AFC - High Growth - Low p/e. (New code CAF)

Hi Risk, thanks for the kind words :)

Quote:

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quote:Originally posted by KD

The graphs above must be from the prospectus (?) as AFC did not do so well in 2003 .... you mention that I think.

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Hi KD, the graphs are from the annual report, not the prospectus. AFC did very well for FY2003, just not as spectacularly well as forecast in the prospectus - the overambitious nature of the prospectus was, in my view, a negative against AFC.

Full Year to June 2003, results were

New lending $125 million (up 51 per cent)
Total revenue $7 million (up 30 per cent)
Net profit after tax $1.33 million (up 28 per cent)
Earnings per share 3.54 cents

Interim earnings for the six months to Dec 2003 are up 53% on the previous interim and, at 3.3 cps, are very close to the earnings for the whole 12 months to June 2003.

I believe full year profit for 2004 will be in the range 5.0 to 5.3 cps yielding a p/e of 7.7 to 8.2.

Thanks for taking the time Alban.

I'll let the HC crowd know about your selection.


Gerry

as a matter of interest Alban, one of my many criteria is how regular a stock trades. This stock in the past few weeks has not traded on at least 2 days and therefore on that basis alone has missed out on selection despite the fundementals. However if on the basis of your (and others) post, interest picks up and apart from fundementals certain technical criteria are satisfied also, it may appear within a week or two, however what my PC selects at any given time is mostly out of my jusristiction / control. I do not interfere with the process of selection because the many rules orginally created and tested over time have been set reasonable benchmarks of achievement. For example another rule I have is no stocks over $8-00 (which may change to $9-00 in up to 12 months or so). AFC satisfies this rule because it is well under that.

Alban

Thanks for bringing this stock to my attention.

Bought 20,000 today for a long term hold.

I like the business.

Good reoccuring income streams, good growth prospects with the eastern seaboard coming online, directors and management hold large chunk of stock and the company operates in a growth sector.

Costs look contained and are largely fixed.

Low PE as you mentioned...

Microcap that probably does not get the recognition it deserves.

David

Thanks Gerry, I don't subscribe to HC. Has there been much of a response? Certainly the buying depth has been building on AFC for a couple of days now, so interest appears to be growing.

I know what you mean greenpastures. If you're trading with reasonably big stakes, this is a difficult stock to work with. Again, very similar to DPC.NZ. But if you're looking to buy a small or medium parcel; maybe $2,000 or $3,000 up to maybe around $10,000 to $20,000 and are then prepared to sit back enjoying the high dividends and a better than average chance of capital gains, AFC's financials look attractive imho.

David, yes. The microcap world is an interesting one. No coverage from analysts because it's not worth their co's time. As Dimebag has said several times, it's here that we stand a better than average chance of finding stocks that, over a few years, have the potential to become 10 baggers. Such stocks can make a startling difference to our investment performance.

One of the many features I like about AFC is that, despite its micro-cap status, we've got impressive historical data such as the charts in my first post, establishing that there is already a track record of strong growth.

Readers are reminded to do their own research before risking their shirts investing in common stocks.

Hi Alban - I'd only had a quick look at the company's stats when I posted earlier. The growth curves you presented didn't seem to match the bottom line figures I had. Anyway the figures check out. I tend to look at EPS growth first and EPS doesn't show the same growth pattern as stats presented in the annual report because of dilution by new shares. Having said that EPS for the coming year almost matches that of last year just based on first half numbers alone so an upward trend in EPS is now be emerging. It worries me a bit when companies only highlight the flattering statistics - I'm sure if EPS was trending upward they would have highlighted that as well. It would have been good had they commented in the annual report on the dilution factor and prospects for further dilution rather than letting the punter work that out alone. I'm afraid I haven't got my head around the company as yet but that's not to say I'm not interested. I have a couple of smallcaps on my list at the moment to purchase as $s become available so just being a bit lazy at the moment with this one and keeping a close eye on all posts. I'm looking at picking up some more OTI as the price remains stable and also interested in AEN. I would have posted earlier on AFC but have been away.

all the best and may join you on this one at some stage

Hi KD,

Thanks for taking a look and spending time on this one.

As regards number of shares on issue, we have to be careful with our interpretation because the company floated on the stock exchange at the very end of the 2002 financial year.

The average number of shares used for the 2002 calculation of eps was about 16.5 million. This figure is the (highly distorting) weighted average of the number of shares on issue during 2002 - i.e from the pre-float beginning of the year (20,000 shares) until the (post-float) end of the year 37.5 million shares.

A fairer way perhaps (although I could be wrong [8)]) of looking at this is to assume there were 37.5 million shares on issue for the whole of 2002, 2003, 2004. Then we get:




Year......eps (cents)

2002......2.8

2003......3.5

2004(f)..5.1



This implies eps increased by 25% between 2002 and 2003 and will rise 46% between 2003 and 2004.

I believe the true difference is that, as a result of the stock exchange listing, AFC have an increased equity base of the order of $8.3 million spread over 37.5 million shares. i.e. the company is working with an increased capital base of 22 cps. This should continue to drive their expansion into Sydney and Brisbane leading to continued high growth. Considering we'll see 45% eps growth for this financial year, the capital deployment thus far appears to be satisfactory.

p.s. I'd be happy to hear your latest thoughts on OTI, KD - I see recently that lead has been dropped from a couple of industrial applications, which may ease some of the price pressures on lead for batteries. Are you aware of any developments? (The OTI thread will be a better place to discuss this though, in the interests of keeping the ASX threads more relevant than many of the NZX topics are becoming.)

:)

for what it is worth i reviewed the company in the following manner:

a. i include all options when considering shares on issue, conservative but thats the way i work. issued 37,700,000 + 1,500,000 options = 39,200,000 shares for my calculations.

b. full year 30/6/03 NPAT $1,331,292 = EPS of 3.4cps. a price of 42c equates to PE of 12.3

c. dividend for 30/6/03 was 2.5cps which is a net yield of 6% (2.5/42). also this dividend is fully franked at 30%, this doesn't help nz owners but does for aus holders. adding back franking credits (30/70*2.5=1.07; 1.07+2.5=3.57cps) 3.57/42=8.5% gross. this is a very good yield for aus holders.

d. the half year to 31/12/03 shows a NPAT of $1,225,781. the second half of year to 30/6/04 will be much lower; hard to know how much. however given half yr to 30/6/03 showed NPAT of $800,503 and full year to 30/6/03 NPAT was $1,331,292 the difference of $530,789 should be a very conservative estimate. on that basis a conservtiave full year NPAT for 30/6/04 could be $1,225,781+530,789=$1,756,570.

e. based on $1,756,570 EPS = 4.48 and PE (using 42c) = 9.4.

f. dividend has also increased to 3cps = 7.1% net (3/42) or gross for aus 10.2% (7.1/0.7). div yield alone should start to attract aus holders especially.

g. NTA per share of 31.3 (30/12/03) compares well to market of 42. not any rubbish in balance sheet (ie huge tax assets, intangibles etc).

i also look at some other points including:
- is the company actually paying tax in its cashflow; yes a reasonable sum. accounting magic will sometimes inflate profits but profits are never inflated when you are actually filing tax return.
- can the company grow without constant need for capital; it strikes me it can. therefore the high div payout ratio is sustainable going forward
- do the directors own many shares; yes the MD martin kane owns 17m or 45%, i like this. i do not see why i should invest if the directors particulary the ceo have not.
- risk management issues; with finance companies there is always the risk of default. i like the way that the insurance policy can be cancelled and premium refunded to AFC if payments are not made. this does not eliminate default risk but reduces it substanitally
- as an aside i did not put any value on the laptop/leasing side of business, this is not where the growth is.
- is the compnay widely followed; no it is not. this is a good attribute for us small investors.

in summary then AFC fits my buying criteria in terms of dividend + PE as well as the other attributes above. i have purchased on this basis. i hold long term and as you may have identified make decisions on the basis of underlying business. given that alban was good enough to bring this to my attention thought i would bore you all with my own workings.

THE KING says Well done pajama its the small Caps we need they only Go up.
[8D]

Regards THE KING

thanking you all for these last posts - Alban - you have eased my frustration with the EPS - your analysis makes sense and I think this is the way to treat the number of shares on issue - agree with Pajama with regard to factoring in the options. As you are aware I'm relatively new to this game so appreciate your opinions on these matters. Pajama - your review is also much appreciated. I have reserved a place for AFC in my long-term portfolio and in meantime will do some more research.

Thanks also for the prompt on OTI - I shall post again shortly. I hold to my original statements on OTI - IMO it's one to accumulate for longer term. Price and current short-term issues provide a buying opportunity IMO but will comment more under appropriate thread in due course (too late at night now!).

cheers