Comfort Delgro FY2020 – Looking for the bottom again

Comfort Delgro (CDG) recently released its FY2020. The top-line revenue dropped 17.2%. Without the government relief, the revenue drop is higher at 21.6%. In an industry that is not able to defray its operating cost very significantly, the operating profit including government relief turned out to be $123.1 million. It represents a huge drop of 70.4% compared to an operating profit of $415.8 million in 2019. Without government relief, it would have incurred an operating loss of $46.2million.  The financial result is disappointing, but not unexpected in view of the extent of the pandemic.  Overall, CDG is quite exposed, both in geographical areas and across several transport segments.

The pandemic has been punitive to this stock bringing its share price from more than $2.00 per share in January to $1.32 at its lowest point. For almost the whole year of 2020, it has been relatively range bound between $1.40 to $1.60. The run-up in November 2020 helped the price level to $1.60 to a bit higher than $1.70. However, it has been under pressure again recently, perhaps, in anticipation of a disappointing FY2020 financial results.  So again, how low can the share price go this time if it continues to fall (albeit gradually)? A quick calculation showed that on the book value should fall in the region between $1.30 to $1.39 with little or no impairment to its intangible assets. This would be the theoretical situation (though unlikely) that the company is stripped apart, pay up its financial obligations and distributing the excess to shareholders. While this is an extremely unlikely situation, it helps to draft a theoretical floor price. (I am not saying that the actual trading price would not punch its way below this level as nothing is certain in stocks. But, at least, it gives us some comfort that there is a benchmark whereby value is starting to emerge) Actually, in the past 12 months or so, it has on two occasions came into this range, and quickly bounced up again.

In all likelihood, this time it should bear the same behaviour should it gradually fall in view of the recent disappointing results. However, I believe the worst has already pass us. In the longer term, say by end 2021, the financial results should get better as more people are vaccinated. Perhaps, it may take a few more quarters of improving results before the share price moves convincingly up.

Purchases made in year 2020 :

Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

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