stock investment journal: fsa group (fsa) · fsa - fsa group ltd > -13.7% -0.19 to 1.20 w @ w...

Copyright © Colin Nicholson

Stock Investment Journal: FSA Group (FSA) Important

The stock discussed in this journal may not be a suitable investment for you at this or any other time. I will only be discussing its suitability, or otherwise, for my investment plan.

You need to assess the relevance of anything in this journal to your investment plan, seeking advice from a licensed adviser if you are not able to make such an assessment for yourself.

I am using stock investment journals of stocks I own (or consider owning, but decide against doing so) only as examples to teach the way I think about investing. In doing so, I am neither making nor implying any recommendation for anyone to invest in this or any other stock.

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How I found this stock This stock had come up on my scans for new 52-week highs. It had been on my watch list for a while, looking for a good entry and suitable market conditions.

Company profile FSA Group Limited (FSA) is a provider of debt solutions and direct lending services to individuals and businesses in Australia. .

Services The Services division offers a range of simple and convenient solutions to assist clients wishing to enter into a payment arrangement with their creditors. These include informal arrangements, debt agreements, personal insolvency agreements and bankruptcy.

Home Loans The Home Loans division offers a range of simple and convenient solutions to assist clients with property wishing to consolidate their debt. FSA Group offers solutions both as a lender and manager of home loans. The non-conforming home loan market consists of lenders who provide loan products to an individual who is unlikely to conform to the lending criteria of the banks.

Small Business The Small Business division offers corporate consultancy service, bridging finance, factoring finance and other related services to assist small businesses with cash flow management.

Source: Stock Doctor

The services division delivers fee for service income - an annuity cash flow from established clients.

Source: Chairman’s Address


Which model?

FSA Group clearly has a value model chart. It is trending upward strongly and has made a new all-time high. I have been waiting for it to do this recently as providing a good entry point once resistance from the 2007 high seems to be behind it.

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0.040.050.060.070.080.090.10

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0.400.500.600.700.800.901.00

2.00MOV AVS 12(0) mnth 0.7746 M @ M 270802-291113 FSA - FSA GROUP LTD > +2.4% +0.025 to 1.08


Earnings and dividend quality

Earnings had been steady for several years. The surge in earnings in 2013 is explained in the profit announcement:

Dividends only started in 2011 and are rising.


Return on Equity

My cost of capital 12.5% My hurdle rate for ROE 15% This company’s latest ROE 19% Recent trend in ROE flat

Return on equity has been flat, though the company expects it to rise above 20%. Nevertheless, it has been above my hurdle rate for the last five years.

05

1015202530354045

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

ROE %


Pre-purchase checklist

The only real concern I have is liquidity. The stock is tightly held and liquidity is variable. However, it seems to be liquid enough for me, but with the proviso that there could be significant slippage on the way out if it turns down unexpectedly.

DateStock

ASX CodeModelStage

Mkt Av AssessmentPlan Req V Plan

Price Earnings Ratio 8.27 16.92 OK

Dividend Yield 4.63% 4.09% OKFranking 100% Yes OK

Return on Equity 19.0% >15% OKThis is the companys figure. Morningstar calculates it as 38%, but I am not sure how they got it. I am using the company's figure, which I can substantiate from the accounts

Debt/Equity Ratio 433.00% <60% Most of this debt is non-recourse and secured against loan book.

Mkt Capitalisation $135m >$100m OK

Liquidity (22-day Av) $22-110k Enough Low Is variable, maybe affected by buy back activity.

GuidanceProfit after tax up 8 to 13%. Will continue with buy back. ROE to move above 20%.

CommentsMargin of safety criteria Stock

12/11/2013FSA Group

FSAValue

Uptrend


Chart analysis

FSA Group has been trending upward strongly. Through the last two years, I have held off buying it for several reasons:

1. It looked a bit small and thinly traded 2. I already held some stocks in the finance sector 3. I had been more conservative in my stock-picking while we were in the 2009 to 2013

sideways pattern on the market index

However, some of these constraints have faded. I have been watching for a good entry point and the recent new all-time high (above 2007) worked well on this score.

J F M AM J J A S ON D2009


J F M A M J J A S O N D2011

J F M A M J J A S ON D2012


0.160.180.20

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0.800.901.00

1.20W @ W 090109-151113 FSA - FSA GROUP LTD > +2.4% +0.025 to 1.08


Set stops

Low price used to base stops $0.98 Soft stop (one minimum bid lower) $0.975 Hard stop (2% below soft stop) $0.955

My stops are based on the last significant trough low in the trend.



J F M A M J J A S O N D2011



0.160.180.20

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0.800.901.00

1.20W @ W 090109-151113 FSA - FSA GROUP LTD > +2.4% +0.025 to 1.08


Calculate position size

The main decision here was whether to invest 2% of capital or to restrict my position to 1% of capital. I judged that there was probably enough liquidity for me to invest 2% of capital and in the event, I had no trouble buying. Selling, however, may be a different story.

On 12 November 2013, I bought 41,100 shares at $1.08.

Position size 1st trancheTotal Capital 2,218,220

Buy Price 1.080Hard Sell-Stop 0.955Risk 0.125

% Capital to Invest 2Position it buys 41,078

Max % Capital to Risk 0.5Maximum Position 88,729

Position allowed 41,100

% capital at risk 0.23

% capital invested 2.0


Managing the investment

Updated to 31 January 2014 The chart shows that FSA Group has continued to rise strongly since I bought it and I am overdue to raise my stops:

The low of the last rough in the trend is $1.215, so my soft stop is now one minimum bid lower at $1.21. My hard stop is 2% below that at $1.186 as shown on the chart below:

JFMAMJ J ASOND2009

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JFMAMJ J A SOND2014

0.180.20

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0.700.800.901.00

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1.401.60W @ W 030409-310114 FSA - FSA GROUP LTD > +4.8% +0.065 to 1.43

JFMAMJ J ASOND2009

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JFMAMJ J A SOND2014

0.180.20

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0.700.800.901.00

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1.401.60W @ W 030409-310114 FSA - FSA GROUP LTD > +4.8% +0.065 to 1.43


Updated to 24 February 2014 On Friday 21 February 2014, the company announced its earnings report and the price fell through my stops and closed the day just above my hard stop:

I was unable to exercise my stop until the afternoon of Monday 21 February 2014 and sold my holding at an average price of $1.1529.

Outcome of the investment

This was a disappointing result from an investment that had been seemingly going well. However, it is part of the game that smaller stocks are volatile and there is often significant slippage when things do go awry.

Evaluation against investment plan

Model identification Value model – correct Capital invested 2% Diversification I also held some other stocks in this sector, but my exposure was within my

plan Max % capital risked 0.23% Liquidity FSA proved to be sufficiently liquid for me to transact. Buy Signal Uptrend Margin of safety Everything looked fine except maybe liquidity was a bit low

JFMAMJ J ASOND2009

JFMAMJ J ASOND2010


J FMAMJ J ASOND2012

J FMAMJ J ASOND2013

JFMAMJ J A SOND2014

0.180.20

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0.700.800.901.00

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1.401.60W @ W 020309-210214 FSA - FSA GROUP LTD > -13.7% -0.19 to 1.20

Result of investmentTotal sale proceeds 47,350.35less Total purchase cost 44,432.39plus Dividends 0.00plus Imputed credits 0.00Net total return 2,917.96% of capital 0.13


Position building NA Profit-taking NA Sell-stop My usual trailing stop Re-entry Remains on my watch list

stock investment journal: fsa group (fsa) · fsa - fsa group ltd > -13.7% -0.19 to 1.20 w @ w...

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