Took the weekend off to relax and not think too much. That is why this post is a little later than usual. Just crossed the 30,000 hit mark this week and I would really like to thank all of you for reading so consistently. Been tracking the blog for a few months and readership has been climbing steadily. It is no facebook but I am still very happy with the response so far. Interesting thing is how the blog gets more than 120 hits per day but I have 24 followers. I am really impressed by how many times you guys are reading or maybe re-reading the posts.
Last week was an interesting one with Greek Prime Minister George Papandreou coming out with the insane idea of calling a referendum on the Greek bailout plan at the beginning of the week and making a U-Turn by the end. Talk about being fickle. Latest news is that he is going to step down for a new coalition government to be formed. One really has to wonder, do these politicians know what they are doing? This is a person who graduated from the London School of Economics and supposedly smart enough to lead a country. Yet he could come out with ridiculous ideas like opening up a referendum that is almost certain to fail. Thank god he had the decency to make a U-Turn on that decision while at the same time all his credibility went out the window with that. Now that Papandreou has stepped down, the spotlight falls on Silvio Berlusconi of Italy. Political careers are on the line now and most of these politicians are scrambling to save their skins. Rest assured, governments will start to fall and the Greeks are just the first domino to drop. Political revamp is something which we have to keep a close eye on, as new politicians come into power and their ideologies may not be aligned to what is pertinent in keeping the Eurozone alive.
There was an interesting talk by the insightful Russell Napier (Author of "Anatomy of a bear") last week and he said at this moment there is only one indicator that matters in determining the direction of markets now.......Italian yields.....What have I been saying all this time????? Told you so. As I put the finishing touches of this post, Italian 10 year yields stand at an all time Eurozone high of 6.34%. Not a good sign. Throw in the fact that 2 year Greek yields are at 100%!!! The sovereign bond market participants are obviously not too optimistic at this moment. Equity investors? They are optimistic as ever before. This is one confusing market situation and that is what makes things so interesting.
Would like to give my two cents worth on the strong debut of Parkson Retail in Singapore. I do not know why but it seems like Singaporeans sure like retail companies a lot. The last 3 have done extremely well. We had Sheng Siong, Zhongmin Baihui and now Parkson Retail. Parkson has risen more than 30% since its debut. Crazy considering this company is trading at close to 25 times p/e. That is just nuts. Of course it is still far behind Zhongmin Baihui's valuations. I would love to ask all of you to look at Zhongmin's financials when you are free. For those who can tell me why the company has risen so much with no profits. If you like retail, look at Isetan instead, which has plenty of value and owns close to 1/3 of Wisma Atria rather than buying speculative plays like Parkson and Zhongmin. My view is do not touch Parkson because all you need is to cross the causeway and see how many people there are in Parkson stores. Almost next to zero....Do not let crazy speculation catch you out. This is a game of musical chairs and you don't want to be left without a chair when the music ends.
Been so focused on the European situation over the past few weeks that I have ignored talking on the stocks which I like. So I have decided to focus more on a company which I feel is an undervalued gem and could easily become the next privatization or buyout target. LMA is the global market leader in airway management with its innovative portfolio. LMA's airway devices are recognised globally for their proven quality and used extensively in anaesthesia and emergency care. Their products are marketed in more than 100 countries through an international distribution network and have offices in North America, Australia, Germany, Italy, Singapore, China and Canada.
LMA designs, manufactures, markets and distributes the innovative LMA laryngeal mask airway range of devices for pain free administration of medication. Designed by renowned British anesthesiologist Dr. Archie Brain, the LMA airway was first introduced to the market in 1988. It was the first effective product to offer significant advantages over traditional methods of airway support during surgical procedures and life-saving interventions.
Currently, LMA's product range is the most comprehensive airway management system available in the market. There was even a report that estimated their devices have been used more than 200 million times worldwide and without a single reported fatality attributed to its use. Backed by a strong research and development team, their product suite has been consistently updated and ensures that the company remains the market leader.
Just a week ago the company announced that its wholly-owned subsidiary, LMA North America, has signed a sole source supply agreement for Laryngeal Mask Airway products with Novation, the leading healthcare group purchasing organisation in the United States. LMA North America has been a contracted vendor of Novation for the past seven years. The latest agreement will take effect beginning 1 January 2012. This is a testament to the company's strong relationship with its key customers and product suite.
Last week LMA announced a record performance in net sales for the first nine months of 2011. Net sales increased 16% to US$92.7 million in 9M 2011 on the back of above market growth in the United States and continued demand for its flagship product LMA Supreme across the world. EBITDA and net income grew 47% and 118% to US$15.8 million and US$16.2 million in 9M 2011 respectively.
What impressed me most was the sales of LMA Supreme were up 45% in 9M 2011 as compared to the previous year, with notable performances in China, Europe, Australia, and Brazil. Overall, growth in International markets was further enhanced by the contribution from Vitaid Limited and foreign exchange gains.
Gross profit rose by 17% to US$55.0 million in 9M 2011 over US$46.9 million in 9M 2010. Gross profit margin stood at 59% in 9M 2011, in line with the Group’s expectations. LMA ended 9M 2011 with a healthy level of cash and cash equivalents amounting to US$21.3 million as at September 30, 2011 and no debt. The Group remained cash positive with US$13.4 million of net cash provided by operating activities in 9M 2011, up 9% from US$12.3 million in 9M 2010.
What I like about this company? Too many things: 1) Market Leader in laryngeal masks, 2) Strong balance sheet with a net cash position, 3) Consistent operating cash flow, 4) Strong growth, business is growing due to the streamlining of operations over the past 3 years, 5) Good management, 6) Cheap valuations of less than 10 times p/e, throw in good growth numbers, it becomes a bargain, 7) Growing its presence in more markets.
I really do not think the market is going to be strong over the next 6 months but I am still willing to buy LMA to wait it out because there is no way to say when people will sit up and realize that this is truly a gem of a company. That is all I have for this week.
Have a great shortened week ahead!
Best,
SVI
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