Financial analysis of Namoi Cotton Ltd 2006 results (ASX:NAM)
Posted by: dk in Australian stockFounded: 1962, ASX code: NAM, homepage: http://www.namoicotton.com.au/
Overview:
Namoi Cotton is Australia’s leading cotton processing and marketing company. It is based in a NSW regional town of Wee Waa from where its management directs the cotton growing and ginning operations across NSW and southern Queensland. As of June 2007 Namoi ownes or co-owns a network of 12 cotton gins and 3 mid-sized to large warehouse facilities.
Analysis of latest annual report (2006 season):
- Market Cap: Depending on the daily stock price the market cap of this company is about $70mil in approx. 110mil of outstanding shares.
- Shareholders Equity: $97mil making the stock’s book value approx. $0.88 per share (3.7% growth on 2005 season). From that about $11.7mil. ($0.11 per share) is available working capital.
- Earnings per share: $0.115 making the average EPS growth in last 3 years about 21.5%
- Return on Equity: 13%, averaging around 12.2% in last 3 years
- Balance Sheet: Working capital of $11.7mil versus total debt of $52.4mil
Sharemarket’s view:
Average NAM Price to Earnings ratio of 6.5 suggests the share price around $0.75 ($0.115 EPS x 6.5 P/E).
VALUE STOCK:
Return: End of June 2007 at share price of $0.61 this company is trading at about 30% discount to its February 2007 book value.
PROS AND CONS:
+++ Long established business, leader in its “out of favour�? industry
+++ Strong balance sheet
+++ Practices regular stock buybacks at favourable prices hence increasing the value per share for other shareholders
— Exposed to volatile demand for its commodity
— Cyclical agriculture business; could face though times ahead due to changes in climate conditions
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Entries (RSS)
June 30th, 2007 at 9:58 am
Thanks dk! Great analysis.
July 3rd, 2007 at 10:50 am
If the government were to have the balls to charge an amount for water usage which truly reflects the cost to the community, companies which consume enormous quantities of water, such as rice and cotton growers, would be out of business. If city dwellers in general ever look past the government spin and realise that simply removing uneconomic (in revenue per litre of water terms) industries would be equivalent to all our water restrictions, they’re gone. Even if that never happens, the price of water is rising and is likely to continue to do so at quite a pace. That seems like enough of a downside to me.
July 3rd, 2007 at 12:11 pm
Yes I agree that such a high water consumption exposes Namoi to various related risks. But as you, Craig, said yourself, there is number of IFs to eventuate before this business would need to call it a day.
It is not may goal to make any kind of buy or sell recommendations here. What I am rather trying to achieve here is to point out the latest fundamentals of companies, which for some reason appeared on mine, I hope intelligent, investing “radar” for further scrutiny. I am also not saying whether or not I actually invest in any of the companies featured here. I am showing the facts and how anybody decides to use them is entirely up to him or her.
Thank you for taking the time to read my blog.