The problem with a No-Brainer Investment (NBI) is that most people
won’t agree with you. That is also the reason why it is a No-Brainer in
the first place. You must be comfortable and confident about it.
A NBI is one which provides you with a cash yield of double, triple,
or more the cash you can get from a bank fixed deposit interest, in a
consistent manner. Kcchongnz
The screenshot below shows the latest cash flows statement for Opensys,
an undervalued market leader with high ROE that is off the radar screen
of most investors. Appendix 1 is the background of Opensys.
FCF is whatever cash is left after all operating expenses, including
capital expenses for growth, like buying new plant and machineries. FCF
is like the end all goal of companies. The point is to do so well that
you make so much money that even after all the checks written to expand
the business you still have a lot of cash. With this FCF a company can
pay out dividend consistently, buy back its shares when they are selling
cheap, pare down loans, or invest in other profitable ventures, all
done without assuming more debts, or issuing more shares.
Thanks to kcchongnz, I had look past PE ratio. Appendix 2 shows the definitions and explanations of the key terms.
Opensys’ free cash flow and cash yield
FCF = CFFO – Net Capex
Cash flows from operations (CFFO) was RM20.9 million last year, way
much higher than the net profit of RM10 million. Net capex remained the
same at RM6 million.
CY = Free cash flow (FCF) / Price
FCF for Opensys surged 48% to RM14.8 million last year as compared to
RM10 million in the previous year. At 33 sen, the cash yield (CY) is
15.1%.
Based on the CY of 15.1%, is Opensys a No-Brainer Investments?
A CY of more than 5% investing in a stock is good as it is more than
the return from the fixed deposit in banks, and it is in cash too. A CY
of 10% and above would be excellent investment. ” Kcchongnz
Appendix 1
OpenSys
(M) Bhd is a micro-cap company with a still small but rapidly growing
revenue base that is off the radar screen of most institutional
investors.
Since
listed in 2004, its net profit has been on a tear while revenue more
than quadrupled from RM20.3 million to RM95.4 million over 14 years. The
better economies of scale, coupled with improving margins, also helped
propel its return on equity (ROE) by an impressive 16 percentage points
to 18%.
Today,
the company counts among its clients all major banks in the country,
such as Maybank, Public Bank, Hong Leong Bank and United Overseas Bank,
and insurance and telecommunications companies.
OpenSys
has the largest installed base of cash recycling machines, with close
to 80% market share in Malaysia and has to date installed more than
2,600 machines. Currently the total number of ATMs andCDMs in Malaysia
is 17,500 units with annual growth of about 5%.
CRMs
are dual-function machines that merge the cash dispensing functions of
ATMs and the cash deposit functions of CDMs. Banks are benefitting from
the cost- effectiveness of CRMs in areas of cost of ownership, lower
cash holding and reduction in cash handling cost. These significant
savings have been a major driving factor for banks to undertake major
fleet replacement and consolidation, resulting in the exponential growth
of CRMs. In the last five years, the total number of CRMs in the market
has grown exponentially with a Compound Annual Growth Rate (CAGR) of
close to 40 percent.
The
emerging and evolving technologies in the marketplace will fuel new
possibilities for OpenSys. The versatility of CRMs will see the adoption
of digital technologies and the rise of new value-added services using
new digital methods of authentication and service fulfilment such as
biometrics, contactless and cardless technologies, QR codes and
complementary mobile apps.
OpenSys
has been working closely with the banks to incorporate new technologies
and services. This opens up tremendous new possibilities in banking
services.
Appendix 2
Move over Earnings, make way for Cash
Most investors use, if they ever use at all, the price-to-earnings ratio (P/E) to measure the value of a company. Even almost all investment bankers and analysts do the same. By dividing the market price by earnings,
you can get an easy-to-understand measure of a firm's value and a
simple way to compare different companies to each other. Flip the ratio
over, you get E/P, or what is termed earnings yield. This you can use
to compare with the return of alternative investments such as bank
interest rate.
But
there are hell lots of problems with the “E”, the accounting earnings.
As you all know, accountants are some of the most creative people on
earth. This “E” can mean anything. The link below explains some of the
problems with this “E”, and the associated P/E ratio.
What is Free Cash Flow Yield or Cash Yield?
Like interest rate, cash yield (CY) for investing in a stock is simply
CY = Free cash flow (FCF) / Price,
Price is the market capitalization (MC) of a company, P = share price * no. of shares outstandingA CY of more than 5% investing in a stock is good as it is more than the return from the fixed deposit in banks, and it is in cash too. A CY of 10% and above would be excellent investment.
Free
cash flow (FCF) is what is left from CFFO after spending capital
expenses (Capex) for maintaining the ongoing business, or expenses for
growth of the ordinary business such as building new or upgrading the
production lines, open up more similar shops for business etc.
FCF = CFFO – Net Capex
FCF
is whatever cash is left after all operating expenses, including
capital expenses for growth, like buying new plant and machineries. FCF
is like the end all goal of companies. The point is to do so well that
you make so much money that even after all the checks written to expand
the business you still have a lot of cash. With this FCF a company can
pay out dividend consistently, buy back its shares when they are selling
cheap, pare down loans, or invest in other profitable ventures, all
done without assuming more debts, or issuing more shares
Based
on CY, we could generally conclude that high CY companies, i.e. buying
companies cheap in term of cash return, is a No-Brain Investment (NBI).
Source
Disclaimer: The article above does not represent a recommendation to buy or sell.
https://klse.i3investor.com/blogs/Amazinggrowth/197164.jsp
