Posted by kcchongnz > Mar 18, 2013 02:15 PM | Report Abuse X

ECS ITC. Does this meet the 5 yardsticks of Cold Eye as an investment? 

Yardstick 1: ROE 
ECS reported an earnings of 29m, or EPS 16.6 sen for the year ended 31/3/2012. With its net asset backing per share of 1.04, ROE is 15.9%. this is substantially more than 10%, good. 

Yardstick 2: Cash flow and free cash flow 
The cash flow from operations (CFFO) is 22.2m. This is 74% of its earnings of 29.9m. This shows the quality of the earnings not so good. After spending 2.1m in capital expenses, there is a free cash flow (FCF) of 20.1m left which ECS used pay dividends of 15m. This FCF is at 1.6% (<5%) of its revenue. The nature of this business, especially in trading of technology products is low in margin and in FCF relative to revenue. Overall cash flow and free cash flow is not that satisfactory. 

Yardstick 3: PER 
ECS is trading at 1.04 at the close of this morning’s trading. With EPS of 16.6 sen, the PE ratio is only 6.3. this is a reasonably low PE and hence good price to buy. 

Yardstick 4: Dividend yield 
ECS paid a dividend of 8.3 sen for last year, or a dividend yield of 7.7%, about twice the FD rate. Very good indeed. 

Yardstick 5: NTA 
The net asset backing per share of ECS is 1.04. Hence at a share price of 1.04, the price-to-book value is 1. It is inexpensive. 40% of its assets is hard cash. 

ECS meets 4 or the 5 criteria of Cold Eye as an investment. Hence it is a good investment as recommended by Cold Eye.