Forum Archive Index - April 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

 

Readers,

Please read the disclaimer at the bottom of this report before proceeding.

 

SUMMARY:

Investors have always appreciated those few stocks who tend to perform well in all conditions. They are defensive - but also high growth stocks.

 

These two desirable features attract experienced investors and they are prepared to pay for these combined - and rare qualities.

 

The two companies referred to below, work in the debt receivables sector. Debt levels have been approaching historically high levels in Australia and New Zealand. Australia is a large market to operate in.

 

This sector is expanding at a high rate: due to outsourcing by other companies, new sources of revenue are being tapped, eg. Billing systems. 

 

The sector requires focussed and highly skilled technical personnel. The Board and managements will be developing and testing new concepts as well.

 

High profit margins and strong free cash flows will be the outcome of policies and shareholders will enjoy the benefits.

 

The two companies which comply with these demands are BCH and CLH. Both companies have been discussed before. 

 

Investors have asked what the future holds for  CLH and this report should give them added confidence. 

 

CLH:  Item ( 3 ) indicates a compound return of at least 31% every 10 months  up to Nov 1993. The " Remarks " of that item are important in this context.  

 

CLH: Projected share prices ($A):

 

Date:               20/4/01  20/2/02  20/12/02  Oct / Nov. 2003  

Share price:     4.40       5.76       7.55             9.89

 

These are indicative values only; obviously, share prices do no rise in a regular fashion.

 

The investor would get an additional 1.5% dividend yield ( item ( 5 )).

The company pays out 65% of their profits in dividends, the remainder will be added to reserves: see item ( 6 ). 

 

Mr Peter Maiden is the chartist and his excellent work has been acknowledged in item ( 8 ). 

---

Introduction:

 

BCH ( BAY.AX ) or Baycorp, was listed in 1986 and restructured in 1994; the company has had an excellent performance since.

Many investors think that the current price of $NZ 12.26 - or $A 9.81 - is justified; it has a high international rating and net profits have a consistent growth of some 20% a year: <  www.baycorp.co.nz  >  

 

CLH or Collectionhouse < www.collectionhouse.com.au  > was incorporated in 1992. It is an Australian company with its HO in Brisbane. It has offices throughout Australia and in Auckland.

 

Like BCH, CLH has a variety of services eg. credit reporting, debt collection and related services. It also administers a National Tenancy Database and purchases Debt ledgers. The current work-in-progress exceeds $A 2.4 Bill.!

 

Potential growth will come from earlier outsourcing by Firms, eg. commercial collections and billing management.

CLH has already obtained contracts in these fields. 

 

This growth will increase with time and will result in a huge expansion of present services!

 

CLH has the highly rated " The Controller "; this is a specialist debt collector and management information system.

 

CLH is a respected Australian company with excellent connections!      

---

BCH and CLH:  How do they compare?

Note: All data is in $A / cents ($ NZ =$A 0.8), year to June 30.  

 

1. Net surplus ( $ mill ):

Year    96    97    98      99   2000     01F                02F

BCH    5.6   7.2   8.9    10.8  12.6  15.4(+22%)   18.5(+20%) 

CLH   ( Listed in Oct. 2000 ).  2.5    8.4(+236%) 14.3(+70%)

 

CLH: The projected growth in earnings in one year - 01 to 02 - is the equivalent of about 3 years growth by BCH ( See 1997-2000 period )

 

2. Shares ( mill.):             2001                2002

BCH ( Price: $A 9.81)         82.7                 84.3

CLH ( Price: $A 4.40 )        86.0                 91.2

 

Remarks: CLH will have cash left from their $ 33 mill. raising in March. Hence, the 2001 and 2002 numbers are either weighted or have taken this into account.

If this cash was ignored, then CLH would have 94.5 mill. shares in 2002.

BCH tends to have little cash left: See item (4): dividends. Shares are weighted. 

   

3. E/S (cents):    2000             2001              2002 

BCH               16.2(+15.1%)   18.6(+14.8%)   21.9(+17.7%) 

CLH                                      10.2                15.7(+53.9%)

 

Remarks: CLH: It is estimated that it will take less than 1.5 years-starting from July 1, 2002 - to obtain the same E/ S that BCH has in the year up to June 30, 2002.

 

Therefore, the present CLH price of $ 4.40 could at least grow to $ 9.81 from now to Oct / Nov. 2003 ( about 30 months ).

 

 This is a compound rate of return of 31% every 10 months to Oct. / Nov. 2003.( Today's BCH share price is $NZ 12.26 = $A 9.81).

 

It is a conservative estimate because it ignores any possible increase of the BCH share price between now and June 30, 2002. 

Should that increase by say 10% then the compound rate of the above mentioned 31% could rise to 35%!

It could reach that level without having to couple the performance or prices of CLH to that of BCH !  

 

4. Dividends (cents)        

                                2000       2001               2002

BCH (pay-out 93%).15.2,act.   17.3(+13.8%).  20.4(+17.9%)

CLH (pay-out 65%).                 6.5                 10.2(+56.9%)

 

5. Dividend yield (%)     2000     2001     2002

BCH                                1.5       1.8       2.1

CLH                                            1.5       2.3

 

6. Add cash to reserves ( Surplus minus Pay-out of div. ) 

($ mill.)                                     2001     2002

BCH                                           1.1        1.3

CLH                                           2.9        5.0

Remarks:Due to its more conservative dividend pay-out ( See item (4)), CLH will be growing some nice reserves over time.

 

7. P/E ratios         2000      2001      2002

BCH                     60.6       52.7      44.8

CLH                                  43.1       28.0

Remarks: BCH is highly regarded internationally.CLH: At the current price of $A 4.40, the prospective P/E for the 2002 year, is low.

 

As results come in and  the stock has performed, the P/E of CLH will try to meet that of BCH. Therefore, a buyer who wants CLH stock, could encounter increasing share prices. And that is already happening.

 

8. Acknowledgements. 

Many thanks to our chartist, mr. Peter Maiden who has given some excellent interpretations of CLH price behaviour!

 

Readers, please refer to his classics: " Collection House success story " of March 4, 2001 and " CLH - Chart update " of March 31, 2001. 

 

His interpretations have turned out to be conservative: On March 4 - when the price was $3.50, he predicted a price of $ 4.50 on June 30. It reached $4.55 on April 17! 

 

Peter is now predicting a new support level at $ 4.70- $ 4.80 in June!

 

His work has given potential buyers of CLH stock increased confidence!

                                               .......

Readers can also refer to my " CLH - Chart update " of April 1, 2001. 

 

 

Gerry

---

Disclaimer. I hold BCH and CLH stock. This report was prepared on April 21, 2001. The contents of this report are my opinions. Readers are not asked to buy, hold or sell shares or any other financial instrument.To do so, will be entirely at their own risk.