This marks the first of Mr
Greenshoe’s 10 Greenhorns. 10 companies that have shown potential to outperform
the Singapore market.
These 10 Greenhorns are
sourced through a variety of proprietary matrices – business model, financial
ratios and growth metrics – and are poised to be superstars in the not so distant
future.
Without further ado – introducing the Libra Group.
Listed on the Catalist Board in 2011, Libra Group provides exposure to a Singapore focused M&E, manufacturing services, and construction contract provider. Albeit valued by the market at a mere US$25 million, don’t write this small guy off. It has proven itself to be worthy of a place in Greenshoe’s Greenhorns by virtue of:
1. Resilient business model
M&E and Manufacturing contributes roughly equally to Libra’s revenue. The construction contracts business was only acquired in mid-last year and the upcoming annual report will shed greater light on segmental revenue breakdown. Libra’s product offering is demanded at various stages of the property construction phase. No doubt one might argue that Libra’s business is highly correlated to the property construction sector and ultimately the Singapore real estate market. Further, in light of a slew of property cooling measures and a gradual decline in property developments, investors might have shunned Libra for fear of a sector meltdown.
A glance at Libra’s y-o-y revenue and eps figures, one might have found something positively amiss. Almost a c.100% increase in revenue and a c.200% increase in net profit (HY2014). Well, the missing piece of the puzzle here lies in public sector. Public sector projects have contributed substantially to Libra’s earnings. Notable customers include Temasek Polytechnic, Ngee Ann Polytechnic, NTU, Sports Hub. The outlook of the public sector remains resilient and is poised to increase further. With developments galore in URA’s masterplan and the trend towards sustainable / green buildings, Libra’s future looks particularly rosy.
2. Renewed leadership
Founder and CEO Mr Chu returned in April 2014 to hold the reins of his company. Prior to his return, Libra's share price performance had been lackluster and the company lacked a sense of direction / fighting spirit. Since Mr Chu's return, Libra's share price has increased a whopping c.140%. How this happened over the course of less than a year is indeed remarkable.
Mr Chu wants to imbue a cockroach-like spirit within his company. A company vision of such is equally mind-blowing but kudos to his guts. It is also noteworthy that Mr Chu is the largest shareholder of the company at over 50% and Mr Greenshoe is a big fan of management having a skin in the game.
A classic capital markets play was executed by management in 3Q2014. OSK DMG initiated coverage on 15 Sep 2014, with a Buy call of 100% upside. Share price rose 30% in the next couple of weeks and in early Oct, management conducted a share placement to HNWI. Following that, OCBC's initiation report in late Oct 2014 further pushed the price to today's 20 cents. This example fully explains the need for catalist companies or under-the-radar companies to conducted "marketing" placements to increase visibility, investor understanding and ultimately a re-rating of the innate potential of the stock.
Mr Chu wants to imbue a cockroach-like spirit within his company. A company vision of such is equally mind-blowing but kudos to his guts. It is also noteworthy that Mr Chu is the largest shareholder of the company at over 50% and Mr Greenshoe is a big fan of management having a skin in the game.
A classic capital markets play was executed by management in 3Q2014. OSK DMG initiated coverage on 15 Sep 2014, with a Buy call of 100% upside. Share price rose 30% in the next couple of weeks and in early Oct, management conducted a share placement to HNWI. Following that, OCBC's initiation report in late Oct 2014 further pushed the price to today's 20 cents. This example fully explains the need for catalist companies or under-the-radar companies to conducted "marketing" placements to increase visibility, investor understanding and ultimately a re-rating of the innate potential of the stock.
3. Compelling valuations
2 ridiculously attractive metrics:
Dividend yield of 7.5% for 2014E and 9.0% for 2015E (broker report). Sector peers* are averaging a yield of 4 - 5%
PER of 4.9x for 2014E and 2.9x for 2015E. (broker report). Sector peers* are trading at 10 - 12x PER
Both metrics are calculated from a conservative stance. Management has indicated a more aggressive dividend policy and we'll find out in the next couple of weeks when guidance is out.
*Peers include: Tee International, Rotary Engineering, Hiap Seng Engineering, Mun Siong Engineering, King Wan Corp
X Factor
Most successful M&E and manufacturing companies tend to progress to becoming real estate developers. Case in point being Ho Bee and Wee Hur. This might be a long shot but it could very well happen once Libra manages to bulk up.
In relation to Mr Greenshoe's post on Is Bigger Better? (http://greenshoeopinion.blogspot.sg/2015/01/is-bigger-better-temaseks-value.html) - let's see if Greenhorn 1 proves the point that small is the new big.
GS
