CSE Global Limited
CSE is a global integrator for software services specializing in the automation, telecommunications and environment sectors. CSE started life as a subsidiary of ST Group but after a successful management buy-out in 1997, CSE became a public listed company in 1999. After a series of acquisitions, CSE Global Limited evolved into an international technology firm with more than 30 offices across the globe.
Performance
For the first quarter of 2016, the group achieved $5.5 million profit after tax, a decrease of 20.9% year-on-year. This performance reflected the challenging weak economic sentiments in the industry sectors that the Group is operating in.
CSE is a key player in the offshore oil and gas sector, providing system services such as Supervisory Control and Data Acquisition (SCADA), process control and safety shutdown systems. Thus, the current down-turn in this sector has a significant impact on the Group’s business.
Business outlook is challenging as many of CSE’s client are cutting costs. As a result, CSE has a reduction of 23.8% new orders from continuing operations. The number of outstanding orders from continuing operations has also reduced by 28.9%.
In light of the challenging operating environment, CSE has managed to rein in operating expenses, which were 6.4% lower at $17.8 million as compared to previous year. In addition, the Group’s effort on cost cutting measures had yielded some positive results. Year-on-year overhead bases saw a reduction of 16% and management had committed to stay vigilant in managing cost and working capital.
To grow the company, CSE has acquired CC America and Mobile Masters for $10.4 million. Impressively, the Group achieved net cash of $57.3 million, higher than $54.2 million as at 31 December 2015. For this quarter, cash flow operating activities is $19.6 million. Hence, the company’s financial health is strong and resilient enough to weather the current weak economic conditions.
Exit and Entry for CSE
While there are compelling business fundamentals for wealth builders to invest in CSE, one should examine whether this is the right time to enter this counter. Adopting a buy-and-hold strategy for stock investments without the right exit-entry strategy can be a dangerous approach, especially for novice investors.
CSE was listed in 1999 at a price of $0.201 and it is now trading at 121% to its IPO price. For the past 17 years, it has peaked at the range $1.37 to $1.40, in 2007 and 2011 respectively. Investors who bought CSE at its IPO and subsequently sold in 2007 or 2011 would have made a killing.
The Return on Equity (ROE) has decreased from a high of 56.334% in FY2013, to 16.822% in FY2014 and 14.113% in FY2015. While the ROE has slowed considerably, the average ROE of 29% for the last three years is still at a respectable level for a technology firm.
My Strategy
Currently, CSE is trading at $0.44, at a level below the Net Asset Value (NAV). This is the lowest level since 2009. Indeed, the current trend makes CSE an ideal candidate for it to be privatized due to its attractive recurring business model. Any take-over offer would probably be at $0.50 to $0.55 per share. Not vested but will continue to monitor this stock.
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Magically yours,
SG Wealth Builder
