The SGX's "Watch-List": Complete duds or hidden value?
The Singapore Exchange is to be applauded for trying to raise the standard of mainboard listed companies, but generating a list of those which fail to meet minimum standards. Companies which have reported consoliated pre-tax losses for the prior three years can find themselves on this list. If they don't improve, they could find their shares suspended or even delisted. But while the motivation is laudable, the criteria used to judge companies could be debated.
Right up front: this is not a recommendation to buy any shares, nor am I going into bat for these companies. Not least, because they didn't acknowledge their "spoon award" beyond the necessary disclosure, and explain how they were working to make sure they weren't on the list again in the future.
But I'm concerned the SGX is using a profit number, rather than cashflow, as the category to measure companies by (loss-making companies must also have a market capitalisation of S$40 mln or more to escape being named). As we all know, "profit is opinion, cash is fact". And because profit numbers can be affected by property revaluations and other arbitrary, non-cash measures, CFOs of the affected companies can find ways to escape being listed.
If we then look at cashflow instead of profits, five of the eight companies named on the first list could perhaps we cut some slack.
Watch the video to see what I mean.
Fact is: none of these companies are stellar performers. But if the list was compiled based on cashflow, not only would we quite likely see a very different list, we would also ensure that CFOs had no way to cook the books to get their way out of trouble.
Mark Laudi, who thinks this would have been a good opportunity to convert investors from focusing on profit to focusing on cashflow.
To comment on this blog, go to the Investor Central blog.
Visit the new Investor Central website! for free SMS alerts to news about stocks in your watchlist
ArchivesRight up front: this is not a recommendation to buy any shares, nor am I going into bat for these companies. Not least, because they didn't acknowledge their "spoon award" beyond the necessary disclosure, and explain how they were working to make sure they weren't on the list again in the future.
But I'm concerned the SGX is using a profit number, rather than cashflow, as the category to measure companies by (loss-making companies must also have a market capitalisation of S$40 mln or more to escape being named). As we all know, "profit is opinion, cash is fact". And because profit numbers can be affected by property revaluations and other arbitrary, non-cash measures, CFOs of the affected companies can find ways to escape being listed.
If we then look at cashflow instead of profits, five of the eight companies named on the first list could perhaps we cut some slack.
Watch the video to see what I mean.
Fact is: none of these companies are stellar performers. But if the list was compiled based on cashflow, not only would we quite likely see a very different list, we would also ensure that CFOs had no way to cook the books to get their way out of trouble.
Mark Laudi, who thinks this would have been a good opportunity to convert investors from focusing on profit to focusing on cashflow.
To comment on this blog, go to the Investor Central blog.
Visit the new Investor Central website! for free SMS alerts to news about stocks in your watchlist
Labels: ASA Group, Chuan Soon Huat, Fastech Synergy, SGX, Singapore Exchange, Tri-M Technology, Unified Communications
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