Potential in Censof?

A number of friends have added Censof Holdings Bhd (Censof) to their portfolio. Let`s take a look at this counter`s intrinsic value. Censof is not undertaking any mergers or acquisitions exercise, hence the valuation techniques used are from my part 1 article.

The values used for this post are derived from the 2014 annual report.

1) Book value plus model

	(RM)`000
Total value of net assets	411 722
Less: Intangibles	63 554
Non-current liabilities	(76 862)
Net value of equity	398 414

Total number of shares (Note 16 in the financial statements) = 399 576 (`000)

Value per share = Net value of equity / total number of shares

                          = 398 414 / 399 576

                          = 0.997

The book value plus model gives an intrinsic value of close to RM 1 per share. 

2) Economic Value Added (EVA)

Weighted average cost of capital (WACC) calculation:

(i) Cost of equity = Dividends per share/ Share price
(Note: I`ll assume the share price used for this calculation is the market value today, which is RM 0. 585)
                            = 0.01 / 0.585

                            = 0.0171

                            = 1.71%

(ii) Cost of debt

Ignoring any adjustments, I`ll use the interest paid over total borrowings.

                           = 3 835 / 152 549
                           = 0.0251
                           = 2.51% 

(iii) WACC = [ 0.0171(39 960) + 0.0251(152 549)] / 39 960 + 152 549
                    = 0.0234
                    = 2.43%

EVA = NOPAT - (WACC x Book value of capital employed)

         = 4 129 - 0.0243(39 960)

         = 3 157.97

Value per share = 3 157.97 / 399 576

                          = 0.0079

EVA would give this counter a value of RM 0.0079 per share.  


3) Market Value Added (MVA) 


The MVA is simply the present value of EVA and in line with, it gives too low a value for a meaningful comparison.


Conclusion 
If compared to the book value plus model, this counter is trading at a discount. However, the economic profits are meager which should raise the alarm for value investors. In addition, the level of debt of this company is rather high, exceeding the value of equity. 

Regular, accounting profits would give an earnings of RM 0.30 per share. This translates to every RM 1 invested in Censof makes RM 0.51.