Roll-ups & Cash Flow

Profit is always based to some degree on estimates while cash can be measured directly and so ought to be more reliable. Some companies' profits are subject to more approximation than others. For example, serial acquirers make more estimates and adjustments than most because buying companies is messy. Roll-up companies are also cash hungry as they must continuously buy other businesses to grow. For these reasons it is particularly important to analyse cash flow of roll-ups.

I used to hold shares in AFH Financial Group Plc (LON:AFHP), an acquirer of financial planners, but am concerned about weak cash flow in its latest results. I have avoided Paragon Care Ltd (ASX:PGC) in recent years for the same reason. It was not my finest moment when I wrote that, despite weak cash flow, Slater & Gordon Limited (ASX:SGH) looked like an interesting prospect back in 2015. I should have stood by my initial analysis on that occasion!


  1. Mmmm...nasty memories with SGH, I too got caught there. Made the same mistake with RFG, but got out much earlier. Now I just avoid roll ups altogether, decided I am not clever enough to sort the good from the bad!

  2. Thanks for your comment Galumay. I hold Over The Wire Holdings Ltd (ASX:OTW) as the business is also growing organically and telco roll-ups seem to fare better than most. So far so good, but it is not my most comfortable holding. There aren't many good ones so your approach makes sense.

  3. What paragon and lifehealthcare taught me was that *even in healthcare* roll ups are asymmetrical risk to the downside; nothing but a trade opportunity.

    1. Thanks Claude, you and Galumay give me good reason to question my OTW holding. If I was going to compare OTW to a stock, it would be MNF. Would you describe MNF as a roll up?


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