Achieva Group

Summary
Achieva recently made news selling off its components business to Arrow Electronics, Inc for USD 51.5M. The company plans to return some of the proceeds to shareholders.


Background

Listed on 11 April 2000, Achieva is one of Asia-Pacific's value-added distributors and solutions providers focusing on electronic components, peripherals and IT-related lifestyle products. Until June 08, the Group's business operations were grouped principally under two product sectors - Peripherals and Electronic Components.

Financials as at 30 June 08 (prior to divestment):

Current asset net value for Achieva prior to divestment of its components business stood at 11.48 cents

(The net current asset value comprises current (ie liquitable) assets less off all current and long term liabilities. This assumes that the LT assets cannot be liquidated in good time/at full value, ie plant & machinery. goodwill, etc, esp in a crisis situation/;liquidation of the firm, and is a good way to conservatively estimate the approximate market value of the firm.)

Acid test ratio = 0.96

Dividend policy-wise, last recorded payout was in 2001 (SGX info page).

EPS stood at 0.37 cents for H1 08 - assuming straight line earnings (simplistic), this shld yield 0.74 cents by end 08, or a return of 8.2% for a P/E Ratio of 12.16 against its last closed price of 9 cents.

Industry trend

The peripherals and electronics components industries are characterised by intense competition and fairly low profit margins. The businesses are fairly cyclical and are subject to the health of the IT industry, which according to DELL and some other major players is on a downward trend. The overall outlook for the computer/IT industry is likely to remain bleak for several quarters to come.

Thus as at 30 June 08 Achieva represented a small cap share (which was in a market that was in the process of a down-turn) yielding an estimate 8.2% return and selling at a 22% discount to net current asset value.

Events after June 08 (announced May 08 and sealed Jul 08)

Achieva divested its electronics components business to Arrow Electronics, Inc for a consideration of USD51.5M

The estimated nett gain (one-off) is expected to be in the region of SGD 20M, or 3.9 cents per share. This is in exchange for the equivalent of 53% of Achieva's revenues in 2007 and 50% of its EBITDA (ie the sustainability of the company).

As a going concern, the value of the company is now half of what it was. However the good bit is that Achieva has said that it will return some of the proceeds to the shareholders:

“The sale will also enable us to increase shareholder value and the Company’s
management intends to distribute part of the proceeds from the disposal to
shareholders,” added Mr. Lim.

Not knowing how much is to be returned at present, at 9 cents current share price, forward PE is estimated to be around 24x in 2009 and EPS at around 0.37 cents per share assuming that the H1 08 revenue and margin trends continue and not deteriorate

On the positive side, the Net Current Asset Value/share has gone up a minimum of 3.9 cents/share (based on the net gain from proceeds of sale) - actually difficult to say as no details were given wrt to which ST/LT assets and ST/LT liabilities are to transferred out as part of the sale (and thereby exchanged for cash).

This would be a conservative way to guesstimate the net increase in NCAV; the NCAV shld be higher as some parts of the sale would be plant & machinery/investments which would be encashed. So the nett increase will probably fall somewhere between the 3.9 cents per share (nett encashment) and 13.9 cents per share (full encashment against only LT Assets) range.

Adding to the original 11.38 cents/share NCAV, this wld represent a discount to market of around 41.1% (using nett gain of 3.9 cents) or more (but not to the full add of 13.9 cents as this would impact the original 11.38 cents NCAV calculation), which is closer to the 60% mark I mentioned.

As there are no specific wrt the amount of cash to be returned to shareholders, I would say "caveat emptor" when investing in this share