Last week I wrote an article acknowledging that I had sold my entire shareholding in BWX Limited (ASX: BWX) between March and September 2018, with the majority sold by June 2018. Unfortunately, subsequent to these sales the stock is down more than 60% so in the interests of disclosure I thought it worth covering off three more shares I voluntarily sold in 2018.
Of course all three of these businesses and BWX might perform brilliantly in 2019 and beyond with rocketing share prices, so in the context of nobody knowing the future, I'll briefly cover off why I dumped my entire holdings in two of them and sold more than half of the other.
Ramsay Health Care Ltd (ASX: RHC) saw some very heavy insider selling of its shares at the end of 2017 and in early 2018. Its ex-CEO sold around $27 million worth of shares in 2017, with the CFO also selling around $12.5 million worth of shares over 2017. Worse, is that between April 23 and April 26 2018 the new CEO Craig McNally sold 75,000 shares at an average price of $63.50.
Ramsay is "targeting" positive "core" earnings per share growth up to 2% in FY 2019 which is a vague forecast and has flagged that it took a lot of cost out the business in FY 2018 to achieve its full year result.
The group has also acknowledged France and the UK have been challenging markets recently, with not much prospect of that changing over the short term. However, its Australian results have been strong so far.
Ramsay has also backed out a huge amount of restructuring costs around French operations in particular to reach its adjusted earnings per share figure of $2.79 for FY 2018.
The unadjusted figure that does back out some cash and non-cash costs is $1.867. As such investors can see that even at $54.10 today it's not cheap depending on how many of its backed out costs you're prepared to go along with as an investor.
The group's growing debt has also helped fuel the earnings and share price growth, with the net debt to EBITDA ratio at 2.3x at the end of FY 2018, significantly up from 1.5x at the end of FY 2012.
SEEK Limited (ASX: SEK) I sold over half my holding in the online advertiser recently and may well sell more in January 2019. SEEK is another business that backs out a lot of "investment costs" from its financial results, however, it's difficult to know exactly where these investment costs are being allocated and on what.
The bottom-line is that SEEK shares are still on a high valuation given the lack of profit growth, alongside, in my view, a tough outlook for the Australian economy in 2019 and rising competition from the likes of LinkedIn. However, SEEK still has some attractive qualities as a business in particular its Zhaopin business and long-term track record.
Gentrack Group Ltd (ASX: GTK) is a software-as-a-service business I sold my entire holding in during the first few days of December 2019.
To me the business has some attractive qualities via its balance sheet strength and software-as-a-service business model but the stocks looks too expensive given management's non-committal profit forecast for its current fiscal year (Gentrack's fiscal year ends on Sept 30). The forecast also contained some warnings over tough conditions in the UK due to Brexit among other factors.
In fiscal 2018 Gentrack only grew EPS 6.7% from NZ15 cents per share to NZ16 cents per share, while the stock sells for 31x trailing earnings based on its $4.96 NZX share price. It will need to deliver some decent growth over fiscal 2019 to justify this.
Of course I previously liked these businesses enough to commit cash to them and still see plenty of attractive qualities in them, even still owning some SEEK shares.
However, I feel there might be some better options for my cash in 2019, even in some of the businesses named by The Motley Fool below….
