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SeymourToobarak

24 Posts.

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13/02/24

14:13

Post #: 72382103
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Originally posted by madamswer: ↑

"In the last ~10years the share price has gone nowhere, so if you're not someone who actively trades the ups and downs then the only return has been dividends. Divs have been about 4-4.5%, so slightly above inflation but not by much. Earnings have been flat despite the fact that CGF pays out less than 50% as divs, so those 10years worth of retained earnings (roughly $600m) have basically just been torched as they're not evident in either the share price or in grown earnings."

@cpeterson,

I think context is always important whenever one considers that sort of earnings history.

In the case of CGF, whose business model essentially involves arbitraging fixed income market conditions, the relevant context for that 10-year period is that it reflects a period of a secular decline in global interest rates (well, until only very recently, that is).

Because CGF's profits are derived from making a margin on interest rates, when rates crash - as they did - it leaves less and less "wiggle room" in which CGF's products are able to operate.

So that the company made any money at all, and was able to continue paying dividends right through that period, is somewhat of a comment about the resilience of the underlying business. (At least, that's my suspicion, without being able to back it up other than with that qualitative assessment.)

Put another way, if in 2013 someone asked me, "If interest rates went to almost zero over the next decade, what do you think will happen to company, whose financial fortunes are leveraged to the level of interest rates?", my response would probably have been, "That business is going to be seriously threatened, and might even go belly-up."

Not only has none of that happened, but CGF has remained profitable (on an underlying basis, that is) and has paid dividends all the way through (I think the Board passed on the final dividend in FY2020,although that wasn't an affordability constraint issue; it was merely prudence in the middle of the Covid story).

So, in terms of business merit and resilience, there is definitely real meat on the CGF bone (how much exactly is hard to know given the business model is akin to a science project in terms of transparency.)

In summary, if the business was able to not only just "hang in there", but continue to generate returns to shareholders, during the mother of all macroeconomic backdrops that lasted for many years, that should bode well for a period when the macroeconomic backdrop becomes a tailwind.

Which is why I am a shareholder.

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Agree with you madamswer, this is a "show me" rather than a "tell me" stock........at the moment. And, share the view it will take a few more joined-togethr results for CGF to shed it's "unloved" status. But the rewards will be there for SHs if that heppens.A lot of the focus in the analysis today is on the very supportive demographics....which are, in truth, massive tailwinds. However, the real drag on results for well over a decade has been zero (or sub-zero) interest rates. With 18 rate rises since 2020 that has changed, and interest rate settings look likely to revert to more normal levels for the forseeable future. Combined with those demographics, CGF looks well positioned.

CGF Price at posting: $7.10 Sentiment: Buy Disclosure: Held
3 Upvote

0 Great analysis

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