Active TopicsActive Topics  Display List of Forum MembersMemberlist  CalendarCalendar  Search The ForumSearch  HelpHelp
  RegisterRegister  LoginLogin

Emerging companies - Mid caps that can become large cap
 The Equity Desk Forum :Investment Ideas - Creating winning portfolios! :Emerging companies - Mid caps that can become large cap
Message Icon Topic: Financial Technologies A buy even at 65 PE Post Reply Post New Topic
Page  of 44 Next >>
Author Message
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Topic: Financial Technologies A buy even at 65 PE
    Posted: 26/Aug/2006 at 12:40pm

Financial Technologies A buy even at 65 PE

 

The caption says it all. Financial technologies (C.M.P Rs 1252) are a unique concept where investors buying a 65 PE (trailing) stock would still make money.

 

Financial technologies is another great buy in the buy what you see category stock . Peter Lynch would have been proud to own it the first time he would have looked at the trading terminal.

 

Financial technology has many products working in the financial trading markets. . It has products like ODIN, Inet.net, iWin, FXDirect, etc. These cover all stages of trading pre trade, trade and post trade. These products cater to Exchanges, Brokers, AMCs,, Depositories, Custodians, Banks, etc. The products finds applications in different market segments (Equities, Derivatives, Commodities and Forex) Financial Technologies would continue to be a major beneficiary of the growth momentum in domestic securities market.

 

Financial technologies has set up two commodity exchanges Multi Commodity Exchange (MCX) and Dubai Gold and Commodity Exchange (DGCX). Over the next few years the commodities market is expected to experience exponential growth and Financial Technologies should be a huge beneficiary.

 

The total value of Indias agri produce is equal to US $ 85 billion. Assuming a multiple of 10 times to the commodities futures market the total size should be to the order of US $ 850 billion. It stands at less then US $b 2 billion today.

 

The growth will come both from increased volume per participant as well as a growth in the number of participants.

 

Since the initial costs are already incurred the company will experience huge operating leverage. A major part of incremental revenue shall flow directly into the bottom-line.

 

Globally the commodities markets are 70 times the spot market. In India it is just equal to 5 7 times the spot market. This anomaly will be corrected and the commodities futures markets shall have to grow by 10 to 12 times. Moreover the process can be expedited through better regulations, introduction of options trading, permitting institutional investors to enter into trading etc. Even otherwise market forces prevail and just as telecom grew the commodities futures market would have to grow in sync with global norms. While the direction is clear but the timing could be debatable.

 

The MCX conducts trades of over Rs 5000 crores each day. It  has entered into strategic alliances with global exchanges like Tokyo Commodities Exchange, Baltic Exchange, DGCX, LME, Chicago Climate Exchange, etc.

 

International comparison: The Chicago Mercantile exchange trades at a market cap of US $ 15 billion

 

The Chicago Mercantile exchange

C.M.P

Us $ 448

Market cap

US $ 15.59

EPS (trailing)

Us $10.13

PE

44.25

Market Cap to sales

14 times

 

I am not sure as to what the revenues of MCX could be so I have not computed it in my calculations but indiainfoline estimates that MCX would have earned a revenue of Us $ 273 million in 2005.If we put international valuations to the 64% of MCX held by Financial technologies the per share value of exceeds the current market price That means that the .other business of the company shall be available free.

 

Fidelity paid US $ 50 million to acquire a 9% stake in MCX. This puts the total value of the commodity exchange at Rs 2555 crores. The share of financial technologies works out to Rs 372.00 per share. This value shall be further enhanced due to two strong features:

 

       Unlisted companies are always valued at discount to listed ones.

       Significant time has elapses since the Fidelity placements and valuation of a growth business rises each quarter.

 

Dubai Gold and Commodities Exchange: DGCX is a joint venture between Financial technologies, MCX and Dubai Metal and

Commodity Center. Between Tokyo and London there was no commodity exchange and the DGCX shall attempt to fill in that gap.

 

Geographically it has an ideal location in being situated almost mid way between Tokyo which closes at 9.00 am IST and Baltic London. which opens at 2.00 pm IST DGCX is in a Free Trade Zone with a 50-year tax holiday.

 

National Spot Exchange for Agri Produce (NSEAP): In association with MCX and NAFED Financial Technologies has set up the NSEAP, a national level electronic spot market for agriculture products. With the advent of organized retailing this Agri business initiative of Financial technologies shall receive a further boast.

The company also has a majority interest in  National Bulk Handling Corporation an India wide warehousing and supply-chain company that provides that provides end-to-end solutions for handling agricultural commodities.

Recommendation: At a market cap of just over US $ 1.1 billion Financial Technologies is a multibagger in the making and investors take positions and keep buying at each decline.Once MCX is listed then depending on valuations investors shoud switch over to the same since the driving force in financial technologies is the MCX echange.

 
                                                                         Source: Media internet reports



Edited by basant - 29/Aug/2006 at 11:49am
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
Vivek Sukhani
Senior Member
Senior Member
Avatar

Joined: 23/Jul/2006
Online Status: Offline
Posts: 6675
Quote Vivek Sukhani Replybullet Posted: 26/Aug/2006 at 1:53pm
Great article, you write so very well....even though I dont like buying expensive companies yet, I find your arguments so very fool-proof.Just 1 query, how did you arrive at the valuation of 372 per share based on fidelity's purchase price.
Os this the manner you arrived at it?
 
Value of MCX as per Fidelity's entry price:
 
(50/9*100)*45.5=Rs.25200 million= Rs 2500 crores(approx.)
Share of Financial Tech=64 p.c.
Value of Investment in MCX for Financial Tech=64 p.c. of 2500=1600 crores.
Share Capital of Financial Tech=8.8 crores.
No. of shares=8.8/2=4.4 crores( FV =Rs. 2 per share)
Per share value of investment=1600/4.4=Rs. 363 (approx. close to your figure)
 
Can you also provide for the value of Dubai Gold excvhange in the same manner.
 
But do you think, at this stage the total value of investments based on their market cap( deemed or actual) along with their accumulated reserves exceed the CMP of financial Technologies. Also remember, calculting value on market capitalisation is a very dangerous method. This is so because we may be inbuilding all the positives of the company in whuch the parent co. has an investment, and the head room may be fairly limited.I am not arguing against your case, but am trying to project my apprehensions.
 
Also, coming to the business, organised futures trading in commodities has a long distance to cover. I beleive, the first exchange which will be a better service provider when it comes to warehousing and real time spot trading, will take away the major share of growth in business. NCDEX carries with it a big legacy....
 
Actually, its like this, I find value when I see the upside not being built in the price, so taling into account all the positives, what is your opinion  and kindly explain the dynamics of how its growth will get pathed out in the coming future.
 
Kindly throw your views, and continue with this discussion.
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 26/Aug/2006 at 2:21pm
Right that is how I got it.FT remians a high risk high reward stock as do all the stocks that I have recommended on this forum
 
They are all multibaggers in my opinion. I have not calculated the value of MCX on the basis of Chicago Mercantile Exchange if I do that then valuations in Fy 08 will be mind boggling. ANother erasons for recommending such stocks is that even though they are costly today there is a very good chance that they will become cheap after 12 to 18 months.
 
If you buy just one wou could lose money because one out of 5 may fail;. No one knows which one. SO I have  a basket of my portfolio into these stocks and then wait for them to go up. remmeber the maximum you  can lose in each stock is 100% whereas the gains could be multifold. SO even while one of these may get bankrupt (very strong word to use) the others will carry you through very well.
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
Vivek Sukhani
Senior Member
Senior Member
Avatar

Joined: 23/Jul/2006
Online Status: Offline
Posts: 6675
Quote Vivek Sukhani Replybullet Posted: 26/Aug/2006 at 2:53pm
Actually, Mr. basant, this way of looking at things is a little bit risky.In India, we will find a lot of difference when compared with US. Per capita consumption of most of the things will be very high in US when compared with that of India. So, if we try to inbuild that rationale into our propositions, we will get very frivolous results.So, you have rightly avoided using the computauin based on CME's valuations.
 
Also, I think in order to be called a growth stock you should grow both QoQ as well as YoY....thats how I define a growth stock. (I know you will say seasonality can have a role when it comes to QoQ, but then to me such a stock cannot be growth stock).However, Financial Technologies has not done well on YoY front. That to me is a little bit suspecting factor. YoY decline in turover and profuts in case of a very sunrise company, is something which makes me ponder  about...
 
What do you say?
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 26/Aug/2006 at 3:27pm
I am not sure if they show the consolidated results q on q because MCX is a subsidiary normally consolidated results are presented just once. MCX is the real engine in financial technology everything else is just like a product company an iflex or a nucleus just that this is domestically driven.

Edited by basant - 26/Aug/2006 at 3:29pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
Vivek Sukhani
Senior Member
Senior Member
Avatar

Joined: 23/Jul/2006
Online Status: Offline
Posts: 6675
Quote Vivek Sukhani Replybullet Posted: 26/Aug/2006 at 3:29pm
I am talking of standalone results.The sales as well as profits for the quarter ended 30.06.2006 are down when compared YoY.
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 26/Aug/2006 at 3:37pm
The growth is in MCX so stand alone could be misleading.
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
Ajith
Senior Member
Senior Member
Avatar

Joined: 06/Aug/2006
Location: India
Online Status: Offline
Posts: 1284
Quote Ajith Replybullet Posted: 26/Aug/2006 at 11:23pm
I concur.
Apart from the value of the commodity exchange will the basic business also grow.As the business transacted grows exponentially I think the sales of Financial Technologies will grow,revenues being transaction-based,I think
but am not sure.
IP IP Logged
Page  of 44 Next >>
Post Reply Post New Topic
Printable version Printable version

Forum Jump
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum



This page was generated in 0.078 seconds.
Bookmark this Page

Join Theequitydesk.com Today!

Its easy to Join and its free.

Here's why members would love to be a part of theequitydesk.com

  • Equity Desk focuses on why to buy shares and invest in share rather than what to buy.
  • Live discussion forum wherein members can discuss the current Indian share Market trend, BSE Sensex or the Nifty Index.
  • Have huge cache of information on Indian and World Share Market.
  • Analysis of Indian stock market, Global events, Investing insights, portfolio management strategies and thoughts,
  • Meet investors from round the globe check their investing strategies share experiences and learn for their experiences on stocks and shares, evaluate opinions on investing in India.

Register now while its free!

Already a member? Close this window and log in.

Join Us           Close