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3 Things You Should Know About Accordia Golf Trust IPO’s Financials
Corporate Digest, Featured | 04 August 2014
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By: Peter Ng
Articles (81) Profile

Having seen the business of Accordia Golf Trust (AGT) in the previous piece prior to its IPO, we shall shift our focus onto the company’s financials.

1. Consistent Profits

On the trust’s income statement, profit before tax (PBT) has been growing steadily at a compounded annual growth rate (CAGR) of 4.1 percent for the past three years since FY11.

Source: Company IPO Prospectus

This was underpinned by a decreasing trend in operating expenses (OPEX) which underscores one of the company’s competitive strengths in generating cost efficiencies.

AGT has highlighted that the ability of generating cost efficiencies in the business is vital for a golf course to remain in business and maintain long term profitability.

For instance, the trust has implemented an electronic booking system for its players which reduces the reliance of labour as well as, converting fixed costs into variable through the outsource of its processes and deployment of part time workers.

As a result, this would reduce the company’s labour expense which forms the largest proportion of the trust’s OPEX.

2. Gearing Level On Balance Sheet

As we move onto the trust’s balance sheet, most investors would immediately proceed to calculate its gearing ratio. This is perfectly normal since AGT is a business trust and its level of leverage is an area which deserves to be paid attention.

However, if an investor is to compute AGT’s gearing level simply by dividing total liabilities over total assets without making any adjustments, a gearing level of 52 percent will be derived.

If this exceptionally high gearing level is taken into account, AGT will pale in comparison on a risk to reward basis when matched against other investment trusts listed on the Singapore Exchange.

At the present moment, AGT is rewarding unitholders with a 9.1 percent distribution yield for the first year and subsequently 7 percent annually based on a price of $0.97 per unit.

Coupled with a 52 percent gearing level, AGT would have fallen off from an investor’s radar since one can easily find other investment options that yield a similar distribution yield, at a lower risk level as determined by the level of gearing.

Snapshot Of An Accordia Golf Course

3. Axing Off Certain Liabilities

Taking a closer look on the trust’s liabilities, apart from bank borrowings, there are two other items that made up a large proportion of its liabilities.

First, as at 31 December 2013, membership deposits totaled JPY16.9 billion over JPY89.5 billion in the trust’s total liabilities.

These deposits are paid to the trust when a player decides to be a member of Accordia golf courses, granting benefits to players like the inclusion into a loyalty programme that rewards players on a point system for playing on Accordia golf courses.

When asked, AGT mentioned that there are approximately 10 percent (or lesser) of deposit withdrawals on this amount per year which the trust will pre-empt and prepare accordingly.

The trust also noted that given the highly loyal customers which form another pillar of its competitive strength, the withdrawal rate on these deposits can be depended to a large degree of reliability.

As such, there is a reasonable basis to exclude 90 percent of the membership deposits from AGT’s total liabilities when computing its gearing level.

Next, the trust has reported JPY19.7 billion in deferred tax liabilities. AGT clarified that this amount is mainly due to the mismatch of depreciation expenses during the acquisition of assets particularly, golf-related assets.

It should be noted that deferred tax liabilities may only be realised when assets are disposed. Also, this portion of liabilities when realised do not require the trust to separately prepare a provision for the realised amount.

This is because the trust can utilise the disposal amount to offset the deferred tax liabilities. Furthermore, on most occasions, one can comfortably assume that the disposal amount will be higher than the amount realised on deferred tax liabilities.

As such the net effect is a reduction on the residual amount from the disposal.

After these two items are adjusted accordingly, the trust’s gearing level would fall sharply to 36.1 percent, a level that comes closer to the investment trusts listed on the Singapore Exchange (around 30 to 35 percent) and ultimately making it a more viable option for investment.

In addition, the adjusted gearing level would also come closer to the trust’s 30.1 percent of loan to value as reported on its IPO prospectus.

This would grant the trust with more headroom to fund its acquisitions with debt as opposed to equity in the form of a rights issue.

Inflection Point Or A Sinking Trend

Lastly, although AGT has displayed its ability to maintain profitability, nonetheless, a sinking revenue stream is one which investors should take note of.

Granted the prospects that will benefit the golf industry as a whole, at least until revenue growth is materialised, the probability of an inflection point would still require further studying.

Backed by a strong interest in investments, Peter's research spans across a range of industries, with his focus placed on companies listed on the SGX.

Please click here for more information about this author.

Accordia Golf Trust  0.530 +0.005 +0.95%   
Business: A business trust specialising in investments in golf courses, driving ranges, and golf course related assets in Japan.

Insight: Feb-19, 9M19 operating income fell 2% to JPY41.1b ... Read More


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