Posted by: donmihaihai | July 30, 2009

Growth is still sexy!!

Growth used to be very sexy. About 2 years back, as long as top and bottom line went up, boomed.. so did the share price. The faster or bigger % jump, the more “investors” gather around it. No one care whether this growth was fueled by equity, debts or internal generated cashflow. That was yesteryears.

Growth is still sexy. The problem that companies face now is it is hard to come by. And “investors” learned their lesson which is growth fueled by debt is “unsustainable”. With growth fuel by debt is out, growing companies usually choose 2 options that are new capital and pour back cashflow.

Some company even throws out the trump card, growth without any invested capital for assets (or little capital is required). Even companies like Microsoft or Sarin where their life depend much on IPs required capital. These capital doesn’t always capitalised to the B/S, huge amount are being expenses away yearly. A successful management company require little capital for assets but reputation and track record come with human capital that are being expenses away yearly. What about unsuccessful one? Look around, there are alot. If it is so easy, who want to do the heavy lifting of pumping capital for new hotel, new office or new vessel.

There is only 365 days in a year. A production plant can run 24/7. The most a vessel can charter out is 365 days, dido for property unit. To grow, addition plant, vessel and property is needed to be build 1st. This is the norm as many companies are in capital intensive industry which mean new plant, or vessel, or property need massive capital upfront, which usually only be partial fund by generated cashflow, that says, company has to borrow or raise new capital for the rest. Suddenly debt is out, raising capital is in. What a world, up to a point, debt is way cheaper. So by raising equity instead of debt, they are not making sense except that their share price cheer up by “season investors” who one or two things about debts.

Suddenly, I am the one that look stupid because emotion control behavior, action which represents movement of the share price of a fire fly. Ok I know the lifespan of fire fly is way shorter.


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