jeudi 15 décembre 2016

Not so great ROE stocks: Enghouse Systems Limited (ENGH.TO) (Part IV)

Man, it's so fucking cold outside today in Quebec City. Right now, (10 PM), it's about -20 celcius degrees and -30 degrees with the fucking wind. I don't know for fahreneits but it's probably something like -200 or -300 degrees.  What a fucking country. And it's not even winter yet. Oh Canada. Terre de nos aieuls. Fuck you Canada. 

Today, we go once again with a favorite IT stock of Jason Donville: Enghouse Systems.

I remember that the first comment I read about that stock was probably when Donville said that Enghouse was a kind of baby/junior Constellation Software. I remember taking a look at the numbers of Enghouse without understanding how that business could really be a baby/junior Constellation Software. It's surely a good company, but amazing as Constellation Software? Surely not.

As before, let's take a look at my favorite numbers: 

Beta: 0,34 (very low = very interesting)

As we can see below, the growth is great and steady:

2011 EPS: 0,66$
2012 EPS: 0,80$
2013 EPS: 0,92$
2014 EPS: 1,11$
2015 EPS: 1,17$
2016 EPS: 1,74$
EPS growth from 2011 to 2016: 163% (great growth)

Very few stocks achieve that kind of growth.

Actual ROE: 17
Average ROE last 5 years: 15
Debt VS earnings: About 3,5 times (low debt level)

Shares: Very little dilution. Almost nothing for the last 5 years.

Momentum indicators:
Sales growth last year: 10%
EPS growth last year: 49% (the last results were out today and the 49% growth is truly amazing). 
Some interesting momentum here.

Actual PE: 30
Forward PE: 26
Average PE last 5 years: 30
The actual price is high but normal when we look at the average price over the last 5 years.

Constellation Software performance last 5 years: 688%
Enghouse performance last 5 years: 390%
Kinaxis performance last 5 years: 364%
Open Text performance last 5 years: 187%

I really like ENGH. If it wasn't for it's astronomic price, I'd probably buy that stock. But I simply can't buy a stock with a forward PE of about 26. Even with Novo Nordisk, which is a stellar ROE stock, I didn't pay this price. Probably that someone will write a comment saying that it's a cash flow machine and blah blah blah. That's always the kind of comment I get when I say that a stock is too expensive for me.

I'd really need a big big correction before buying that stock.

10 commentaires:

  1. You wrote:

    I really like ENGH. If it wasn't for it's astronomic price, I'd probably buy that stock. But I simply can't buy a stock with a forward PE of about 26.//

    I'm not as disciplined and I'm much more gullible. Because of my gullible nature, I paid a future p/e of 26 or 28 to add to my position in Constellation Software lately.
    How big of a mistake do you think this will be?

    1. I think CSU is superior to Enghouse. The big difference of ROE between both companies shows that CSU is much more efficient. Well, I think you did a better move buying CSU than buying ENGH.

  2. I own both CSU and ENGH and there are different beast. ENGH is 9 times smaller than CSU in market cap and can enjoy a better operating margin. The free cash flow coming for CSU is much higher than ENGH probably because of the nature of owning SAS software as compared to the investment needed by ENGH to maintain their call centers and other assets. Still, ENGH is run by an experienced guy in Sadler who is always maintaining a strong cash position (86M) on the balance sheet even after the recent acquisition of PRESENCE (targeting the latin market). There is nice opportunities coming with some contact centers in the US battling for their survival by having to either raise some capital or sell themselves. I am not a market timer but for any who would want to buy CSU or ENGH, the first quarter is usually the lowest one with bonuses and a slower business. Lâche pas Penetrator, ton blogue est vraiment cool !

  3. Is DKAM's Q3 issue of ROE Reporter newsletter a little late? It also looks like the August edition got pulled from their website...

    1. Donville seems to seek reclusion now. You'll have to be a client to know what he likes.

    2. That's right. Straight from their website:

      "Please note that as of October 2016, our quarterly letters are only available to Donville Kent clients. If you are an investor in our funds and did not receive the October letter, please contact our office to request your copy."

  4. Donville doesn't own ENGH anymore...

  5. vicario you sound like a man with knowledge.
    Anything else you would like to share?

  6. Is Vicario : Jason Del Vicario the asset manager? If so, I can't imagine he has any knowledge. Seek out Joe the Plumber. He has knowledge.