It's the business..

Saw this very interesting article, it's the business that counts , posted on the Business Times. It's written by Teh Hooi Ling. Her column's name is very special for me for it's called Show Me The Money. Here is a snapshot of the column.



Anywayyy... I really enjoyed her write-up today.

• 'Of course, if the company has no intention to return the cash to shareholders and its operations are bleeding cash, then the share price may well have reason to be trading below the cash net of liabilities per share,' I wrote. 'Unless there is a turnaround in the business, the cash will eventually be depleted.

Hmm.. the intention to return the cash!

Very important issue, eh?

What can the minority shareholder or speculator do if the management has NO INTENTION to return cash or unlock its assets?

Think about it hor...

Err... just like that CIMB statement for Worldwide..

• Also, the group does not appear keen to unlock the value of its assets, including its stake in Genting Sanyen, unless it can put theproceeds to good use.

She continues by saying..

• 'But if a company's share price is significantly lower than its cash net of liabilities, and there is no shareholder with a more than 50 per cent stake, then there is a possibility that a corporate raider may come in to scoop up the bulk of the shares, gain control, strip the assets and take hold of the cash.
  
  'Yet another possibility is for the controlling shareholder to take the company private, paying a premium to the market price.
  
  'Even if none of these corporate manoeuvres takes place, a company flush with cash and with operations that are profitable and generating cash will have no reason to trade below its net cash value per share for long. Thus a look at a company's cash position, coupled with an analysis of its operations, is a rather clear-cut way to ascertain the extent of under-valuation of a stock.'

hmm... two possibilities.

A corporate takeover or the company being taken private.

I will add two more issues.

1. The time-frame - how long does one have to wait before an offer materialise?
2. Will the offer price being a fair and just offer to the minority investor/speculator?

She also mentions the issue of management trust and integrity. (see past blog posting on management integrity )

• 'So if you decide to buy into its shares now, you are, in fact, putting your trust in the management to invest the money wisely and in projects that will yield attractive returns.
• But again, it boils down to one's assessment of the management, whether one believes it will make a wise choice of business to buy into, and at a reasonable price, and subsequently how it can add value to the business.
  At the moment, all of this is unknown. And it seems the market currently prefers the certainty of an existing thriving business to the uncertainty of an unknown one.

She then elaborates on what happened to the three Singapore stock examples she gave back in 2003 and she concludes from her examples by saying...

• The above examples underscore the fact that ultimately it is the business that drives the share price. That conclusion is further reinforced by the price movements of a few companies that have sold their operations for cash.