QAF Limited: $1.14 a share is cheaper than 93c a share?

One year ago, when QAF Limited's stock was trading at 93c a share, I observed that the PE ratio was 16.6x and I said that to buy in at that price would be making an assumption that earnings could improve dramatically in the future. 

There were pertinent concerns such as rising costs of doing business as well as the weak Australian Dollar and how these could continue to weigh down performance.



Video added in November 2016.

Well, for the full year 2014, QAF Limited has exceeded expectations as earnings per share (EPS) improved 46.4% from 5.6c to 8.2c, year on year. With the Australian Dollar having weakened further against the Singapore Dollar, how did this happen?

There was a one off contribution by Oxdale Dairy through the sale of its dairy business. Group operating profit, thus, received a boost of $1.6m. This will not be repeated, of course. However, considering the fact that Group profit improved some $15.7m (before tax), not having this one off contribution in the current year would still mean that QAF Limited would do very well, everything else remaining equal.

All business segments did well but the lion share of the improvement came from Rivalea, an Australian business segment. Operating profits improved threefold although revenue stayed flat because of higher selling prices, better product mix, productivity gains and lower raw material costs.

Lower finance costs also helped QAF Limited to do better in 2014 as borrowings were pared down. Interest expense decreased $0.9m from $4.1m to $3.2m last year.

Today, QAF Limited's stock closed at $1.14 a share and based on an EPS of 8.2c, we are looking at a PE ratio of some 14x. Even if we remove the one off divestment gain by Oxdale Dairy, we would be looking at a PE ratio of 14.5x, thereabouts.

So, although QAF Limited's stock is priced higher now, compared to buying at 93c a share a year ago, it is actually cheaper at $1.14 a share. This is what I meant when I said that a stock could actually be cheaper although its price could be higher. It is about value, not price.

QAF Limited has made their first foray into China in October 2014. With operations in Singapore, Malaysia, Philippines and Australia stable and doing well, if their Chinese operations should prove successful, we could see things looking even better in the next few years. After all, the Chinese market is huge and bread is an accepted staple as well as convenience food.

A final dividend of 4c per share has been declared for a full year DPS of 5c. This DPS is probably sustainable and I look forward to receiving free bread again in future.

Related post:
QAF Limited: Rising 5c to 93c a share.

How to get $50K in passive income by investing in stocks?

Extracted from a reader's email:

Hey there ak,

I was just wondering if your willing to answer some of my questions.

A little background, I'm 32 this year. Yet to marry, planning to.

I was always interested in trading, have tiny experience while working part time in a stock training center. 

Anyway, I seriously want to achieve financial freedom. And stumbling upon your blog was super!! And I want to be an income investor!!






Been reading up and giving myself till 2018 to start investing. There is still so much to learn. I'm still currently "know nothing" phase. Haha.. 

I don't have much cash. Since my wedding is around the corner. Most of it is tied up. 

So I decided to take up the POSB invest plan, 500 for the next 4 years. Should end up with 20k roughly. Which I intend to invest in 4 counters (by 2018).






My aim is to get 50k passive income.  But from my calculation, (assumption on 2014 dpu) I need 800k. No idea what I'm doing wrong. 

Anyway, since I can't amass such an amount, I was planning to, POSB invest plan to 20k (withdraw full), invest in 4 counters by 2018. 

And start OCBC BCIP 1.2k per month for 4 years get roughly 70k, invest as per my plan (counters to have by 2022) and again start another OCBC BCIP to amass cash for investing. (800k will kill me le :( , sianz)






From your view point, do you think I should do this way? As in invest every few years?  

My concern is, this will take me very long to achieve my 50k target. Your advice please.

Thank so much for blog, it's in line with my goals. And I'm reading it everyday at work.

Fellow investor (to be),




P

AK's reply:

Hi P,

Welcome to my blog and I am happy to read that you are inspired to invest for income. 

Investing for income does help to provide a sense of well-being and therein lies part of its attractiveness. :)

OK, firstly, if you are going to put money in the OCBC BCIP or the POSB Invest Saver Plan, you have to understand that these are with long term investors in mind. 

They are investments too but in a basket of stocks. 





So, what about the idea of taking out the money in 2018 to invest in specific stocks? 

Be warned that there is no guarantee that the stock market won't be lower than what it is today in 2018.

(When the time comes and if we need the money, we would have to take whatever price Mr. Market offers.)





The ETFs are not meant to be places where we keep our war chests or emergency funds. 

They are investments.






I would suggest that you continue to spend time reading up and also to concentrate on your career move and your upcoming wedding for now. 

Congratulations, by the way. :)

Be frugal, save money and wait for opportunities to buy income producing stocks on the cheap. 

Hey, you could be buying the STI ETF on the cheap too. Of course, you could start nibbling at some stocks in the meantime. 





It is important to remember that there is really no rush. The stock market will always be there. ;)

How to achieve $50K in passive income from investing in stocks? I think I blogged about this before many times in the past but not in recent times. 

There is really no magic. 






In summary:

1. Increase our earned income.

2. Do not increase our expenses beyond what is reasonable.

3. Save the rest and invest for income.

4. Save the income from investments and invest again.






We can make money in many ways. As long as they are legal and ethical, we want to think of seizing opportunities to make more money. 

People often upgrade their lifestyles as their incomes are upgraded. 

Be meticulous in distinguishing between consumption and investment. Yes, people often mix them up.





A reader told me that he hopes to achieve a third of what I have achieved by the time he is my age because his circumstances are different from mine. 

He wants to have children and his wife stays at home. This is an important thing to remember. 

Our circumstances are all different from one another's.





So, I remind readers not to be fixated with numbers.

The important thing is that their quality of life improves. 

The important thing is that they feel financially more secure, year after year. 

Investing for income will help to do this for them and it will do it for you too. :)





Best wishes,
AK

Related posts:
1. $1m in liquid assets or $120K in passive income?
2. To retire by 45, start with a plan.
3. Seven steps to passive income from the stock market.
4. OCBC Blue Chip Investment Plan.
5. POSB Invest Saver Account.

SembCorp Industries: Partial divestment.

Yesterday, a reader asked me if I would be selling my investment in SembCorp Industries. 

I replied that if I thought SembCorp Industries was fairly valued at $5.00 when I made my first purchase a few months ago, would I sell at a lower price?






Honestly, the investor in me said to stay invested while the trader in me said to look at possibly selling at least part of my investment. 

Let me talk to myself and throw some light on the matter.

As SembCorp Industries' stock price fell in recent months, I added to my position at various price levels: $4.80+, $4.50+, $4.20+, $4.10+. 

My memory is a bit patchy but something like this. 

I believe that SembCorp Industries is a good company and that Mr. Market was overly pessimistic as the stock kept falling in price.

Then, whether I would sell or not would depend on whether the investor or the trader in me wins. 






Finally, the trader won but only after giving a concession to the investor. 

What do I mean?

I initiated a position in SembCorp Industries at what I thought was a fair price and I said so in a blog post soon after the purchase. 

I went in with my eyes open and knew what I was getting for the price I paid. 

However, given a choice, the investor in me would prefer to purchase an undervalued stock.






So, having added at lower prices as well, recovering the capital utilised for purchases made at higher prices which fairly valued SembCorp Industries, retaining the purchases made at lower prices which undervalued the conglomerate somewhat is a palatable proposition.

After looking at the charts this morning, I determined that there should be stronger resistance at $4.84 if the stock price continued its ascent today.

So, I put in sell orders at $4.82 and $4.83.







I still like SembCorp Industries and if its stock price were to weaken to retest its lows in the last few months, I would probably be adding to my position again. 

If its stock price should rally after taking a breather, I would stand to gain with my remaining investment in the conglomerate.

Related posts:
1. SembCorp Industries: A safe price.
2. AK went shopping in the stock market.
3. Investing for income and position sizing.