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Dean Mico
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I manage a private investment fund in Australia known as The Edge Fund. I invest in the best Australian stocks using a value investing methodology. I overlay this with technical analysis to buy low and sell high. My website is
My company:
Edge Seven Pty Ltd
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Edge Seven Value Investing
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  • Data #3 Limited (ASX:DTL) - Will The Turnaround Go On With It?

    Data#3 Limited (ASX:DTL) is an ASX listed company that provides market-leading business technology solutions. The company operates in what is now a hybrid IT environment where some of their clients prefer solutions maintained on their business premise and other clients have solutions outsourced to the cloud. Data#3 provides IT Solutions across a wide range of industries throughout Australia and Asia Pacific.

    Headquartered in Brisbane, Data#3 have offices in all Australian capital cities with data centers, and warehousing facilities in Sydney, Melbourne and Brisbane.

    Data#3's customers cover a wide range of industries including banking and finance, mining, tourism and leisure, legal, healthcare, manufacturing, distribution, government and utilities that are located throughout Australia and Asia Pacific.

    Does this business have a sustainable competitive advantage?
    Data#3's competitive advantage comes about due to having strong relationships with leading global vendors of IT software. This enables Data#3 to act as a consultant and implement the right IT solutions from the vendor with the best technology to meet their client's needs.

    Data#3 have adapted to the changing environment in the last few years it appears better than most. The company offers business technology solutions including offering Software, operating Infrastructure, Managing the solutions and now offering Applications (Apps).

    While the IT solutions have become pretty much a commodity, the way in which their clients are using technology has evolved due to cloud computing and the integration of tablets, smart phones and apps being used in the workplace. This evolution has created the next opportunity for Data#3 as their clients 'upgrade' to the new way of doing business.

    Data#3 have adapted, bolstered their business and diversified revenue streams in the past year by:

    • Partnering with The Alpha School System (TASS) to provide 'best-in-breed' IT solutions to the Australian education sector.
    • Acquiring a Wi-Fi Data Analytics company named 'Discovery Technology' to enhance the company's offering of cloud based solutions.
    • Acquiring a company called 'Business Aspect Group' that specializes in helping businesses transition from traditional technology to new ways of doing business in an 'app centric environment'. This acquisition is immediately earnings accretive.

    What are the risks facing this business?
    One risk that caused the 'sell-off' in 2013 in a number of IT business is the ever changing technology sector creates permanent structural challenges for those that do not adapt. I think Data#3 have used their relationships with global vendors to stay at the forefront of this structural change for the time being. This has enabled the company to adapt their business and act on the need to acquire a couple of businesses that specialize in offering services that meet this new way of doing business.

    Is it run by able and trustworthy management?
    The business has been run for many years with a strong balance sheet showing plenty of cash on hand. The company operates with an interesting cash flow seasonality where cash flow runs low in the first half of the financial year to December before jumping significantly in the second half of the financial year by June.

    Is it trading at a bargain price?
    The company was a clear bargain a few months ago and is still good value in my opinion.




    2014 Actual Valuation

    Today's Share Price

    Margin of Safety

    2015 Forecast Valuation

    2016 Forecast Valuation

    Data #3 Limited


    Gold 1






    *Forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

    The Situation
    The company had rightfully been sold down on a weaker outlook for the year to April 2014. I had been patiently lining up a buy in Data#3 for many months since the company announced at their Annual General Meeting on 7 November 2013 that a turnaround was not expected until the second half of 2014. I was pleased with my execution in buying this stock at the time. Price is now is at a bit of an inflexion point where it could fall or just continue on the upward trajectory.

    The Chart

    (click to enlarge)

    In summary, Data#3 has been an excellent business with a solid reputation for many years. The company has adapted to the challenges it faced over the past couple of years and appears to be flourishing again as a result. It met these challenges while still maintaining a strong balance sheet and a very strong position in the IT space. The company was very cheap and is still good value if you believe the opportunities created by adaption are sustainable. And, how can you go past a company with a number in its name?

    Sep 15 7:58 PM | Link | Comment!
  • Vmoto Limited - VMOTF (ASX:VMT) - There Is Air In The Tires Of The Scooters

    Vmoto Limited (ASX:VMT and London Stock Exchange:VMT) is a leading global scooter manufacturer and distribution group specializing in electric powered two wheel vehicles. Vmoto's electric scooters have chic European design and German engineering.

    Vmoto wholly owned its state of the art manufacturing facility in Nanjing, China, which has an estimated production capacity of 500,000 units of scooters per annum. Vmoto also have offices in West Perth, Australia and Bremen, Germany.

    Vmoto has one of the widest global distribution networks of any electric scooter manufacturer in the world, being represented by more than 28 distributors in 30 countries in the geographic regions of Asia Pacific, Europe, North America, South America and South Africa.

    The group operates two primary brands: Vmoto and E-Max. The electric scooter market is experiencing high growth and Vmoto is a well positioned brand in this space. The company also supply to a number of customers on an OEM basis.

    What is there to like about Vmoto's business?

    1. Vmoto is a growing brand selling electric scooters to about 30 countries worldwide.
    2. The company owns outright their own 30,000 sqm production facility outside of Shanghai in Nanjing, China.
    3. The production facility has the capacity to produce up to 500,000 electric scooters per annum.
    4. Current production is less than a quarter of capacity so they have plenty of room to grow.
    5. Vmoto turned cash flow positive in the December 2013 quarter.
    6. And reported a maiden Net Profit after Tax for the 2013 Financial Year which ended December 2013.
    7. The 1st quarter of 2014 was also cash flow positive and the beginning of the year is historically their slowest time of year. So profit and cash flow for the year should increase quarter-on- quarter throughout the year.
    8. The company has minimal and manageable net debt of about $1 million as of April 2014.
    9. And, electric scooters are a very environmentally friendly mode of transport.

    What are the reasons for continued business growth?

    1. Vmoto have distribution agreements in place with companies like Chrysler and another company called PowerEagle to supply up to 150,000 units by 2015.
    2. They now have 16 retail stores in China open with plans to open more. The retail stores are where their profit comes from. This draws comparisons with company such as ARB (selling their own four wheel drive parts with a very successful retail model).
    3. Vmoto supply to the main markets for scooters being China, India, Indonesia and Brazil. China is by far the biggest market though.
    4. In a lot of Asia, people cannot afford to buy a car but they can afford to buy an electric scooter. Plus scooters are a large form of transport for many people across Asia and developing countries in any case.
    5. The company announced yesterday 2 July that DHL (the leading courier company) is trialing the use of Vmoto's scooters. Supplying to a worldwide company such as DHL would open up a new and large market for the company.

    What are the risks facing this business?

    1. 1. A more recent risk is a bit of instability within the board. The company is presently searching for an Australian based director. However, the business has its current momentum from the work done on building the business over the past number of years. The need to fill a director role is not going to have a significant impact on the trajectory the business.

    2.2. Another risk I see is that the company falls into the trap of taking on too many distributorships which are good for turnover although may not be good for long term profitability. Long term, I think they will be much better off focusing on developing their brand and selling via their own retail stores.

    And, with the company growing from eight retail stores to 16 retail stores in the past year, I think management know that the best outcome for the business is to continue to develop the profitable retail brand and business model.

    3. 3. The third risk is that current shareholders are diluted with a capital raising at some point. Despite the company now producing positive cash flow, for a business growing this fast, the difficulty is managing cash flow appropriately. I am sure however if a capital raise does occur, it may lead to a temporary setback in the share price for the long term good of the business and long term share price. In saying that, I will be delighted if there is no need to raise capital.

    Is it run by able and trustworthy management?

    When researching this business, I watched a video by one of the directors Mr Olly Cairns. I was suitably impressed with the way Mr Cairns articulated the work done by the company over the past few years with the development of the manufacturing facility and the current activities being rolled out to grow the business.

    Is it trading at a bargain price?

    Based on cash flow reported by the company and the momentum of that cash flow and profitability I believe the company is trading at a bargain price. I estimate the company will generate NPAT of between $1 Million and $2 Million in 2014. Based on the lower $1 Million figure, I estimate the company to be valued at 6 cents a share in 2014 (December is year end).

    And, based on my own estimates of profitability growth, I think the intrinsic value of the business can rise significantly over FY15 and FY16. However, being my own estimates, while my numbers are conservative, they are "not as dialed" as I would like.

    RankToday's Share PriceMargin of Safety2014 Forecast Valuation2015 Forecast Valuation2016 Forecast Valuation
    Gold 54.8 cents20%6 cents10.4 cents21 cents

    The Chart

    Vmoto has pumped the air in the tires of its scooters. It has been in an uptrend for the past year or so.

    (click to enlarge)


    In summary, Vmoto is a great business with an excellent product. Vmoto has a significant pipeline of work from other manufacturers such as Chrysler, a good international distribution network, growing number of retail stores and some exciting opportunities for the future. By my calculations, the company is trading at a good discount to my estimate of intrinsic value with my estimates of that value growing over the foreseeable future.

    Disclosure: The author is long VMOTF.

    Tags: VMOTF
    Jul 02 7:56 PM | Link | Comment!
  • Carsales (ASX) - The Best Of The Best In The Middle Of The Middle Limited (ASX:CRZ) is the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales employs about 370 people across Australia.

    Does this business have a sustainable competitive advantage?

    Carsales attracts more Australians interested in buying or selling cars, motorcycles, trucks and boats than any other classified group of websites. This competitive advantage is known as the network effect in which more advertisers (sellers) leads to more buyers which creates a positive loop leading to even more advertisers.

    Carsales appears to be continuously working to widen their business moat by designing new products to assist consumers find good deals for cars and also enhancements that make it easier to list your vehicle or boat for sale.

    Carsales have used their dominant position in Australia and the subsequent cash flow generated to make investments in the No. 1 car advertising sites in Brazil, South East Asia and South Korea. This trend of increasing investment (ownership) in overseas sites and expanding into new geographical locations looks set to continue.

    What are the risks facing this business?

    Carsales has become the market leader by disrupting the print classifieds industry and designing the leading online automotive classifieds business. The risk is that it becomes complacent and allows lesser competitors to erode their market share.

    However, with Carsales looking to continually enhance their offering to both buyers and sellers, it is hard to envisage that competitors will make large inroads any time soon.

    Is it run by able and trustworthy management?

    Management has executed a clear strategy to build the best online automotive site in the country. This has created a business that requires no capital expenditure and continually increases its earnings. And, the management appear to have made very sensible decisions with their overseas investments to date.

    Carsales has generated a return on equity above 60% per annum for the past three years and looks likely to post similar profitability levels in the next couple of years. And, the business is run with significant levels of cash on hand.

    In fact, on a combined measurement of return on equity and net cash on hand, my metrics have rated Carsales as the fundamentally strongest business in the country for the past three years in a row.

    Is it trading at a bargain price?

    Carsales is not cheap from an intrinsic value point-of-view and hasn't been for years. However, one cannot reasonably expect to wait for a business as fundamentally sound as this to trade below its valuation.

    By my calculations, the business is expected to increase its intrinsic value in FY15 by 15% and increase its value by 9% in FY16 given current forecasts.

    The Chart

    Carsales appears in the middle of a triangle smack bang in the middle of an uptrend channel. Price action over the next few days and weeks will be interesting.

    (click to enlarge)


    In summary, Carsales is a superb business with a sustainable competitive advantage. It has excellent management who built this business to where it is today. It has the capacity to increase investment in its overseas contemporaries.

    Disclosure: The author is long CSXXY.

    Tags: CSXXY
    Jun 25 7:42 PM | Link | Comment!
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