Investment: Noel Gifts International

(A)Stability in its Core Business
One may say that Noel is a boring company. Noel is a mature player in the premium retail industry with over 800 creative floral arrangements and quality gifts. Just the brand Noel, is already a strong economic moat for the company. Noel has dominated 40% of the market share despite the high compeition. It have leveraged on almost all the seasons and reasons available, such as the most recent Father's Day.
With extensive network with various hotels, event management companies and online shops such as Yellow Pages commerce mall, Yahoo! shopping, Noel has position itself to be the 'name first pop in your head' if a company require such a service.
(B)Property Investment
Noel have entered the property market since 1987. Throughout the many years since, it has made a few property investments, of which all was profitable. The most recent property investment is a 25% stake in an exclusive residential development, Balmoral Crest. What we can look forward is that Noel will continue to focus on its property division for the many years to come.
(C)Cash Rich Position
Noel is standing at $12,465,000 after clearing all its long term debts, and giving out 34% dividend yield in 2006. With such a strong cash position, with appropriate planning for the future, and the perpetual focus on property investment, Noel can be a company with renewed rewards if the cash is properly invested.
(D)Strong Financial Outlook
With the recent improvement of 60.5% in the first half attributed to strong economy, we can see Noel to continue its improvement in the second half as many of the festive seasons such as Chinese New Year, Valentine Day will be ready for Noel to provide for.
Noel has net current assets $0.168 per share and standing at a EPS of forecasted at least 1 cent for the year 2007. Noel's compared to industry, its ROE is at 48.42% (pointed out by donmihaihai) and its EBITDA margin is at 9.18%. It has a very good quick ratio of 1.9x
(E)Value-Added Events
Long term view for Noel can be very excited as many events such as F1 Racing and Opening of Intergrated Resorts. Such events normally has spill over effects, both direct and indirect to retail companies. Hotel will repackage themselves for these events will utilise Noel's premium service to ensure that they remain aesthetically positive.
(F)Establishment of online gift business
Recently, Noel has won the Hitwise Online Performance Awards for being the Number One website in the category of Shopping & Classifieds – Flowers and Gifts for 2006. I believe as people are more internet savvy, this will be another channel for Noel to position itself to be the one-stop gift shop for everyone.
(G)Strong dividend Yield and willingness to shares its gain with shareholders
Noel aims to give at least 20% of its earnings back to shareholders as an appreciation for their loyalty. Especially in FY06, when they sold their building away for a whopping $9,8M, they gave out a total of 7.3 cents per share or 34% yield. This shows the management's willingness to share and think like their shareholders.

Valuation:
At the current market price of $0.215, the risk-reward ratio is skewed in the investor’s favor. We consider the worst downside to be limited to the cash floor of $0.190. Noel should turn in EPS of $0.015 for FY07. Applying the annual growth rate of 35%, the fair price is at least $0.50 within the next 3 years. Hence, the upside potential return of 132% from the current price compares favorably against the downside risk of 11.62% to the cash floor.

Risks:
(A)Mis-management of the rich cash position
Even though this may not be likely to happen, however, to err is human. If Noel made a wrong investment, or acquire a poorly managed company, the cash will return a negative rate on investment. Thus, we must keep a look out for FY07,08 and 09, to make sure they make a good investment using its cash.
(B)Economic Recession
Retail industries are always vulnerable to recession as their reliance on both corporate and retail consumer is high.

Conclusion: IV for this stock valued at $0.40