Pick VGL-My Five Steps Stock Pick Process

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不少朋友可能知道， 我喜欢投资股票. 我做股票投资遵循一定的模式， 这个模式在我选择股票的过程一直会用， 有时我是在脑子把这个模式的过程走一遍，期间会零零星星的写点东西， 做点计算。有时我会把这个模式整个过程写下来， 作为自己的投资思考记录。 下面是我如何选择VGL这只股票的一个思考过程， 在这里呈现给大家. 希望能起到一个抛砖引玉的作用. 因为VGL是一家新西兰公司， 我找的所有资料都是英文的， 所以我也就用英文来写我是如何选择这个股票的.

Pick VGL-My Five Steps Stock Pick Process

I have picked VGL-Vista Group International Limited, a NZX listed Company, to invest.

The followings are an illustration of my five steps stock pick process.

1.      Understand the business

VGL is a software provider for global film industry. Its core product & service is cinema management solution via Vista Cinema and Veezi. The solution suite comprises digital point-of-sale solutions for moviegoers; operations software;cinema-centric moviegoer experience modules such as Loyalty; Enterprise management solutions, and a number of supporting Managed Services.

It used to supply standalone software to customers but now it is transforming to SAAS(Software as aservice). Veezi(for small cinemas) has been providing full cloud-based SAAS solution. Vista Cinema(for large cinemas) will complete transformation to SAAS cinema management solution in 2021.

VGL have 51% marketshare in large cinemas(operate over 20 screens) worldwide, excluding China. It is multi-size larger than its next competitor.

The Company other products include Movio, Maccs, Powster, Numero and Flicks which relate to marketing data analysis, distribution, business intelligence solutions, box office reporting, creative and marketing services to movie studios, etc.These products & services are for different players in film industry.

2.     Past Performance

Since listing at NZX in 2014, VGL sales CAGR( Compound Annual Growth Rate) is 24%, EBIT(Earningsbefore Interest and Tax) CAGR is 23%.

ROCE(Return onCapital Employed) has been over 10% all the time.

CAGR for followingmetrics:

Operating Income pershare                            14%

Free Cash Flow pershare                                15%

Book Value pershare                                      15%

Tangible BookValue per share                         17%

All metrics haveindicated VGL past performance was good.

3.     Future Performance Judgement

·        Breadth Analysis

1)     Is VGL customer base broad?

VGL operate in 100+ countries, and certainly it has wide range of customers. In other words, its revenue does not depend on single customer even not on single country.

2)     Is VGL supplier base broad?

As a software company, VGL have its own strong R & D team to develop products. Nowadays it’s not hard to find IT partners to outsource some jobs. Therefore it can reasonably say that VGL do not rely on single or minority of suppliers.

·        Forces Analysis

1)     Customers bargaining power

As VGL have large number of customers, and customers switching costs are high(we all know once  we use a software, we hardly change the provider unless its product &service are too bad), thus customers bargaining power is weak.

2)     Suppliers bargaining power

As mentioned in Breadth Analysis, VGL have its own software development team thus it should not heavily rely on external suppliers.

IT software developers have industry standard fees charge(approximately). So for VGL, it has low switching costs if they are unhappy with one supplier. It is my opinion that suppliers bargaining power is weak.

3)     Threat of Substitutes

I think it’s non-existing. As long as cinemas are in operation, they need software system to operate, to engage with moviegoers. In the past, cinemas used cassette toscreen movies. Now all cinemas use software. So far there have been no disruptive products.

4)     Threatof New Entrants

As VGL have 51%market share globally, they should have great reputation in the industry andthis will attract more and more customers.

Also it’s myimpression that software has strong customer stickiness, which means once customersuse the software, they hardly change as long as the software provider supplygood products & services. Such threat is weak.

·        Moat Identification

For any business,it is not easy to achieve over half market share in an industry globally.Therefore VGL brand, network and strong customer stickiness can be viewed asits moats.

·        Market Growth Assessment

I think it isdebatable that movie theatre industry can still grow. Many people concern tha streaming will make cinemas shrink.

Well, when television was invented in 1940s, people thought it would threat cinemas. Butit didn’t happen. In 1980-1990s, VCD, DVD came to the market, people thoughtcinemas would die, but it didn’t happen either.

I think cinemas provide unique experience that streaming can’t compete: big screen, excellent sound effects, plus popcorns and happy teenagers or family gathering in theaters, etc. Thus my opinion is cinemas won’t shrink and as a major entertainment it will continue growing.

4.     Shareholder-Friendliness

1)     Dividend

VGL dividendpolicy is it distributes 30-50% of net profit after tax to shareholders. TheCompany have paid dividend since 2016. 2019 dividend was suspended due toCovid-19 disruption.

2)     Senior Managers Share Ownership

Company founders(nowdirectors), CEO and other senior managers own 10.7% shares, which I considerthe number is substantial. The Company top management personal wealth is connectedstrongly with value of shares.

Based on the above two points, I can say the Company is shareholder-friendly.

5.     Is the share inexpensive?

I view VGL is aSAAS company. As per different sources(SAAS Capital, CSI Market, etc), globalSAAS Companies P/S ratio at around 9.

VGL share price is$1.85 at 12 March 2021. At this share price, its P/S ratio is 4.6. This is based on VGL 2020 revenue which is largely distorted due to Covid-19. I think more normal revenue to be used is Company 2019 sales which were $144m. Based onits 2019 revenue, its current P/S ratio is 2.9.

Also use 2019 EPS of 7C, its current P/E ratio is 26.5. Since listed in 2014, VGL P/E ratio has been ranged between 31 and 50, thus current P/E ratio is lower than its historical bottom part of the ratio.

Another valuation metricis Price/Net Tangible Asset ratio. Since listed in 2014, the ratio on averageis 8.56. Now it is 6.6.

All valuation metrics used have indicated VGL currently is inexpensive.

As a software tech company, revenue and earnings are more important than its physical assets. So P/S and P/E ratio are the better valuation metrics.

If I conservatively apply only half of the global SAAS P/S(4.5) to VGL, its share price should be at $2.87.

If I use its average P/E ratio(40) to calculate its value, its share price will be $2.8.

Therefore my assessment is VGL share price should reach at around $2.8, representing over 50% appreciation from current share price.

雾中原野

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