IFS Capital 2007 Full Year Result:Doing Okay

I got pissed today. Not because i lost money or what, but CABAL SEA was delayed. Granted it was suppose to start at 2 pm this afternoon, its almost 10 pm now and it still hasn’t started!!!

Might as well spend some time going through another of my holdings. I have been holding this off for a while primarily because I wanna take a good break gaming. However, writing this account would prove a good distraction.

Background

IFS Capital Ltd., formerly International Factors (Singapore) Ltd., is engaged in the provision of commercial finance, such as factoring services and working capital and asset-based financing.

The Company is organized into four segments: financing, insurance, venture capital, and structured finance and other investments.

• Financing business focuses on providing services to corporate clients, mainly the small and medium-sized enterprises.
• Insurance business is engage in the provision of credit insurance facilities to Singapore exporters, and the issue of performance bonds and guarantees.
• Venter capital is engaged in the acquisition, holding and disposal of equity interests in private companies.
• Structured finance and other investments is engaged in the provision of mezzanine financing, private equity and long-term investments in equity.

Banks are a monster to analyze not just by in-experience people like me but by experience ones as well.

Profit Results

The profit result for IFS is a mixed report card.

• Net Interest Income after interest expense grew 7.9%. This was not due to more turnover but expense being much lower than interest expense.
• Net Premium Revenue from Insurance business grew 33% from 4.7 mil to 6.3 mil
• Other  income such as commission income and investment income grew 6.7% and 49.5% respectively
• Overall, profit for the year grew 8.7% to 12.8 mil.
• A declined in net operating cashflow from 46 mil to 13 mil.

IFS’s interest income from factoring business declined due to what they described as lower funds-in-use from the factoring business. However, due to lower interest costs their net interest income actually grew.

The growth segment have been in non-interest income fees, commission, investment and other income.bond Insurance have been favorable for the company where more bonds and businesses are guaranteed.

Of note in all these is that investment income grew 50%due to higher gains from investment portfolios managed under ECICS’ insurance funds as well as structured finance equity investments. The group revealed enough to let us know that these structured products are you-know-whats.

“Starting in June 2007, the Group had disposed substantially most of its listed equity investments including those held by ECICS. The Group’s investments were thus not materially affected by the market turbulence in the second half of last year.”

I dunno if i would term them shrewd for pulling out fast, brainless to be in there in the first place. Based on their actions i would say its the first.

Balance Sheet

The most glaring thing about IFS is always their receivables. Its possibly the biggest portion of their balance sheet. Unlike most companies, having receivables more is probably a good position for them since that to them are their assets. For more information on factoring, this article should provide a small primer.

From the receivables, there isn’t big changes.

• Cash holding and short term investments have been stable at 14% of assets.
• For an interesting note, their cash holding and short term investments is 76% of their assets
• Debt level have been stable at 55% of assets.

In summary, there is no changes to the balance sheet since last year lol.

Performance Indicators

Truely aligned to the way they rebrand their name, IFS is more and more becoming am institution that does more than just take factoring. In terms of diversification this is a good move. Factoring have their own set of problems since their lifeblood is tied to the progress of the country in general.

Looking at the segmental reporting, their cashflow generation still centers on commercial finance but this year more contribution is in insurance and private equity. It will be a while before this 2 latter portions becomes big enough to make an impact.

Nevertheless they are being more active in southeast asia. Going forward, If they can develop their business to tap the growth in emerging regions, there is room to improve. The important assumption here is to be nimble and develop enough spread in an inflationary environment.

Return on invested captial is low at 3%. A measure of ROE might represent a different picture since the majority (50% of assets are in debts). It might even be more respectable if u take out the majority of the debt as they are short term debts that are repaid less than a year. But for me, long term debt or short term debt is still debt. What is important is not to look at the figures blindly and know how it is derived and what you can interpret with it.

The ratios and all are the same as last year, so whats noticable is that of the nature of IFS.

Operating cashflow yield is 12%. That looks rather good and validates the 6% dividend that they normally give and what a finance company normally give. If you want to play it further, their operating cashflow yield, using enterprise value instead of market cap is only 3.95%.

Why the big difference? Cause IFS is trading below book value. its at 0.74 times at trading price of 73 cents.

My bro kleer at Extraordinary Profits have highlighted this as a massive indicator of undervalueness. I tend to think there is a case for that.

Here is my take. The total assets is 481 mil. Cash stands at 37 mil. Other short term investments is at 32 mil. these are for operating liquidity purpose. The receivables stands at 234 mil. If you were to sell the company tomorrow, you can still sell these receivables at a cost. So they are still valuable.

The enterprise value stands at 286mil. you minus off these receivables at 85% of valuation (234*0.85 = 198 mil), then you minus of cash of 37 mil and short term investments at 32 mil gives you 19 mil.

Their year’s net operating cashflow after tax is at 11 mil. So that may mean that their current value for the company is that they can only produce 2 years more operating cash flow for the rest of their life. I don’t see that as the case.

Their net profit margins are holding up well at 17%

Based on their operating cashflow, WACC = 10%, Gdp growth = 3%, The return premium at 161 mil is 54% of enterprise value of 286 mil. If compare vs  market cap of 91 mil, then this company looks like a good buy.

To conclude, its not a simple company to look at. I try my best, would like to hear more from u guys on this.