Friday, September 07, 2007

GMG Global - Update

I previously wrote a post on GMG Global where I cursorily analysed the stock. Here is an update where I crunch the numbers.

The gross margin for HY06 was actually 45.34%, the operating margin was 28.71%, and the net margin was 23.28%.

Basically what is happening with GMG Global is that its cost structure has not changed. So once the weather returns to normal GMG will be able to benefit from the prevailing higher prices of rubber as part of the global commodities boom as driven by China and India. If operating conditions return to normal that means we can expect GMG's ROE to return to somewhere near a respectable 10%.

As we can see the company is relatively conservatively leveraged at Liab/Assets of 20%.The stock price at $0.11 was below NAV and P/E is for HY07 numbers. P/E will come down much more if we take HY06 numbers.


Anonymous said...


Lower production from their own plantation was blamed on the weather. How can one tell whether this is the main reason or there could be other factors.

Besides the shortfall from their plantations, the purchases from other plantations in Cameroon had dropped very substantially. This quantity is about 2 times the shortfall from own plantations.
Any reasons?

From the papers it seems Cameroon and Ivory coast are both politically unstable with rebels attacking government forces. How do you rate this risk?


Little Willow said...

well if you are saying weather is not the main reason then you are basically accusing management of misrepresenting information i.e. lying.

in that case i cannot give you a gaurantee they are not lying and if you think there is a significant chance of dishonesty here then u should probably stay away from the stock.

as for me i have found no indication that they are lying, and to my knowledge (having chatted with rubber tappers before) weather is a very significant factor determining rubber output and is not an unreasonable excuse.

as for the shortfall for other plantations i can only say that i am unable to provide u with the reasons why - that would have to be the job of the CEO. i can only presume it is due to similar reasons such as the weather.

finally as for the political risk well i think the plantations give the locals jobs and i think industry is not a threat politically to the rebels or the govt. of course i cannot say there will definitely be no fallout, but the plantations have been around in the respective countries for quite a while so i see no reason to expect this not to continue.

ultimately all the things you have mentioned relate to risk and uncertainty, so that is why as investors we try to demand a margin of safety when buying the stock. at the current price it is at a discount to net asset value and a significant discount to estimated fair value if conditions return to normal.

some people may think this is sufficient compensation for uncertainty, others may not.

Caveat Emptor.

donmihaihai said...


If ROE return/increase to 10%, Net margin is going to be in 40 to 50% range. May I ask which plantation entity can achieve this kind of margin on average for a long period? Consider that this is a commoditiy company where they can't control their selling price.

That lead to second question which is why such a high margin and low ROE business? Even at Net margin of 22% and ROE of 6%. Which part of their assets are not producing and why?

3rd question or rather from my reading. The value of the land is not what that are being recorded in the book. ie book value but the amount of raindrop per year, number of months per year for growing the crops(12 mths for southeast asia) and the condition of the soil. Which also mean whether they are mining just enough for this generation or mining future generationg corp yield as well. A good example is Australia well known argiculture. Beside high value crops(wine) they are actually mining their future generation crop and their argiculture products it is extremely uncompletitive (milk,meat, etc).

For your consideration.

Little Willow said...

Hi the ROE of about 6% is at a net margin of 12%, not 22%. at a net margin of 22% this will give an ROE of 12%+. so this is a reasonable return.

as for ur 3rd question i'm not sure i really understand. could u rephrase it?