abc learning interim net profit up 62 percent, page-32

Orlando G
I appreciate your argument re Operating Cash Flows for a growth company and I agree that this is the right metric to look at.

My problem with Operating Cash Flows in this case is that ABC is getting rebates (see UBS note re accounting issues from Dec (i think)) from the developer which reduces their OPERATING EXPENSES and thus inflates their OPERATING CASH FLOW.

They could pay the develoment arm $700,000 for the work and not have any rebates but instead they pay $1,000,000 and have ABC Acquisitions rebate them the other $300,000 which reduces their rental and other expenses and makes their operating cash flow look fine.
I am using the numbers above as examples only because I am not sure to what extent it is happening - maybe less....maybe more.

HASAMAX
The $1m payment is capitalised on the balance sheet and therefore has no impact on the P&L plus you then receive rebates to lower your rent expense. This is how profits (and operating cashflows at the expense of investing cashflows) are inflated. Thus looking at the stock on a P/E, EBITDA or whatever other multiple is ridiculous.

Let's look at NTA, total cashflow or even operating cashflow less rebates received (problem is Eddie won't say how big the rebates are).

Don't you think it is strange that the development company is set up as an unrelated entity according to disclosure regulations but works out of the same office and doesn't have a listed phone number and has a name ABC Acquisitions.

Further evidence is this piece from Citigroup's note today "We believe the sale of Judius for a stake in FUN was driven by a desire to continue to book profits on centre fit-outs, which would not have been possible
in the US under the wholly-owned model that applies in that market".

All I know that whichever way I look at this it smells. I am happy to be proven incorrect but I am yet to hear any compelling evidence to the contrary.

As for all the smart fund managers buying them.....well i think there are fund managers who are a lot smarter than them who don't own them.

As for other comments suggesting brokers are recommending the stock.....I am sure there were no brokers pushing Enron, WorldCom, tech stocks in 2000/01, Telstra at $9, Sons of Gwalia before it went bankrupt, CSL before it fell 80%, etc etc.
Broker recommendations are not worth (insert swear word here).

Do you think Warren Buffet or any other great investor looks at a stock and then says "I like it but gee I notice that three brokers have sell recommendations on the stock so maybe i'll wait til they go positive before i buy".

Nice to hear I have some support out there guys.