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First the positive signs. It comes of no surprised, that the number of treasury shares increased by almost 6% from 2007 to 2008. As of the last share buy back on 14 June '09, the percentage of treasury shares has increased to 7.16%. However, it seems that the pace of the share back buy has slowed down. By comparing the percentage of shares bought in the first half against the second half of 2008, the pace of the share buy back about doubled in the second half. Hence based on the trend, I can expect the percentage of treasury shares to increase to at least 10% by the end of 2009.
The other positive news is debt and cash. Except for allowance for doubtful debts, there is no long or short term debt obligations. Cash and cash equivalents has also increase steadily. The cash value per share based on the number of issued and outstanding in 1QFY2009 is US$0.063 or about SG$0.082 (US$1 = SG$1.4). Based on the current share price of $0.175, the cash portion is about 50%.
Net Asset value. I have not gone into detail on what assets LMA own or how it classify its assets but its encourage that it's NAV has also been increasing steadily. At US$0.173 or SG$0.242, it's about 30% above the current share price.
There are also a few risks involved. While net sales is generally positive, the same can't be said of earnings per share. This is due to the intense price competition with its competitor Ambu. LMA is now focusing on single use product and I hope that will boasts its earnings.
Lawsuit with Ambu on its patent infringement in France, Netherlands and Germany. This lawsuit has been going on for a couple of years now and currently LMA has won it's lawsuit in Germany and is discussing on damages claim. It will be a plus if there is a substantial claim but I'm not sure how the other two law suits will have a impact on LMA balance sheet.
Treasury shares. There is still a small possibility that the buyback is not done with the shareholders' best interest in mind - e.g. buying back its stock to improve financial ratios such as EPS or P/E.
I am still anticipating a maket correction soon and I have set myself a price of $0.12 or in October to buy into LMA whichever is first. At t$0.12, assuming that cash position remains constant, it will represent 68% of the share price.LMA has been in my radar ever since October last year, when I noticed that it was regularly buying back its shares. In fact, it has been doing so since 2007 but the number of treasury shares then was not significant and its price was too high. Although some directors have also been raising their stake, I shrugged it off as a company/directors that are taking this opportunity to increase their share value/stake amid the downturn.
However, during the recent recovery, LMA shares increased by 60% (from 12 to 18 cents) and it is still buying back its shares.This was the catalyst that made me decide to do a more detailed analysis.
[caption id="attachment_2705" align="aligncenter" width="300" caption="LMA - 14 June 09"]
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First the positive signs. It comes of no surprised, that the number of treasury shares increased by almost 6% from 2007 to 2008. As of the last share buy back on 14 June '09, the percentage of treasury shares has increased to 7.16%. However, it seems that the pace of the share back buy has slowed down. By comparing the percentage of shares bought in the first half against the second half of 2008, the pace of the share buy back about doubled in the second half. Hence based on the trend, I can expect the percentage of treasury shares to increase to at least 10% by the end of 2009.
The other positive news is debt and cash. Except for allowance for doubtful debts, there is no long or short term debt obligations. Cash and cash equivalents has also increase steadily. The cash value per share based on the number of issued and outstanding in 1QFY2009 is US$0.063 or about SG$0.082 (US$1 = SG$1.4). Based on the current share price of $0.175, the cash portion is about 50%.
Net Asset value. I have not gone into detail on what assets LMA own or how it classify its assets but its encourage that it's NAV has also been increasing steadily. At US$0.173 or SG$0.242, it's about 30% above the current share price.
There are also a few risks involved. While net sales is generally positive, the same can't be said of earnings per share. This is due to the intense price competition with its competitor Ambu. LMA is now focusing on single use product and I hope that will boasts its earnings.
Lawsuit with Ambu on its patent infringement in France, Netherlands and Germany. This lawsuit has been going on for a couple of years now and currently LMA has won it's lawsuit in Germany and is discussing on damages claim. It will be a plus if there is a substantial claim but I'm not sure how the other two law suits will have a impact on LMA balance sheet.
Treasury shares. There is still a small possibility that the buyback is not done with the shareholders' best interest in mind - e.g. buying back its stock to improve financial ratios such as EPS or P/E.
I am still anticipating a maket correction soon and I have set myself a price of $0.12 or in October to buy into LMA whichever is first. At t$0.12, assuming that cash position remains constant, it will represent 68% of the share price.
[/caption]
First the positive signs. It comes of no surprised, that the number of treasury shares increased by almost 6% from 2007 to 2008. As of the last share buy back on 14 June '09, the percentage of treasury shares has increased to 7.16%. However, it seems that the pace of the share back buy has slowed down. By comparing the percentage of shares bought in the first half against the second half of 2008, the pace of the share buy back about doubled in the second half. Hence based on the trend, I can expect the percentage of treasury shares to increase to at least 10% by the end of 2009.
The other positive news is debt and cash. Except for allowance for doubtful debts, there is no long or short term debt obligations. Cash and cash equivalents has also increase steadily. The cash value per share based on the number of issued and outstanding in 1QFY2009 is US$0.063 or about SG$0.082 (US$1 = SG$1.4). Based on the current share price of $0.175, the cash portion is about 50%.
Net Asset value. I have not gone into detail on what assets LMA own or how it classify its assets but its encourage that it's NAV has also been increasing steadily. At US$0.173 or SG$0.242, it's about 30% above the current share price.
There are also a few risks involved. While net sales is generally positive, the same can't be said of earnings per share. This is due to the intense price competition with its competitor Ambu. LMA is now focusing on single use product and I hope that will boasts its earnings.
Lawsuit with Ambu on its patent infringement in France, Netherlands and Germany. This lawsuit has been going on for a couple of years now and currently LMA has won it's lawsuit in Germany and is discussing on damages claim. It will be a plus if there is a substantial claim but I'm not sure how the other two law suits will have a impact on LMA balance sheet.
Treasury shares. There is still a small possibility that the buyback is not done with the shareholders' best interest in mind - e.g. buying back its stock to improve financial ratios such as EPS or P/E.
I am still anticipating a maket correction soon and I have set myself a price of $0.12 or in October to buy into LMA whichever is first. At t$0.12, assuming that cash position remains constant, it will represent 68% of the share price.
Derek,
Alarm bells went off in my mind when you mentioned this.
1. Do not pay dividends…i don’t do such things anymore. Cash must be used to improve business or given to shareholders as dividends. Don’t seem to see any of that here.
2. Doesn’t seem to have competitive advantage over peers. Reflected by decreasing margins and ROE.
3. I won’t be concerned about their rise in treasury shares. Well, I used to be, but not anymore since I realised that the business nor the share price depended on this.
4. There are better buys in this market than this.
Sorry, I might not have the full picture since I’ve not read their statements nor do I really know their business intimately. Thought I’ll just sound off the alarms first.
Hi LP,
Thanks for the heads up. I couldn’t see your comments in my blog, I will post it up when I’m home.
I agree with you on the points you mention. I read somewhere that the company is interested to go private or list somewhere else as it thinks its shares is too undervalued here but that’s secondary.
I have yet to post my trading strategy – I don’t intend to hold this for the long term. I’m aiming to go in quick say at $0.12 and out at $0.16-$0.18 and if possible (provided the fundamentals remain), do so many times. I also want to minimize the risk to as low as possible. LMA fits nicely because given it’s no debt and high cash reserves, the possibility of going under a $0.11 is very low. I’m more worried about the liquidity, haven’t study on that.
Of course, there are many other better stocks out there, and LMA is just one option. I haven’t have the time or money to go through all of them yet.
I haven’t really read in detail about Hongguo, I will do so when I’m back.
Thanks once again for your points, I will examine them in detail before committing.
Cheers!
Hi Derek,
I see…LMA as trading stock.
In my opinion, not feasible. It’s not very liquid so a person with big lots can really whack the price up or down. For trading stocks, actually the more visible the company is, the better. You can follow the favourite punting stocks by those folks in the cbox, they are: noble, sembmar, midas. They offer more liquidity and seriously, they are serious contenders for your money rather than LMA.
Go for those near 90 cts one. The bid size changes as it goes beyond $1, offering you a good deal. Look at swiber.
Hi LP,
Just finished reading your posts on Hongguo. I now have a better understanding on what you meant by value trap.
I believe LMA does have some sort of an economic moat. Medical suppliers are a necessity and declining earnings is due to price reductions rather than the selling less. The market is already very saturated making new competition difficult. As far as my knowledge, LMA only has one competitor – Ambu. If the price wars continue, both company will bleed badly. I seriously doubt the industry will allow anyone one player to monopolize the market.
LMA liquidity is indeed a problem. There are some days where there is no volume. Hence as a trading stock is indeed difficult. I will no longer buy it in October but rather wait for it to hit the $0.12 mark before making my next move.
Cheers!