SRZ : Cash Flow statement (Sept 2008)

Trying to peek into the fundamentals of the company. (I am not a finance guy but just trying my best effort to get an understanding)

Cash Flow Statement specially Cash flow from Operations is supposed to be the bedrock of a companies health. It gives the critical information about if the company is making money in the basic activity/operations of the company.

Lets look at the Annual numbers for SRZ (Only cash flow from operations)



Here are my observations:

1. Annual 12 month cash flow statements "Cash from Operating Activities" (these are restated values) show positive cash flows for SRZ for every year. The average is 130.51 million (year 2004 to 2007) which is more than the current market cap 81.54 million.

2. The Quaterly "Cash from Operating Activities" numbers have deteriorated with an average number of negative -20.45 million. Which means SRZ is burning through cash of 21 million per quarter to run its operations in 2008.

3 The Quarterly "Deferred Taxes" are negative -25.36 million(per Qtr). SRZ did state that it is going to receive a tax refund of close to 27 million from the Govt. (already reported before in this blog link ) so basically it cancells out the expected tax refund with expected taxes that have to be paid to the Govt.

4. "Working capital" on 12 month report was positive 6.18 million (Qtrly). This basically means the company was managing its working capital flows very well and earning income of 6.18 million per quarter (till 2007).

5. The Quaterly "Working Capital" numbers show a negative -22.14 million which means SRZ has not been able to manage its working capital very well and it has an average of 22.14 million of -ve impact on the cash flow. BKD also has -ve working capital numbers for the year (-4.43 million) but looks like BKD has been more prepared than SRZ to handle the current downturn.

6. "Non cash Item" on 12 month report was +ve 11.91 million (Qtrly)
I think this is income from sale of properties and refinancing deals.

7. Quarterly numbers show the "Non Cash Item" have accelerated (238%) to +ve 40.31 million (Qtrly). Which according to me is basically the management is trying to get projects refinanced at a faster pace and also has cancelled new projects (pulled out money).

8. "Net Income" on 12 month report has been close to +ve 1.82 million(Qtrly). Quaterly numbers numbers for "Net Income" has -ve -44.53 million (Qtrly). SRZ has close to 62 million of one time large unusual items in Sept 2008 Quarterly reports. (Mainly related to cancellation of projects, retrenchment, Accounting restatement)

Conclusion: SRZ was running a tight ship till 2007. It was managing its cash flows and reinvesting it in new assets. SRZ (SRZ 4 Yrs Avg: Cash Flow from Operations: 130.56 million) was doing better than BKD ( BKD 4 Yrs Avg: Cash Flow from Operations 88.15 million) in these numbers.

2008 Credit squeeze has severly impacted the cash flow of SRZ. Company has responded by increasing its non cash items (curtailing new development and refinancing projects) It has not been able to stem the flow and has been burning through 21 million on a quarterly basis. (Mainly related to cancellation of projects, retrenchment, Accounting restatement)

SRZ future quarterly cash flows need to be observed to confirm if the company has been able to stem the -ve cash flow from operations.

If you look at the annual numbers they are pretty good and if the annual numbers are to be taken as the long term future of the company.. then right now the company is quoting(Market Cap: 81.54 million) at 60% discount to its 4 year average Cash Flow from operations(130.51 million). Which shows significant value at current prices.

One must understand that SRZ is in a growing industry. It has great brand value. It has global operations targetting rich developed countries. 80+ age population growth is 29% per annum in US and 44% per annum in Europe. Its capital requirements for growth is significantly lower compared to other players due to different model of operations ("management" instead of "ownership" of properties) resulting in a balance sheet which is not leveraged at all. With just 54,000 units there is ample scope for growth in the future.