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Member
OCL's fundamental numbers and ratios look great.
However, OCL personifies the exact type of business where the past numbers are of least importance in assessing value.
The problem with OCL from a valuation standpoint is that only an insignificant proportion of their revenue is repeat. The vast majority of revenues comes from upfront licencing fees/software sales to new customers.
To match last year's revenues, they need to win as many new customers as they did last year. Compare this to a business like ATR where the company simply has to sell the same amount of stuff to existing customers due to the repeat nature of the products they provide.
The consequence of this is that the PE ratio is somewhat useless from the standpoint of valuation for a firm like OCL as their revenue streams are not in the nature of a perpetuity. Last year's earnings have little bearing on this years. Instead, their earnings are 'lumpy' in the sense that they represent groups of 'one-off' earnings. The value of likely future 'lumps' therefore is what needs to be valued (don't let the apparent smoothness of OCL's past results distort this critical fact).
The important considerations, when trying to value OCL, will be:
-How many contracts, and of what magnitude, are they likely to win in the future?
-How much cash flow are such contracts liable to generate?
-What is the present value of these cash flow?
How big is the market? Who are OCL's competitors? How likely is their technological superiority likely to remain? Are there any competitors currently developing competing technologies. Remember, if a competitor releases a much better product, OCL's revenues will dry up and the company will be near worthless (or at least worth no more than cash-book value). The 'value' of OCL is thus much more tenuous.
Answering and quantifying those questions is very difficult. Thus, it is very difficult to determine an appropriate value for OCL.
That is why Warren Buffett avoids companies like this. There are too many unknowns, and past financials are of little guidance as to what the future may hold. For that reason I will give OCL a miss, because there are plenty of other great stocks around at present. I only need to 'strike' at great pitches.
Dimebag
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Junior Member
Hi Dimebag, thanks for that thorough assessment. I rejected OCL on the basis of operating cashflows, (yes, we only need to 'strike' at great pitches,) (sorry thereslifeafter87,) but I can't remember picking up any info on the split between repeat business and new business. Did you find this info somewhere or have you made a reasoned deduction based on the business model of companies like OCL?
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Member
"... as OCL lists their clients as top 1000 corporates and govt departments, unpaid bills shouldn't be too much of an issue. "
Hrmph. I have been on both sides of the IT consulting business (vendor and client). The size and prestige of the client has no relationship to their propensity to pay on time, in my experience. Indeed, some of the largest corporates are the worst payers.
You also have to remember that IT consulting deliverables are hard to pin down, and that makes for a lot of written-off billable hours and disputes about whether the work is done (and hence whether the bills wil be paid).
Personally, I would be cautious of consulting firms. They depend on a few stars to win and keep their clients, and are very vulnerable to the departure of key personnel. One rogue sales person promising the earth can kill the company through underestimation, and if they're lucky they'll shoot through with their commission and their fab sales record on to the next firm... not that I'm bitter or anything.
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PS: in my view consulting firms have no business being publicly listed, and ought to grow organically only. The only differentiator a consulting firm can have is the quality of its staff and the soundness of its methods, and rapid expansion is fatal to both. Public listing for such firms allows the owners to exit but doesn't have a lot of upside for the investor, I reckon.
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Member
Would I be reading the technical indicators right if I said that OCL was now in a short-term uptrend?
It appears that there has been a higher high, followed by a higher low, and a further high has been reached...
It will be interesting to see whether a break out of the trading range occurs... Not that I want it to, I'd rather the price stays low until I get more cash so I can buy more!
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I tend to agree with you re. OCL Lifeafter87..Personally I think this Stock has got RKN (Reckon) pricing written on it and I say that for a few reasons:
(1) Consistent getting of New Contracts--in Largish Government Situations--I think I have counted nearly half a dozen in only 5 months
(2) Look at their Earnings Per Share Growth over 2 years--greater than 200 Per Cent and nudging 400% over the Last 12 Months
(3) Return on Assetts rose from 7% to 41% and with Pre-Tax Profit of Over $2.5 Million dollars plus...well what need I say. In fact I am buying this Stock CURRENTLY and will up to 70-75 cents, as funds allow.. Fortunately, due to some profit taking on Fleetwood(FWD) today and Friday; I have been getting some OCL recently at between .60 to .61 cents. Me pencilling in first Target of 95 cents, with the Barrier of $1.00 beiong--like MYOB --always an interesting psychological Hurdle for these type of Stocks to justify..but like MYO, when they do, there can be considerable further upside...but $1.00 is always a Point the Company has always GOT TO PROVE to the market, before a new range consistently above $1.10 is granted IMO
(4) Personally; I think the financial Year results, following the rather sizeable Contract Wins; will reflect Very Favourably on OCL and the Contracts they have been winning will increase in a Multimplier type of snowballish down the Hill way, as other Govt Departments allow sister departments in other states and/or their own state... to road-test their Software and Data Storage and Management Solutions. So IF OBJECTIVE can be Branded as The Benchmark in Knowledge Management Software in their particular sphere: and govts give OCL implicit preferred supplier( Positvely Known Outcome/ & Known Quality & Service Delivery--in a favoutrable light) which.... with the sort of number and type of contracts OCL has now got it; could well achieve---then the Plus 160% OCL achieved in its Stock Price Over the last 12 Months--could readilly be achieved by June 2005 IMO.
(5) The only negative on OCL is THAT OCL IS TIGHTLY HELD...People do not readilly sell OCL regularly....I believe, that looking on the Share Register---Management and Directors do own quite a large portion of their own company, and history shows, that except for one smallish sale 3 or 4 months ago...are not prepared at this stage to relinquish their stock in OCL...
So, in summary, I'm not into Technical Analysis--or charting. No. I am into Profits, Profit Margins, Increasing Revenue, Regular repeating winning of contracts, niche markets, HIGH earnings per share--over at Least 2 Years(One year can be off a low base and so a bit irrelevant...IMO), Very High Return on Equity, lowish P.E. for its sector(I.T.) and High Return on Capital or Assetts and Large Support by Management with their own balls on the lineover a longish period that shows stability and FOCUS. In short the above, and not Trends or NOT Charts/ Charting (gobbleygook to me) or NOT Tech Analysis--just Cold Hard Cash Results, and regular Tangible Positive Announcements-- is what I buy or Sell on, and that's why I am currently slowly but surely still picking up parcels of OCL.
Cheers,
Robbo (It Goes without saying that the above comments are only my personal thoughts and opinions and must not be construed in any way to be offering Financial Advice or Guidance as these views are only the subjective views of this author, based on his own personal interpretation and thoughts, and everyone should make their own independent analysis and assessments of their Invesetments or of their Stock Choices.)
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Member
I agree with you Robbo,
I'm not realy into charting myself... Just thought it would be interesting to see if my amateurish predictions were accurate.
If OCL double profit again this year, I see no reason why they shouldn't break $1.
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Member
Hi everyone,
Hope some people picked up more OCL in the 50's cents range...
Up to 66 cents now, and looks like its going strong.
I'm picking some new announcements soon.
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Member
Just announced a new contract won with the port of Brisbane today.
More good news, though they didn't put a dollar figure on the worth of the contract as they have done with some larger contracts in the past.
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. You've now Given me some amophous reason to have some niggly Doubts(which I'm not admitting to publicly mind!![:I] More Bloody Investigative Work to Do Now. More qualitiative and quanative Research. More Interviews of Staff, suppliers, management. The site visit is already now in The Diary!! Looks like thanks to you lot
--yes I'll let you know what I find out if you tell me that's what you want.
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