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| Subject: COMPANY RESEARCH REPORT:ERG Limited | |
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Author: Data as of: 1/10/03 |
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Date Posted: 02:18:20 01/12/03 Sun COMPANY RESEARCH REPORT:ERG Limited Data as of: 1/10/03 Company Description ERG Limited. The Group's principal activities are the manufacture, market and installation of automated fare collection equipment and systems, telecommunications equipment and services, smart card systems and services; provision of broadband infrastructure services, research and development; and management and investment. Infrastructure & cards business accounted for 51% of fis 2002 revenues and supply, installation and projects, 49% Competitor Analysis ERG Limited operates in the Measuring & controlling devices sector. This analysis compares ERG Limited with three other meter and gauge manufacturers in Australasia: Riken Keiki Co., Ltd. of Japan (2002 sales of 16.07 billion Japanese Yen [US$134.86 million] of which 69% was Fixed gas sensor/alarm equipment), Meisei Electric Co., Ltd. of Japan (18.42 billion Japanese Yen [US$154.55 million] of which 54% was Electronic equipment), and Toba, Inc. which is also based in Japan (16.19 billion Japanese Yen [US$135.83 million] of which 54% was Controllers). Sales Analysis ERG Limited reported sales of A$271.82 million (US$156.76 million) for the fiscal year ending June of 2002. This represents an increase of 3.0% versus 2001, when the company's sales were A$263.86 million. Despite this increase, sales are still well below the level achieved in 2000, when ERG Limited reported sales of A$360.35 million. Recent Sales at ERG Limited 198 239 265 360 264 272 1997 1998 1999 2000 2001 2002 (Figures in Millions of Australian Dollars) Just over half of the company's 2002 sales were in Australasia: in 2002, this region's sales were A$144.87 million, which is equivalent to 53.3% of total sales. In 2002, sales in Europe were up at a rate that was much higher than the company as a whole: in this region, sales increased 18.6% to A$103.90 million. Although the company's overall sales increased, sales were not up in all regions of the world: sales in Australasia were down 3.0% (to A$144.87 million) and sales in United States and Canada fell 14.5% (to A$23.04 million) . While the company's sales increased 3.0% in 2002, all three comparable companies experienced a decline in sales (between 0.1% and 32.1%). ERG Limited currently has 896 employees. With sales of A$271.82 million (US$156.76 million) , this equates to sales of US$174,953 per employee. This is lower than the three comparable companies, which had sales between US$183,554 and US$653,049 per employee. Sales Comparisons (Fiscal Year ending 2002) Company Year Ended Sales (US$mlns) Sales Growth Sales/ Emp (US$) Largest Region ERG Limited Jun 2002 156.757 3.0% 174,953 Australasia (53.3%) Riken Keiki Co., Ltd. Mar 2002 134.861 -2.1% 197,743 Japan (89.2%) Meisei Electric Co., Ltd. Mar 2002 154.552 -0.1% 183,554 N/A Toba, Inc. Mar 2002 135.834 -32.1% 653,049 N/A Recent Stock Performance In recent years, this stock has performed terribly. In fiscal year 2000, the stock traded as high as A$3.55, versus A$0.11 on 1/10/03. The stock price has fallen precipitously recently: For the 52 weeks ending 1/10/03, the stock of this company was down 80.6% to A$0.11. During the past 13 weeks, the stock has fallen 44.7%. During the past 52 weeks, the stock of ERG Limited has performed significantly worse than the three comparable companies, which saw changes between -6.6% and 6.0%. During the 12 months ending 6/30/02, the company has experienced losses totalling A$0.32 per share. Note that the earnings number includes a 8.15 pre-tax charge in 2002. This company is currently trading at 0.36 times sales. ERG Limited is trading at 0.73 times book value. Since the price to book ratio is less than 1, this means that theoretically, the net value of the assets is greater than the value of a company as a going concern. However, at the end of fiscal year 2002, this company's intangible assets (A$147.67 million) were higher than its common equity (A$134.63 million), which means that the price to book ratio is not a very useful indicator. Summary of company valuations Company Date P/E Price/ Book Price/ Sales 52 Wk Pr Chg ERG Limited 1/10/03 N/A 0.73 0.36 -80.60% Riken Keiki Co., Ltd. 1/10/03 11.3 0.67 0.58 -2.24% Meisei Electric Co., Ltd. 1/10/03 N/A 3.81 0.07 5.97% Toba, Inc. 1/6/03 11.1 0.34 0.19 -6.56% The market capitalization of this company is A$98.37 million (US$56.73 million) . Management, directors, and other insiders own less than 2% of the outstanding stock. The capitalization of the floating stock (i.e., that which is not closely held) is A$97.26 million (US$56.09 million) . Dividend Analysis This company has paid no dividends during the last 12 months. The company also reported losses during the previous 12 months. ERG Limited last paid a dividend during fiscal year 2001, when it paid dividends of 0.01 per share. Profitability Analysis On the A$271.82 million in sales reported by the company in 2002, the cost of goods sold totalled A$195.46 million, or 71.9% of sales (i.e., the gross profit was 28.1% of sales). This gross profit margin is lower than the company achieved in 2001, when cost of goods sold totalled 46.2% of sales. The company's earnings before interest, taxes, depreciation and amorization (EBITDA) were A$18.99 million, or 7.0% of sales. This EBITDA to sales ratio is roughly on par with what the company achieved in 2001, when the EBITDA ratio was 6.4% of sales. The three comparable companies had EBITDA margins that were all higher (between 15.1% and 36.9%) than that achieved by ERG Limited. In 2002, earnings before extraordinary items at ERG Limited were -A$243.88 million, or -89.7% of sales. This profit margin is lower than the level the company achieved in 2001, when the profit margin was 2.3% of sales. The company's return on equity in 2002 was -97.5%. This was significantly worse than the 2.4% return the company achieved in 2001. (Extraordinary items have been excluded). Profitability Comparison Company Year Gross Profit Margin EBITDA Margin Earns bef. extra ERG Limited 2002 7.0% -89.7% ERG Limited 2001 53.8% 6.4% 2.3% Riken Keiki Co., Ltd. 2002 36.6% 36.9% 5.1% Meisei Electric Co., Ltd. 2002 N/A 15.1% -11.0% Toba, Inc. 2002 N/A 15.1% 1.6% ERG Limited reports profits by product line. During 2002, the itemized operating profits at all divisions were -A$35.43 million, which is equal to -13.0% of total sales. Of all the product lines, Supply, Installation had the highest operating profits in 2002, with operating profits equal to 1.2% of sales. (This product line is the largest at ERG Limited, and accounted for 50% of sales in 2002). Infrastructure and Card had the lowest operating profit margin in 2002, with the operating profit showing a loss equivalent to 26.6% of sales. (This product line is the largest product line at ERG Limited, accounting for approximately 51% of sales in 2002). Inventory Analysis As of , the value of the company's inventory totalled A$44.31 million. Since the cost of goods sold was A$195.46 million for the year, the company had 83 days of inventory on hand (another way to look at this is to say that the company turned over its inventory 4.4 times per year). In terms of inventory turnover, this is a significant improvement over , when the company's inventory was A$52.88 million, equivalent to 158 days in inventory. Financial Position At the end of 2002, ERG Limited had negative working capital, as current liabilities were A$243.11 million while total current assets were only A$241.09 million. The fact that the company has negative working capital could indicate that the company will have problems in expanding. However, negative working capital in and of itself is not necessarily bad, and could indicate that the company is very efficient at turning over inventory, or that the company has large financial subsidiaries. As of , the company's long term debt was A$268.88 million and total liabilities (i.e., all monies owed) were A$524.27 million. The long term debt to equity ratio of the company is 1.77. This is significantly higher than where the long term debt to equity ratio was in , when the long term debt to equity ratio was only 1.05. ERG Limited does not appear to be very efficient in collecting payments: As of , the accounts receivable for the company were A$133.46 million, which is equivalent to 179 days of sales. This is an improvement over the end of 2001, when ERG Limited had 232 days of sales in accounts receivable. The 179 days of accounts receivable at ERG Limited are higher than all three comparable companies: Riken Keiki Co., Ltd. had 153 days, Meisei Electric Co., Ltd. had 107 days, while Toba, Inc. had 128 days outstanding at the end of the fiscal year 2002. Financial Positions Company Year LT Debt/ Equity Days AR Days Inv. ERG Limited 2002 1.77 179 83 Riken Keiki Co., Ltd. 2002 0.24 153 87 Meisei Electric Co., Ltd. 2002 2.07 107 74 Toba, Inc. 2002 0.00 128 3 User Selected Comparisons If you would rather compare this company to different companies than the ones above, simply enter their names or ticker symbols below, and this report will be re-written with these new companies. You may enter the ticker symbol or the first few letters of a word in the company's name (you must enter at least four characters for a name, and at least one character for a ticker). You must enter in three companies; if you don't, there can be no competitive analysis and the computer will choose. 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