picking up the dividends as long as the analysis continues to hold up????

I think its a double edged sword, conversly to your first point, if there is good news the lack of liquidity tends to make these type of companies go up very quickly as buyers have to raise their bids strongly to flush sellers out. I guess part of the process is to try to pick companies where the liklihood of bad news is less likely - eg low debt, good management, competitive advantage etc.

I dont set a price where I would exit, I generally apply the principle that if I cant find a better home for the capital with more potential for profit then I dont sell.

I would not be concerned about a company trading sideways for 1-2 years, my time scale is much longer than that. I wouldn't necessarily accumulate, but would likely hold.

 

[Triathlete]

Re: OTC - OTOC Limited

I think its a double edged sword, conversly to your first point, if there is good news the lack of liquidity tends to make these type of companies go up very quickly as buyers have to raise their bids strongly to flush sellers out.

I guess part of the process is to try to pick companies where the liklihood of bad news is less likely - eg low debt, good management, competitive advantage etc.

I dont set a price where I would exit, I generally apply the principle that if I cant find a better home for the capital with more potential for profit then I dont sell.

I would not be concerned about a company trading sideways for 1-2 years, my time scale is much longer than that. I wouldn't necessarily accumulate, but would likely hold.

OK... I can see your logic.

 

[galumay]

Re: OTC - OTOC Limited

OK... I can see your logic.

Not sure if its always logical! Its my strategy and I understand it and have confidence in what I am doing - I suspect thats pretty important in investing. Always learning though - and the chance for self reflection when answering questions like yours is definitely part of the process.

I know I dont have the analytical skills of others like skc, klogg, craft, vc, ves maclovin etc. but I fell like I am slowly learning - 12 months ago I wouldn't have picked up the tax credits in OTC's AR and therefore would have overlooked an important part of the jigsaw puzzle!

 

[System]

On November 28th, 2016, OTOC Limited (OTC) changed its name and ASX code to Veris Limited (VRS).

 

[So_Cynical]

As I said earlier, the biggest issue I see is that once the tax benefits are expired there will be a negative impact on EPS and Mr Market may punish the share price in ignorance. I guess that just presents an opportunity to accumulate!

Are you buying galumay? i bought a few today @13c after watching for a year or so, the selling seems over done, perhaps a little negative sentiment spilling over from other roll up disasters and disappointments? property development exposure?

From 33c to 13c is a hell of a dive for what seems to be a good business.
~

 

[galumay]

I havent bought more as I had other areas to place capital in what I saw as better opportunities. I think you will do well at that price if you are patient.

 

[Miner]

Are you buying galumay? i bought a few today @13c after watching for a year or so, the selling seems over done, perhaps a little negative sentiment spilling over from other roll up disasters and disappointments? property development exposure?

From 33c to 13c is a hell of a dive for what seems to be a good business.
~
View attachment 70931

@So_Cynical
Just visiting this thread triggered by a job advertisement from VERIS for an engineering manager
Noticed the directors have bought and the share price is sluggish.
very thinly threaded.
Last treaded 0.055 and the trend is south wards
https://www.asx.com.au/asxpdf/20190228/pdf/4432521tkyl58t.pdf
Any chartist comment ?
DNH - but put on my watch list now.

 

[Trav.]

@Miner looks like you are chasing stocks that have the possibility to turn around the SP for massive gains.

maybe stalk this thread https://www.aussiestockforums.com/threads/the-bottom-is-in.34575/ and identify signs of recovery displayed in some of these companies that managed the turn around and apply it to your watch list.

 

[Miner]

@Miner looks like you are chasing stocks that have the possibility to turn around the SP for massive gains.

maybe stalk this thread https://www.aussiestockforums.com/threads/the-bottom-is-in.34575/ and identify signs of recovery displayed in some of these companies that managed the turn around and apply it to your watch list.

Thanks @Trav.
I do follow the thread you linked.. A real good one. However whenever the report is on ASF, the market often senses it before @greggles publishes it and the price jumps too high . Mr @greggles is really good honestly to skim through thousands of stocks to bring the lotus.

 

[IFocus]

@So_Cynical
Just visiting this thread triggered by a job advertisement from VERIS for an engineering manager
Noticed the directors have bought and the share price is sluggish.
very thinly threaded.
Last treaded 0.055 and the trend is south wards
https://www.asx.com.au/asxpdf/20190228/pdf/4432521tkyl58t.pdf
Any chartist comment ?
DNH - but put on my watch list now.

Chart looks woeful

No base or life in SP as of yet

Down side risk IMHO

 

[Miner]

Chart looks woeful

No base or life in SP as of yet

Down side risk IMHO

View attachment 95529

@IFocus many thanks for taking the effort to analyze and sharing.

 

[galumay]

Miner, its probably best to wait now until the full year results come out, that will give a clearer view of how management are executing the transition of the business.

 

[Miner]

Miner, its probably best to wait now until the full year results come out, that will give a clearer view of how management are executing the transition of the business.

All good @galumay and thanks.
I shared my posting purely to learn all of your views. Glad to get that. Market for some reason has opened with a slight higher price. But it could be like a candle to flare up before extinguishment.
I am on side line for VRS

 

[galumay]

Market for some reason has opened with a slight higher price. But it could be like a candle to flare up before extinguishment

Whatever, its almost certainly irrelevant. As an investor I try to ignore short term volatility, its totally unpredictable, despite what anyone tells you.

Is VRS a good investment at the moment? I dont think so, its easy for me to find better homes for the capital where the probability of long term IRR are far higher with less downside.

Despite that I have a tiny position (getting smaller!) in my personal portfolio. Its not enough to be bothered selling and maybe there is a viable business in there!

 

[So_Cynical]

VRS is a good business that is under the pump a bit, a niche player with work and cash flow but in an industry subject to the whims of governments and larger contractors. i have a small position thats under water and looking to add or take the loss, undecided.