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| Image: Stamford Tyres |
One of the things a casual reader might find interesting is how from my initial analysis, I actually rated it as a sell, and then after relooking and rethinking it and working harder at it, I changed it to a buy. Well, that's real life investing, isn't it? In a way, there are no absolutes in investment, what can appear bad today can appear great tomorrow. The only thing is that you must have a strong basis for the change, and also know that you are backing your analysis with cold hard cash. If the trade turns awry, there's only 1 person to blame and that is yourself. On the flipside, if it does work out right, you also are the sole beneficiary.
Also note that the report is presented chronologically, from the date research is initiated to the most recent review. Hence please do not be turned off by the early date at the start of the report. As of the date of the post, the report is current. Anyway, click read more to see my analysis.
Disclosure: I have holdings in Stamford Tyres.
Stamford Tyres (SGX: S29.si)
25 Sep 10
P=0.295
Listed on SGX mainboard 2003
ST FY10 ends 30 Apr10.
ST has 2 main sources of revenue, wholesale tyre distribution and international export of its proprietary tyres/rims. Distribution contributes 91% of its revenue and it does so through its own retail outlets or others. It has the sole distributorship for 4 major brands, Dunlop, Continential, Falken and Toyo, and exports them to 9 countries. Sumitomo Rubber Industries had just taken up a 1.8% stake through a placement of 4.3m new shares at 35cents/share [source: BT 22 sep10], i.e. at a steep premium of 18.6% from its last traded price. The stock has already made a move upwards, having gained 55% since Jun 10. Nonetheless, the PER still remains low, at 7.2x though yield has fallen dramatically to 3.4% [source BT reporting services]. ST reach is quite extensive, exporting its sumo prop brand to 30 countries. It produces its own tyres and rims in Thailand with a production capacity of 1m wheels per year.
Its gross profit margins had decreased alongside its profits from its peak in 2008, and is clocking in at 21.4%, which is still relatively high margins. Its net profit has made a remarkable rebound exceeding 2008 figures even. It now has a positive cashflow compared to 2009. EPS_2010=4.08, PER=7.23x. Its growth strategy is also unremarkable, where it would want higher allocations from the brands and to increase its prop brands productivity from its manufacturers. Div payout ratio=24.5%. Div_2010=1cent, div yield=3.4%. It seems to suffer some sensitivity to forex movements.[source: Stamford tyres 2010 presser].
BVPS=43.44 [the sumitomo share acquisition is anti-dilutive raising the BVPS]
PB=0.68x
yr | ROE | 31Jun shareprice |
2006 | 20.91 | 0.565 |
2007 | 13.72 | 0.53 |
2008 | 8.63 | 0.325 |
2009 | 1.25 | 0.18 |
2010 | 10.07 | 0.25 |
Using the last 5 years data inside its annual rpt, its average ROE=10.92. Excluding the highest and lowest figures, the average ROE=10.8%.
Using RR=75%, ROE=10.8%, g=RR*ROE=8.1%
FV=1*1.081/(0.0863-0.081)=203
EPS | 2011 | 2010 | 2009 | 2008 |
quarter | ||||
(Feb-Apr)4 | 1.82 | -0.02 | 0.57 | |
(Nov-Jan)3 | 1.02 | 0.03 | 0.86 | |
(Aug-Oct)2 | 0.85 | -0.98 | 0.57 | |
(May-Jul)1 | 0.49 | 0.39 | 1.41 | 1.29 |
FY | 4.08 | 0.44 | 3.29 |
From the EPS quarterly data, there is no apparent trend of seasonality. 1Q is strongest in 2008 and 2009, while for FY10, 4Q was strongest. Hence, the earnings for FY11 is hard to call. The presentation in the AR really highlights this, they use a speedometer graphic, and its ROE and NI figures are all over the place. For what is a mature industry, the variance in its data is astounding. For this reason, I would use only the most conservative of my numbers, and would put its TP=18.3 making it a SELL.
10Mar11:
P=0.295
I decided to revisit ST because it’s PB is really low.
BVPS=42.68cents
PB=0.69
And it has no intangibles on its assets. Its NCA/share=0.139. Hence it is not an Graham-Dodds NCA candidate.
The FCF computations also indicate that it should be multiple times more, FV=1.41 based on 2011’s estimates, which is less than 2010’s data FV=1.46. This is a 380% upside.
EPS_ytd=2.44
EPS_ttm=2.44+4.08-2.26=4.26
PER_ttm=6.9x
A more conservative estimate is that it has zero earnings in 4q to give PER_11f=12.09x.
Current ratio=1.44 which is a good indicator, because quite a substantial amount of its debt, 90m comes due this year.
ST’s historical metrics are pretty bad. In terms of PB, it has for the last 3 years been trading at substantial discounts, averaging PB_avg=0.58, though before that it has traded about 1.2xPB. Its PER has also moved in very low ranges, at about 6.22x this year and 4.7x last year. ST has IPOed in 2003.
At 1xPB, PER=10x, which still seems cheap. The question is, how long will the market remain irrational.
Conclusion: ST is rated a buy with TP=0.43 at 1xPB, an upside of 46%.
23Mar11:
P=0.275
EBIT_10=14767+5089=19856
NTA=98312
ROCE=20.19%
EV_10=0.275*230561+133836=197240.275
Earnings yield=EBIT/EV=10.07%
The metrics do look rather healthy for 2010 which was a good year.
As usual in Singapore, this is a family run business, with many members of the family involved. The family owns about 50% of the company and have been recently adding to its holdings, which is a good sign at prices above 30cents. In fact they have been only buying since Feb 2007, and their fortunes I suppose ride with the company’s. This could be a double edged sword naturally with the family involvement, but it is not quite clear what their salaries are, since it is only listed in a band >500k. It does mean though that they have almost complete control over the company and of the board with President, wife and daughter all members, 3 out of 8.
But I still like the fundamentals of the company, it does look cheap. ST is currently not CD, typically dividends are recorded in Sep though there have been years when it is in Dec. I attempted a buy today at 0.27 which did not execute. Will likely put in a buy at 0.275 which was what orders were executed at today. The volume is extremely low.
5Apr11
Had put in a buy at P=0.285 yesterday, but the order was only partly executed. Liqudity is very low, and this is leading to higher transaction costs and also there is price impact. Nonetheless, the expected profit margin (50%) from this would offset these additional costs.
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