Sunday, March 19, 2017

Stock Incubator -- Nordic Group

On 17th Mar 2017, I decided to divest 48.39% stake of my Nordic Group share at $0.32 netting me a capital gain of 207.60%, 19.95% of dividend return (excluding the final dividend of 0.731 cents being announced) and a total gain of 227.45%.  Bought into Nordic Group in 2014 under the Stock Incubator portfolio the divestment will translate into an annualized capital gain of 45.43%, annualized dividend return of 6.22% and annualized total return of 48.50%.  The reason for the partial divestment will be explained as followed.

Nordic Group released its 4Q2016 and FY2016 earning result on 23rd Feb 2016, producing yet another decent set of result despite the ongoing oil crisis.  A summary of its FY2016 earning :-

1. Revenue : FY2016 vs FY2015  --  +2%
2. Cost of Sales : FY2016 vs FY2015  --  -3%  
2. Gross Profit : FY2016 vs FY2015  --  +14%
3. Net Profit : FY2016 vs FY2015  --  +21%
4. EPS (cents) : FY2016 vs FY2015  --  +23.08%
5. NAV : FY2016 vs FY2015  --  +13.33%
6. Dividend : FY2016 vs FY2015  --  +18.18%

The company also on a net cash position as of FY2016 with total cash amount of $32.33M and a total debt of $28.09M.  With a total number of share of 393,175,000 as of FY2016, the net cash position translates to $0.011 cash/share.  Now with such a good set of fundamental, there should not be any reason I should do a partial divestment.  However, as I mentioned previously (refer here), there are some criteria that I want it to meet in order for me to transfer this investment from the Stock Incubator portfolio to my Investing portfolio.

1. Total Revenue : FY2016  --  yet to hit the $100M level ($81.921M)
2. Profit Margin : FY2016  --  yet to hit the 20% level (15.561%)
3. ROE : FY2016  --  finally hit the 20% level (20.102%)
4. Current Ratio : FY2016  --  yet to hit the 2.0 (1.941)

At the price of $0.32, Nordic Group is trading at 1.883x NAV, PE of 9.89 and a dividend yield of 3.96% (FY2016 dividend of 1.2682 cents, 0.5372 cents interim and 0.731 cents final).  This by all mean is not consider cheap as fundamental has yet to fully meet my criteria.  As such, I believe the share price is running way ahead of its fundamental.  While I still have confidential in Nordic Group's fundamental, the decision to divest part of it make very strategic sense, locking in some realized profit and waiting with the remaining for it to fully turn into a gem.

In the past years, I have been very cautiously optimistic about global economy but unfortunately, at this moment my view has changed.  I'm no longer optimistic or even cautiously optimistic.  Though lately we have seen encouraging global economic data and global stock markets scaling new high, the most basic concerns in the past yet to resolve.  US increasing debt, Japan deflation woes, EU Greece debt issue, China huge debt amount, etc are not resolved and simply kicking the can down the road.  Even Singapore is not spared despite all those proposals by Committee for Future Economy and the latest FY2017 budget, the basic and fundamental concerns are not being addressed and to me it is just kicking the can down the road.  To make matter worse, week in week out I have been reading magazine on Technical Analysis on STI citing the possible hitting the potential target of 3,500.  Technically, they might be correct based on TA but fundamental wise with so much fundamental issue just kicking the can down the road, it will be very difficult to fully justify on fundamental basis STI being 3,500 level.  Hence, the decision to divest those stock price running way ahead of fundamental in this junction make every sense.

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