Tag: investing

Here’s why an investment in Smartpay Holdings Ltd (ASX:SMP) could be a smart move

Smartpay Holdings Ltd (ASX:SMP) renewed push into the Australian market is a make or break move for this promising small company.

So who is Smartpay Holdings Ltd (ASX:SMP) and what do they do?

Smartpay Holdings Limited SMP (ASX) designs, develops and implements innovative Point-of-Sale (PoS) payment solutions for customers in Australia and New Zealand including banks, retailers and merchant businesses.

Wait on Poindexter, layman’s terms please!!!

You know when you buy something from a shop, you need to tap your credit card on a little box next to the register to pay?

Yes

Well they own the little boxes and the associated software.

Boring….. Zzzzzzzzzzzzzzzzz

Hang on! Think about how many times buyers tap and go everyday across Australia and how many millions of dollars are being transferred.

Hmmmm so they get all that revenue?

Not quite. Let me explain. In New Zealand where they originated they own around 30% of all terminals and charge vendors a monthly fee to use the terminal. They have recently raised capital for a serious push at rolling out their terminals in Australia were they are able to charge a fee on all transactions processed, currently between 1-2% of the total transaction.

Hmmmmm. So I’m guessing if they can get a foothold into the Australian market they could end up a nice little money spinner

Very true, it’s a big opportunity for the company, but let’s not kid ourselves it won’t be easy.

Why?

For starters the market is currently dominated by the big four banks.

I knew there had to be a catch. So how can Smartpay possibly compete with the big four?

Good question. I recently attended the ASX small cap conference in Sydney and was able to speak with the managing director and I asked him the exact same question. What Smartpay offers, that others don’t, is built in software that allows shop owners to run reports and link into stock management software. They are also partnering with these software packages to offer Smartpay as an option. In Australia they are able to compete on transaction fees with the banks, offering vendors a better deal. Another interesting point is that they have just inked a deal to be able to accept Alipay on all their terminals. You will also be interested to learn that unlike many small cap stocks they are actually turning a profit from their New Zealand operations.

You know you really should attend these events

I’m far too busy

Did I mention the ASX offers free food and drinks at these seminars?

I’m so there 

Now before you rush off to invest in Smartpay or any company for that matter, I suggest you start by doing your own research and discussing your decision with a qualified financial advisor.

I have included a link here of Smartpay’s presentation taken from the ASX small cap conference and their 2016 presentation here to kick start your research.

 

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Disclosure and warning
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

At the time of publication Alonzo owned shares in Smartpay. Price at time of publication 20.5 cents.

 

Here’s where I start my search for the next big small cap

Investors are always on the outlook for the next big thing. This is where I start my search.

Every minute of every day, investors dream of finding the next big thing. A small cap company which will grow rapidly over coming years resulting in the company’s share price doubling many times over.

If you are like me you will have listened enviously as other investors recount stories of buying Westfield Corp Ltd (ASX:WFD) or Commonwealth Bank of Australia (ASX:CBA) at some ridiculous price when they first hit the market.

While some investors like to buy in at the initial public offering, in the belief that the prospectus is a true reflection of the company’s future. I prefer to see runs on the board before investing.

Appendix 4C

 
To this end I eagerly await the mandatory quarterly reporting period for small companies. These reports known as Appendix 4C can be found on the ASX website at the end of each quarter.

In summary the report indicates the sales made in the quarter the costs incurred along with the remaining cash balance.

New investors will most likely be overwhelmed by the number of 4C reports released at the end of each quarter. To separate the wheat from the chaff at this stage I suggest only looking at companies which are actually producing revenue.

You will find this in the very top corner of the report. This will exclude most of the small cap exploration companies making the task much easier.

Next only consider companies which have grown revenue over the previous quarter. I recently learned that legendary investor Peter Lynch excluded companies whose revenue had grown by over 25% but I prefer to keep these companies under watch.

Once these companies have been found I suggest looking at the their quarterly activities report which is usually released with the 4C. While the 4C has a standard format, activity reports come in all shapes and sizes.

It is important for new investors to realize the activity report can be very much a marketing exercise but investors can quickly learn from this report the business conducted by the company. From here they can start to decide if they are able to understand what the company does and in turn possible risks etc.

Now that I have a list of growing companies running a business I can understand, I start to review past 4C reports.

Here I am looking to understand if revenue has been growing steadily or the recent report was a one off. Here I can also quickly learn if costs are continuing to rise or are they starting to level off which should see a growing cash balance. (positive cash flow)

From the 4C, remaining cash balance (found at the very bottom) will also alert you to how soon the company may need to raise capital from the market.

Conclusion

While there are never any sure things, I have been able to locate many profitable companies by this process including most recently Paragon Care Ltd. (ASX:PGC) and Nanosonics Ltd. (ASX:NAN) .

I suggest to new investors that this should be only the beginning of your research on a particularly company. From here you may check out the companies website. read annual reports and start looking for any broker coverage to help your understanding of what makes the company tick.

Disclosure:
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

iSentia Group Ltd (ASX:ISD) disappoints again!

 Shareholders in iSentia Group Ltd (ASX:ISD) are surely due for some good news with this mornings downgrade another blow to long suffering holders.

This how the company broke the news.

isd-down-grade

While it is some solace for shareholders that the “core” Saas and VAS businesses are performing in line with expected growth. The content marketing division although  only representing 7% of EBITDA in 2016 it has managed somehow to drag the first half below last years result.

Lets not forget it was only a few short months ago the company was expecting solid double digit growth.

While the company has put in place actions to resolve the situation there is no guarantees, as such I believe investors should wait to see proof before making a decision either way.

Tip for new investors.

When a well known stock falls by 30% such as iSentia has done, it is important to reconsider the fundamentals of the company and not to panic sell on the first day. You will often find (nothing is 100% guaranteed) such companies will often rebound strongly with other investors rushing in to buy what they believe is now a bargain price. This will allow you time to check the fundamentals overnight and allow you to receive a better exit price if you wish to sell.

Note: This rebound is not applicable to small illiquid stocks which can tend to head lower over time.

 

Disclosure:
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

Warren Buffett is buying airlines, has the world gone mad?

Berkshire Hathaway the company run by investing legend Warren Buffett has announced in its regulatory filing that as at September 30, Berkshire owned $US797 million of American, $US249.3 million of Delta and $US237.8 million of United shares. He has also recently gone on record to owning Southwest Air as well.

Lets not forget this is the same Warren Buffett who wrote in a letter to Berkshire Hathaway:

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, then earns little or no money. Think airlines. Here, a durable competitive advantage has proven elusive since the days of the Wright brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

While it is customary for Warren Buffett to not comment on why Berkshire has started to invest in a company what we see from Australian airlines is that profits are very much aligned with the oil price. Australia’s own airline Qantas Airways Limited (ASX:QAN) which had been struggling for many years posted record profits over the last 12 months on the low oil price.

In my opinion a bet on the airlines by Buffett means he believes lower oil prices are here to stay for the medium term and that the US economy is picking up to afford extra income for travelers to spend.

What concerns me is the increased competition in pricing, which we have seen in Australia which no doubt will have also infiltrated the American market. While cheap flights are great for travelers they are the reverse for airline margins. Any rise in the oil price will in my opinion cause some serious issues for the airline’s bottom line and that is why I wont be following Warren into the airline industry investments anytime soon.

Tip for New Investors

It is important to only enter positions because you understand the reasons for investing not because another investor is holding the company. Firstly the well known investor may have held the company for a long time before you became aware he holding and it may no longer represent value at its current price. You also need to be aware to the possibility that some investors may make their holdings public in an effort to inflate the price before selling. (Note I am not suggesting Warren Buffett would engage in such practices I believe he is one of the most upfront and honest investors in any market)

Disclosure:
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

Trump Triumphs

 Wow what a day and what a week.

The man no one thought would become President of the United States of America has done just that.

As the shock waves still vibrate around the world the question for investors is what does this mean to them and how should they invest a Donald Trump presidency?

If you had asked me this question last week I would have said go short equities and buy gold but since Donald Trump has been elected his whole approach has changed completely.

It began with his gracious acceptance speech where he thanked Hillary for her years of service yes that’s the very same Hillary just a few weeks earlier he had said he would send to jail if elected. He then went on to outline his idea of spending big in infrastructure to stimulate growth and get middle class Americans back to work.

The policy of huge tariffs had apparently disappeared and the market was liking the change with the ASX down 5% at one stage to bounce back to over 3% the next day.

While I must admit I do not know if this new approach will last I have been calling for expenditure on infrastructure in both Australia and the US to help economic growth as rate cuts begin to lose their affects.

While I am not convinced President Trump will follow through with these new promises as an investors I can only invest on what I know, and so far Trump is making the right noises.

Tip or New Investors.

While it is tempting to guess which way the market will head with a Trump victory, I have learnt that even the most highly paid analysts are wrong about the future more often than they are right. It is human nature to try to foretell the future but it is better to base your investing on facts and sound economic principles.

Disclosure:
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

Can the Melbourne Cup make you a better investor?

This years version of the Melbourne Cup has been run and won some punters have walked away with small fortunes while others well lets just say they are looking forward to the 2017 edition.

As the dust settles it dawned on me that the investors could actually learn a thing or two from professional punters. I know what you are thinking what could an investor possibly learn from a gambler?

The first thing that strikes me as a similarity between professional punters and professional traders is the very low percentage in each “profession” that actually makes money from their chosen job.

As traders or investors we are taught to stick to our plan and wait for the right opportunity,  patience being the key. Having spoken with professional punters they have also told me that waiting for the right bet is also the key to success.

This lead to me too look at how professional punters approach their “investments” to ascertain if there is anything investors could actually learn to put into practice.

Form

The first thing a professional punter must do is to look at the form of each horse in the race. I would equate this to an investors doing his research on the fundamentals of a company or trader looking at the past price history of a stock.

What strikes me is that in a race such as the Melbourne Cup there are 22 horses running on which they will need to do the form and rate each horse against the next. As an investor you may like to ask yourself how often would you research 22 companies then rate each against the other before investing? What it says to me is that investors should understand each company in a sector before deciding on which company is the best investment.

Staking

As an investor or a trader how much time do you give to what percentage of your bank or portfolio should you invest in a particular company? Professional investors review all of their past results and continually monitor their success rate and percentage returns so they can fine tune their staking approach.

Traders may like to take a look at the Kelly Criterion which many professional punters use to optimize their bet size and over all returns.

Conclusion

It is easy to get lost in your own world sitting behind your desk getting caught up in the daily share price movements. Truly great investors/traders are able to look outside their own sphere to take their skill set to the next level. Here I have suggested professional gambling as a possible inspiration for new ideas but no doubt there are many other fields we can all learn from.

Adairs Ltd (ASX:ADH) price crash!

Adairs Ltd (ASX:ADH) shareholders will be thinking their Melbourne Cup hangovers have come back with Adairs’ share price pllunging by over 40% on today’s trading update.So what exactly when wrong?

Looking at the trading update we can see that they lay the blame at misreading the trends for bedlinen. Disappointingly for shareholders bedlinen makes up 40% of sales but the good new is that non-bedlinen (60%) has been trading as forecast.

adhairs-trading-update

So what does this mean? Basically as Adairs was holding bedlinen which was not considered currently “in style” they needed to sell what they had at greatly reduced prices. So this resulted in a lower margin of profit for each sale. Things are not all bad we also learnt that Adhairs customer base continued to grow. The question is whether this was normal trend or brought about purely by current discounting.

adhairs2

So the question investors must now be asking themselves is this the beginning of the end for Adairs or has the market over reacted to which could amount to a one off mistake?

Taking into account todays fall Adairs now trades on a forward PE of just 11 and a dividend yield of 7% full franked. This is of course if the dividend is maintained.

Conclusion

Taking the update at face value in my opinion the sell off looks over done. It appears to me that with the heightened nervous around the US election the market is taking it anger out on any company it views as underperforming.