The who, the why and the when (Part 2)

There is no “IF” in history.

Let’s talk about Riverstone. For some stocks, the when doesn’t matter much (eg. Vicom), while others do (eg. Sung Hai Kai). I first bought Riverstone in 30 Oct 2013. Around that time (July 2013), I was studying Goodpack (delisted now), Japan Foods Holding, Osim, Supergroup and Bread Talk.

Riverstone:

1) The Who: Mr Wong Teek Son. The Riverstone Group has its origins when Mr Wong Teek Son set up a sole proprietorship known as T S Enterprise in the late 1980s in Selayang, Selangor. He owns a 47.51% direct stake in Riverstone. I am sure this company is close to his heart.

2) The Why (in July 2013): Cash for operating profit increased from 40.6 mil in 2009 to 80.2 mil in 2013.Total Debt/Equity (Last reported year-end) is 0. ROE is 20.9. Dividend yield is 2.84. Revenue Growth Rate, 5 Year is 20.4198. EPS Growth Rate, 5 Year is 15.2537. Market Cap was 341.53 mil vs Total Asset at 380.51 mil. Profits and revenue were increasing in Feb 2014. And still growing. 

As I have said at the beginning I was studying a few stocks in 2013 (I read about them in books and websites about value stocks). I even did a small excel sheet. Although I must say I may not be comparing apples to apples – as each company is in a different sector (gloves making, food industry, etc) So what makes Riverstone stand out. First zero debt. The closest then was Supergroup (now not that Super). It had the lowest price to book among them. Its operating cash flow kept increasing (even Osim has one down yr eg. 2012 vs 2013). Its market cap was lower than total asset (the next closest then was Breadtalk). For the rest, the market  cap was higher than total asset/enterprise value).

Now comes the fuzzy part: I did Discounted Cash Flows Value calculation for each of these stock. Almost all their share price then was lower than the DCF. Goodpack price then was very near the DCF (eg. 2.39 vs DCF of 2.38). For Riverstone, it was 0.92 vs 1.3 (DCF). Now the stock price is 1.01 (still lower, and not forgetting the profit and revenue has grown since July 2013). But then again DCF is subjective – a look at gurufocus shows another story. 

Riverstone business is related to healthcare, hence may be more resilient to economic cycles.

Even after 2013, when I was reading articles about Riverstone, a few items struck me.

a) The straight talking way of Mr Wong – answer questions to the point. No hidden agenda.

b) Capacity at its max (others are worried about left over inventory – his is a happy worry).

Comparisons with other related companies also make Riverstone stand out.

c) A company that produces things that are disposable – always in need. Ensuring recurring income.

 

3) The When: In 2013, Riverstone share price was lower than what it was in 2010, but cash from operating activities actually increased consistently from 2009 all the way to 2013. Stock price fall while income increase?  Heck in May 2013, its dividend yield was 5.1%. 

Now with this company the When becomes not that important.

“As a value investor, you should always try to buy companies below their intrinsic value, right? Wrong!”

“If you purchase a great company with a durable competitive advantage, what Buffett calls a consumer monopoly, and which is able to consistently compound its returns at above average rates, the price you pay becomes less of an issue, because such a company will see its value steadily increase over time.”

Of course that doesn’t stop me from hoping for a dip which is much below the value.