WHG - WHK Group

[xinyu09]

Anyone holding this share? It looks very good on both fundamental aspect and technical charts. It will pay 2 cents dividend on 1st May 10. In my opinion, it's a great dividend stock to hold forever

[xinyu09]

Oops, the dividend date is 5th May 10, Record day is 1st Apr 10. My apology
Ex-div date is next Friday, 26th March 10.

[Joe Blow]

Anyone holding this share? It looks very good on both fundamental aspect and technical charts. It will pay 2 cents dividend on 1st May 10. In my opinion, it's a great dividend stock to hold forever

Hi xinyu,

For the benefit of those reading this thread, could you please elaborate a little on why you believe WHG to be looking good both fundamentally and technically?

Feel free to post a chart if you feel it will help to illustrate your points.

Thanks!

[xinyu09]

Why I bought WHG.ax:

First point, strong dividend payout.

Steady dividend payout ratio: the company pays around 30 - 50% earning per year. dividend will be 5.1m (2cents per share) for this half (31% of earning 17.1m - an increase of 33%). The final dividend is expected to double from 1.5 cents to 3 cents this year. In my opinion, not many stocks increase dividend this year, it's a very positive sign to me that the company is improving.

Second point, strong earning outlook. (from half yearly report)

Outlook of the financial sector remains strong, and the company has a relatively lower P/E company. P/E: 302 m / 17.1 m= 17.66 currently.
Net debt is expected to be reduced again this half while cash-flow has improved 3 times this half. Cash earning is expected to remain strong unless another Global Financial Crisis happens.

Last point, major investment firm backed the company.
WBC.ax and BTT.ax backed the stock recently (17th FEB 2010). One of the director of the firm is also a director of ASX.ax, which in my limited view is a reinsurance this company is a safe company to invest for dividend growth.

Chart-wise, it looks like having a short term weakness at the moment, (wish I waited longer) however, the price is traded strongly above 52 weeks moving average so the trend is still up at the moment.

In summary, this is not a traders company in my humble opinion, no fast gain will be made however the same is true for the down side. I bought this company a few days ago because I liked the improved dividend, and I wish more people could be aware of this company. It is currently the 5th largest accounting/financial planning group in Australia by market capital size.

The above is merely my personal opinion, it's biased towards the bull side because I am a holder of the security. Please don't treat it as financial advise, and do your own research before buying any shares. Wish everyone gets lucky

[Taltan]

xinyu09 I generally agree and for the most part the last 12 months have proved you right. However I see 2 big problems. The WHG model has been tried before both in the US and Australia in the form of Stockfords
http://www.kordamentha.com/downloads...0Stockford.pdf

The other big problem is that WHG sells professional services and as such huge profits are basically impossible over the long-term due to their reliance on their staff. This makes it boring for many investors.

So overall I agree its a good company but definitely one for the buy and hold crowd.

[Vesupria]

I posted this in another thread (about SMSF returns) and thought I would repost it here in case anyone was interested in discussing this company.

split into two quotes due to technical glitch

I had a look at their financials on my lunch break. A breath of fresh air that they focus on cash profits. Their cash flow looks pretty steady. They are able to pay down debt and a relatively high dividend payout ratio from their FCF.

It seems that most of their revenue declines have been due to the drop-off in "consulting work." Clients are holding back on projects (and therefore advice on them). Consulting work is the cream for these firms. I have heard people senior to me commenting that the current economic environment is as bad as it has been for many years in respect of clients delaying payment of invoices (and bringing their work in) and being extremely fee conscious. This will show up in the margins when it improves. Compliance is the nuts and bolts and is low margin. You can see the decline in operating margins since 2008. They service high networth individuals and bigger business clients as priority. So in this sense they are a smaller fish in the big waters dominated by the Big 4. Possibly why their return on equity / ROIC has never been much higher than the cost of capital.

I will also note that many mid-sized practices (including regional and suburban) have seen a culture change towards the "value proposition" (which is accounting speak for trying to get more consulting work). They never used to chase it as hard, but firms are getting smarter with their marketing and image to accomodate this. The industry has changed a bit in this respect. It used to be more confined to the bigger firms.

All that said, I like accounting businesses. Mainly because the clients are generally pretty sticky. I also believe that they are sheltered somewhat from shock earnings events, their demise is generally a slow affair. You can pick it up early because it is usually due to poor cash flow management (keep an eye on tardy receiveables, increasing working capital requirements and the employee remuneration compared to revenue).

In a sense compliance work is a recurring revenue stream, since the same thing is done for the same clients (in most cases) year in year out. The main problem with compliance work is that clients do not see the value. As you previously stated yourself with your own affairs.

I probably prefer CUP in this sector because the practices that they own, whilst profitable, seem to focus on those clients who the Big 4 (and other bigger firms) don't chase. They're both priced pretty similarly on basic metrics and neither are absolute bargains, but perhaps slightly on the cheap side.

Judging by the chart alone, the market values this going forward as a low-growth "bond-type" investment, with a dividend yield that looks maintainable going forward.

The second half results will be interesting as this is where the earnings are historically weighted.

It is hard to find a company in this market cap range with so much free cash flow. Low ROE / ROIC, but I would argue that perhaps this is not 100% important as the earnings are being used, on the whole to pay dividends and pay down debt, and there is little if any reinvestment into the business. Low capital intensity makes this possible. Growth going forward is mainly organic, unless they find the opportunity to make an acquisition (most likely debt funded).

This and CUP are interesting plays, especially if the market gets the "Stockford" sydrome (a reference to a failed listed accounting firm "consolidator") and values these lower out of fear of the same happening.

[Tannin]

Thankyou for that, Vesupria, very useful posting!

I've had WHK on my radar for a while now, but was put off a bit by debt and the always-chancy business of settling in aquisitions and making them perform. So many companies seem to lose focus after they buy up a few competitors!

But from what you say it sounds as if WHK has (very sensibly) stopped buying up small accountring firms around the country and is focusing on the basics of paying down debt and running a tight ship. (That's just my take-away message from your post - is that the way you see it?)

Clearly, it's time I had another look.

[Vesupria]

But from what you say it sounds as if WHK has (very sensibly) stopped buying up small accountring firms around the country and is focusing on the basics of paying down debt and running a tight ship. (That's just my take-away message from your post - is that the way you see it?)

I don't think they have purchased anything major for quite a while now. They seem to have merged a couple of their smaller firms to create efficiencies in the mean time. I think they have just under 20 practices under their banner now.

They are going through a big organisational restructure at the moment (which has hit profit materially this year), but it will save quite a bit in expenses (a lot in wages) going forward (a case of "I see it then I will believe it" perhaps?). It does indeed look like they endeavour to run a tighter ship as you say.

Debt has not really been reduced massively, in fact it has been steady since 2008. In terms of debt / equity ratios it is less than it was, though. You should read some of the investor presentations from the previous few years; I get the impression that they want to start reducing it a little. It would appear that they intend to stay as conservative as possible in this environment (they mention organic growth). They have redeemed some of the notes this year as well (paid out in cash). The full year report will give us a clearer picture as to what they are using their cash flow to do, since the bulk of it comes in the second half.

[Knobby22]

Trading Halt. Earnings update.
This could make or break my investment.

[skc]

Trading Halt. Earnings update.
This could make or break my investment.

I've never seen a trading halt request like this...

"... the trading halt is being requested pending a possible earnings update;"

Possible?

You either have an update or you don't.

Under what circumstance would you have a possible earnings update?

May be they are mucking around with SFG...

[skyQuake]

I've never seen a trading halt request like this...

"... the trading halt is being requested pending a possible earnings update;"

Possible?

You either have an update or you don't.

Under what circumstance would you have a possible earnings update?

May be they are mucking around with SFG...

Probably semantics but I read that as possible earnings update,
rather than possible earnings update.

Im sure the market rewards those companies that toy with announcements and such.

Whats next? Possible windup? Possible takeover talks? Possible employee fraud?

[Knobby22]

Probably semantics but I read that as possible earnings update,
rather than possible earnings update.

Im sure the market rewards those companies that toy with announcements and such.

Whats next? Possible windup? Possible takeover talks? Possible employee fraud?

"Possible employee fraud" - Oh don't say that!
It would be funny if they came back and said -no change -.

[skc]

Probably semantics but I read that as possible earnings update,
rather than possible earnings update.

Im sure the market rewards those companies that toy with announcements and such.

Whats next? Possible windup? Possible takeover talks? Possible employee fraud?

Lol. Had to read that a few times to understand what you are saying...

You are probably right, I guess management wanted to make sure the market doesn't think it's an "absolute set-in-stone earnings" update.

[Vesupria]

I thought this looked fairly cheap, bottom of the cycle earnings recovery type play in the late 70s, early 80s... but there were lots of better quality companies trading at low multiples at the time.

Some of the wording (like today) that they use in their press releases, reports and announcements gets curious at times.

[rbgmauq]

EPS
0.030
EPS Est. Current Year
0.080
EPS Est. Next Year
0.090
PEG Ratio
1.81
http://au.stoxline.com/q_au.php?symbol=whg&c=ax