Wotif amassed 60 per cent profit on opening day ::

Author: James Kirby
Date: 04/06/2006
Publication: The Age
Section: Share Intelligence

When the going gets tough, the tough get to making money. While most of us were wasting our time analysing the scrapped Snowy Hydro float last week, a sprightly online travel company, Wotif, slipped on to the sharemarket and went off like a rocket.

What a contrast. With the Snowy Hydro float, people who clearly did not know what they were doing launched a jaded attempt to squeeze the last drop of money out of the fading infrastructure boom. At Wotif, people who can spot good value at 50 paces floated their gutsy "last-minute accommodation" business that has the potential to be a world leader.

Wotif was issued to investors at $2 - it listed on Friday and closed the day at $3.32. That's a nice 60 per cent profit for everyone concerned, including chairman Dick McIlwain who got half a million shares in the deal.

McIlwain is a man to watch. He's got an eye for value. He's also the managing director of Unitab, who goes to work tomorrow with two merger deals sitting on his desk.

Unitab already had a merger plan with Tattersall's but that has been trumped by the $2.1 billion takeover offer from Tabcorp. As an $8 billion operator in a concentrated market, Tabcorp will probably win the war for Unitab but there is a strong chance Tattersall's and Tabcorp will both lob higher bids before the story ends. In fact hedge funds suggest there is a one-in-three chance that the new bid will be at least 17 per cent higher than the first bid of $14.25 a share.

McIlwain's sudden ascension to national attention masks a 17-year career at Unitab, where he created one of the best companies seen on the ASX. If that sounds like an exaggeration, it's not. Although it's also true that he had a legislated state monopoly to work with. Still, McIlwain made the numbers sing by buying South Australia's state betting agency cheaply and running the place with superb skill.

I asked an expert in company valuations, Roger Montgomery, of Clime Asset Management, to run some numbers on Unitab and the exercise revealed McIlwain as the best-value CEO on the ASX in terms of return on equity (ROE; the amount a company makes on the money you have invested in it).

While most leading companies bring in ROE of about 15 per cent and top stocks like the big four banks average 20 per cent, Unitab has an ROE of 76 per cent and it was heading for an ROE in the year to June 2006 of 95 per cent. That's the sort of figure that would have Warren Buffett - generally reckoned to be the world's greatest investor - on the blower to Brisbane. For the record, key rivals in the value stakes to McIlwain at Unitab were Fantastic Furniture (67 per cent), ARB (40 per cent) and Reece (31 per cent). The way it works these days, stockmarket companies that have all the stars aligned in their favour in a tightly held industry get snapped up. Unitab reminds me of the Bank of Melbourne before it was swallowed up by Westpac.

When Westpac bought the Bank of Melbourne, people were questioning the strategy then too.

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