whats the story?, page-3

Stratovarious, EGL started to turn the corner financially in the second half 2001 (on declining revenues when they restructured) and continued the improving performance in all of 2002 and then had a sharp decline in operating margins and had negative eps growth in the first half of 2003 financial year, had a much better 2nd half of 2003 year compared to first and ended the 2003 year with increased revenues of about 78% over 2002 and eps up 17% for the year. All looked ok and share over this period since the turnaround was up nearly 300% - so market did mark it up - nice gains!

However, in 2004 the eps growth slowed as operating margins fell 27% on revenue increase of 31% - op margin is only 5% in 2004 compared with 6.8% in 2003 and 7.5% in 2002. Similarly the return on assets has declined in 2003 and 2004 after the strong recovery in 2002.

I guess what the market migh be saying now is - ok since 2000 the company has improved but the growth has wavered in the past 2 years and on a pe of around 19 in a sector with a pe average of 14 and a previous year eps growth of only 14% then may be fully valued?

Although revenues have increased dramatically, the actual operating margins are small and profitability is low - meaning they also dont pay a dividend.

Might well be that recent contracts will mean that next report is good and it goes up? Look out for eps growth and operating margins in the next report and see what margin they are making - good to keep winning contracts but 5% isn't much - fine if a high volume food retailer where kick backs come from suppliers in deals but not for this type of business?

Also - are these one off contracts or repeatable business?

Just my thoughts - all the best