CTS Global FY23 profit: P23-M (down 56%)

CTS Global [CTS 0.71 unch; 5% avgVol] [link] posted a FY23 net income of P23 million, down 56% from the P52 million it reported in FY22. CTS said that its total revenues increased 18% to P103.7 million, driven by interest income from its low-yield government bonds. CTS booked P0.5 million in combined trading revenue from its global and local trading desks, down 98% from the P32.5 it earned the previous year. Domestically, CTS earned P20.6 million in income, down 20% from the previous year’s P25.9 million. Internationally, CTS lost P20.1 million, down 404% from the previous year’s P6.6 million. CTS blamed its poor trading performance on the “broad equity weakness” that resulted from “the US Fed’s stance to keep interest rates higher for longer to combat inflation and among other various events that introduced uncertainty into the markets.” CTS also noted “elevated geopolitical tensions”, “erratic adjustments to interest rates across major economies”, and “persistent volatility in commodity prices” as drivers of the “tumultuous conditions” that made trading operations difficult.

MB bottom-line: What a mess. While CTS was cowering in government bonds, the S&P 500 was up 24% in 2023. If they’d just parked all the cash in the FANG+ Index (a blend of Meta, Apple, Amazon, Netflix, Microsoft, Google, Tesla, NVIDIA, Snowflake, and Broadcom) like so many people seemed to have done, they’d be up 95% in 2023. These are not complicated, niche, or risky bets. In some ways, they were the mainstream bets on the biggest companies in the best-understood market in the world. CTS’s big pitch back during its IPO was that it would take investor money and plow 91% of that into the “scaling” of its global trading operations. Yet, when the inflation crisis started, CTS decided to put all that money into government fixed-income securities, saying that it was able to “capitalize early on the bond market” and that the move provided the company with “a fixed income stream”. That’s a pretty cool story, but what about all the gains that shareholders missed out on? CTS was on the sidelines during one of the greatest bull runs in recent memory. For a company with “equity” in the name, it sure seems scared to take the kinds of risks that earn those equity-level rewards. 

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