Friday, February 9, 2018

Bought Boustead

I've followed Boustead for a while.  Also see TTI's blog for a more detailed look.

Here's my valuation for a stock price of 83c:

First, net cash is 28c/share.  This includes some cash required for working capital.  Gives a stock price of 55c.

Next, the segments with recurring earnings:

  • I estimate Geo Spatial earned 2.8c/share in the last 12 months.  After estimating taxes subtracting some HQ costs
  • (Boustead Singapore's share of) Boustead Project's Leasing Segment's after-tax earnings were 1c/share.
So 3.9c/share of recurring profits.  That gives an ex-cash PE of 14.

And we are getting the Engineering and Design&Build segments for free.  These should be coming off multi-year cyclical lows.

The risks are:
  • Long term: Much of Boustead's past success is from the old CEO's capital allocation skills.  Will this continue under the next generation?  The company has been looking to deploy cash for a long time, without success.  Hopefully they will remain conservative.
  • Short term: Geo-Spatial's revenues would drop if the AUD dropped.  Also if the Australian Government cut spending.

Bought 36000 shares at 82.5c on 6th Feb.  Thats half my position, will buy more if the stock price drops to 75-76c.  I'm content to hold them long term, and - at this stage in the business cycle - may end up holding them through the next crash/recession.

This stock does not seem to be affected much by the current correction.