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I bought some shares in symex last year and now i'm trying to decipher the financial statement. At the moment I'm a bit confused and was hoping someone would be able to help me out.

I am trying to work out how many shares are issued in the company - in the notes refering to earnings per share tahey say there is 66,636,615 ordinary shares; when i look at the notes refering to share capital it is 91,500,003. Which one is the figure that I should use?

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Judy, the actual issued number of shares as of today is 91m and should be used in go forward calculations.

The 66m would be the weighted average number of shares issued by the company over the past 12 months. Obviously they have issued a lot of shares in the past 12 months.

If you refer back to my previous posting to you about valuing companies it is specifically these sorts of issues as to why I don't use P/E ratios as a measurement tool for go forward calculations - they are just too easily manipulated (innocently or otherwise). You must get a feel for the value of the whole company and then divide by the 91m shares to get a value for each share.

I don't know anything about Symex so I can't help you on the valuation side of things. Although as a tip before I buy any shares in any company I always check out the company announcements for the previous 12 months on the ASX website ( and search for your company and past announcements. The chairman's address at the AGM and s305 notices about movements in Director's shareholdings can be useful guides about the prospects of the company. Don't be too concerned if a Director has sold a few shares because people sell for many different reasons (tax bills, divorce settlements, buying a house etc) but they only ever buy for 1 reason, so strong buying by Directors is a sure giveaway sign.

Hope this helps. Hang in there and good luck - it all starts to get easier to understand if not easier to apply as time goes by.


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Judith I had a bit of a look at the latest Announcements to the Exchange and their profit announcement.

As I said in my previous post I know nothing about this company and therefore can't make any assessment about management or their products or the relative economic merits of the business.

But from a "numbers" point of view the company appears about fair value at present.

Market Capn at present = $123m (91m shares x 1.35)
Debt = $8m
Enterprise Value = $131m

EBIT = $15m

therefore selling at about 8.7 times EBIT which is in the fair value range.

Cash Flow from Operations is $18m which is fairly close to EBIT which means they don't have to sink profits back into Stock or Debtors.

There are no institutions of any note on the share register which wouldn't bother me if you're sure it's a quality business.

Profit margins and Return on Assets are very good at present and at the high end of what businesses manufacturing and selling products can expect to achieve.
EBIT Margin on Sales about 20% (I didn't write the sales figure down sorry)
and Return on Assets (EBIT/Total Assets) about 31%

Questions you need to ask of yourself:
- what is the long term fundamentals of this business and its product

- what is the capabilities of management (are they honest and working for shareholders or are they profiting at the expense of shareholders - a look at their renumeration packages will provide a guide)

- can these high profit margins be maintained or will competitors enter the market

- following on from above - what are the barriers to entry and who are their main competitors now?

If you're happy with the answers to these questions then the company appears financially sound and you should hold on for the long term and reassess at next profit announcement. I would suggest a price above $2 in the short term might also be a reassessment point as it may be moving above fair value unless something has occurred to warrant the higher price.

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thank you for your detailed reply on symex - Symex produces oleo from tallow. It is based in Melbourne and gets its supplies from our abotoirs. It exports 60% of its products overseas. It has been in business for 140 years and was previously a subsidiary of ICI. Its chairman is Alan Sotckdale - he did a good job in government - maybe he will be OK. the other directors are quite young - the managing director is 47, and the other directors are in their 30s (unlike US companies I don't know how to do detailed searches on director's in australia - I just completed the rule maker seminar).

It is very price conscious and is keeping its cost base low and is very careful concerning its investments. Its share base also consists of many of its emploees, though I do believe the remunaeration of its financial and marketing managers is quite a bit higher than those of other employees - that is a bit of a worry.

I think the moat it has around it is that it is in australia and at the moment (and please G-d we should never have) we do not have mad cow disease and because a large amount of its product is used by the pharmaciutical, food and cosmetic industries this is of utmost importance.

The plant it has is quite intensive and was developed before it split from ICI so I think at the moment its high profit margins can be maintained. I will have to do an internet search to discover who its main competitors are - so that will be the next thing to do on my list.

what is enterprise value? I cannot find its definition in my financial dictionary.

I will go thru all your figures with the annual report in my hand and see if I can understand how you calculated them - I am very slow and still frightened of figures but I know if I want to be able to evaluate a company that is one of the first things I have to do.

Thank you for your very informative and detailed reply. At the present time I think I will keep Symex as a long term hold which is how my broker is teaching me to buy shares and this also suits my personality.

Can you suggest any good books or courses in Melbourne from which I can become proficient in financial analysis?

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If you know this much about the company and you're happy with its prospects then it should prove to be a good long term investment.

Enterprise Value is the value attached to the actual business regardless of the debt it is carrying or outside equity interests. Perhaps the simplest way to explain it is to compare it to buying an investment property.

Investment Property = $100,000
Mortgage (Debt) = $50,000
Gross Rent = $10,000 pa
Property expenses = $2,000 pa
Net Rent before Interest Cost & Taxes = $8,000

So to compare this to a public company on the stockmarket
Enterprise Value = $100,000 - what you would pay if you were to buy the company and ignore the debt attached to the value of the business.
Net Rent = EBIT ($8,000)
Net value = $50,000 which equates to the value of a share because when you buy a share you also buy a share of the debts of the company as well.

In this scenario the property is selling for 12.5 times EBIT.

By using Enterprise Value it becomes easier to compare like with like in assessing the values of companies. I only ignore the debt for this calculation - how much debt as determined by the Debt/Equity ratio is very important and I usually like it to be below 50%.

Don't get too hung up on determining the value of the company. I am an accountant and have experience in buying businesses so I always calculate the numbers - its my comfort zone. But as time has gone on I now believe understanding the economics of the business and the integrity of management are more important than determining an exact value of a company.

As long as the price is reasonable value (say somewhere between 5 - 12 times EBIT depending upon the industry) then qualitative factors that I have mentioned before will be the determinants of whether you have a successful investment on your hands. If the price is unreasonably high but you still feel committed to the company then you need to sit on your hands and wait or use dollar cost averaging very slowly so as to avoid paying too high a price. The rate of return on an investment is determined as much by the buying price as the selling price.

This point has been Warren Buffett's comparative advantage - to act rationally when everyone else isn't. Don't need to be especially smart, but you will need to be rational and wise. This is harder than it sounds.

If you consider some of the really successful companies of the past decade or so on the Australian stockmarket (Westfield Holdings, Flight Centre, News Corporation, Harvey Norman, ARB, QBE etc...) then management and how they treat shareholders has been a key determinant.

Hard to suggest any one book or course. Read everything you can get your hands on about Warren Buffett and Charlie Munger. There are some excellent articles by Carol Loomis at Fortune magazine available on the internet which are good reading and easy to understand. Could also try
-Ben Graham's book "The Intelligent Investor"
-Fishers 'Common Stocks and Uncommon Profits'
-John Trains "Money Masters' books.

As far as web sites go
- is the web site for Tweedy Browne who used to be Warren Buffetts stockbrokers and has some good reports on it.
- (I think this is the address) is the web site for Bill Ruane who runs the Sequoia Fund and is a good friend of Warren Buffett.
- Hunter Hall Value Growth Trust Annual Reports. Need to get the Annual Report, not the prospectus. Ring 1800 651 674 to get a copy sent out.

This should keep you occupied for a while - Happy reading!!

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Thank you for all the information.

Have read Ben Graham's book and Fischer's, have completed the rule maker seminar. I also bought Peter Lynch's book and the Warren buffett way.

at the moment I'm putting all the information I can understand on excel - so as I go thru the financial statements they are starting to make sense. It is still difficult to see the story that the financials are telling but I am perservering and appreciate your help.

My broker just recommended that I buy some Foodland shares so I will go thru the financials (I have just down loaded them) and will go thru your explanation on Enterprise Value and see if financially the company is worth buying at its present price. then I will do some research on the business structure and management and see what I come up with.

I come from a science background like to look at numbers, my psychology and manufacturing background impels me to look at management.

Again thank you for your explanations.

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You're always welcome with the help - sounds like your self education program is heading the right direction anyway.

Never have bought Foodland but given it some sporadic thought over the years. The amount of debt, low profit margins and the recent change in CEO have all put me off.

However, having said that, Maple Brown own 10% of the company and one of the directors bought 5,000 shares for himself at the end of March, so there are some positives there as well. The debt still worries me though.

If you like retail stocks there are 2 which I think represent good value at the moment that you might want to check out.

Colorado (CDO) - shoes and clothing. CEO seems to be kicking goals with the Colorado brand and selling for less than 5 times EBIT. Solly Lew holds 20% of the company and they recently have taken over Palmer which is the Jag brand. Young management team in place.

Sabre Group (SBE) - Fudge and Joico haircare. Run by husband and wife team who own 37% of the company and floated the company about 1994. Virtually no debt and sells for 5 times EBIT as well. Fudge brand seems to be going gangbusters both here and overseas and the company is predicting 15- 20% growth in profits. Hunter Hall (who I respect immensely) own 13% of the company and it is his largest Australian investment.

I must declare I own shares in Sabre and bought some more only last month and I may possibly buy some shares in Colorado in the near future after the AGM in 3 weeks time.

Good luck and don't be afraid to ask for help

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Sbe is worth watching for sure.

Bit early to buy for me.

A bit thinly traded as well but that aint always bad.


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I printed and read the post you sent on entrprise value and after three readings it all finally clicked into place - that is how to value a company. I am a little more used to valuing real estate and that example you gave just opened my eyes and made lots of sense.

Your comments on foodland were what I was thinking - I did not like the 100% gearing. the other thing I don't like about the company is that it is based in australia and New Zealand with the majority of its profits coming from New Zealand - both countries do not have a large population base and I can't see foodland being able to increase its earnings by 10% a year in the long term. I know that it has first pick at Franklins and that it has a good record in supermarket management in Western australia - but as you said the debt the debt is very high.

regards Judy
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Thanks for this discussion

Like the recommendations, some of which I have read.
Tweedy looks good and I found after a lucky guess

I wondered if you saw this earlier re Symex

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no I didn't - i read it and now i will look into axon instruments as well. I am quite happy with symex i bought it at $1.20 and now it is about 1.70. I have heard some quite good things about alan stockdale - so we shall see.


sorry i didn't reply earlier.
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