Posted by: donmihaihai | November 13, 2016

Last time writing about ARA?

Might be the case. Privatization on the card at S$1.78 per share.

Almost a non event for me as I have few shares left. What about offering price? At S$1.78, it is just above 3XBV with a long term average ROE of 28% (12 years exclude FY16). ROE of 28% is boosted by earlier years. From the look of it, a wild guess on forward ROE will be around 20%.

Valuation part is easy. The price is not extremely undervalue or overvalue. Look fair. Considering the future of ARA, S$1.78 should be a little more than fair price.

Talk about growth. ARA is growing and one of the better way to look at the growth is AUM and ROE. In the last 5 years(FY2011 to FY2015), AUM increased by 50%. ROE reduced from mid 30s to my wild guess 20%. This growth is not cheap. If I use actual ROE rather than wild guess, ROE dropped from mid 30% to between 15% to 20%. Straightly from this, fair valuation of ARA dropped by half at least. Lets not forget, the 1st 15% to 20% ROE is not as valuable as the next 15%.

Lets not forget AUM is growing at single digit. And this single digit growth causing the company to put up more capital. Negative. Perhaps the company was laying down ground work for explosive growth going forward. But can it do so without even greater capital? If it does need that capital, recent Rights issue won’t be the only one. If that happened, consider all the broken dreams of investors, share price might drop to a bargain if ARA remains listed.

ARA has a lot of financial assets. It make no sense to invest in these as they generate less return than their fund management business. But it is there. Why don’t sell them all, even for non-listed financial assets. Here is the problem, if those are sold, I wonder what will happened to AUM in the next 5 years. Forget about growth, think about survivor mode.

This is no longer the same ARA when I invested. My selling was correct and lucky. ARA might not stay private for long if it does get delisted. Might look at Strait Trading in the future.

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