cof cof cof !, page-12

I drafted a posting which I did not send, and have just had another look at COF a/cs.

The posting can remain a draft - it expresses my long-held view that cashflow is overstated as an analysis tool and is very very secondary to earnings ps and the to theconstituents of earnings ps. Gearing and Cashflow are critical but can be dealt-with by raising equity if earnings are satisfactory, in contrast to only marginal changes to earnings which can be achieved by a change in cash flow or gearing.

I am still mystified by the high earnings% and div% available on COF @1.11.

This company desperately needs additional equity - its balance sheet with negative nta must be worrying to its bankers and financially literate creditors.

Relatively high borrowing means the earnings are vulnerable to a rise in interest costs and exposure to covenants to ANZ.

One apparently small issue, but one which is indicative of a company trying to drag every drop out of its figures in order to publish earnings to inflate or maintain its sp, is its treatment of intangibles:

how many companies can state that they do not need to amortise or impair their intangibles, when they include in their assets, values for "non-compete agreements", "software intangibles" (developed in house I assume, otherwise they would be held as fixed assets, rather than intangibles), "customer relationships", "Brands" - all very embarrassing and pathetic, given the small figures involved.

Having said all of the above I am a buyer at these prices. Even a 20% fall in projected eps and dps will still leave this company with reasonable ratios at a sp of ~1.10.

If there is no really bad business news in sight for COF then there could be expectations that COF will raise equity and/or reduce its payout ratio.