More On That SIlver Birdie

How should one value a company which has no profitability?

Got the following comments on the posting That Silver Birdie Once More!

• solomon said...
  If the valuation is based on profitability, I think it is not worth that much at all.
  
  I think the current share price is attributed to tight control of shares (60-65% shares controlled by 2 major shareholders via various firms). Possible of MGO in near term??

Yes, if based on profitability, this company certainly isn't much at all. The earnings performance for this company over the past few years certainly has been rather dismal and it clearly shows that the management clearly isn't able to perform. (Some would be quick to point out the issue against the quality of Silver Bird's bread and would also point out the health issue against its factory in Nilai back in 2006 (Ah.. some links can still be found on the net. Here's one roti terkenal diarah tutup - High5 tak boleh makan )

And would I value it against its book value?

At 1.2x as suggested by OSK?

Well there's one reason why I would be sceptical. Now if not mistaken Silver Bird so called state-of-the-art factory in Shah Alam cost the company a staggering 100 million.

Yes, a 100 million factory plant just to make bread!!!

And just when can one see the return of investment? And judging from recent years performance from Silver Bird, there's no indication that the return of investment has so far been so rather poor.

Now if Silver Bird spend so much for a plant that has so far shown no return of investment that justified the investment, how would one want to value this plant? Say for example, if Silver Bird does decide to dispose the plant, how much money could it even possibly fetch for the plant? If Silver Bird is lucky enough to find a buyer (not too many bread makers in the country would contemplate spending even 20 million on a new factory plant, let alone an 'old' one!), surely it would have to sell at a much bigger discount.

Oh, perhaps the factory land is worth money. No doubt. But surely not for 100 million.

And to even complicate things further, if I am not mistaken, I do believe that there was a sale and leaseback of the plant! (LOL! That's how financially weak this company was!)

Ah, the two big shareholders.

But some would point out that this is rather old news. Back in 2007, BizWeek - Tussle for control of Silver Bird stirs interest

Some comments of note in that article.

• Says a senior dealer with a stockbroking firm: “Silver Bird's share price has been depressed for a long time because of its poor financial performance in the past. Some people may view the third-quarter results as an indication that the company may finally turn around soon.”
  However, under scrutiny, the latest figures are not exactly a solid source of optimism. As the company acknowledged in the notes to the results, the improvement in profit was partly due to a RM12.2mil writeback of asset impairment taken up in last year's accounts.

Yes, it's financial performance is still poor today!

• An analyst points out: “Operationally, the company is not out of the woods yet. Its margins continue to be under pressure and there's much to be done to increase sales and profitability.”

It's now fy 2009 for Silver Bird. It lost money for fy 2007 and fy 2008. Doesn't it appear that the company has NOT done much at all to increase sales and profitability?

So we have two big shareholders.

How would we judge their investment in Silver Bird?

A good investment? Or a rather poor one?

Or should be judge the investment by REPUTATION of these two shareholders?

Of course major shareholders in a tightly control shares situation could do 'miracles' in the stock market (this not a shocker, yes? not in stock markets, yes?)(oh, I am merely acknowledging that this is a possibility. Not saying it will happen for sure. So do not assume too. :P)

How?

Have a look at this chart and see how Silver Bird had performed since.

That Star article was published on Saturday September 29, 2007. Silver Bird closed the previous day at 0.645. And thanks to the marvel of our financial press and also our market movers, Silver Bird the stock, soared. :P