I had a look recently after the big SP fall. Ever since they bought Sentry the returns on capital of the business has been extremely low for a technology business and barely improving beyond a 10% cost of equity. They’re capitalising a lot of R&D clearly not getting any return on it which always comes back to bite you as we’ve now seen! I’m yet to be convinced!
Thanks for highlighting these. I’ll take a closer look when I write my thesis.
For now, the lower return on capital does not seem concerning to me. It doesn’t change the quality of Sentry.
But it could signal the acquisition was done at too high a price. Management will need to show synergy, I believe.
The post-acquisition return on capital is also weighed down by amortization of acqusition intangibles like customer relationships. If these costs are not expected to recur, then true return on capital should be higher.
Capitalisation of software development costs is not a concern for me now. There’s no big unexpected divergence from the corresponding amortisation.
I had a look recently after the big SP fall. Ever since they bought Sentry the returns on capital of the business has been extremely low for a technology business and barely improving beyond a 10% cost of equity. They’re capitalising a lot of R&D clearly not getting any return on it which always comes back to bite you as we’ve now seen! I’m yet to be convinced!
Thanks for highlighting these. I’ll take a closer look when I write my thesis.
For now, the lower return on capital does not seem concerning to me. It doesn’t change the quality of Sentry.
But it could signal the acquisition was done at too high a price. Management will need to show synergy, I believe.
The post-acquisition return on capital is also weighed down by amortization of acqusition intangibles like customer relationships. If these costs are not expected to recur, then true return on capital should be higher.
Capitalisation of software development costs is not a concern for me now. There’s no big unexpected divergence from the corresponding amortisation.
Hope this helps!