Thursday, October 15, 2015

Ashley Services

I have recently been buying shares of Ashley Services Group (ASH) in Australia. This is yet another Australian company that has seen its share price pummeled since the commodity plunge. However, its relationship with commodities is pretty loose.

ASH provides training for people to become more educated, and also provides labour on contract to companies needing service but who don't want to take on employees. The industries which are its clients are mostly telecommunications, logistics and other non-commodity industries.

The company trades for $50 million, has net cash of $6 million (after paying a dividend), and had profit of $14 million in its recently finished fiscal year. For this year, it *was* expecting similar results to last year, but then warned that profits are now expected to come in 10%+ lower. The stock dropped 50% on this news!

So that results in an ex-cash P/E of less than 5, which is way too low considering the company continues to pursue growth. It has grown revenue in the mid-teens for several years in a row, though this year that probably won't happen as changes to some government programs has the company scrambling.

It is still run by its founder and majority shareholder. I generally like companies like this because the founder is probably a good manager or the firm would never have gotten so big, and the founder is also incentivized to make good capital allocation decisions because he is a significant shareholder. He had been purchasing shares on the open market before the recent drop in price. Here's an article on him from a time when sentiment in this industry was hot. The dividend yield is currently 20% based on dividends over the last 12 months, but it's not clear how much dividend will be paid over the next year.

I think the shares are worth a great deal more than where they currently trade. Good luck!

3 comments:

Anonymous said...

Hi Barel, I think the stock ticker is not ASH.

Saj Karsan said...

Oh yeah? What do *you* think the ticker is?

Anonymous said...

Saj,
Here are some issues with Ashley Services that could explain the decline.

1. Management's credibility: During the IPO they claimed that the 2015 EBITDA will be $31-32 million which was revised earlier this year to $21-23m !! That's a big miss.

2.Part of the EBITDA decline was attributed to cancellation of an incentive program of $5,500 back in July 2014. The company didn't discount that risk.

3. Resignations of CFO, two executive directors (One of which was labour minister) recently doesn't inspire confidence.

4. The company will soon be subjected to shareholder lawsuit.

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