Accesso Technology – Declining ROCE

26th Oct '15 by Mark Carter

5 comments 8244 reads

Accesso Technology makes queuing systems for theme parks. As at 15-Sep-2015, Paul Scott noted that he had a long position in the company (http://www.stockopedia.com/content/small-cap-value-report-15-sep-2015-acso-snty-hydg-106480/). There was important news that they won a major contract with the theme park operator Merlin Entertainments.

Momentum is strong for this company. At a PE of 24, it is expensive.

There are a lot smarter folks who are bullish on this company. I know nothing of the business model of this company, but I do note the following: its operating margins are not particularly high, and its ROCE and ROE comes in at 5.2%.

Actually, the ROCE for the company has been steadily declining, from 42.2% in 2009. It made two hefty acquisitions in 2013 and 2014, raising some debt to do so.

Maybe the numbers are being distorted by the acquisitions, and we need to wait until the growth shows up. However, the EPS figures have been flat for the last 6 years, and the numbers are showing that the ROCE is declining steadily. Not a great sign; but I can think of ways that this will prove to show a good return nevertheless.

Very curious. I shall follow this up in a year’s time and see how it has fared.

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Mark Carter

26th Oct '15

I fully expect to be proven wrong, of course. It's got a great story behind it, with well-respected investors bullish on it.

janebolacha

"There are a lot smarter folks who are bullish on this company".

Leaving aside Accesso, which does seem to have quite a lot going for it, I could not agree less with the general belief that it pays to unquestioningly "follow the money". The example of Odey with Tungsten and FORUM recently piling into Globo are only two of numerous costly failures by supposedly "smarter folk". I'm usually slated for saying that a private investor who puts in the effort can beat most of these "smart folk" but I do sincerely believe that to be so. I would much rather make my own mistakes (when I do) than choose to follow someone else often making lots of money out of making far worse mistakes but with other people's money.

Damian Cannon

Totally agree Mark and in fact it was the declining ROCE that put me off the company exactly one year ago today: http://www.stockopedia.com/content/accesso-coming-to-a-theme-park-near-you-87220/

If you want to see just how much the ROCE has fallen you should take a look at my graph in the middle of the report! That said I think that Accesso have management of real quality and a strategic game plan which is making them indispensable to theme-park and other attraction operators. So it might take them a while to catch up with their growth and obviously I should have bought in at £5 last year!

Damian

I was half-expecting to be slammed for what I wrote. I never write anything just to be contentious; I think that's just shoddy attention-seeking.

In defence of ACSO, the ROCE problem may be around the issues of timing of capital investment with getting a return from it.

I think the TUNG thing is a classic example. I had never heard of the CEO, although there were apparently a lot of smart guys that had.

There was a similar situation in Parkmead (LON:PMG) a few years ago. Tom Cross, who was legendary in the oil and gas sector for building up Dana Petroleum, decided to repeat the trick. Parkmead (LON:PMG) was just a shell, and the shares shot up at the news. There was a lot of buzz about it at the office, and they wanted to keep it quiet from me, "so as not to push the share price up". They needn't have been worried, as I had no intention of investing. Being knowledgeable in an industry, and being successful as an investor, are two different things. The share price has never recovered from its high, and it in fact down 48% over 1 year.

There are other examples whereby it was tempting to follow the "savvy investors" - and I mean that genuinely, not mockingly - only to come a cropper. As you point out, janebolacha, if one is going to lose money, it is better having done it through one's own stupid fault.

DJLJ23

29th Oct '15

is really that surprising that capital employed is reducing?
Extract from Aug 15 investor presentation
"90%+ of group revenues from transactional revenue or profit share basis"
with such a high proportion of its revenue linked to its clients volumes, most of the world in or just recovering from recession, i.e. less money to spend, but as Accesso grows it needs to invest in infrastructure and support that can support the clients potential peak days, or risk penalties for failures. However, as it grows geographically they may be able to balance that load, resulting in higher utilisation and increasing margins.
Hopefully we will see this measure improve as the worlds economies pick up.

Accesso Technology – declining ROCE

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Mark Carter

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