Quick comparison of Clarius and Peoplebank

Clarius Group Limited (formerly called Candle Australia Limited) was one of the many shares that I traded last year. I bought it a couple of times and sold it that many times to make a tiny profit.

Last year, Colin Nicholson's work drew me to the idea of picking out companies with price to earnings ratios of less than ten. Peoplebank Australia Limited caught my attention then as it was one of the few stocks trading at a price to earnings ratio of less than ten. However, while discussing Peoplebank with a friend of mine, I was informed that he stayed away from recruitment companies as they are not generally well managed and in a relatively flaky industry. I decided to stay away from them too.

It is a long time since these events occurred.

I quit trading after my brief flirt with the market. Now that I have been learning about value investing for some time and can make sense out of numbers in company reports, it may be time to look at these companies again.

Folks at The Intelligent Investor have written a brief note on Clarius for issue 251 of their newsletter. Whereas I do not have a membership to their newsletter, the bit of text visible without a membership tells me that they are on a positive note about the company.

In this post we will look at why that might be the case - as an exercise for me to learn more about value investing. We will also compare Clarius to Peoplebank with a limited amount of data.

Clarius

As of the end of FY2008H1 Clarius has $91.5m in net assets. Of this $1.6m is deferred tax assets; $3.0m is property, plant and equipment; and $71.7 is intangible assets. Cash and equivalents are therefore circa $15.2m. With 57.4m outstanding shares and 8.3m exercisable options the diluted cash available per share is $0.23. Diluted book value per share is $1.39.

Average NPAT per year from FY1998 through to FY2008H1 is $6.3m. Diluted average EPS is circa $0.09. The value of this earnings stream at the discount rate of 4.4% p.a. is circa $2.

Clarius shares opened the day at $1.31 viz. a 34% discount to our valuation based on average earnings over a period of 10.5 years.

Peoplebank

Peoplebank has $15.4m in net assets as of the end of FY2008H1. Cash and equivalents are $1m, which we obtain by removing $42k for other current assets; $902k for property, plant and equipment; $624k for deferred tax assets; $11.6m for intangible assets; and $1.2m for other non-current assets. With 97m shares outstanding and 0.75m exercisable options the diluted cash available per share is $0.01. Diluted book value per share is $0.16.

Average NPAT per year from FY2004 through to FY2008H1 is $2.8m. Diluted average EPS is circa $0.03. The value of this earnings stream at the discount rate of 4.4% p.a. is circa $0.68.

Peoplebank shares opened the day at $0.70 viz. about their fair value.

While Peoplebank may be a smaller recently listed company with high growth prospects, there is a higher risk attached to investing in it for lack of an audited track record. On the other hand, Clarius, which has an audited track record of at least 10.5 years is available for a discount to its valuation based on average earnings and for a discount to its book value. While both companies have no long term debt, Clarius has a higher proportion of cash per share (18%) compared to Peoplebank (2%).

Clarius may be a candidate for purchase. Although, we cannot decide on that without conducting a thorough company analysis.