Saturday, August 4, 2012

ICap: One should not look at P&L as indicator of performance

This morning I was talking to my mum. While talking to her about ICap, she was saying that ICap's profitability is low. Only then I realize that perhaps why its share price is low comparative to its Net Assets. Some may look at PE as indicator. Not unusual as if based on your indicator from Bloomberg or any other financial sites, they only mention PE or Dividend Yield.

The right indicator for closed end fund (or any investment fund for the matter) is Net Asset Value. Net Asset Value is the barometer which values the market value of investments ICap holds. The Net Asset can be in the form of cash or shares that it invests into. For example, as at 2 August 2012, its Net Asset Value (NAV) was RM3.01 per share while the share price it was trading at was RM2.24 - which means a RM0.76 discount from the NAV.

Why one should not look at P&L?

Well, P&L indicates the revenue or income that the closed end funds get. For example, dividend that it gets from shares it holds during the period is a revenue. So is the interest income that it gets from the cash investments it puts in the bank account or money market. If for the quarter, it does not sell any shares, it will not register any profit or losses from investments. It however does not mean the companies that it invests in is not doing well.

As an example, if it bought Parkson at average RM2.00 per share and the shares of Parkson is trading at RM4.80 as at the reporting period, and ICap does not sell any, it will not register any profit.

See below.

For my other article on ICap, please see below:

Why I bought ICap

ICap: An overperforming fund with underperforming price


khengsiong said...

Its NAV rose from 2.77 to 2.86 in a year, or about 3.25%. How much did KLCI gain (or lose) in the same period?

Anson Kuan said...

Will any gains in shares held be reflected as unrealized profits in the P&L?

Anson Kuan said...
This comment has been removed by the author.
felicity said...

There is a fair value reserve and other comprehensive income being identified as at last financial year. Hence, the answer is yes they do come in after Profir after Tax. However in most reports the barometer is still the Net Profit.