OCL - Objective Corporation Limited

[thereslifeafter87]

I just picked up about 5000 of these in the last week or so.

Very interesting stock.

The company provides document retrieval and database solutions to large corporates and government departments. It operates all around the place, including contracts in NZ, Aus, and Scotland. It is constantly announcing new large contracts to the market that it keeps winning in a competitive tendering process.

It was a dot bomb (check out the chart from listing), but over past 2 years has performed well.

This company has a forward PE of 18 (assuming no growth in earnings in the second half), with extremely high earnings growth over recent years. This includes a Return on Equity of over 50%

I originally placed it on my watch list about six months ago, and took more interest in it recently when I noticed the price had doubled.

It has a large free cashflow that it can reinvest in growth.

My one concern is whether its revenue is of a repeat nature. It states on its website that it earns fees from the sale of software, initial consultations, and ongoing maintenance. However, it doesn't break down the percentage each contributes to revenue.

Directors hold 125 million of 135 million shares, and have been buying from the end of last year to current date (there is one sale notice only). This small free-float means that when the price moves, it will move rapidly - like ATR.

I think this is a fantastic company that will continue to grow
earnings. I see it as being on a forward PE of 14-15 once second half growth is taken into account. A re-rating of the company could put it on PE's as high as 30.

Comments?

[robbo]

OCL--Yes I am a big fan. Look at the announcements from this co. re. their New Contracts, "and with whom their with". Mostly large co's and GOVERNMENT DEPARTMENTS.
Also notice that Australian Health sector--Departments of Health in various States are currently set to spend billions--yes I know that has a "b" in front of it...on Computer Database Systems. Now look at which departments Objective have been successful with recently. Like tends to go with like.
Also did I hear rightly that Objective have recently entered into some sort of major alliance with UNISYSS??
From my read of the numbers, Return on Equity, Return on Assets and Earnings Per Share...little or no debt and lowish Price Earnings are all excellent.
Ahem, also OCL has been very illiquid these last weeks and some nervous nellies seem to be willing to give away their stock for an even greater discount than is usual. Probably just a reflection of the current irrational market sentiment for small caps...By the way, is OCL on the Standard & Poors Small Caps index/benchmark.
Just another quick thought flash. My computer apreadsheet says their are really only 2 or 3 other co's with similar fundamentals and history--2-3 plus years of positive earnings, in this end of the market at sub 50 cents or so with low P/E. They are: CCV-Cash Convertoers..and OTI Oriental Technology Invetments--Chris Corrigan is one of the directors of this Chinese based battery manufacturer--seems to be also a bargain.
Love your thoughts, reflections and feedback,
davidrob

[Alban]

Hi david, is OCL in the database field?

[robbo]

Dear thereslifeafter87--I nearly typed life after 40 then...,

Yes Yes.OCL is indeed tremendous value and one of the most interesting(and I am very confident, rewarding...) small cap shares going around.
Looking at their recent announcements one can see that OCL is winning excellent largish scale Government Department contracts, together with knowledge and and large database management contracts very consistently. Presumably these tenders are very competitive, so their Software and IT offering must be of a superior price and quality. What also gives me positive pause for thought, is where I was reading the front page of Sydney Morning Herald yesterday-13/04/04--where it was reported that respective State Government Australian health Departments, are seeing the necessity to spend upwards of several billions of dollars on exactly the sort of proprietary systems which Objective Corp(OCL) specializes in and is currently now successfully winning in same said like Govt Depts! This does indeed auger very well. But yes I also note your comments re. have OCL got a click click coin in the slot,"toll" to provide regular repeat set and forget income. Hmmm. Have to do some inquiries-[scuttlebut?!...]
I am very new to this Website, and have never before ever posted on another website(are their any others like this one worth have a peek at...this one's great as it puts an emphasis on INTRINSIC VALUE INVESTING and understanding the rational provable fundamentals...so anyways this is only my lst--2nd or 3rd posting and I only joined Share Trader two days ago,so please forgive my ignorances!!
On my reading, Objective(OCL) have absolutely outstanding Earnings, and most importantly these are positive for the SECOND AND THIRD consecutive year...not just one off wonders, and yes OCL have come through the Dot Com crash relatively unscathed with a seemingly healthy and clean balance sheet--little debt to speak of from memory.
High Return on Equity, High Return on Assets, Increased Annual Sales and Revenue, Stable successful management with proven runs on the board, differentiated exclusive product & niche, strong gross Profit Margins and high adjusted pre-tax profit margins. All factors I like and always look to for a good investment. This is supplemented in OCL's case with a demonstrable wide ranging non-seasonal National Demand for their Product/Service offering.(see ASX announcements even only last few months..) These are all reasons I too share your interest and liking for Objective Corp.
Yes,and on reflection the Low P/E is also good.

OCL has been very very thinly traded in recent weeks and days, and some punters seem to be getting spooked by this inactivity(isn't getting spooked/fearful by low/nil share turnover an interesting irrational fear phenomenon!!).--Some people love going only with the lemmin...oops....I mean, the consensus crowds, as those crowds know best I suppose. Especially this is so stranage when the financial runs on the board, posiitive and imporoving consecutive Annual Report results and fundamentals are demonstrably there for all to see. Hmmm...Still, I guess we'll all just have to do our duty and assist those wanting to sell at very low prices by taking their burdens off their hands...albiet at a large premium discount for our good nature!!
Incidentally this last 24 hrs has seen some of this sort of altrusim, on behalf of some new/existing OCL investors...God bless them.
Another thing re. OCL...is that indeed correct information I remember hearing that OCL have recently signed into a favourable commercial alliance with the multi-national I.T Network firm-Unisyss?? If so, this is extremenely encouraging.
Which other small caps co's have similar positive annual and current EPS going back 2-3 years, non-cyclical business' ,strong low debt balance sheets.low P/E and proven niche's --franchise's, with long term proven mgt.--that are under 50 cents or so?? Oriental Technologies(OTI), Cash Converters(CC

[robbo]

Hi Alban, do you mean Is Objective OCL on the ASX? In short. Yes. Or were you referring to some other database? I was originally replying to ttheres life after87's contribution from today or yesterday re. Objective Corp. Then again I'm a techhnical computer illeterate!!...and so I might have posted my original reply to theres life after 87(I keep typing lifeafter40)... and so I have NOW posted 2(two) seperate postings--both a bit different re. Objective Corp as I'm still getting the hang of this site and I'm new to the whole concept.
Thanks Alban for the warm welcome,
regards,
davidrob

quote:Originally posted by Alban

Hi david, is OCL in the database field?

[robbo]

Hi Alban, do you mean Is Objective OCL on the ASX? In short. Yes. Or were you referring to some other database? I was originally replying to ttheres life after87's contribution from today or yesterday re. Objective Corp. Then again I'm a techhnical computer illeterate!!...and so I might have posted my original reply to theres life after 87(I keep typing lifeafter40)... and so I have NOW posted 2(two) seperate postings--both a bit different re. Objective Corp as I'm still getting the hang of this site and I'm new to the whole concept.
Thanks Alban for the warm welcome,
regards and Hi How are you!!
davidrob

quote:Originally posted by Alban

Hi david, is OCL in the database field?

[Alban]

Hi David, please scrub my previous question - my brain was absent without leave when I asked it.

OCL - on the face of it, a very attractive looking stock.

Two comments:

1. Recent falls in price seem to have been provoked by the 10th of March announcement that the 1 million shares traded a couple of days earlier was a director selling off at 50cps. A negative at first look, although given the number of shares still held by the director, the selling is trivial IMHO.

2. The headline profit figures look excellent. The cash situation is a little troubling and I'd be happy if you could comment - you're much more familiar with the stock and its history than I am.

From the FY report to June 2003, although profit increased compared with the previous year, the cash flow decreased Rising profit, but falling cash flow can be a concern, but no serious problem if it's a one off and the cash flow was only a little lower.

From the HY report to Dec 2003, the profit improvement looks wonderful but the cashflow is actually negative now. Although OCL claimed around $11 million of revenue, only $8 million was actually paid to them. Recievables, unpaid bills I presume, increased from $8 million to $11 million. That looks like a heck of a lot of uncollected money compared to OCL's revenue.

I don't know much about I.T. service businesses. For all I know, this is entirely normal. It increases my caution though.

Comments?

[thereslifeafter87]

Thanks for the comments guys.

Alban, I will have to look into the cashflow situation a little more closely, although as OCL lists their clients as top 1000 corporates and govt departments, unpaid bills shouldn't be too much of an issue.

[thereslifeafter87]

Afte having perused a few reports a bit more closely, it appears that their cashflows are not as strong as I first thought.

However, the change to negative cashflow this year is an anomaly - perhaps could be due to increased spending on staff, equipment and R&D for future contracts?

ALban - the levels of receivables to revenue seem to be reasonably consistent over hte last few years, so probably nothing to worry about.

Man, there are sooo many good small caps I want stakes in at the moment. Oh for some cash!

[thereslifeafter87]

I sent the following questions to OCL's investor relations people.

1) Your website states that you generate revenue from the sale of software,
and ongoing maintenance as well as consultancy fees. What proportion of
revenue is gained from sales and initial consulting as opposed to ongoing
maintenance/upgrades/consulting?

2) What's Objective like to work for? It seems that the staff must be
talented and dedicated - new contracts are continually won in a competitive
tendering process, but I would like to know what the atmosphere of the
company is like.

3) Who does the company see as its biggest competitor? Is there anyone
Objective consistently vies with for the best contracts?


Here is their response.


In reponse to your questions we reply as follows :

1) We do not disclose the breakdown between the initial sales and consulting
and ongoing revenue streams. However we can state that the ongoing revenue
streams of Upgrade and Support and Consulting revenue are significant and
growing rapidly for the Company.

2) The employees of the company are relative young being in the software and
service industry. That makes it a fun place to work. The atmosphere is
exciting and serious at the same time. Many parts of the Company have
various presures from time to time dealing with deadlines (eg tender
responses, product releases etc).

3)We don't see any one company as the biggest competitor. There are many
different organisations that we often have to compete with, most come from
North America. However the field in narrowing as there has been significant
M & A activity in this space over the last 12-18 months. The main
competition include Tower Software, Filenet, Open Text, Documentum,
Vigenette (note they recent purchased Tower Technology) & Interwoven.



Hopefully everyone finds this informative.....