ISO-TEAM Group is a Catalist-listed company that deals in property maintenance and property upgrading activities in Singapore. It has more than 15 years of Repairs and Redecoration (R&R) and Addition and Alteration (A&A) experience and major customers such as town councils and government bodies.
Besides all these, the company has also expanded its services horizontally to include a handyman online portal to offer a one-stop solution for homeowners. By relying on its existing pool of resources, ISOTeam has opened up another opportunity to service another group of customers. Furthermore, the company has acquired 5 other businesses in the past 15 months to complement its current range of services for a total consideration of $15m. The following transaction is funded via both cash and consideration shares. We will talk about these acquisitions later on.
With the above background of the company, we will now analyze its financials.
|Period||Full Year||Full Year||Full Year|
|(Earnings/Latest No. Of Shares)|
|(Shareholders’ Equity/Latest No. Of Shares)|
|Price Earnings Ratio (PER)||12.61||16.93||17.05|
|(Price x Latest No. Of Shares/Revenue)|
|Net Earnings Margin||9.95%||8.67%||12.45%|
|((Current Year Revenue – Last Year Revenue) / Last Year Revenue)|
|Net Earnings Growth||34.15%||0.78%||n.a.|
|((Current Year Earnings – Last Year Earnings) / Last Year Earnings)|
|Return On Asset (ROA)||10.72%||12.27%||18.30%|
|(Net Earnings/Total Assets)|
|Return On Equity (ROE)||17.54%||23.54%||41.10%|
|(Current Assets/Current Liabilities)|
|(Current debt + Non-Current debt) / Total Assets|
*Stock prices were taken as of 25/07/16, $0.35
These are some of the key ratios that we will look at for ISOTeam. Generally, the company’s financial strength and earning capabilities look healthy. Being a service provider, the debt ratio of the company is at comfortable level, while earnings growth has been increasing as well as NAV. NAV is a ratio that we look at to fall back on should the company goes bankrupt. This basically means that we are paying a premium of *121.27% to its NAV to obtain its ability to earn profits via a form of service.
- NAV from ISOTeam’s website under their financial ratio tab ($0.1627). Given their share price at $0.35, we can calculate the premium to NAV. ($0.35 – $0.1627) / $0.1627 = 115.1% If the company does go bankrupt, there is high chance the investors are unable to get back any equities as there won’t be much left after paying the creditors. It is also quite common amongst companies providing services as a way of profits.
One thing to note is that the ROA and ROE is dropping consistently from 2013 to 2015. What this means is that the company is not efficiently using its assets and equities to generate more earnings. This might be due to the acquisitions made by the company, hence thereby increasing its assets and equities by large amount, while the net earnings are not able to keep up with the pace. However, provided there is synergy between the acquired companies, there should be a slow uptick in the net earnings. Given the rapid acquisitions of ISOTeam, 5 companies within 15 months, as well as the quantum of the acquisitions in relation to its market capitalisation, we feel that it is important to observe further how the company performs. In addition, one must beware of any financial manipulations or implications to the company if it continues its rapid acquisitions.
|(‘000)||1H 2016||1H 2015||Change|
|R&R||$ 24,000||53.7%||$ 29,321||75.3%||-18.1%|
|A&A||$ 9,717||21.8%||$ 8,153||20.9%||19.2%|
|C&P (Coating & Painting)||$ 4,880||10.9%||–||–||NA|
|Others||$ 6,092||13.6%||$ 1,480||3.8%||NA|
|Total||$ 44,689||100%||$ 38,954||100%||14.7%|
From the above, we can analyse the operational performance of the company and evaluate the efficiencies of the acquisitions. In addition, we can estimate the profitability and synergy of the acquisitions. As shown, the portion of R&R is the highest, followed by A&A. However, there is 18.1% decrease on a year-to-year basis in the first half of the year performance in the R&R sector. On a positive note, total profits increases 14.7% from 1H 2016 to 1H 2015.
After the acquisitions, revenue in the “Others” sector has also increased significantly, signalling that the acquisitions were made based on sound decisions. However, we feel that you should observe more before investing.
In addition, the company has an order book of S$89.7 million. It is also stated in the website that the company has pending tender award confirmation for being the lowest tenderer for 3 projects, estimated to be $10.4 million.
To sum up, ISOTeam is a company with strong financials with increasing revenue potentials. However, given the high financial commitment in acquisitions in relation to its market cap, it is more prudent to wait and observe before investing.