Hi Cheapy,
As a former holder of Count Ltd (compulsorily sold to CBA under their takeover) I can verify the historical accuracy of transactions identified in the article.
Like all analysis the matching of future "potential" with "execution" is where I see the risk. CUP has tidied up its Balance Sheet, cleared the decks of unprofitable businesses and adopted a new model, all whilst dealing with the rogue adviser who has cost millions in restitution fees, lost time, legals and reputation damage.
Some may consider these events to be the perfect storm.
In the end, we see a relatively clean skin business looking to grow and having learned some lessons about what works and does not work.
I think the CUP SP is significantly undervalued as a result of a number of factors, not the least of which was the (smart) cessation of dividends. Once a prudent dividend policy is re-introduced, I am confident the stock will be re-rated somewhat higher with recognition being paid to both the past mistakes and future potential of growing income.
The Class investment (now exited) was of particular importance & value to the business as it basically generated pre-tax profits of over $10m from which to extinguish debt. CUP was a founding subscriber to Class with it's initial equity costing below $1 per share. Post the float of CL1, CUP took up additional equity below $2 per share and then holding around 6.5m shares, progressively sold down the interest at prices well north of $3 per share. A handsome little earner and one of the few good outcomes from prior management who were intent on paying unsustainable dividends to prop up the SP.
I imagine the first target for the stock would be between 70c - 80c based on a dividend of 3cps or around 65% of projected NPAT. This rewards shareholders with some of the free cash flow, but retains enough capital in the business to fund acquisitions.
Thereafter, the price will undeniably be determined but the ability of the new management to convert the business model into sustainable earnings growth.
Will the royal commission outcome help CUP? I really am not quite so sure. The industry damage and loss of consumer confidence will take a long time to heal. The importance of the 10 year Count agreement may be more relevant here, as the huge potential cost savings by bringing the licence in-house should not be understated.
Like all investments CUP has its risks, but seems to have successfully weathered its perfect storm. The stock is underpinned by annuity style business income which is likely to resist the vaguaries of the markets in which it operates.
It will be a long slow process to re-build reputation, profits and market confidence. Perhaps its greatest attraction is that both the tax and financial planning landscape will forever continue to change and that demands compliance, consulting and advice. The bread and butter of CUP.
DYOR, this is not advice
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