# SKC fundamental positions



## skc

There is much debate about the pros and cons of fundamental vs technical analysis over here...https://www.aussiestockforums.com/forums/showthread.php?p=590126&highlight=fundamental#post590126

And Ducati was kind enough to post some of his positions in this historical thread https://www.aussiestockforums.com/forums/showthread.php?t=2829

Just for a bit of fun I've decided to start my own thread on trading / investment shares based on fundamental analysis. I will try to post entries and exits as close to real time as possible, and perform a fortnightly update on prices and news etc.

I will enter trades using all kinds of information - news, rumours, valuations, industry trends - but I won't use chart patterns (although I can't promise I won't look at a chart ) I will also take losses when the reason to enter the trade is no longer valid. Holding period will vary, but for this exercise I will square the books after 1 year from today.

The positions will be based on a hypothetical $100K account.

For comparison purpose, ASX200 accumulation index is 34639.1, ASX200 is 4745 today.


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## prawn_86

Looking forward to it SKC


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## skc

*New trades*

9/11/2010 Buy 1500 WHC @ $6.80 = $10,200

9/11/2010 Buy 2000 AXA @ $5.54 = $11,080

Rationale - both are takeover candidates with WHC basically inviting bidders openly while AXA has a private engagement with AMP. Both shares will also benefit from rise in overall market and asset prices even if no takeover bid come forward - relatively low downside

*Account Summary*

No. of open positions = 2
Total portfolio value = $21,280

Brokerage paid = $17.02 (0.08% of transaction value)

Cash in account = $78,703

Total account value = $99,983

P/L = -$17 (0.00%)


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## skc

*New trade*

9/11/2010 Buy 20,000 UXC @ $0.50 = $10,000

Rationale - IT company with a bad 2009 but have since discontinued the loss making operations. Core IT businesses are profitable with year on year revenue growth. Estimated 7c EPS puts company at PE ~7. Comparable peers are trading at PE 14-16. So it is easily half as cheap.

Recently been approached by various private equity and trade buyers but nothing came about. The board believes the business is worth $370m in enterprise value. Only $39m debt which means equity value of $330m, compared with today's market cap of $152m. Incidentally, $330 implies a PE ~15 as per its peers.

Will reassess position when PE reaches ~12 (50% gain), on corproate activity or revenue weakness - whichever comes first.

*Account Summary*

No. of open positions = 3
Total portfolio value = $31,210

Brokerage paid = $25.02

Cash in account = $68,695

Total account value = $99,905

P/L = -$95 (-0.1%)


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## prawn_86

Just out of interest SKC, is this a way you trade usually or is this testing a new theory?


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## skc

prawn_86 said:


> Just out of interest SKC, is this a way you trade usually or is this testing a new theory?




Mostly for entertainment purpose. I just wanted to see if some simple "fundamental trading" coupled with commonsense risk management could deliver above market return.

I do actually trade news / rumours / valuation etc but the level of research would be a bit higher than what I will present in this thread. And in a round about sort of way, by nominating trades on this thread I might actually do more research and take an actual position...


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## skc

*New position*

12/11/2010 Buy $15,000 QRN @ $TBD

Rationale - There is a great deal of information surrounding the QRN float, mostly about how expensive it is relative to the future PE. But there are now indications that the price may not be that bad relatively to overseas peers who have a lot less attractive growth profile/potential. And as a result it may be well supported by overseas instos.

I for one is quite comfortable with pocketing a small stag profit on the first day/week. There are enough things in the whole float process that protects the small retail guys like the 10c discount, the "green shoe" mechanism and many funds' mandatory buying (given that it will be a top 50 company). Not to mention the fact that a re-price is still very likely.

Potential gain could be around 10c over $2.50 (4%) if not higher...since a good part of my theoretical capital is in idle mode, I think making a few percent in 2 weeks on what seems like a low risk bet wouldn't be a bad idea. 

I will update this position after the retail price is finalised. But the plan is to sell straight away upon listing, win or lose.


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## skc

*New position*

15/11/2010 Buy 25,000 IIF @ $0.505 = $12,625

Rationale - Another takeover play. Current offer price is 54c with IIF's board looking for NTA which is 57c. Due diligence is being done by GMG and things will probably lear by Xmas. 

While not all takeover ends successfully I would say this one has a pretty good chance. GMG is leading a consortium which includes the Singapore government sovereign fund amonst others. The Singapore government recently floated their stake in a company called Global Logistic Properties in the largest property float in history and so they have money burning their pockets and think there is good money to be made in industrial properties. The chance of a sweetener is pretty good.

Also, IIF just doesn't seem to be fighting that hard, and ING (the manager) has wanted to retreat from this game for a while.

So willing buyer meets willing sellers = good probability for a deal imo.

P.S. Will keep AXA open unless I need more cash. The deal is arranged such that there is some upside if AMP share was to rise, but reasonably large buffer for the downside (AMP shares need to fall below $4.50)


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## ParleVouFrancois

Just a suggestion SKC, have you had a good ol' look at the fundamentals of CFE (Cape Lambert), LNC (Linc Energy) or TRF (Trafford Resources)? These are a few of the companies I personally believe are still undervalued by the market. 

I find it somewhat interesting that you've stuck to the bigger companies for fundamental investing (in hindsight quite obvious that you would, every beginner should start out in the bigger caps, not saying that you're a beginner at trading (I've seen your pairs trading, good stuff!) but a beginner at investing I guess), the principles of fundamental investing can equally be applied to smaller companies.

OT: Wow I can't believe I managed to have two parenthesized notes in one sentence.


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## skc

ParleVouFrancois said:


> Just a suggestion SKC, have you had a good ol' look at the fundamentals of CFE (Cape Lambert), LNC (Linc Energy) or TRF (Trafford Resources)? These are a few of the companies I personally believe are still undervalued by the market.
> 
> I find it somewhat interesting that you've stuck to the bigger companies for fundamental investing (in hindsight quite obvious that you would, every beginner should start out in the bigger caps, not saying that you're a beginner at trading (I've seen your pairs trading, good stuff!) but a beginner at investing I guess), the principles of fundamental investing can equally be applied to smaller companies.
> 
> OT: Wow I can't believe I managed to have two parenthesized notes in one sentence.




Thanks for the suggestion. I hold LNC and traded CFE in the past so know them reasonably well. Will take a look at TRF.

I am not going for big companies only (UXC is pretty small). Although I am not an expert in trawling through under valued small caps. No doubt there are plenty of opportunities in the small cap space for those who know what they are doing (like your work on various posts BTW).

To me part of the purpose of this thread is to show how with simple research and a bit of insight there is money to be made with managable risks, without relying on technical analysis (if people choose not to believe it).

This thread is probably going to be less about fundamental investing but more about fundamental trading. The 1 year timeframe also dictates that even deep value picks need some sort of immediate catalyst for me to be included here.


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## skc

*New position*

16/11/2010 Buy 90,000 SOO @ $0.12 = $10,800

Rationale - Solco is a small cap company primarily in the business of installing solar panels. The industry is growing strongly and SOO has been turning in record revenue, profit and profit margin from 2007. They just announced a dividend of 0.375c (3% yield).

Q1 FY10 cash receipts was $13.6m, an all time high. This is a 45% rise compared to Q1 FY09 of $9.12m. On this trend, a 30% increase from last year's record revenue of $34.5m, at increased profit margin of say 10-11%, gives a NPAT range of $4.5 to $5m. Projected EPS = 2.5c and a conservative PE of 8 provides a target of 20c.

See the SOO thread here for some older research.


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## skc

Position summary (QRN not yet listed).


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## skc

ParleVouFrancois said:


> Just a suggestion SKC, have you had a good ol' look at the fundamentals of CFE (Cape Lambert), LNC (Linc Energy) or TRF (Trafford Resources)? These are a few of the companies I personally believe are still undervalued by the market.




I agree with your take on TRF and has added to this portfolio.

People can look up the rationale here
https://www.aussiestockforums.com/forums/showpost.php?p=587439&postcount=121

The only thing is that TRF has $5m in cash (at end of Oct) which will let them burn 1.5 to 2 quarters. So I've take a small position size in anticipation of topping up at cap raising in a few months. 

*New Position*

19/11/10 Buy 15,000 TRF @ $0.455 = $6,825

NB: Cash remaining ~$23K


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## skc

End of Week snapshot




XJO = 4629.2 (-2.50%)
XJOAI = 33701.3 (-2.78%)


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## skc

skc said:


> *New position*
> 
> 12/11/2010 Buy $15,000 QRN @ $TBD
> 
> Rationale - There is a great deal of information surrounding the QRN float, mostly about how expensive it is relative to the future PE. But there are now indications that the price may not be that bad relatively to overseas peers who have a lot less attractive growth profile/potential. And as a result it may be well supported by overseas instos.
> 
> I for one is quite comfortable with pocketing a small stag profit on the first day/week. There are enough things in the whole float process that protects the small retail guys like the 10c discount, the "green shoe" mechanism and many funds' mandatory buying (given that it will be a top 50 company). Not to mention the fact that a re-price is still very likely.
> 
> Potential gain could be around 10c over $2.50 (4%) if not higher...since a good part of my theoretical capital is in idle mode, I think making a few percent in 2 weeks on what seems like a low risk bet wouldn't be a bad idea.
> 
> I will update this position after the retail price is finalised. But the plan is to sell straight away upon listing, win or lose.




Debut at IPO price which is all that I asked for.

Sold half at $2.54 the openning price. Will sell remaining half at end of the day closing price, or limit sell at $2.65 if it gets there first.


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## skc

skc said:


> Debut at IPO price which is all that I asked for.
> 
> Sold half at $2.54 the openning price. Will sell remaining half at end of the day closing price, or limit sell at $2.65 if it gets there first.




And there is the target reached. Very strong showing.

First closed trade...

QRN - Buy 6122 @ $2.45, Sold 6122 @ $2.595 (avg). Profit $875.7 or 5.84%. Not bad for a 20day turnaround on the capital.

Will update the transaction on the portfolio when the code becomes available...


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## prawn_86

Good stuff SKC, I'm definitely watching this thread with interest


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## skc

prawn_86 said:


> Good stuff SKC, I'm definitely watching this thread with interest




Thanks. You can be the president and only member of my fan club.  

The most interesting thing about QRN debut is that it actually took AIO up a few notches today as well. AIO is still cheaper on a multiple basis but I'd say QRN has better upside in terms of growth (via efficiency gains etc). 

But would definitely like to see some evidence before I can say it's worth the asking price.


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## ThingyMajiggy

Yeah interesting thread SKC  

Should make a similar thread and make it really interesting and have TA vs FA on the same stock, so someone picks a stock, and the 2 traders go head to head, one doing strictly TA, the other strictly FA over say a 3 or 4 week period per stock and see who comes out on top at the end of each period taking as many trades as they like in that particular stock, could be a fun idea


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## skc

ThingyMajiggy said:


> Yeah interesting thread SKC
> 
> Should make a similar thread and make it really interesting and have TA vs FA on the same stock, so someone picks a stock, and the 2 traders go head to head, one doing strictly TA, the other strictly FA over say a 3 or 4 week period per stock and see who comes out on top at the end of each period taking as many trades as they like in that particular stock, could be a fun idea




Good idea but prob a bit unfair to the FA guy with a 3/4 week timeframe. Even in cases where value is obvious, it's never obvious when that value will be realised.


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## skc

*New Position*

24/11/10 Buy 12,000 IHF @ $0.85 = $10,200

*Rationale*

Similar trade to IIF. ING is a willing seller and someone from the industry has come along offering 94c cash to take it off their hands. NTA is 98c so they can settle at 96c...


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## sammy84

Can you run trailing stops on fundamental positions? Or does this go against the whole concept of fundamental entries and exits?

Would've been nice to use a trailing stop on QRN.


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## skc

sammy84 said:


> Can you run trailing stops on fundamental positions? Or does this go against the whole concept of fundamental entries and exits?
> 
> Would've been nice to use a trailing stop on QRN.




For this thread I try to keep to a simple idea that "If I entered a position for a particular reason, I would exit when that reason is no longer valid/true, or when the target is reached".

For QRN I wanted a stag profit on the first day and I basically got it. So in that sense I had a plan, was lucky enough that it worked out at a profit. 

Having said that, it is not a bad idea to use trailing stop and try to improve on the exit for fundamental positions. For instance, if I value a stock at $1.20 and it reaches my target, then run a trailing stop at 3% or something would work perfectly.

For QRN, I could have put a trailing stop, but I still wouldn't have hold it much pass the first day (as that was the plan and I want no gap risk). So may be a few extra ticks improvement was on the offer.

I might run a few positions here based on that and see how it work out.


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## skc

End of Week snapshot




SOO went ex-div at 0.375c (total $337.5 unfranked) this week and I simply credited the cash balance to that amount (even though it hasn't been paid yet but the amount is small enough)

Only 1 position, QRN, closed to far and evidently too early...

Portfolio         +3.5%
XJO               -3.2% (Last 4598, Starting value 4745)
XJOAI            -3.7% (Last 33399, Start value 34639.1)


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## skc

*New position*

Buy 100,000 MFC @ $0.105 = $10,500.

*Rationale*

Very small company with very tangible assets around 2x current market price. 
Quite a low volume company so happy to sell at ~15-16c.


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## skc

*New Position*

8/12/2010 Buy 40,000 HFA @ $0.19

*Rationale*

HFA recently announced that they signed a funding and distribution deal with Apollo investment management (which has ~$50B FUM). The funding is done via mandatory convertible notes which essentially eliminate HFA's corporate debt. The distribution deal will see HFA's products being sold to many more investors via Apollo's better distribution network.

Last year HFA earned EBITDA ~$24m. Current market cap ~$90m means they are trading on 3.75x EBITDA. Compare that to say PTM (which is a much more stable company) at ~14x. 

The deal imo stablised the company's downside while providing upside on growing FUM which will lead to higher EBITDA. Tentative target for 15% growth in EBITDA and a multiple of 6 gives ~35c. Will cut my loss if the overall market tanks (thereby killing industry-wide growth).


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## skc

*New Position*

8/12/10 Buy 20,000 WBA @ $0.5

*Rationale*

They hold 28m shares in TGR worth ~$49m. They have expressed their willingness to sell. TGR has an offer on the table from private equity for $1.8-1.9. WBA market cap is only $32m. 

So if deal goes through at $1.8, WBA will have $50.5m in cash (or 78.5cps) with the nuts and onions thrown in for free. If the deal falls through (and TGR was at $1.60) then WBA still has tangible assets well above their share price.

Liquidity is a major concern, but this position size is ~half of daily avg volume.

P.S. Pretty much out of cash now so will sit on all the open positions for a while.


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## ParleVouFrancois

Nice spotting MFC, had a look through their books and I would put money into them for a 20-50% arbitrage between the cash and BSM shares on the balance sheet (you need to take the current value of BSM's shares) then you end up with a NTA of about 25 cents per share, so I'd consider your target of 13-15 cents as pretty conservative, I'd aim for 18 cents myself, but the key point is that it's definitely undervalued. 

On WBA I used to hold them based off their TGR shares as well, bought in the medium 30's and sold in the medium 40's, management don't seem to be in a hurry to deliver the value of their TGR shares to the rightful owners. Imo the 'best' way to dispose of the TGR shares would be to do an inspecie distribution, that way the same people hold the TGR shares, and if they want they can sell on market and realize value, and if not they can hold both. The WBA business itself might actually get fairly valued, as opposed to the current zombie-like rotton core of WBA being propped up by TGR shares.

Also as a side question, are you following these trades with real money, or are you just paper trading?


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## ParleVouFrancois

Oh and one other side question, how are you finding these undervalued companies? They are similar to the ones I tend to like (MFC especially, haven't heard of them before), and I'm always keen to learn more searching tools.


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## skc

ParleVouFrancois said:


> Oh and one other side question, how are you finding these undervalued companies? They are similar to the ones I tend to like (MFC especially, haven't heard of them before), and I'm always keen to learn more searching tools.




I actually hold 8 out of 10 stocks.

I spend a lot of time reading news, asx announcements and forums etc.

I came across MFC when I was reading an article on BSM may be 18 months ago, had a quick look at their books and was happy to take a small initial position. When they finally made a positive announcement last week I increased my holding substantially. Was lucky enough to still buy it at a bargain price.

WBA I only came across them today, reading news about Tassal's takeover and also the thread right here on ASF. Wish I knew about them earlier so I could buy at the open for 46c.

Same way I came across SRL earlier this year - thanks to various posters on that thread.


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## ParleVouFrancois

Brilliant call on MFC, closed at 12.5 cents today still a bit short of your target (early days yet lad), but 2 cents out of 10.5 cents in about a week surely beats money in the bank . Made relatively risk free too because the company's NTA is around 25 cents if you bother to recalculate the BSM shares.


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## skc

ParleVouFrancois said:


> Brilliant call on MFC, closed at 12.5 cents today still a bit short of your target (early days yet lad), but 2 cents out of 10.5 cents in about a week surely beats money in the bank . Made relatively risk free too because the company's NTA is around 25 cents if you bother to recalculate the BSM shares.




Of course I re-calculate the value of BSM shares...

The NTA is not quite 25c. They have ~$5m in cash, 26.4m BSM shares (~$10.4m @ $.395) and ~$5.4m coming in from the project sale. But they had $4.5m convertible loan.

Take 10% off the value of BSM (if you were to sell the whole lot in one go you probably need to do so at a discount), and take $1m off for general company expense for the year you are holding and waiting for the share price to move, you get total net realisable asset ~$14m, or ~19.5c per share.

So target of 17c would be satisfactory.

They do have a few projects on the boil, but they will need to spend money before they turn them into revenue producing projects.


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## skc

End of week summary.




Portfolio value up 5.86%
XJO +0.0% (Last 4745.9, Starting value 4745)

A few quick notes...

AXA - Has pretty much done it's job. There's still 19c or 3% on the table, but will glady exit that if there are new positions to enter.

IIF - Bid supposed to due in Mid Dec and will most likely exit when the price moves in reaction to the news. That will probably mean a couple of percent left on the table as well.

IHF - I failed to update that the bidder has come back with a 95c+ 3.825c dividend and been granted due diligence. The distribution will be paid on 31 Dec. Hopefully they can wrap this up by Feb next year to free up the capital.

MFC - Can't believe it closed at 11c today which took a good 1.5% off my portfolio value. 17c still the target as per pervious post. AGM in mid Jan hopefully some news regarding capital initiatives or in-specie distribution of BSM would be fantastic.

TRF - Very good move on this week to close the valuation gap thanks to attention on IFE. On NTA alone TRF is worth ~60c. But I will actually run a trailing stop on this stock as it depends on what IFE (and ROL) does in terms of share price.

WBA - Awesome news that they sold their TGR holding for $1.79 per share so now their value is not dependent on the private equity bid succeeding. Completely de-risked the position. The cash from sale of TGR is worth 77cps. Even better that the holding is equity accounted at $1.70 which means not much tax to be paid on the sale. Sell order is in at 75c.


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## ParleVouFrancois

"Of course I re-calculate the value of BSM shares..." 

Sorry if I came off wrong regarding the BSM shares, I meant the general investing public, who usually can't be bothered to take a look at an annual report. Obviously you've gone through the trouble of working it all out for your fundamental positions, sometimes I post after being up for a long time and the results do vary. Was just in the middle of a "oh my god does anyone read annual reports but me anymore" moment when I typed that up .

One of the better results for holders of MFC would indeed be the in specie distribution of the BSM shares, if they distributed these then they'd still have 10 cents or so of NTA left on the balance sheet, in which this somewhat questionable (can't exactly be called class, but not all that bad really) management create some more value. Had a look at BSM and I wouldn't mind buying in at a lower price, a in specie by MFC might just be that (I'll be keeping my eye on that).


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## skc

ParleVouFrancois said:


> "Of course I re-calculate the value of BSM shares..."
> 
> Sorry if I came off wrong regarding the BSM shares, I meant the general investing public, who usually can't be bothered to take a look at an annual report.




All good. You mentioned it a few times so I just wanted to clarify that the difference between our valuations did not come from the use of the book value of BSM.


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## skc

*Position closed*

13/12/2010 Sold 1000 AXA @ $6.26 = $6260.

Realised profit = $709.5

TRF is in a trading halt having just announced a pending cap raising. So need to free up some cash for the account. AXA was the easiest position to get out without leaving too much on the table.


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## skc

*Position closed*

16/12/2010 Sold 20,000 WBA @ $0.56

Realised profit = $1,183

WBA just couldn't wait to spend the money from her TGR share sale. They announced last night that they bought a heap of walnuts from Gunns for about $24m, or ~50% of the money they've got.

Cash backing is now ~39c which is still a huge portion of the share price, and if they were to return some of that to the holder then that will have a positive effect on the share price. However, the announcement on the walnut purchase said something like "good cash flow in the medium term" which I taken to mean not good cash flow in the short term, or that WBA will just hold onto the cash...

The original reason for entering the stock was to expect the value gap between WBA share price vs its holding in TGR share to close. It then changed to WBA share price vs cash backing when WBA sold the TGR shares. Now it's become WBA share price vs 70% cash + walnuts... which is no longer what I was buying. I have no expertise in the walnut business so I don't feel like being involved.

~12% profit in 2 weeks is more than palatable.


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## skc

*Position closed*

17/12/10 Sold 15,000 TRF @ $0.43 

Realised loss = $387

TRF is probably still worth ~50c based on asset book value. But since the value comes from its holding IFE and ROL (which one cannot short) there is no way to arbitrage the gap.

IFE (which is TRF's main asset) went down heavily after the capital raising and the feasibility study was poorly received by the market. In addition, there is no indication that TRF is going to participate in the cap raising, which means their interest will be diluted.

The risk in the TRF position now doesn't justify the reward anymore imo, so decided to walk away with a small loss.


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## skc

*New position*

17/12/10 Buy 5,000 VPG @ $1.17

Yesterday the company announced that they have received a management buyout proposal for their European business. No detail has been released but it's a consortium led by senior managers in Europe and their group MD.

Putting aside the business ethics involved in any MBO situation, there is possibly some upside in the share price. Management obviously knows the company better than most so there is probably some value when they see value in making a bid. The proposal may also bring out other potential bidders. 

VPG has been trading at ~40% of NTA (~$3 according to latest company presentation). Any bid will have to be pitched at 60-70% NTA. My back of envelope calculations suggest that the propoerty management business in Europe alone may be worth $80-100m. This compares with the total market cap of $120m for the company.

If they get a deal done (a big if) and use proceeds towards debt reduction, their balance sheet repair would be just about completed, and the market may reprice them at a lessor discount to NTA.

VPG runs a pretty complicated structure in Europe so even if a deal is done, the money may or may not flow back to the mothership. That's why I am keeping this position quite small.

Tentative target ~$1.60-$1.80. Will exit if the deal falls through or things are not resolved by end of Q1 2011.


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## ParleVouFrancois

Yeah I'd agree on TRF, shocking news with IFE, another years wait before first shipments leave the dock. Apparently we were supposed to be starting before THIS Christmas, or at the latest early next year in Jan or Feb. I've sold out also took a pretty big 20% loss, hopefully that was one of the few positions that wasn't real as it's kind've my fault for recommending them.

PVF.


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## skc

ParleVouFrancois said:


> Yeah I'd agree on TRF, shocking news with IFE, another years wait before first shipments leave the dock. Apparently we were supposed to be starting before THIS Christmas, or at the latest early next year in Jan or Feb. I've sold out also took a pretty big 20% loss, hopefully that was one of the few positions that wasn't real as it's kind've my fault for recommending them.
> 
> PVF.




When company keeps delaying things it's never a good sign. And 1 year delay on time value of money alone is worth 10-12%.

The position was real for me but the loss was small. The position size was only small and I think I had a better entry (45.5c) than you. 

Obviously can't blame you for "recommending". You merely pointed out the price discrepency and I researched and agreed. The problem again is that such discrepency can be closed by TRF rising or IFE falling!


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## skc

End of week snapshot.




Portfolio value up 8.96%
XJO +0.4% (Last 4763.1, Starting value 4745)
XJOAI +0.32% (Last 34751.3, Starting value 34639.1)

HFA did most of the heavy lifting this week up a staggering 47.5%. My heart is screaming "take some profits" (and I might just do that in my actual holding) but for the purpose of this thread I am going to leave it as is.


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## Cobweb

Hi all

I have only read a few blogs in this thread so far but it seems like the place to ask my question.

I have searched high and low for some books on how to *trade*(not invest) stocks *not* using technical analysis but rather other methods such as SKC is talking about (fundementals, rumours, news, etc), but can not find any - can anyone help


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## skc

Cobweb said:


> Hi all
> 
> I have only read a few blogs in this thread so far but it seems like the place to ask my question.
> 
> I have searched high and low for some books on how to *trade*(not invest) stocks *not* using technical analysis but rather other methods such as SKC is talking about (fundementals, rumours, news, etc), but can not find any - can anyone help




You need to have some understanding of basic accounting and finance, knowledge of what drives different industries, a calculator/spreadsheet and some exposure to how the market tend to move... then put it all together.

This _may be _one such book - haven't actually read it myself.


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## skc

*New Position*

Buy 70,000 PGA @ $0.075 = $5250

*Rationale*

PGA is a collection of media/marketing companies that has really fallen on hard times. A massively discounted capital raising in August saw the stock fall from $1 before suspension to 10c and below. 

Yesterday PGA announced the sale of 5 of its businesses to SLM for $75.3m. These 5 business collectively earned revenue of $29.7m and EBITDA of $8.2m, pitching the EBITDA multiple of 9.2x (or ~2.5x revenue). SLM believes with synergy cost savings they are really paying ~6-7x.

The remaining PGA businesses can expect revenue ~$350m and EBITDA ~$55-60m. Applying same multiples as above give EV ~$330 to 400m. After the sale PGA has debt $122m, which means equity value of ~$200m. Or 13c for each of the 1.55B shares on issue if the market is willing to rate PGA fairly. It's currently trading on forward EBITDA multiple of ~4x.

Risks include revenue and EBITDA weaknesses. Potential upside include further sale of businesses at similar terms. Will put in a trailing stop if that 13c target is ever reached. Will cut the loss if there are any reported weaknesses in revenue or EBITDA.


----------



## skc

End of week 7 snapshot




Portfolio value up 9.53%
XJO +0.7% (Last 4777.3, Starting value 4745)
XJOAI +0.32% (Last 34751.5, Starting value 34639.1)

*Some notes:*

IIF - Confirmed takeover offer at 53.8c (including the March 2011 dividned). Also the December dividend of 0.8c went ex yesterday, resulting in cash of $200. Not the most exiting return (~8%) with completion not expected until after March next year. So probably means I would have held this for 6 months for a 8% return, or 16% annualised. Not bad given the risk, but not awesome either.

IHF - Ex-dividend yesterday to the tune of 3.83c resulting in cash of $$459.6. A competing offer emerged last week at $1. Better return than IIF if a deal can be done in the next 3 months.

WHC - Profit downgrade for the quarter due to wet weather knocked the share down a bit today. A 25% drop in profit for 1 quarter due to rain (which is essentially one-off event) doesn't change anything for the stock fundamentally. Would have been a perfect entry for someone who wanted to make an entry. No update on any corporate activities with all the attention on RIV.

Merry Xmas and thanks for watching.


----------



## skc

*Position closed*

29/12/2010 Sold 25,000 IIF @ $0.53

Realised Profit = $604.3 (~4.8%), or $804.9 (~6.4%) including dividend received.

Given the takeover price of $0.538 which will only be realised in 3 months' time, selling today at 53c and keeping some powder dry makes sense to me.


----------



## skc

*Position Closed*

4/1/2011 Sell 20,000 UXC @ $0.46

Realised loss = $815

Bad announcement today basically a profit downgrade for H1 on operating loss of some underperforming businesses which are now up for sale - which means writedowns as well.

Hopefully this means they have cleared the deck for H2 forward but I am not prepared to hang around for proof. There is always the risk that they can't sell their loss-making businesses and they continue to bleed the company...

Thankfully this was not actually a real holding. For exit price I just used the VWAP for trading today so far.


----------



## skc

*New Position*

5/1/2011 Buy 6,750 CSR @ $1.635 = $11,036

*Rationale*

CSR is a building products company - a sector that hasn't performed well after the GFC. CSR recently sold their sugar business (and another smaller Asian business) and received proceeds ~$2B. After paying off some debt ~$650m will leave them with $1,350m cash, or 89c per share. Leaving the reset of the business being valued at 74.5c.

The continuing operations can expect ~150-170m in NPAT for the year, or EPS ~9.9 to 11.2c. Compared that to 74.5c valuation from the market, that's a PE ~6.7 to 7.5.
CSR peers are trading at anywhere between 12 to 25...

On PE = 10 CSR should trade at ~$1.9. With all the cash CSR has planned to return at least 53c to share holders as capital return or fully franked dividends. Depending on the final mix, the franking credits may add a few more cents per share.

Will hold this and see how market reacts to the capital management announcement, which is slated for early 2011.

P.S. CSR = Commonwealth Sugar Refinery... having now sold their sugar business (and no longer owned by the Commonwealth) may be they should be known as Construction Stuff Retailer...


----------



## So_Cynical

skc said:


> *New Position*
> 
> 5/1/2011 Buy 6,750 CSR @ $1.635 = $11,036




Buying CSR at 1.63 will be an easy winner...how many times has the SP bounced off this level over the last 12 months, if i had money CSR would of been the only stock that i wanted to buy today.


----------



## skc

End of week 9 snapshot




Portfolio value up 12.5% (Including ~$997 in dividned accrued not shown in Portfolio Value)
XJO -0.84% (Last 4705, Starting value 4745)
XJOAI -0.71% (Last 34371.2, Starting value 34639.1)

*Some notes*

CSR - Talk about timing! Entry yesterday, announcement today. 9.13c fully franked dividned, 43.57c capital return, 3:1 consolidation. Ex-div on 12 Jan. I am willing to bet that post dividend the price will stay above $1.70.

WHC - Profit downgrade last week due to wet weather. They don't seem to have a force majeure clasue in their coal contract and will be forced to buy coal on the spot market to fulfill delivery obligations. With spot prices spiking up on supply constraints, it's a double whemmy for sure in the short term. They mentioned a profit update around January which makes this position a bit risky. But they might also update their sale process so can't afford to close it just now.


----------



## skc

skc said:


> P.S. CSR = Commonwealth Sugar Refinery... having now sold their sugar business (and no longer owned by the Commonwealth) may be they should be known as Construction Stuff Retailer...




Actually CSR = *Colonial *Sugar Refining Company. There was no Commonwealth 155 years ago.


----------



## skc

*New Position*

10/1/2011 Buy 7,000 CIF @ $1.15 for $8,050.

*Rationale*

CIF is very much unloved for the last 3 years - their weekly chart since 2007 is probably the ungliest chart you will ever see. It is actually trading below their GFC lows...

But CIF is actually a reasonably viable business and has a significant cash holding (~$220m, 69c per share). Operating cash flow after interest cost was ~$90m (~28cps), which comfortably funds the dividend of 14cps, representing a yield of ~12%.

Now put these numbers in a different light... let's say cash in bank may earn at best 5%, so those cash would earn only ~$11m. This means the real operating business is generating ~$79m FCF (24cps), and you can buy them at ~46c (current share price $1.15 minus cash component of 69c)... or over 50% return.

CIF is not without risk of course... debt stands at $1.5B  and balance sheet is complicated by a bunch of FX and interest rate derivatives. NTA is negative thanks to a lot of goodwill, but the market is almost pricing a liquidation so it's worth a caulcated speculation imo.

For exit I am looking for the 24c FCF to be valued at least 5x, or $1.20, plus cash of 69c bringing the target to ~$1.9. I am wrong if the cashflow situation changes for the worse.


----------



## skc

*Position closed*

14/1/2011 Sell 1,000 AXA @ $6.39 = $6,390.

Realised P&L = $1,549.14

Not much left between current price and AMP's offer of $6.43 - so will just sit on the cash and keep a bit more powder dry.

Cash at hand ~$25K.


----------



## skc

End of Week 10 snapshot




Portfolio value up 12.9% (Including ~$1613 in dividned accrued not shown in Portfolio Value)
XJO +1.19% (Last 4802, Starting value 4745)
XJOAI +0.70% (Last 34882.2, Starting value 34639.1)

*Some Notes*

CSR - Paid 9.13c fully franked dividend so adjust new price target at ~$1.80.


----------



## mikeroxoz

skc said:


> CSR - Paid 9.13c fully franked dividend so adjust new price target at ~$1.80.




Hi SKC,

Enjoying the thread and have a question regarding CSR.

From eTrade's Huntleys report

"Shares will trade ex-capital return 10 February" with a "capital return of 43.57c per share" and a 1 for 3 consolidation if approved by shareholders, to follow.

The capital return should be tax free, I assume, as done recently by Minara - MRE

Do you expect the SP to drop by an equivalent amount (43c) on the 11th Feb?

Just curious as to your thoughts.


----------



## skc

mikeroxoz said:


> Hi SKC,
> 
> Enjoying the thread and have a question regarding CSR.
> 
> From eTrade's Huntleys report
> 
> "Shares will trade ex-capital return 10 February" with a "capital return of 43.57c per share" and a 1 for 3 consolidation if approved by shareholders, to follow.
> 
> The capital return should be tax free, I assume, as done recently by Minara - MRE
> 
> Do you expect the SP to drop by an equivalent amount (43c) on the 11th Feb?
> 
> Just curious as to your thoughts.




In theory the price should fall by the capital return amount. But the market is a funny place and anything could happen.

MRE have a really good run from the announcement of the capital retrun to the actual ex-date. Similar nickel stocks didn't really move much during the stretch. That is the kind of move that I hope will happen, and bring CSR back up to a more reasonable PE compared to its peers.

AQA recently had a 1:10 'bonus share' issue which really have absolutely no impact on the company's finance at all. But for some crazy reason the stock stayed roughly at the same price when it should be ~10% lower (due to the 1:10 dilution). So anyone's guess on what the 3:1 consolidation would do to the CSR price as well.


----------



## mikeroxoz

skc said:


> AQA recently had a 1:10 'bonus share' issue. But for some crazy reason the stock stayed roughly at the same price when it should be ~10% lower




Hi SKC,

Had a look at Aquila (AQA) and I believe there was only a few days between the announcement of dilution and the ex date? Also a bit of a buy up.

Bit different here for CSR with a notified period of many weeks before ex date and a capital return of nearly 30% of SP flagged.

I am considering a broad CSR buy up, on the announcement, and then (gulp) a vote result of  "NO" for a capital return?

I could then envisage a 43c drop in SP without the capital return....yuck. Certainly would not want to be leveraging.

What chance of a YES vote for the 43c return...extremely high?

Curiously thinking aloud


----------



## skc

mikeroxoz said:


> Hi SKC,
> 
> Had a look at Aquila (AQA) and I believe there was only a few days between the announcement of dilution and the ex date? Also a bit of a buy up.
> 
> Bit different here for CSR with a notified period of many weeks before ex date and a capital return of nearly 30% of SP flagged.
> 
> I am considering a broad CSR buy up, on the announcement, and then (gulp) a vote result of  "NO" for a capital return?
> 
> I could then envisage a 43c drop in SP without the capital return....yuck. Certainly would not want to be leveraging.
> 
> What chance of a YES vote for the 43c return...extremely high?
> 
> Curiously thinking aloud




The chance of a NO vote on the capital return is close to zero. And even on the slim chance that it gets voted down, the share price will not drop by 43c, because that cash is still in the company.

The AQA example merely serves to point out that capital management and share consolidations often throw up silly scenarios that cannot be justified rationally.


----------



## skc

*Position closed*

20/1/2011 Sell 12,000 IHF @ $0.945 = $11,340.

Realised P&L = $1,582.37 (Incl. div of $459.6)

Announcement was made Tusday after close of market that the first bidder (NorthWest Value Partners) has dropped their bid. There is still another bid by RMR on the table for $1.00. The market's reaction was muted and didn't seem to mind that the chance of a proposal going through has somewhat reduced.

Given that IHF is a willing seller I still think the deal has a good chance of going ahead. But on the risk/reward basis I can't justify holding the position. I am not prepared to see my ~15% profit evaporate by chasing that last 5%. So today's volume at 94.5c offered an opportunity to exit.

Cash at hand ~$37.5K.


----------



## skc

*New Position*

27/01/2011 Buy 23,000 BAU @ $0.27 = $6,210

*Rationale*

Bauxite Resources is looking to build an alumina refinery in WA and is trying to do so through a JV with a Chinese company Yankuang Corp. The agreement executed yesterday appear to be quite a good deal for BAU.

Yankuang pays for 91% of the construction cost and receive 70% of the products, while BAU pays for 9% and gets 30%. Other benefits include assistance for obtaining finance, a 10-year off-take agreement for half of BAU's production, repayment of exploration costs, and even the BFS cost will be 90% paid for by Yankuang.

The proposed plant is 1.1Mtpa and construction is to commence within 5 years. My guess is such a plant will cost ~$1.5B which means BAU need to come up with only ~$135m. Assuming alumina price at ~$380/t, and production costs at ~$150/t, giving BAU ~$75m pa cash flow. For 20yr life this has an NPV ~$400m ($1.7 per share).

BAU has ~$50m cash, and their costs for the next 5 years (excluding construction costs) would only be $12-15m.

So I am paying ~27c for 15cps cash and $1.7 per share in project value. In order words, the project is valued by market at ~7%. 

Granted the project may not go ahead, as it is subjected to many steps including BFS, EPA approval and some protest from the local community.  But even if the whole project doesn't get off the ground, the cash backing will cushion the fall to ~20c. 

For exit, I am happy if market (provided confidence remain high) is to price the project to anything like 25-30% + cash at hand, which gives a target ~55-60c.

Unfortunately I haven't discover this stock until now and didn't buy in when it was trading below cash backing in Sept... the risks would have been almost negligible.


----------



## skc

End of Week 12 snapshot




Portfolio value up 14.6% 
XJO +0.63% (Last 4774.9, Starting value 4745)
XJOAI +0.28% (Last 34734.8, Starting value 34639.1)

Some Notes

WHC - Bids for the company are due early Feb so there might be news next week. Timing is bad as the QLD flooding probably took a few % off any offer price.

SOO - Expect quarterly cashflow statements next week to provide a view on whether they can maintain their sales and earnings trend.

HFA - Seems to enjoyed renewed interest this week and now trading at fresh 12month high. Original target is 36c... if that is reached then half position will be closed and a ~15% trailing stop applied to the remaining half.

CSR - EGM scheduled for 8 Feb to vote on the capital return and share consolidation. Will be interesting to see if the price jumps on announcement of the outcome (and thereby dis-proving the efficiency market hypothesis).


----------



## stock nub

There is a good article on BAU in the AFR weekend magazine.

It explains how the land does not require state royalties to be paid, instead they go to the land holder as some of the land was settled before state royalty agreements came about. So the locals with bauxite on their land support the company, while the locals with no bauxite do not support the companys plans. Some people in the town support the company as they think it will bring jobs to a town, which is currently struggling. Others think it will destroy the amenity of the place.

Worth having a look at.


----------



## skc

stock nub said:


> There is a good article on BAU in the AFR weekend magazine.
> 
> It explains how the land does not require state royalties to be paid, instead they go to the land holder as some of the land was settled before state royalty agreements came about. So the locals with bauxite on their land support the company, while the locals with no bauxite do not support the companys plans. Some people in the town support the company as they think it will bring jobs to a town, which is currently struggling. Others think it will destroy the amenity of the place.
> 
> Worth having a look at.




Thanks. Will look for a copy.


----------



## skc

End of Week 13 snapshot




Portfolio value up 15.5% 
XJO +2.48% (Last 4862.7, Starting value 4745)
XJOAI +1.24% (Last 35067.2, Starting value 34639.1)

It's been about one quarter and account is doing a respectable 15.5%, albeit the majority of profits are still open. The market on the other hand has barely beaten term deposit.

*Some Notes*

SOO - Quarterly report released. Revenue of $15.689m for the quarter which is all time high (+15.4% against previous quarter of $13.591m, +185% against this time last year at $8.45m). Cash flow however is negative, probably due to high forward orders (and hence build up of inventory. With only $2.4m cash left they might have to either raising some capital or arrange some bank debt. Reporting on 24 Feb.

HFA - Provided market update on interim earning. EBITDA declined due to currency movements but underlying number is a 5% improvement. The benefits from their alliance has yet to flow through but the share price is pre-empting the benefits already. Reporting on 21 Feb.

PGA - Made solid move this week and seeing 10c which is the re-capitalisation price, so expect plenty of sellers around these levels. Reporting on 15 Feb.

VPG - No real news but strong gains in recent weeks. Reporting on 24 Feb and may provide update on corporate transactions then.

IHF - Glad I closed the position when I did. One bidder fell through and the other bidder said today they don't want to pay $1. Some desperate seller had to cash out at 86c. And the poor ING management still has to 'engage with the potential bidder' - it is pretty clear who is the more willing party here.


----------



## skc

*New Position* 

8/2/2011 Buy 3000 MYE @ $1.45

*Rationale*

Mastermyne is a mining service provider focusing on coal, and was only listed back in May 2010. It is a relatively small outfit in the mining space, with market cap of ~$110m and revenue ~$98m. FY2010 EPS was 10.7c, putting the purchase price at a PE of 13.6.

MYE appear to have decent prospects going forward. Order book for FY11 is fully contracted, plus further sales pipeline of $152m for FY2011 and $204m for FY2012. Employees have increased some 50% since June 2010, and that's after a 40% rise in FY10. Historically (before listing) revenue and EBITA have both grown at 18% CAGR for the last 4 years.

If these numbers translate well into future earnings (i.e. no major screw up due to rapid expansion) then today's PE of 13.6 is good value. Something like FGE has a PE ~19 and Price/NTA ~6.2. This is not FGE yet but similar mulitples could offer a target ~$1.8-$2.2. This price will probably be realised with a few more solid HY reports, however.


----------



## skc

*New position*

8/2/2011 Buy 15,000 ZGL @ $0.31 = $4,650

*Rationale*

ZGL is a manufacturer of hydraulic machinery and precision engineering equipment company. These products are used in the marine, oil & gas and construction industries. Pretty small company at $65m market cap.

Yesterday the company released HY guidance that revenue in HY grew by 47%, while NPAT is expected to be ~S$7.8 to 8.3m ($6-$6.5m $A). Cash flow has been strong historically and in Jun 10 balance date there were ~$20m cash at hand against debt drawn at ~$14m. The firm is also undertaking an on-market buyback program.

If the HY figure translates to full year earning, then the purchase price represents a PE of ~5. And if these revenue and profit numbers can be sustained, a PE ~8 to 10 would be my exit target.


----------



## sinner

Loving this thread skc, keep it up!

I keep forgetting to look at it, and when I come back so many interesting things have happened.

Someone better edit wikipedia and put your name in here:
http://en.wikipedia.org/wiki/Alpha_(investment)


----------



## skc

sinner said:


> Loving this thread skc, keep it up!
> 
> I keep forgetting to look at it, and when I come back so many interesting things have happened.
> 
> Someone better edit wikipedia and put your name in here:
> http://en.wikipedia.org/wiki/Alpha_(investment)




Thanks, Sinner. The performance has been better than expected as I was only aiming for something like 30% a year. Early days yet the equity curve could go either way from now on!

P.S. CSR went ex-capital return today so I've adjusted the buy price to reflect the cost base. Buy price of $1.635 is now $1.1993. No silly price action from that.


----------



## skc

*New Position*

10/2/2011 Buy 150,000 CAJ @ 3.7c = $5,550.

*Rationale*

CAJ is a small scale independent diagnostic imaging outfit with 28 sites. FY09/10 was a turnaround year when the company grew revenue by 25% and posted a small NPAT of $0.7m (vs $1.3m loss the year before).

In FY10/11 management is forecasting $1.6m NPAT supposed by 9 new sites and like-for-like growth (14% from FY09 to FY10). That however may be conservative given that Sept Qtr already saw NPAT ~$0.5m.

If they can achieve $2m profit (0.66cps) and 15% growth for a few more years, the current PE of ~6 is more than cheap compared to larger listed firms operating in similar fields (PRY PE=13, SHL PE=15.6).

Exit target with PE~10 or 6.5-7c.

P.S. CAJ reports tomorrow so I am sticking my neck out here a bit on expectation of a good result.


----------



## suhm

cheers skc like the thread and sharing your ideas.


----------



## skc

*End of week 14 summary*




Portfolio value up 16.3%
XJO +2.86% (Last 4880.9, Starting value 4745)
XJOAI +2.58% (Last 35534.5, Starting value 34639.1)

*Some notes*

MFC - It's main asset is shareholding in BSM which has reached a new high. Target now ~18c.

VPG - 2 announcements this week. First regarding Sheraton Noosa being put on market. Not sure Sunshine Coast property market is that hot at the moment...Second was an update on the Australian funds management business. Basically they are divesting their co-investment in their own fund. What it comes down to is slimming the business, but the impact will obviously depends on the sale price. And the elephant in the room is still potential corporate transaction.

CSR - AGM last week and no surprises regarding capital return and 3-for-1 consolidation. Adjusted target after that would be ~$4. There was no update on trading performance in the meeting, and CSR is off-cycle so they don't report until May.

BAU - Big spike today to a high of 35c, but cooled off after response of "No. Nothing. No. N/A." to the speeding ticket. News may emerge in the coming weeks but it could well just be a technical breakout.

ZGL - Another share making good move after my entry (how many people read this )...reporting 27 Feb.

CAJ - I thought they were reporting today but they only issued an update. 6 month revenue as forecasted which is a 27% increase from pcp. NPAT also in line with guidance. Market didn't bat an eyelid however.



suhm said:


> cheers skc like the thread and sharing your ideas.




Thank you. Having a thread like this makes me behave in a more disciplined manner so I benefit as well.


----------



## suhm

Hehe some of the ZGL volume was from me after reading your post, not nearly enough to account for the move though, good find, more companies in that sort of vein would be great for me.  low PE companies, with net cash, good profit growth, good ROE and trending up are very hard to find unless you physically read every companies presentations, annual reports and keep track of them to enter at an opportune time. I like them because it usually makes for very limited downside but quite large upside with earnings expansion and pe expansion.
Only concern I have is that it seems to be a family run company and the recent buyback and the issuing of shares to senior management, the chairman and his 2 sons is increasing their hold on the company. I think between them and the chairman's brother they hold about 70% of the company.
On the plus side they do pay a dividend, I'm not sure why they do as it doesn't seem to be the most efficient way for them to get money out of the company but I'm not aware of the rules regarding foreign dividend income in Singapore but from what they wrote they don't seem to have to pay witholding tax to Australia. Their wages are also not excessively outlandish, 400+k for the chairman is on the high side but his sons get about 200k and the buyback was done at much lower prices so should help push up eps.


----------



## robusta

SOO seems like a interesting company. No debt, good ROE. Not sure if paying a dividend is the best use of capital, also wondering if they can maintain margins in very competitive solar industry. 

I will be watching the 1/2 year report with interest.


----------



## skc

suhm said:


> Hehe some of the ZGL volume was from me after reading your post, not nearly enough to account for the move though, good find, more companies in that sort of vein would be great for me.  low PE companies, with net cash, good profit growth, good ROE and trending up are very hard to find unless you physically read every companies presentations, annual reports and keep track of them to enter at an opportune time. I like them because it usually makes for very limited downside but quite large upside with earnings expansion and pe expansion.
> Only concern I have is that it seems to be a family run company and the recent buyback and the issuing of shares to senior management, the chairman and his 2 sons is increasing their hold on the company. I think between them and the chairman's brother they hold about 70% of the company.
> 
> On the plus side they do pay a dividend, I'm not sure why they do as it doesn't seem to be the most efficient way for them to get money out of the company but I'm not aware of the rules regarding foreign dividend income in Singapore but from what they wrote they don't seem to have to pay witholding tax to Australia. Their wages are also not excessively outlandish, 400+k for the chairman is on the high side but his sons get about 200k and the buyback was done at much lower prices so should help push up eps.




Feel free to pm me any shares that you find interesting . In the past week I've read most profit reports on small caps. Another thing I do is to look at companies that are doing buy backs - in many cases they qualify as having spare cash, high ROE and low PE, although not always high growth (as they don't know how to better spend their cash).



robusta said:


> SOO seems like a interesting company. No debt, good ROE. Not sure if paying a dividend is the best use of capital, also wondering if they can maintain margins in very competitive solar industry.
> 
> I will be watching the 1/2 year report with interest.




I think the market is growing at such an exceptional rate - while it is competitive, margin compression usually happens in an industry where supply is growing faster than demand. I am however more concerned about SOO's cash position as stated before - and you are right that about the dividend payout (which I asked for last year).


----------



## suhm

I was updating a thread with all of my open positions and when I close them as well, not nearly as organised as yours though. Except for a few illiquid companies I don't have enough cash where accumulating a large enough position is a problem.


----------



## skc

skc said:


> But CIF is actually a reasonably viable business and has a significant cash holding (~$220m, 69c per share). Operating cash flow after interest cost was ~$90m (~28cps), which comfortably funds the dividend of 14cps, representing a yield of ~12%.
> 
> Now put these numbers in a different light... let's say cash in bank may earn at best 5%, so those cash would earn only ~$11m. This means the real operating business is generating ~$79m FCF (24cps), and you can buy them at ~46c (current share price $1.15 minus cash component of 69c)... or over 50% return.
> 
> CIF is not without risk of course... debt stands at $1.5B  and balance sheet is complicated by a bunch of FX and interest rate derivatives. NTA is negative thanks to a lot of goodwill, but the market is almost pricing a liquidation so it's worth a caulcated speculation imo.
> 
> For exit I am looking for the 24c FCF to be valued at least 5x, or $1.20, plus cash of 69c bringing the target to ~$1.9. I am wrong if the cashflow situation changes for the worse.




HY results out on 15 Feb. LCB reported flat underlying EBITDA, while Inexus recorded a small 4% increase. Overall cashflow from operations = $47.8m excluding interest income (15cps), an improvement of 50% from pcp. Cash balance is now $237m or 75cps. Given that FCF and cash balance have both improved I am happy to continue my hold. Target ~$1.9 remains.


----------



## skc

*New Position*

16/2/2011 Buy 8,000 AAD @ $1.25 = $10,000.

*Rationale*

A good HY report today by ADD who runs theme parks, bowling alleys, healthclubs and marinas etc. Apparrently cheap leisure activities (like going to the bowling alley) are not really that affected by interest rate rises. Every business segment reported top line and EBITDA growth, and January has been strong so hopefully that will carry them through to a solid full year result. No surprises in anything like asset revaluations etc.

Reported EPS 8.63cps, up 10.9%. Assuming full year to be 2x HY figure, at $1.25 purchase price I've paid a PE ~7. Exit target I'd look for PE ~11-12, or $1.8-$2. 

It's always a nice feeling to buy something on open and watch it rise through the day and be in the green from the start


----------



## skc

skc said:


> *New Position*
> 
> Buy 70,000 PGA @ $0.075 = $5250
> 
> *Rationale*
> 
> PGA is a collection of media/marketing companies that has really fallen on hard times. A massively discounted capital raising in August saw the stock fall from $1 before suspension to 10c and below.
> 
> Yesterday PGA announced the sale of 5 of its businesses to SLM for $75.3m. These 5 business collectively earned revenue of $29.7m and EBITDA of $8.2m, pitching the EBITDA multiple of 9.2x (or ~2.5x revenue). SLM believes with synergy cost savings they are really paying ~6-7x.
> 
> The remaining PGA businesses can expect revenue ~$350m and EBITDA ~$55-60m. Applying same multiples as above give EV ~$330 to 400m. After the sale PGA has debt $122m, which means equity value of ~$200m. Or 13c for each of the 1.55B shares on issue if the market is willing to rate PGA fairly. It's currently trading on forward EBITDA multiple of ~4x.
> 
> Risks include revenue and EBITDA weaknesses. Potential upside include further sale of businesses at similar terms. Will put in a trailing stop if that 13c target is ever reached. Will cut the loss if there are any reported weaknesses in revenue or EBITDA.




*Position closed*

16/2/2011 Sold 70,000 PGA @ $0.091 = $6,370.

Realised P&L = $1,108.

PGA released their HY results today with what I thought was pretty weak figures.

Revenue down 3.65%. EBITDA $32.9m, down ~13%. While the EBITDA figure is within my initial assumption of $55-60m for the year, I don't like where the numbers are heading (i.e. south). The commentary is full of 'If it wasn't for this and for that we would have done better' sort of BS. So happy to take my small win and leave the table.

Cash on hand = ~$15K


----------



## skc

*Position Closed*

18/2/2011 Sold 90,000 SOO @ $0.115 = $10,350.

Realised P&L = $-121.14 (including dividend $337.5).

HY results out today. The nubmers were not terrible - top line growth was solid up 25% vs last 6 months and up 71% vs pcp. Margins are facing pressures, and op cash flow was negative as pointed out earlier.

What was unforeseened however was a significant loss in FX forwards. This may be a one-off and probably non-cash, but that knocked the NPAT and EPS figures to a discimal $0.9m and 0.46cps... compared to my expectation of $2.5m and 1.25cps. 

Given that I have no visibility into the nature of the FX contract (and future implications), the difficulty associated with cash flow and the overall 'tone' of the report (which sounded like 'We are going OK and she would be right'). I am happy to just essentially scratch this position. I just don't have the same conviction as I entered the position. And with a few new opportunities coming up a good chance to free up some cash.

Cash on hand ~$25K.


----------



## skc

skc said:


> *New Position*
> 
> 10/2/2011 Buy 150,000 CAJ @ 3.7c = $5,550.
> 
> *Rationale*
> 
> CAJ is a small scale independent diagnostic imaging outfit with 28 sites. FY09/10 was a turnaround year when the company grew revenue by 25% and posted a small NPAT of $0.7m (vs $1.3m loss the year before).
> 
> In FY10/11 management is forecasting $1.6m NPAT supposed by 9 new sites and like-for-like growth (14% from FY09 to FY10). That however may be conservative given that Sept Qtr already saw NPAT ~$0.5m.
> 
> If they can achieve $2m profit (0.66cps) and 15% growth for a few more years, the current PE of ~6 is more than cheap compared to larger listed firms operating in similar fields (PRY PE=13, SHL PE=15.6).
> 
> Exit target with PE~10 or 6.5-7c.
> 
> P.S. CAJ reports tomorrow so I am sticking my neck out here a bit on expectation of a good result.




CAJ released the full report today. Everything pretty much as per forecasted. NPAT $732K and positive operating cash flow of $2.9m. Full year PBT guidance of $2.25 may be exceeded by 3-4% (that's the smallest upgrade ever...). 

Balance sheet probably a little bit weak. They invested a fair bit in plants/equipment and leases so cash balance is unchanged from last period at ~$850K.

Continue to hold, but it didn't have the boost to share price that I was looking for.


----------



## skc

*New Position*

18/02/2011 Buy 5,000 CFE @ $0.645 = $3,225

*Rationale*

One of the odd companies on ASX, CFE is an investment house with many assets. They've had a pretty decent track record of buying up cheap assets and off-loading them after adding value etc.

Sum of parts valuation is ~$1, based on Patterson's research which I agree with. If they managed to sell their main asset at a reasonable price that will provide a strong catalyst for the share price. 

The position however is kept small as recent price action has been a bit odd (hmm, may be that's technical analysis??). If it keeps falling on no news I will build this up to a full size position. If it shoots right back up then I guess I will live with a smaller profit.


----------



## skc

End of week 15 summary




Portfolio value up 21.3%
XJO +4.04% (Last 4936.7, Starting value 4745)
XJOAI +3.9% (Last 36016.6, Starting value 34639.1)

*Notes*

A good week for the portfolio closing some 5% higher than last week. Big contributers included AAD, HFA, MFC and CAJ. But CAJ's gain really doesn't count because it was just a very low volume uptick on a pretty small thin stock.

2 more closed positions (PGA and SOO) after their profit results looked like good decisions so far.

Next week should see a few more reports, but I am mostly interested in MYE, VPG and ZGL - they will verify my reason for entry or otherwise.

NB: The figure for 'Today's Change' is completely incorrect due to the CSR 1-for-3 consolidation...The number of shares and purchase price has been adjusted to reflect this.


----------



## wtang89

It is nice to see you getting onto CFE too SKC^^. I off loaded my stack in CFE at around 69c a few days ago, and is looking to reenter, given the fundamentals of the company. Been kicking myself for not queuing up a buy order as it dipped interday to 55c just yesterday though! (would have been the easiest 10-20% return EVER!). Oh wells. Keep up the good work



skc said:


> End of week 15 summary
> 
> View attachment 41465
> 
> 
> Portfolio value up 21.3%
> XJO +4.04% (Last 4936.7, Starting value 4745)
> XJOAI +3.9% (Last 36016.6, Starting value 34639.1)
> 
> *Notes*
> 
> A good week for the portfolio closing some 5% higher than last week. Big contributers included AAD, HFA, MFC and CAJ. But CAJ's gain really doesn't count because it was just a very low volume uptick on a pretty small thin stock.
> 
> 2 more closed positions (PGA and SOO) after their profit results looked like good decisions so far.
> 
> Next week should see a few more reports, but I am mostly interested in MYE, VPG and ZGL - they will verify my reason for entry or otherwise.
> 
> NB: The figure for 'Today's Change' is completely incorrect due to the CSR 1-for-3 consolidation...The number of shares and purchase price has been adjusted to reflect this.


----------



## skc

wtang89 said:


> It is nice to see you getting onto CFE too SKC^^. I off loaded my stack in CFE at around 69c a few days ago, and is looking to reenter, given the fundamentals of the company. Been kicking myself for not queuing up a buy order as it dipped interday to 55c just yesterday though! (would have been the easiest 10-20% return EVER!). Oh wells. Keep up the good work




I am aware of CFE some 6 months ago but was too lazy to look at it in details (it had so many assets). Plus I was put off by how people are so enthusiastic about it (i.e. more likely to be over-valued). I am sure the value would have been obvious back at 40c...

Hopefully those who didn't do their research will sell now because they were riding on the company buy back (which should now be exhausted) so I can build this position up.

Having said that the bulk of the $1 per share valuation is derived from an unlisted asset - the price tag of $500m being thrown around, while not unrealistic, is certainly subjected to fluctuation in the mind of the market.


----------



## skc

skc said:


> *New Position*
> 
> 18/02/2011 Buy 5,000 CFE @ $0.645 = $3,225
> 
> *Rationale*
> 
> One of the odd companies on ASX, CFE is an investment house with many assets. They've had a pretty decent track record of buying up cheap assets and off-loading them after adding value etc.
> 
> Sum of parts valuation is ~$1, based on Patterson's research which I agree with. If they managed to sell their main asset at a reasonable price that will provide a strong catalyst for the share price.
> 
> The position however is kept small as recent price action has been a bit odd (hmm, may be that's technical analysis??). If it keeps falling on no news I will build this up to a full size position. If it shoots right back up then I guess I will live with a smaller profit.




*Position added*

21/2/2011 Buy 5,000 CFE @ $0.615 = $3,075


----------



## skc

*Partial Position closed*

21/6/2011 Sell 20,000 HFA @ $0.30 = $6,000.

Realised P&L = $2,191.

*Rationale*

HY report came out today. A mixed result overall. Reported revenue and EBITDA both down mostly due to negative currency effects from the strong $A. Underlying FUM/FUA went up 8%. AUM were up in the US but down in Australia. EBITDA on constant currency up slightly ~5%, but basically flat after FX effect.

I don't have a view on the FX but it's not nice to see all the gains evaporate due to the rising $A. Bear in mind that the avg rate for $A was 0.94 in that half so the second half will be much the same (avg rate would probably be ~1.0). 

The stock still has upside but it feels prudent to bank some profit. It has gone to within 10% of my target afterall.


----------



## skc

*Position Closed*

22/02/2011 Sell 2250 CSR @ $3.48 = $7,830.

Realised P&L = $342.17 (incl. dividend and capital return) plus $264 in franking credits.

*Rationale*

CSR has gone through the dividend, capital return and 3-for-1 consolidation. It was undervalued and I was looking for those events to be catalyst for closing the value gap against its peers. 

But none of that happened so I am happy to just scratched the trade. They don't report until May so there is no immediate catalyst for share price change.

Cash on hand =  ~$33K


----------



## skc

*Position Closed*

23/2/2011 Sold 5,000 VPG @ $1.205 = $6,025.

Realised P&L = $163.

Report out today and the headline figures were all pretty poor, even though those were not why I took the position in the first place.

Underlying earnings of 3.1cps isn't exactly attractive (PE ~19), more writedowns in the development business amounting to $50m. NTA now $2.32 as opposed to $2.69 6 months ago.

The update on the MBO proposal was also disappointing. First time any number is revealed and it was GBP 52m. After paying back some debt ~GBP 26m will be available to the company (~$42m, or 23cps). So the offer is 1/5 of the share price for the 'crown jewel' in the business... discussion with other 3rd parties are ongoing but not sure where this will lead to. This position was a play on this event and it's not looking like it will work out the way I wanted, hence the exit. 

With the world going a bit silly these days I don't mind holding more cash.

Cash on hand = $39K


----------



## kermit345

Hi skc,

I like checking through your thread just to see how your doing even though majority of the stocks you've used haven't really came across my screen/investment list.

Just wondering what your thoughts are on MML fundamentally? I bought a week ago at $6.90 and thought today's announcement was really positive but it seems to have been hammered. Gold is back up around the $1,400 mark and their costs per ounce area  minor $186 per ounce. Thats a massive margin and they are using the free cash flow to upgrade the site to produce 200,000 ounces a year instead of 100,000 currently. Will also use the free cash flow for exploration and expanding the resource.

I see massive potential for MML to head towards the $9 mark if they can maintain their first half EPS through the second half. Would be interested in your thoughts?

Cheers


----------



## skc

kermit345 said:


> Hi skc,
> 
> I like checking through your thread just to see how your doing even though majority of the stocks you've used haven't really came across my screen/investment list.
> 
> Just wondering what your thoughts are on MML fundamentally? I bought a week ago at $6.90 and thought today's announcement was really positive but it seems to have been hammered. Gold is back up around the $1,400 mark and their costs per ounce area  minor $186 per ounce. Thats a massive margin and they are using the free cash flow to upgrade the site to produce 200,000 ounces a year instead of 100,000 currently. Will also use the free cash flow for exploration and expanding the resource.
> 
> I see massive potential for MML to head towards the $9 mark if they can maintain their first half EPS through the second half. Would be interested in your thoughts?
> 
> Cheers




Hi Froggy... sorry I don't have a view on MML. You may or may not have noticed that all positions on this thread are based on events (takeover, asset sale), market inefficiencies (price << NTA) and *relative *value. 

I say relative because I've always looked to other similar companies to see if the stock is cheap or expensive compared to other listed stocks. PE of 7 is low if everyone else is trading at PE of 15. PE of 10 is high if others are at 6...

I don't have a view on the gold price (and if I did I would just trade the gold), or the relative value of MML's gold in the ground vs its peers... so can't help you there.


----------



## kermit345

skc said:


> Hi Froggy... sorry I don't have a view on MML. You may or may not have noticed that all positions on this thread are based on events (takeover, asset sale), market inefficiencies (price << NTA) and *relative *value.
> 
> I say relative because I've always looked to other similar companies to see if the stock is cheap or expensive compared to other listed stocks. PE of 7 is low if everyone else is trading at PE of 15. PE of 10 is high if others are at 6...
> 
> I don't have a view on the gold price (and if I did I would just trade the gold), or the relative value of MML's gold in the ground vs its peers... so can't help you there.




Not a problem, thanks for the reply anyway and keep up the good/interesting trades . Will continue to watch with interest. If you do by any chance happen to take a look at MML feel free to PM me, always looking for others to discuss fundamentals and investing for value.

Cheers, Ribbit.


----------



## skc

*End of Week 16*




Portfolio value up 18.1%
XJO +1.93% (Last 4836.5, Starting value 4745)
XJOAI +1.58% (Last 35185.1, Starting value 34639.1)

*Notes*

Not the best week for equities, but a correction is long overdue. I purchased some protection for my portfolio last week and that is paying off. But I won't include those for the purpose of this thread. This account is ~30% cash which is probably right for the moment.

BAU - Sold down heavily after the EGM re the . Pretty much back to cash backing.

MYE - Good solid HY results that's basically at expectation with 16% yoy growth.

WHC - The auction is taking longer than I wanted but has cushioned a lot of the fall in the share price. Not sure what the new carbon tax means to the share but I suspect quite a few bidders will want to revise the bid price down.

ZGL - Good result and outlook for the full year. Share price responded well after the announcement.


----------



## skc

*New Position*

4/3/2011 Buy 20,000 BSA @ $0.27 = $5,400.

*Rationale*

BSA is Building Services and Contracting company doing things like installing Foxtel cables, maintaining buildings etc. They recently reported a very solid HY result with 39% growth in revenue to $190m and 71% growth in NPAT to $4.3m (2c EPS).

Order book is strong (over $260m) with majority of H2 and FY12 revenue under contract, and outlook is very positive.

Current price is trading at a PE of just ~6.8, even thought the growth looks to be sustainable for the next few years. Other listed peers (SPT, PRG) are trading at PE 15 or higher, without this sort of growth prospects.

Preliminary target is a PE ~12-13, or ~50c. Will propbably adopt a trailing stop if we get there. I am wrong if the top and bottom line growth runs into trouble.


----------



## skc

*End of Week 18*




Portfolio value up 14.6%
XJO -2.11% (Last 4644.8, Starting value 4745)
XJOAI -1.35% (Last 34170, Starting value 34639.1)

*Notes*

The portfolio matched the market's 4.5% loss for the week. 

BAU - Released their HY accounts today. $47m cash = 20cps cash backing with a few $m to come in from their Chinese partner on repaying thier exploration costs. Good buying opportunity if they dip significantly below their cash backing.

BSA/MYE/ZGL - Despite going ex-div this week the share prices have held up very well. 

CIF - Not showing any real imperative to move either way. If the market keeps falling this is one position I wouldn't mind scratching.

MFC - Guess I should have taken at least partial the profit at my oridinal target... It's main asset BSM shares has fallen quite sharply from 50c down to 38c today. It's still 'undervalued' compared to its assets, but I won't be around to wait for that gap to close if BSM keeps falling. I am putting a stop loss on MFC which will be triggered if BSM closes below 35c.

WHC - It's fallen a long way as do many coal stocks. But with quite few buyers lining up I would have thought the price will hold up better. Still happy to hold until the corporate transaction reaches its conclusion.


----------



## skc

Phew... what a day!

*Position Closed*

15/3/2011 Sold 5000 HFADA @ $1.275 = $6,375.

Half position previously closed on 21/2/2011

Realised P&L (on full position) = $4,756.84

*Rationale*

HFA reached a peak of $1.48 not too long ago and 15% trailing stop triggered.


----------



## skc

*Position Closed*

15/3/2011 Sold 100,000 MFC @ $0.125 = $12,500.

Realised P&L  = $1,981.6

*Rationale*

Trailing stop placed on BSM share price triggered.

Cash on hand = ~$52.5K.


----------



## levin123

Hi Skc,

Very very impressed with thread. Was just wondering how I could learn about the rationale you are using. By this I mean how I can learn that if ABC happens within a company XYZ will happen to the SP or future earnings. Is this knowledge you have acquired from years of learning about economics? 

Thanks alot!


----------



## skc

levin123 said:


> Hi Skc,
> 
> Very very impressed with thread. Was just wondering how I could learn about the rationale you are using. By this I mean how I can learn that if ABC happens within a company XYZ will happen to the SP or future earnings. Is this knowledge you have acquired from years of learning about economics?
> 
> Thanks alot!




Thanks Levin. I was a lot more impressed with myself 3 weeks ago!

As I said before you need some basic finance knowledge to read P/L and balance sheet, and you need a fair bit of market knowledge on what is considered 'average valuation' and what is considered 'cheap' for various industries/companies. Then you need a good methodology to identify these companies. Last but not least you need to develop a professional attitude towards position management - position sizing, timing on entry, conviction to hold, and ability to sell when things do/don't work out.


----------



## skc

*New position*

21/3/2011 Buy 28,000 AMU @ $0.305 = $8,540.

*Rationale*

A takeover offer at 33c cash + 2c dividend implies a premium of ~15% at the entry price. If all goes well the transaction will be completed around end of June, so 15% return over 3 months is the potential reward for this position. 

The risk is that the deal falls over. AMU has been in trading halt for the last month or so while the buyer did plenty of due diligence.. so the chance of a change of heart should be small. The acquirer is also still subjected to finance approval and that is expected to take a week or so. If and when that comes through the share price should trade close to the offer price. Then there's independent expert target statement, court approval and shareholder votes... most of these should be formalities. 

If the deal falls over I expect AMU to fall a bit but not drop into a hole. They were trading close to their cash backing before the deal was announced and now demonstrated that the rest of the businesses are not worth nothing.


----------



## skc

*End of Week 20*

Portfolio value up 16.7%
XJO -0.05% (Last 4742.6, Starting value 4745)
XJOAI +0.83% (Last 34926.7, Starting value 34639.1)

*Commentary*
A very eventful 2 weeks on the market for sure. The portfolio recovered 2 percent again pretty much in line with the overall market. At the peak of the turmoil there were plenty of cheap shares aruond, but most of my really lowball offers didn't get filled . Plus I was very busy with my pairs trading which benefited greatly from the volatility so I couldn't monitor those on my watch list as close as I would have liked.

My stance is now neutral so I will looking for some buying now with the cash balance ~$44K.

CAJ - Announced that they are buying the Radiology operations of IMI for 45.56m shares (~$2m) + possibly $600k in performance based pay over the next 2 years. Overall I am not sure I liked the transaction.
  - Information on the business was hard to come by even though the seller IMI is a listed company. As far as I can tell it had a revenue ~$2m and was making losses.
  - CAJ increased its share on issue by ~15% but only bought revenue of $2m. They need major turnaround to make profit or it will be a large dent to EPS.
  - CAJ shares were cheap (hence the hold in this portfolio). So using undervalued shares to buy a loss-making business just doesn't sound like an awesome deal.

It's difficult to really tell the impact of the acquisition, although the market seemed to like it. I will contend with the hold until their next update.

ZGL - A significant holder selling down but has been met with pretty good buying demand. They are now trading a 3 year high. Target remains 60c.


----------



## suhm

ZGL was tipped by our good friend Roger Montgomery just recently which might explain the uptick but I think there will be a lot of supply as Ventrade seems to be a fairly commited seller so probably won't see a major uptick yet as it was up to nearly a 10% uptick for the day after the tip the previous night but ended only 2.5% up. They supplied 430k of the 675k volume on the 23/3 and 2.1m of the 3.7m volume on the 24/3 and had 20m left, volume was 7.1m on the 25/3 so will probably take a couple of weeks to churn out at this sort of volume, after which supply should start to dwindle.


----------



## skc

suhm said:


> ZGL was tipped by our good friend Roger Montgomery just recently which might explain the uptick but I think there will be a lot of supply as Ventrade seems to be a fairly commited seller so probably won't see a major uptick yet as it was up to nearly a 10% uptick for the day after the tip the previous night but ended only 2.5% up. They supplied 430k of the 675k volume on the 23/3 and 2.1m of the 3.7m volume on the 24/3 and had 20m left, volume was 7.1m on the 25/3 so will probably take a couple of weeks to churn out at this sort of volume, after which supply should start to dwindle.




Hmm didn't know that but it does explain the sudden interest in the stock. Too bad he's 20% too slow! Any info on his target / Intrinsic value?

On Ventrade - Agree they are committed but they don't seem desparate. Not sure what their final target hold is so they may or may not sell down all their holding. They probably have 7% left after Friday. A few more Roger's fans would be good.


----------



## tech/a

> There is much debate about the pros and cons of fundamental vs technical analysis over here...https://www.aussiestockforums.com/for...tal#post590126




Been following this thread with interest.
Congrats to SKC on being able to trade profitably on a shorter type trade window than most "Fundamentally"

Being a technical trader I thought Id post *once a month* a print out of my monthly portfolio report. This is my actual report from IB. I wont post trades as I would be forever updating making far far more trades than SKC in a week and this is SKC's thread. The results I post just as a balance considering the initial post in the very first paragraph of this thread.
Ill not be trading Last week of May to Mid July as ill be in Europe travelling.

To kick off this is Last 12 mths Feb to Feb




And Feb 23 to March 25




Again just for some interest.


----------



## So_Cynical

tech/a said:


> Again just for some interest.




Just outa interest.


How many trades per month/year and how much brokerage.
How much time are you spending per week trading

Y on Y (March) my fundamental trading profit (closed trades is 16.8%) with divis its closer to 21%


----------



## tech/a

Sorry didn't post the 12 mth as Ive only been trading this portfolio since October when I got back from FIJI.

Trades around 10-20/week
IB is $6 in and out so negligible.
Time I have a trading screen on my desk
I guess in real time it takes around 30-40 mins a day.


----------



## prawn_86

Tech if you want to posts your results i would suggest doing it in a new thread so as not to derail this thread.

This thread isn't really debating FA vs TA, its pretty much just about SKC's fundamental positions.

Thanks


----------



## tech/a

No dont want to start a thread.
Dont want to stuff up the thread either.
So Ill can the idea.


----------



## skc

tech/a said:


> Been following this thread with interest.
> Congrats to SKC on being able to trade profitably on a shorter type trade window than most "Fundamentally"
> 
> Being a technical trader I thought Id post *once a month* a print out of my monthly portfolio report. This is my actual report from IB. I wont post trades as I would be forever updating making far far more trades than SKC in a week and this is SKC's thread. The results I post just as a balance considering the initial post in the very first paragraph of this thread.
> Ill not be trading Last week of May to Mid July as ill be in Europe travelling.




Great results Tech. Was there leverage involved and does that include your futures trading?



> There is much debate about the pros and cons of fundamental vs technical analysis over here...https://www.aussiestockforums.com/for...tal#post590126




On current run rate this thread is looking at similar percent return annualised, but it will depend on how much time I can devote to digging those opportunities in a few month's time... No, not going on a nice holiday, but got a new addition to the family coming along .

Having said that, this thread was never meant to show/prove one method being superior (return-wise) than the other. Too often people mis-understood fundamental analysis as buy-and-hold and never admit to making a mistake (as in the thread link above). Hopefully this thread has illustrated one approach to FA that is viable.

As a technical trader myself, I approach fundamental trading/investing in a similar mindset to technical analysis...
- Find a set up
- Set out the assumptions behind the set up
- Position size based on risk 
- Make entry/exit based on those assumptions being validated/dis-proved

I am pretty convinced that both FA and TA will work well if you know what you are doing. And both will work terribly if you got them wrong (In case that isn't obvious enough). It just always annoys me when someone says FA doesn't work because TLS has been falling for the last 10 years! 



tech/a said:


> No dont want to start a thread.
> Dont want to stuff up the thread either.
> So Ill can the idea.




Thanks and appreciate that. Besides the fact that there is little point comparing the return by one FA guy vs one TA guy, this thread is acutally a nice place for me to organise my own thoughts and information so would be great to keep it reasonably clean.

I do think however it would be great if you do post your balances on a new thread. It may be a simple summary like no. of trades, win, loss, R:R etc. Information on what is achievable in TA is difficult to come by... so if you are keen to share that I think a great deal of people will be interested and benefit from it.


----------



## tech/a

skc said:


> Great results Tech. Was there leverage involved and does that include your futures trading?




Leverage on the futures side yes--other no--My portfolio would be better by 6K if futures were not included---I got belted on the public holiday in SA when Japan happened---but thats trading.



> On current run rate this thread is looking at similar percent return annualised, but it will depend on how much time I can devote to digging those opportunities in a few month's time... No, not going on a nice holiday, but got a new addition to the family coming along .




Congtats and glad the priorities are in order---Im sure the other half would ensure that!



> Having said that, this thread was never meant to show/prove one method being superior (return-wise) than the other. Too often people mis-understood fundamental analysis as buy-and-hold and never admit to making a mistake (as in the thread link above). Hopefully this thread has illustrated one approach to FA that is viable.




I am sincere in my acolade I certaintly could not trade that way---voodoo---.

[/quote]As a technical trader myself, I approach fundamental trading/investing in a similar mindset to technical analysis...
- Find a set up
- Set out the assumptions behind the set up
- Position size based on risk 
- Make entry/exit based on those assumptions being validated/dis-proved[/quote]

I understand--im a little different in that I have cut down the criteria to finding technical setups which are likely to fly in the very near future. AVQ is one today which I happen to have.



> I am pretty convinced that both FA and TA will work well if you know what you are doing. And both will work terribly if you got them wrong (In case that isn't obvious enough). It just always annoys me when someone says FA doesn't work because TLS has been falling for the last 10 years!




I have been around long enough to see some truely spectacular calls in F/A and the conviction to ride it.
As you are annoyed by TLS I get annoyed when people who place their value (Under value) on a rising stock and the rest of the market are supposedly wrong!



> Thanks and appreciate that. Besides the fact that there is little point comparing the return by one FA guy vs one TA guy, this thread is acutally a nice place for me to organise my own thoughts and information so would be great to keep it reasonably clean.




It does that doesnt it! So The secrets out on my copious postings!!



> I do think however it would be great if you do post your balances on a new thread. It may be a simple summary like no. of trades, win, loss, R:R etc. Information on what is achievable in TA is difficult to come by... so if you are keen to share that I think a great deal of people will be interested and benefit from it.




Could do---but cant see the benifit if Im just showing monthly balance---Frankly I trade so differently to convention that it would be impossible the type up!! Take too long.


----------



## skc

*Position Closed*

1/4/2011 Sell 28,000 AMU @ $0.295 = $8,260.

Realised P&L = -$292.93

AMU announced that the acquirer had some tax problems and needed another few weeks to secure finance. At the same time AMU also appointed an accountant to sell the company again.

All this pointing towards a pretty uncertain if not a dead deal. Very lucky to read the news first and get out with minimal damage at 29.5c.

AMU probably has net assets ~22c so if prices do fall there it might be buying opportunity, but it will need to find another catalyst for the price to head back up north.


----------



## barney

Howdy SKC,  Enjoy the thread and appreciate your efforts.

I notice you are still holding BAU. Do you have an opinion on the "class action" supposedly being issued against them by IMF?

Also, I would really appreciate your opinion on AOH if you get a chance to run your ruler over it.  The chart is not particularly flattering just at the moment, but the fundamentals seem very sound to me (My fundy analysis is pretty basic though )

Cheers.


----------



## levin123

Hi SKC, 

Another newbie questions. What portfolio management software are you using? It looks pretty comprehensive


----------



## So_Cynical

levin123 said:


> Hi SKC,
> 
> Another newbie questions. What portfolio management software are you using? It looks pretty comprehensive




https://www.smartportfolio.com.au/

Unfortunately its now a pay service .. SKC and i joined when it was free and because we are older members get to keep using it free.


----------



## skc

levin123 said:


> Hi SKC,
> 
> Another newbie questions. What portfolio management software are you using? It looks pretty comprehensive




As per response above. I would just add that I will disagree that it is pretty comprehensive... 



barney said:


> Howdy SKC,  Enjoy the thread and appreciate your efforts.
> 
> I notice you are still holding BAU. Do you have an opinion on the "class action" supposedly being issued against them by IMF?
> 
> Also, I would really appreciate your opinion on AOH if you get a chance to run your ruler over it.  The chart is not particularly flattering just at the moment, but the fundamentals seem very sound to me (My fundy analysis is pretty basic though )
> 
> Cheers.




Thanks for dropping in, Barney.

Re BAU class action - IMF is a pretty formidable outfit and has exceptional win rate (compared to industry norms), but the case hasn't actually been made yet. Personally I am a lot more concerned about many other issues (environmental and local resident opposition) than a 'class action' that may or may not be made, that may or may not be large in size and may or may not have any valid grounds. I could be wrong but I would be surprised if the class action hasn't been priced in already.

Re AOH - had a quick look but nothing jumps out (not after the first 5 minutes anyway). Perhaps you can share your thoughts on the AOH thread and I can add to that if there's anything of interest.


----------



## skc

*New position*

8/4/2011 Buy 20,000 IDM @ $0.235 = $5,000.

*Rationale*

An emerging miner of mineral sands that is due to complete its processing plant in Oregon, USA this month. A bit of write up here on the Criterion

http://www.theaustralian.com.au/bus...eral-sands-plays/story-e6frg9lo-1226034329102

I am looking for a leg up in the share price when the announcement of plant commissioning and first revenue etc starts to flow. Iluka is trading at 25x EBITDA (for some reason). The current share price has IDM trading ~4.5x prospective management forecast of $30m EBITDA. So there's plenty of upside to the share price if the forecast can be met. Mine life is ~10 years with what's proven so far.

First target is 8x EBITDA or ~42c (fully diluted), but will try to ride this as long as the buyers are willing. I am wrong if they have significant problems with operation of the mines and plant and fail to deliver on the earning forecast.


----------



## skc

*New Position*

8/4/2011 Buy 75,000 MLA @ $0.04 = $3,000.

*Rationale*

Medical Australia is a small cap company manufacturing and selling medical devices / consumerables. MLA has been in the dog house for a few years but there are now clear signs of turnaround.

Revenue is rising, new supply contracts are being signed, costs are under control, margin is improving and cashflow is now positive. A maiden HY NPAT of $136K was reported in Feb.

Assuming their current gross margin of ~60% is maintained, and their SG&A stays pretty constant, every $1 increase in revenue drops 60c into the bottom line. HY revenue was $4.6m... if growth continues and they achieve a rolling full year revenue of ~$12m (20% growth each half), NPAT can be up to $2.50-3m. This puts PE @ 5.5 or so.

Position size is small as there are quite a few ifs, but I like the momentum that the business has.


----------



## skc

*End of Week 22*

Portfolio value up 21.3%
XJO +4.12% (Last 4940.6, Starting value 4745)
XJOAI +4.37% (Last 36151.8, Starting value 34639.1)

*Commentary*
Very strong 2 weeks by the market and the portfolio matched its performance despite having a large percent in cash. Still looking at various opportunities to add new positions...

Not a lot to say on individual stocks, except a strong 2 weeks by ZGL means the initial target of 60c is about to be reached. I will probably sell half at that point and put in a trialling stop for the other half.


----------



## suhm

I have to agree with your choice of IDM, biggest risks atm are the commissioning of the plant and the legal action against it. I think they paid for a write up in the Pick which was in the AFR not that long ago, gives a good description about the company.


----------



## skc

suhm said:


> I have to agree with your choice of IDM, biggest risks atm are the commissioning of the plant and the legal action against it. I think they paid for a write up in the Pick which was in the AFR not that long ago, gives a good description about the company.




The local residents were concerned and rightly so. But their case doesn't sound very strong (as they seem to focus a lot on 'potential' impact) and if it means tighter monitoring etc then that's a plus for the environment. It will be real trouble if they stuff up the operations and dangerous chemicals are detected. Hopefully that won't happen, or only happens after the re-rating of the share price (and I have my exit)...

I hope AFR doesn't get paid to have stories included...


----------



## skc

*Partial Position Closed*

12/4/2011 Sell 7,500 ZGL @ $0.52 = $3,900

RealiseD P&L = $1600 (Including dividend)

*Rationale*

Initial target was PE 8-10 which has been reached. For a growth company that PE isn't expensive, but the market looks to have run too far too fast and poised for a fall. If ZGL falls substantially towards low 40s then it will be very decent value again.

Also today I opened a couple of small shorts on the index to protect my long positions. But as usual this is for information only and not included in the portfolio performance record.

P.S. It is quite amazing how the global market turns on a dime like today. It reminds me of a school of fish that, somehow, all change direction at the same time... definitely primal herd mentality observed in a modern setting.


----------



## suhm

Not sure if links are allowed but http://australianshareholders.com.au/asa_site/images/pdf_archive/presentations/pick issue 1.pdf is a copy of the magazine that was included in the AFR. Its a PR mag, printed by Fairfax so i'm sure they got some money. Good info none the less.

I think IDM makes a lot more sense as an investment than iluka, if you look at the faesability studies they were based on a zircon price of about 700 whereas now they are double that, the ausd USD currency exchange rate was also lower though. Still a lot of risk at present as the plant hasn't been commissioned yet and the court case (I think that is more of an annoyance though). I do have a preference for things already in production.

I think ZGL probably still has more to run, ventrade is probably just about finished selling and the montgomery crew still seem to be buying, add to that a possible profit upgrade from the full year results and you might have a bit of seller's regret down the track.


----------



## skc

suhm said:


> Not sure if links are allowed but http://australianshareholders.com.au/asa_site/images/pdf_archive/presentations/pick issue 1.pdf is a copy of the magazine that was included in the AFR. Its a PR mag, printed by Fairfax so i'm sure they got some money. Good info none the less.
> 
> I think IDM makes a lot more sense as an investment than iluka, if you look at the faesability studies they were based on a zircon price of about 700 whereas now they are double that, the ausd USD currency exchange rate was also lower though. Still a lot of risk at present as the plant hasn't been commissioned yet and the court case (I think that is more of an annoyance though). I do have a preference for things already in production.
> 
> I think ZGL probably still has more to run, ventrade is probably just about finished selling and the montgomery crew still seem to be buying, add to that a possible profit upgrade from the full year results and you might have a bit of seller's regret down the track.




Down the track? Already have regrets now! How much money is following Roger?


----------



## skc

*New Position*

15/4/2011 Buy 30,000 MLM @ $0.27 = $8,100.

*Rationale*

MLM is an explorer and holding company who own assets that are significantly above their share price. The net tangible assets of all listed investments come to 45c per share. In fact, the 80m MTE shares they hold is worth 28c per share. So by buying at 27c I got free shares in CBX, PMQ and ORM (collectively worth ~18c). MLM also has a nickel-cobalt-scandium project in North Qld, which again comes free at current share price. Cash in hand ~$5.6m with no borrowings.

MLM has always traded below NTA but and I have decdied to take a position now due to a number of reasons...

1. Price/NTA is the lowest in the last 6 months.
2. MTE (a coal play) has spiked in recent weeks on the back of a drill program and has a good chance of generating some positive news. 
3. MLM declared an in-specie distribution of its holding in CBX. Although CBX is very illiquid it does unlock the value (esp that I paid $0 for them).
4. The Nornico project scoping study is due to be released around now.

With quite a few things going on I am betting these events will help close the valuation gap. I will implement a time stop of 3 months if nothing comes of it. Sell target is ~40c to 45c.


----------



## skc

*End of Week 23*

Portfolio value up 21.1%
XJO +2.26% (Last 4852.1, Starting value 4745)
XJOAI +3.86% (Last 35977.3, Starting value 34639.1)

*Commentary*

Not much changed at the portfolio level despite a weak overall market. Gains in IDM, ZGL and WHC offset by retreats in AAD, CFE and BSA.

WHC - A number of formal proposals have been received after detailed due diligence and the board will now sit back and think... The end is nigh I hope. Got my timing all wrong and there were plenty of opportunities to buy in at lower price since my entry back in Nov last year. Not sure there is that much of a premium on current prices - 10-15% like RIV is probably the most I hope for.

MLA - Quarterly 4C out today. No real increase in receipts but operating cash flow of -$57K is a bit better than the last 2 quarters. They've signed quite a few new deals since March so higher revenue numbers should start flowing through next quarter. Cash on hand is ~$547K which sounds low but it's actually reasonable compared to the size of the business. Depending on the nature and terms of their new contracts they might go raise some money, most likely via a quick placement. 

CFE - Made two separate announcements regarding their projects and the market didn't seem to care too much. In my valuation the big picture is still the Marampa Iron Ore project that should worth around the same as the whole company now. The Pick's article (thanks suhm for the link above) gives a good overview of what CFE is doing.

ZGL - Company presentation out and contains some pretty pictures. They have an interal, VC type, incubation business unit that hold invetments in early stage technologies... probably a good fun thing to do (surgical robots!) from their own engineer's point of view, but I much rather they focus on expanding their immediate market first.


----------



## investorpaul

skc said:


> *New Position*
> 
> 15/4/2011 Buy 30,000 MLM @ $0.27 = $8,100.
> 
> *Rationale*
> 
> MLM is an explorer and holding company who own assets that are significantly above their share price. The net tangible assets of all listed investments come to 45c per share. In fact, the 80m MTE shares they hold is worth 28c per share. So by buying at 27c I got free shares in CBX, PMQ and ORM (collectively worth ~18c). MLM also has a nickel-cobalt-scandium project in North Qld, which again comes free at current share price. Cash in hand ~$5.6m with no borrowings.
> 
> MLM has always traded below NTA but and I have decdied to take a position now due to a number of reasons...
> 
> 1. Price/NTA is the lowest in the last 6 months.
> 2. MTE (a coal play) has spiked in recent weeks on the back of a drill program and has a good chance of generating some positive news.
> 3. MLM declared an in-specie distribution of its holding in CBX. Although CBX is very illiquid it does unlock the value (esp that I paid $0 for them).
> 4. The Nornico project scoping study is due to be released around now.
> 
> With quite a few things going on I am betting these events will help close the valuation gap. I will implement a time stop of 3 months if nothing comes of it. Sell target is ~40c to 45c.




Another one that popped up on my radar some time ago.

Every odd that it trades at such a large discount to its assets (cash & share holdings in particular).

Given it has traded at a discount for a considerable amount of time it will be interesting when and how it closes the gap.


----------



## suhm

I wouldn't knock surgical robots, look at intuitive surgical, its a 13bn USD company and what they do is make surgical robots. If you knew how TRUS biopsies were done you would see why this is such a step forward and medical people all like to have the newest machinery, the desire to be at the cutting edge and all. Also with the ageing population and the lowering of the accepted PSA levels, a lot more people will be getting biopsies.
Current/previous practice for biopsies - Shove a needle into where you think the tumor is.
Best current practice for biopsies - Hold an US probe with one hand and a needle with your other hand and put the needle where you see the tumor is on the screen.
Biobot - Same as above but in 3D and with the robot holding the probe and needle, improvements on current practice are a) the robot has steadier hands, b) US images are very grainy.
This can then be used for other types of biopsies, i.e. breast, lung, liver, renal.

It is the diagnostic equivalent of the Da Vinci robot, those cost more than USD 1m each, margins are very good in the medical field and the biobot will not be able to be sold at anywhere near that price though.
As an aside for margins in medical equipment, hammer used in orthopaedic knee or hip replacement surgery cost $500, cost of a hammer at bunnings ?$10. Difference in use of said hammer, none. Why does it cost 50 times more, you can sterilise the orthopods hammer.


----------



## skc

investorpaul said:


> Another one that popped up on my radar some time ago.
> 
> Every odd that it trades at such a large discount to its assets (cash & share holdings in particular).
> 
> Given it has traded at a discount for a considerable amount of time it will be interesting when and how it closes the gap.




Hopefully the factors I outlined will provide MLM with some lift. Like someone rich once said 'Buy something that has a rising value and the share price cannot lag forever'... or can it? That's why I am putting a 3 month time stop on this position.



suhm said:


> I wouldn't knock surgical robots, look at intuitive surgical, its a 13bn USD company and what they do is make surgical robots. If you knew how TRUS biopsies were done you would see why this is such a step forward and medical people all like to have the newest machinery, the desire to be at the cutting edge and all. Also with the ageing population and the lowering of the accepted PSA levels, a lot more people will be getting biopsies.
> Current/previous practice for biopsies - Shove a needle into where you think the tumor is.
> Best current practice for biopsies - Hold an US probe with one hand and a needle with your other hand and put the needle where you see the tumor is on the screen.
> Biobot - Same as above but in 3D and with the robot holding the probe and needle, improvements on current practice are a) the robot has steadier hands, b) US images are very grainy.
> This can then be used for other types of biopsies, i.e. breast, lung, liver, renal.
> 
> It is the diagnostic equivalent of the Da Vinci robot, those cost more than USD 1m each, margins are very good in the medical field and the biobot will not be able to be sold at anywhere near that price though.
> As an aside for margins in medical equipment, hammer used in orthopaedic knee or hip replacement surgery cost $500, cost of a hammer at bunnings ?$10. Difference in use of said hammer, none. Why does it cost 50 times more, you can sterilise the orthopods hammer.




Haha sorry if I sound like I was knocking surgical robots. I was more making the point that, as a shareholder in ZGL, I rather them focus on what they are doing well, and not branch out to something completely different.

Their rationale was that their precision engineering expertise can be leveraged into these new products - which I guess is true to some extent. But things like surgical robots have completely different markets, customers, channels, distributions, regulations etc etc. Can they give it the attention / capital that is needed to build that into a real business, without hindering existing operations? 

I doubt they have exhausted all they could do in their existing markets.... and if I want exposure to surgical robots, I will go buy companies that do surgical robots. Let me do the diversification thanks.

You did bring a very interesting point about medical devices and supplies... *thinking


----------



## skc

*New Position*

21/4/2011 Buy 10,000 SNL @ $0.505

*Rationale*

SNL is a small supplier of automative parts for buses and trucks, with a tiny market cap of $17m.

SNL made an annonucement yesterday that the full year EBIT is expected to be ~$3.5-$3.8m. The company has ~$3m debt (so more than managable), so expect NPAT to be $2.3-$2.5m, or 6.6 to 7.2cps. That's the 3rd such profit upgrade announcements for the last 3 reporting periods.

This pitches the company at a PE ~7. Last year dividend was 4c (which is well covered by the EPS) so a prospective yield of ~8% fully franked at my buy price. Revenue should grow in the high single digit, and margin should be helped by the high $A.

I think PE ~12 would be a fairer price, so target ~80c. I am wrong if earning growth is not achieved.

Small and illiquid company, and usually pretty quiet announcement-wise throughout the year.

Portfolio has cash ~$35K.


----------



## skc

*Position Closed*

29/4/2011 Sell 7,500 ZGL @ $0.60 = $4,500

Realised P&L = $2199.75 (incl. dividend)
P&L on full position = $3799.50.

Best win for the portfolio to date. 60c was the target initially so when it was reached I trailled a stop at ~5%. The rising $A probably doesn't help as these guys do their accounting in $S.

Cash in hand ~$37K


----------



## skc

*New Position*

2/5/2011 Buy 50,000 EVZ @ $0.07 = $3,500

*Rationale*

EVZ is a small engineering services outfit doing work in water, power, drainage, coating etc. 2010 was a poor year and they recorded a loss on some project over-runs. This year however they look to have turned it around. H1 NPAT was $0.8m on rising revenue of $46m (up12% from H1 FY10). 

Today management provided an update on recent contract wins and tenders - and while no forecast was provided, evidences point to continued increase in revenue and profitability. 

Using existing margins and fixed costs, if they achieve revenue ~$100m (runrate) a NPAT ~$3m is probably in order. That equates to ~1cps so my buy price was at PE~7.

Target exit PE ~12, wrong if the revenue and profitability are not up to assumption.


----------



## tech/a

SKC

Hows the open profit/loss going.
I note that mainly those in profit appear to be sold.
Those in drawdonw--not all but most--seem to be still open?
It appears 3 arent treading?


----------



## skc

tech/a said:


> SKC
> 
> Hows the open profit/loss going.
> I note that mainly those in profit appear to be sold.
> Those in drawdonw--not all but most--seem to be still open?
> It appears 3 arent treading?




Thanks for dropping in. Will post a summary at EOD today. 2 long weekends in a roll (for QLD) means I didn't post a summary last Friday.


----------



## Frank D

*EVZ*

Primary & Secondary cycles are currently Weak...

good sign would be to trading above 0.077 cents (2nd quarter 50% level)

better sign would be trading above 0.103 cents..

if above .103 I would hold until $15 cents:- *break and extend pattern...*

Current support @ 0.057/.06


----------



## skc

*Start of week 26*

Portfolio value up 17.2%
XJO +1.69% (Last 4825.3, Starting value 4745)
XJOAI +2.57% (Last 35527.9, Starting value 34639.1)




This portfolio is approaching the half year mark and it's return is respectable (considering market condition), but unspectacular. Portfolio value peaked back in week 15 and again in week 22 at ~21.3% profit, but has retreated 4% since then.

The Australian market is trailling behind the rest of the world in the last few weeks, with most blaming the high $AUD. In partciular small end of resources are smashed quite badly. XJO is down ~2.5% in the last 3 weeks, while XSO is down ~5.5%. 

At this halfway point I am going to review every open and close position... (I hate to see tech/a going on his holiday worrying about my positions )


----------



## skc

tech/a said:


> I note that mainly those in profit appear to be sold.




Here's a summary of all the closed positions. I am reasonably pleased with how the positions were managed. Most of them were exited in line with the original plan.




There were a few regrets for sure...

- VPG received its takeover offer last week from an external source @ $1.80. Management did mention that they were fidling offers and the value was there, but I chose not to hold.

- MFC reached a high of 16c but I sold for 12.5c. I mixed technical analysis with fundamental by putting a trailling stop on its main asset (BSM shares) and gave too much open profits away.

- ZGL / HFA jumped up very quickly following my entry and I took profit a earlier than my target exit.


----------



## skc

*Comments on open positions*

AAD - Happy to hold this as a 'portfolio hold' (as opposed to event-based trade). Yield is 9% on current prices compared with sector average ~6.5-7%. Only 10% income from US so $AUD rise should have few impact. Target $1.8-$2 remains.

BAU - Presentation out today with cash $42m (~17.5cps) so I am still holding a very cheap potential project. Company's position hasn't change much in terms of assets and has no major cash outflow commitment. Comfortable with hold but definitely regret not taking part profits when the price spiked up back in Feb.  

BSA - No update from the company since results announcement in Feb. The income and earnings should be pretty stable but a delay in the NBN cable laying work probably resulted in some holders exiting. The percentage loss looks big but I am not too worried given my position size.

CAJ - A small thin stock that I don't expect too much movement unless some tipster picks it or they issue some company update.  Not too worried about the lack of liquidity given my position size.

CFE - Still plenty of value based on sum of assets. Quarterly report out last week showing ~$70m, no debt, and a US$715m NPV value for the Marapa Iron Ore Project. My valuation is ~85c for CFE and only has a value of $350m for the project. 

CIF - Got a speeding ticket last week for falling too fast. With all its earnings from US that fall was probably a result of the rising $A. With the negative FX effect my target has fallen 10% accordingly, but still well above current prices. I've mentioned a few times that this is a position I'd sell if there is a need for cash, however.

Part II after dinner...


----------



## tech/a

Very respectable result.
Nicely managed.
Took a hit myself now at 34%
and flat.
Great work and a worthwhile exercise.


----------



## skc

*Comments on open positions*

EVZ - Not much to add since this morning. Thank Frank for the technical view.

IDM - Awaiting news on plant commissioning.

MLA - Not expecting too much movement until confirmation of sales increase.

MLM - The underlying assets (MTE) have come down a bit but still worth well north of current share price.

MYE - Most mining service firms have come off 10-15% from the peak, and MYE pretty much in line with the overall market. Volume has really fallen off and spread is quite wide. I do want some exposure to this sector and I might switch to another company in this space if the opporutnity arises.

SNL - Market has reacted positively to the trading update. Probably benefits from the strong $A as they are an importer.

WHC - Definitely a problem child. Very poor performance in the last few weeks and some jittery about whether the takeover deal will get done. Normally I would have sold when they announced profit problems following the floods all the way back in Dec, but the takeover carrot was dangling... I did actually sell my real position on 21 June when it fell heavily on rumour that one bidder has pulled out, followed by a WHC response that didn't calm the market. At current prices the risk of no takeover is probably falling back towards $5.5 (price before the rumour) while a takeover price should still be above $7.0, so I will maintain the position until the transaction is concluded one way or the other. But management costed a lot of shareholder value by dragging out the process and running into a lot of troubled weather.


----------



## skc

A couple of meaningful announcements from the portfolio today

MLM - went ex for the in-specie distribution on 1-for-10 CBX shares (total 11.6m dished out). So the portfolio will have 3,000 CBX at  $0 cost (although I am not sure what number to use for tax purpose). MLM still holds 26.9m CBX shares. CBX is very illiquid however (with a lone bid at 30c) and I will need to take a good look at that company before I make a hold/sell decision. Good to see MLM holding its price despite the distribution - probably because it was valued at nothing to start with. The distribution was worth 3c per MLM share so I've reduced my target for MLM to 40c.

IDM - Announced a 1-for-7 rights issue at 20c + 1 option (35c, Jun 13) for every 2 new shares subscribed. The money will go towards final construction payment, parts inventory and working capital. I will be taking up the rights which will be completed around early June.

AAD - 3rd quarter update which saw revenue of ~$289m for the 9 months. Revenue was $196m for the first half so 3rd quarter net of $93m was slightly down compared to the first half, but ~6% ahead of last year's 3rd quarter of $87.6m. Not bad considering the weather impact and high $A deterring tourists.


----------



## skc

*New Position*

11/5/2011 Buy 24,165 LBL @ $0.095 = $2,296

*Rationale*

LBL is an engineering company specialising in surface technologies for the engineering, industrial and mining markets. Very small company (market cap ~$8m) and half owned by the founders of the technology.

Today they released a market update. Revenue for FY10/11 will be $12.7m (up 22%) and PBT of $1.51m (up 147.5%). EPS = ~1.5c after tax. Management is forecasting further growth. One of the division (responsible for all of the profits) is moving to a new premise that is 2.5x the existing size by the end of the financial year. The other division is turning around showing small profit for the half year.

The company has debt ~$0.7m. Operating cash flow was positive $468K in H1 against profit of $363K, so cash conversion is pretty good. If they can continue their growth at say 20% top and bottom line, the share price at PE ~6 is very cheap. Tentative target is PE ~12 or 18c. Usually a thin stock which may be a good thing when it wants to move up. Would have bought more at my entry price but that's all I could get.


----------



## skc

*New Position*

11/5/2011 Buy 50,000 MBD @ $0.13 = $6,500

*Rationale*

Marbletrend Group Limited (MBD) manufacture, import, warehouse and distributes
bathroom fittings and products in the Australian market. Key clients include:
Bunnings, Reece, Tradelink, Plumbing Plus, Plumbtec and Mitre10. (From Iress).

Today the company announced a rise in sales revenue across all product categories. The forecast full year revenue is $45m (up 11%) and PBT is  $2.2m (up 30%). H1 revenue and PBT were $21.2m and $1.06m, so the second half was another record and the figures are growing nicely. The growth comes from better margin thanks to better product mix, strong $A and cost management. A 0.5c fully franked interim dividend was also declared - giving a potential full year yield of ~7.7%.

The company has manageable debt of ~$3.3m (Interest ~$230K p.a.), and generated operating cashflow of $933K in H1 against the $684K profit. 

With projected EPS at 2.6c, share is currently trading at PE ~5. Similar company GWA trades on a PE ~16. Initial target ~ 30c based on PE ~12.

P.S. No idea why the market release contained 'Strictly private and confidential' when it was released to the public 

P.P.S. Portfolio cash = $26.5K


----------



## skc

MLA 

A couple of announcements recently.

- A broker report is available here http://www.medaust.com/irm/Company/ShowPage.aspx?CPID=1102&EID=14071631. Let's see if it generates some buyers. The share price target is 5.9c based on large growth in revenue and margin improvement over the next few years - similar to why I bought the share.




I always find it interesting that an analyst need to look at the overall market size ($110B for health expenditure in Australia) - who cares when the company's revenue is only $8-10m - it's just rounding error in the whole scheme of things.

- A new contract with UNICEF to supply needle cutters. No specifics about the value of the contract, but revenues will come in this quarter. It's definitely a great client to have on your company profile.


----------



## skc

*End of Week 27 Summary*

Portfolio value up 20.0%
XJO -0.71% (Last 4711.4, Starting value 4745)
XJOAI +0.06% (Last 34657, Starting value 34639.1)




*Comments*

Very volatile 2 weeks - the following table shows the range experienced by each position. And the average range was 19.5%. Thankfully the biggest ranges were up.




MBD - This position is probably a bit too large given the size and liquidity of the company. I will probably exit part of this after the ex dividend date 25 May.

MLM - Made a great surge to end the week, thanks to the underlying MTE making good gains.  I've also added CBX to the portfolio which were distributed by MLM.

SNL - Someone really wanted to buy them yesterday and crossed a 10c spread (on a 55c share) to buy them at 64c. It finished the week flat in the end.

WHC - The moment of truth next week. Is it going to do a Felix or a Macarthur? Either way this position is draging on and I will be pleased when it is closed.


----------



## skc

WHC - Sale process terminated. Looks like the share will open sub $6. Definitely a good example of how not to manage a position. There were enough signs that things were going bad.

Given that I've already closed my real position some time ago, I will just take today's VWAP as the closing price for this.


----------



## skc

*Position Closed*

16/5/2011 Sell 1,500 WHC @ $5.63 = $8,445.

Realised P&L = -$1,720.42

Takeover process terminated. Very poorly managed trade (at least for this journal). I got out of IHF, VPG and AMU when their takeovers looked like failing. For some reason I stayed with these guys until the bitter end...


----------



## skc

*Position Closed*

20/5/2011 Sell 3,000 CBX @ $0.33 = $990.

Realised P&L = $984.

These are the distribution from the MLM position which appeared in my account today. CBX has flagged some cap raising down the track so probably best to get out before the rush... I'd imagine quite a few ex-MLM holders would be selling as well.


----------



## CapnBirdseye

SKC.  For what it's worth, I'm following this thread with interest.  My MM leaves a good bit to be desired and it's good to follow someone else's methods for FA and MM.

Cheers for sharing this with us, 

Capn.


----------



## skc

CapnBirdseye said:


> SKC.  For what it's worth, I'm following this thread with interest.  My MM leaves a good bit to be desired and it's good to follow someone else's methods for FA and MM.
> 
> Cheers for sharing this with us,
> 
> Capn.




Aye Captain. Thanks for following. Good to know people are taking interest. On MM I wrote something here that might be of interest...

https://www.aussiestockforums.com/forums/showthread.php?t=22396&p=626488&viewfull=1#post626488



> You would start with an overarching framework of position sizing... more stable stocks can afford larger sizes, more volatile stocks smaller size, near-death stocks probably amounts that are inconsequential. This is the first part of risk management.
> 
> The second part is the ability to brutally, honestly and correctly assess fundamental facts surrounding the company, and sell when those facts demonstrate (to whatever confidence level the investor deemed appropriate) that the valuation of the company has changed for the worse. This is as good a stop as any price-based stop.
> 
> With time based stop I would adopt that when I have a 'time based' event entry... there is a takeover brewing and I will exit in 3 months if nothing comes. You also size your position accordingly. I think if no takeover comes the stock will fall 10%, so I am comfortable allocating $X to the position. This would be similar to the 2% rule (which is start with controlling how much you lose), but it's application is not as precise.
> 
> As to judging fundamental reasons - that's a case by case basis so a bit difficult to say here. Market reaction to news will always depend on its starting point and expectations. Is a resource of 200m Tonnes of copper good or bad news? Good if the expectation was 0, bad if the expectation was 500m. Mis-interpreting expectations and news is bad for fundamental investing without a doubt. The same as mis-interpreting price action and volume is bad for technical analysis.


----------



## skc

*Position Closed*

23/5/2011 Sell 7,000 CIF @ $1.10 = $7,700.

Realised P&L = -$362.6

*Rationale*

Been holding this one for a while and it has done absolutely nothing. With global markets looking shaky and the end of QE2's impact highly uncertain, I've decided to be more risk adverse and close this position out. The dividends are coming in about a month's time so it will probably have a run now that I've sold it 

Cash on hand ~$43.6K


----------



## skc

*Position Closed*

3/6/2011 Sell 3,000 MYE @ $1.42 = $4,260.

Realised P&L = $6.9 (including dividend and franking credits) 

*Rationale*

Not much update, movement or liquidity on these guys. This share was bought on the basis of growth - I paid PE 13.6 with the purchase and they 'should' by now provide some trading update if my assumption of growth was correct.

With global market being quite shaky and looking for direction, the risk adverse action was to scretch this position.

Cash in hand = $48K


----------



## skc

*New Position*

3/6/2011 Buy 40,000 PSA @ $0.19 = $7,600.

*Rationale*

PSA is a rollar-coaster energy company that was a speculators' favourite back in 1997 and 2006. Share price was as high as $6 believe it or not...

Yesterday PSA announced that they've sold their oil interest in China to Horizon Oil for $38m. After the sale, PSA has no debt, ~$50m cash (21.5cps), some producing assets in Texas and some dreams of being a shale oil player.

Normally wouldn't buy anything given the shaky market but with share price below cash it feels relatively safe for a quick 10-15% gain. I will take part profits at the 21.5c mark and let the rest of it run if the speculators decide to return for the 3rd time. 

Cash on hand = $40.5K.


----------



## skc

*End of Week 30 Summary*

Portfolio value up 17.0%
XJO -3.41% (Last 4583.1, Starting value 4745)
XJOAI -1.59% (Last 34087.7, Starting value 34639.1)




*Commentry*

A bit gloomy all round and the market has been steadily going down for 2 months. Plenty of global uncertainties but that's nothing new.

AAD - S&P changed their classification from A-REIT to Leisure Facilities which means A-REIT funds (eg. Vanguard was a seller) have to sell, causing short term weakness (or so the story goes anyway). 

IDM - Rights issue completed at 20c. Will add to the position after shares are received.

MBD - Went ex-div last week for 0.5c fully franked. 

MLM - Having a good run despite the weak market thanks to good performance by its subsidary MTE.


----------



## skc

I thought it would be an interesting exercise to see what would have happened if I bought and held all the shares... forget about the fact that none of the position was meant to be buy&hold, and there is not enough cash to hold them all at the same time.




It turned out that, if I simply held every, the current portfolio would be ~$8.5K worse off. The biggest difference makers were:

*Losses*
SOO - sold 11.5c, now 8c. Difference $3,147 - This stock has really fallen on hard times with the increasing competition in solar market and the winding back of govt incentives.

PGA - sold 9.1c, now 4.3c. Difference $3,360 - Continued fall in revenue and earnings, topped by loss of a key account from its subsidary. The overall sentiment towards the advertising market is also very negative. Glad I exited at the first sign of revenue weakness.

WBA - sold 56c, now 38c. Difference $3,597 - These guys came across a large pile of cash and have no idea how to make money from that. They recently needed to raise further capital, even though 6 months ago their share price was less than cash backing.

*Gains*
QRN - sold $2.6, now $3.39. Difference $4,867. The most successful IPO that no one saw coming. A trialing stop would have done wonders.

VPG - sold $1.205, now $1.76. Difference $2,800. A takeover offer did come eventually. My analysis was actually pretty spot on - target was $1.80, takeover price? $1.80.

UXC - sold 46c, now 57c. Difference $2,198. It turned out that the writedown announcement that I sold on was the last of the bad news.

Apart from being an interesting exercise in terms of performance review, I did it because I am going to be taking some paternity leave soon, and won't be able to monitor the positions as actively as required. I just wanted to know what would have happened if I just held onto everything - and the results were no good.

What this means is, for my actual personal positions, I will exit some of the shares that I think require constant monitoring. However, for this thread I am going to keep the positions running as per usual, but this will mean that I make some delayed calls if I happen to miss a company moving news here or there.


----------



## skc

*Position Closed*

20/6/2011 Sell 20,000 BSA @ $0.22 = $4,400.

Realised P&L = -$812 (including dividend).

*Rationale*

This was a difficult one. There had been no update since the half year reprts back in Feb. The share price however has continued to fall from 32c to 20c. When I bought the share I was looking for ~4c EPS, so on that the PE is now even more attractive.

However, there are a few things going against BSA. It has been mentioned a few times that their foxtel contracts are unperforming, the NBN Co. is playing hardball and companies may not enjoy much profit from doing the rollout work, and they are doing some pretty large projects ($100m+) which are prone to cost overruns...

With the overall market being quite shaky, I am going to take this off the table for now. I will consider re-entering this stock if management provides a positive / reassuring update.


----------



## skc

*Partial Position Closed*

20/6/11 Sell 5,000 CFE @ $0.42 = $2,100.

Realised P&L = $1,137 (Using FWFO of parcel bought at $0.645).

*Rationale*

The business model of CFE is to buy distressed assets, prove up resources and sell it off hopefully at a profit - and they have done that fairly successfully in the past. 

The main story of CFE is the Marampa Iron Ore project in Sierra Leone, and the MD recently talked about selling at $500m, or IPO for $700m, or bring it to production themselves... (CFE's market cap is only $220m). However, the overall market is no longer that hot when it comes to buying mining assets that are a few years away from production. And CFE could be in danger of holding the parcel when the music stops.

Nonetheless, the asset values are still much higher than the share price by most measures, so I am simply reducing my risk in light of the current market. I think if any good news come along on Marampa, there will be time to get on board and make the money back yet.


----------



## skc

*New Position*

23/6/2011 Buy 15,000 QML @ $0.20 = $3,000.

*Rationale*

Takeover offer from the US for 23c a share. 
QML sells software for coal mines etc and have a decent revenue and profit growth projections. QML rejected the offer a low ball and rightly so.

A comparable company is RUL which trades at ~12x EBITDA. QML management is expecting EBITDA FY11 ~$3m so at 12x, EV ~$36m. Debt is ~$4m, so equity value ~$32m or 40c per share. 

Hopefully an offer north of 30c can be extracted.


----------



## Assasin

Cheers SKC, 

I'm enjoying this thread. Your proving what a tough 6 months it's been.
Keep up the great work.:bricks1:


----------



## tech/a

I second that
Anyone who puts up as much detail on an on going trading summary deserves support.
Have you ever thought of a method filter such as
An equity filter IE if your equity chart falls x then paper trade until it returns to an up trend thus preserving open capital
OR
An index filter similar but only take long trades of the index is trending.
OR
Hedging by way of an index short trade where appropriate

Just tossing random ideas around.


----------



## skc

Assasin said:


> Cheers SKC,
> 
> I'm enjoying this thread. Your proving what a tough 6 months it's been.
> Keep up the great work.:bricks1:




Thanks. Yes indeed it has been an up and down 6 months... And things aren't exactly rosey down the track either... 



tech/a said:


> I second that
> Anyone who puts up as much detail on an on going trading summary deserves support.
> Have you ever thought of a method filter such as
> An equity filter IE if your equity chart falls x then paper trade until it returns to an up trend thus preserving open capital
> OR
> An index filter similar but only take long trades of the index is trending.
> OR
> Hedging by way of an index short trade where appropriate
> 
> Just tossing random ideas around.




I have used hedging in various places but by and large they were not sucessful. Usually by the time I start to "fear" enough to put a hedge on the index had bottomed and started to go back up... 

Ultimately it comes down to the fact that I've yet to develop a reliable edge in trading indices. If and when I do it will certainly makes sense to do some hedging.


----------



## smartmoney

skc said:


> *New Position*
> 
> 23/6/2011 Buy 15,000 QML @ $0.20 = $3,000.
> 
> *Rationale*
> 
> Takeover offer from the US for 23c a share.
> QML sells software for coal mines etc and have a decent revenue and profit growth projections. QML rejected the offer a low ball and rightly so.
> 
> A comparable company is RUL which trades at ~12x EBITDA. QML management is expecting EBITDA FY11 ~$3m so at 12x, EV ~$36m. Debt is ~$4m, so equity value ~$32m or 40c per share.
> 
> Hopefully an offer north of 30c can be extracted.




This is an extremely opportunistic bid which can be clearly seen by all the references relating to the recent stock price. The bid shuts shareholders out from he earnings growth which will build strongly from now as the company looks to yield the results of its growth strategy in opening up a number of ofices in strategic global markrtplaces. 

This offer would need to be doubled to be taken seriously. Worth buying this one for the strong chance of a sweeter second offer coming along.


----------



## smartmoney

Im a firm believer of buying and selling on fundamentals. Well actually just buying really,because if you get the fundamental analysis right you should never really contemplate having to sell the stock at the time you are buying it. The concept of buying something and immediately trying to extract a favourable sell price from the market has always perplexed me. There is so much to be gained by relying on the ravages of time to do the work for you once you have secured a desirable entry level on a stock with strong fundamentals. Of course chart watching is always good to gain an insigt as to what the hordes are thinking at any given time.

Looks like the present is a very appealing time to buy on fundamentals with the market having pulled back quite strongly but also coming into what should be a healthy reporting season. 

We havnt had too many downgrades coming out during the tyical confession season of May/June


----------



## skc

smartmoney said:


> Im a firm believer of buying and selling on fundamentals. Well actually just buying really,because if you get the fundamental analysis right you should never really contemplate having to sell the stock at the time you are buying it. The concept of buying something and immediately trying to extract a favourable sell price from the market has always perplexed me. There is so much to be gained by relying on the ravages of time to do the work for you once you have secured a desirable entry level on a stock with strong fundamentals. Of course chart watching is always good to gain an insigt as to what the hordes are thinking at any given time.
> 
> Looks like the present is a very appealing time to buy on fundamentals with the market having pulled back quite strongly but also coming into what should be a healthy reporting season.
> 
> We havnt had too many downgrades coming out during the tyical confession season of May/June




I call this thread fundamental position but really it's opportunistic trading with fundamental news (as opposed to technical analysis). There is a place for buy-and-never-sell type investments. But they are not on this thread.

I am am firm believer that the world is a very uncertain place and so I focus on 'relative value' rather than 'fundamental value'. And so far I've identified 3 types of relative value.

1. Company has $10m in hard assets (e.g. cash) but only trading at $5m.
2. Company AAA and BBB are all but equal except AAA is on PE of 7 and BBB is on PE of 12. 
3. Company XYZ historically trades at PE ~12 but been sold down to PE 6 for no reason.

This thread attempts to exploit these relative values.. and once exploited then it's time to sell...


----------



## skc

skc said:


> I am am firm believer that the world is a very uncertain place and so I focus on 'relative value' rather than 'fundamental value'. And so far I've identified 3 types of relative value.
> 
> 1. Company has $10m in hard assets (e.g. cash) but only trading at $5m.
> 2. Company AAA and BBB are all but equal except AAA is on PE of 7 and BBB is on PE of 12.
> 3. Company XYZ historically trades at PE ~12 but been sold down to PE 6 for no reason.
> 
> This thread attempts to exploit these relative values.. and once exploited then it's time to sell...




Actually a 4th type...

4. Company is being taken over / have good change of being taken over but is trading meaningfully below the takeover price.


----------



## skc

*End of Week 33 Summary*

Portfolio value up 14.3%
XJO -5% (Last 4508, Starting value 4745)
XJOAI -3.7% (Last 33352, Starting value 34639.1)




*Commentry
*

3 weeks since the last summary. The market fell ~1.6% (but it sure feels worse than that) while the smaller end (XSO) fell 4.3%. The portfolio, dispite being ~45% in cash, is down ~2.4% So it is pretty much tracking the XSO at the moment. 

This down leg has been long, ~2.5 months, but we have not seen the type of 'true' panic in 2008 or even May 2010. Let's hope that is a bullish sign.

*AAD *- Went ex-div for 5c unfranked. 

*IDM*- Rights issue shares allotted. Plus some free IDMO which expires on 8 Jun 2013 with exercise price of 35c.

*MLM*- Announced a very different rights issue. For 42c subscription price you get 1 MLM shares and 2 PMQ shares. Note the PMQ shares are not new shares but are coming out of existing MLM holdings. So with PMQ @ ~9.5c and MLM @ 33.5c, the value of the rights is ~10c. They are current going for 4.5c.

From MLM's point of view, this reduces their asset value as they essentially gave away PMQ shares at half the prevailing price. But from my point of view, I paid nothing for PMQ shares anyway and now I can cash out so it's not half bad.

Of course the danger is that PMQ will be sold down heavily after the rights are taken up. The last distribution in CBX saw a stampede to the exit that pushed price from 35c down to 22c. But I don't believe the same will happen to PMQ. I won't explain it here but it doesn't take much research to find out.

I will sell my rights on the market at ~7.5-8c, but if there were no buyers for them I am happy to exercise them.

*PSA*- So much for a quick swing! The proceed from the asset sale has come through and now they should have ~$50m in cash. Let's hope the market values them that way before management can spend all of it...


----------



## skc

*Position added*

5/7/2011 Buy 20,000 MLM @ $0.375 = $7,500.

*Rationale*

The valuation of MLM is getting more attractive... on it's holding of MTE alone it is worth ~42c. Plus all the other bits and bobs it is worth ~55c, and that's with a very low value ascribed to their actual flagship project.

And MTE itself is said to be attracting Indian bidders to the tune of $600m... (i.e. ~$300m or ~$2.4 a share for MLM). Take any haircut you like, but the story is the same - there are like 3 layers of margin of safety in MLM.

I also still hold 3000 rights to MLM @ 42c + 2x free PMQ shares.


----------



## skc

*New Position*

7/7/2011 Buy 15,000 IRI @ $0.345 = $5,175

*Rationale*

Integrated Research Limited (IRI) is a software company that develops, produces
and distributes performance monitoring tools and solutions for business-critical
IT infrastructures. (Fr WebIress).

Today IRI announced a profit forecast of $7.1 to $7.5m for the full year, compared to $5.4m last year and $2.4m at the half. So H2 was a bumper one with ~$5m NPAT.

That full year figure equates to ~4.4cps, pitching my buy price at PE ~7.8. 

Most business segments showed good growth on the HY report so it will be interesting to see if the H2 performance can be sustained. If so, NPAT run rate of $10m + growth, followed by a PE of 10 gives a tentative target 60c. We will only get there however if the market doesn't crap itself when the next European country goes bust.

Cash in hand ~$30K


----------



## skc

*End of Week 35 Summary*

Portfolio value up 19.3%
XJO -1.9% (Last 4654.7, Starting value 4745)
XJOAI -1.3% (Last 34184, Starting value 34639.1)




*Commentry*

A strong rally by the market in the last two weeks after the Greek fears retreated. Everybody knows that it's just 'kicking the can down the road' but the market sure can stay irrational longer than I can stay on the sideline.

*BAU *- Down to low of 16c at one stage and below cash backing, but I wasn't quick enough to pull the trigger...

*CFE* - Sure enough it goes up ~15% as soon as I sell. Good resource numbers coming out of Marampa and the company is looking to float that asset in a London IPO said to worth $500m. Market cap of CFE = $300m. I think I will short term trade these guys on the news but I won't include that position in the thread.

*MLM* - Increased my exposure during the week. Had a big 2 weeks thanks to increase resources and Indian interests for MTE which MLM holds 80m shares. Still has zero value attributed to its other holdings and flagship project.

*QML* - Making all sorts of noises about the bid being too low and formally rejected the bid today. Apparently the bidder has talked about 27c a share before but somehow decided to lowball it at 23c. Share price is trading above the offer meaning the market is expecting further action. Let's see if they (and I) are right.


----------



## skc

*Partial Position Closed*

12/7/11 Sell 25,000 MBD @ 13c = $3,250

Realised P&L = $116 (including dividend).

*Rationale*

As I've said before the position size for this small company was a little bit too big so good time to take half off the table. Essentially just pocketing the small dividend.


----------



## skc

*New Position*

Buy 12,000 BMN @ $0.43 = $5,160

*Rationale*

Bannerman Resources Limited (BMN) is a uranium exploration and development
company with interests in uranium properties in Namibia and Botswana, South
Africa. BMN principally focuses on its flagship project, Etango Uranium Project,
located in Namibia. (From WebIress).

With the uranium sector in tatters after Fukushima it is only a matter of time before someone sees value in some of these assets. The Sichuan Hanlong Group has come along and pitched 61.2c cash. That's a premium of 18.2c or 42.5% from today's close. 

The offer has the usual conditions and is yet to receive board recommendation. BMN also refused the 3 month exclusivity period as they are still discussing joint venture opportunities with other parties.

The deal may or may not go ahead... if it falls through BMN was trading as low as 20c, although it shouldn't fall all the way down there given that it has attracted some corporate interest. So the bet is 18.2c upside vs ~15-20c downside.

Will hold until further update on the deal, but I reserve the right to run for cover if things aren't looking good.

Cash on hand ~$29K.


----------



## SilverRanger

Any thoughts on ESG/STO takeover? There's still 3% to be milked


----------



## skc

SilverRanger said:


> Any thoughts on ESG/STO takeover? There's still 3% to be milked




Unless you hedge by shorting STO that 3% isn't guaranteed.

Then someone might come and takeover STO without raising the ESG bid and you are toasted for a capped gain.

If you want a 3% gain from takeover VPG is probably a better proposition...


----------



## skyQuake

skc said:


> Unless you hedge by shorting STO that 3% isn't guaranteed.
> 
> Then someone might come and takeover STO without raising the ESG bid and you are toasted for a capped gain.
> 
> If you want a 3% gain from takeover VPG is probably a better proposition...




lol vpg does indeed look better

STO/ESG = 3% over 7 months + transaction costs.
Given that you'll need to short STO and buy ESG thats tying up twice the capital effectively halving your return to 1.5% + transaction costs + risk of deal unravelling.


----------



## skc

skyQuake said:


> lol vpg does indeed look better
> 
> STO/ESG = 3% over 7 months + transaction costs.
> Given that you'll need to short STO and buy ESG thats tying up twice the capital effectively halving your return to 1.5% + transaction costs + risk of deal unravelling.




The easiest 3% was actually ISF on the open auction this morning. I just couldn't get any at 16.5c. 17c coming in by end of the month.


----------



## SilverRanger

skyQuake said:


> lol vpg does indeed look better
> 
> STO/ESG = 3% over 7 months + transaction costs.
> Given that you'll need to short STO and buy ESG thats tying up twice the capital effectively halving your return to 1.5% + transaction costs + risk of deal unravelling.




The 3% is now down to 2%, so probably not worth taking it further. But normally I would expect the gap to close much sooner than Feb 2012. All it takes is some assurance, either things like board recommendation, independent expert report, regulator approval etc.


----------



## SilverRanger

skc said:


> The easiest 3% was actually ISF on the open auction this morning. I just couldn't get any at 16.5c. 17c coming in by end of the month.




Why not bid at 17c in market auction? Queuing at 16.5c might take you ages to get a fill (if any)....

Actually this is something I would try I can offload my current holdings at 17c


----------



## skc

SilverRanger said:


> Why not bid at 17c in market auction? Queuing at 16.5c might take you ages to get a fill (if any)....
> 
> Actually this is something I would try I can offload my current holdings at 17c




Because there's only limited volume selling at 16.5c and if you are not careful you end up buying at 17c which is a waste of time and brokerage.

Today's the last day anyway they are delisted tomorrow.


----------



## skc

*Position Closed*

20/7/2011 Sell 6,000 PMQ @ $0.09 = $540.

Realised P&L = $474.

Got my MLM rights issues + 2x PMQ shares. PMQ isn't doing a great deal but it does have reasonable cash backing. But it's not something I intend to hold and the position size is too small anyway.

The MLM rights cost 42c to exercise. So for the purpose of P/L I've just assumed these PMQ shares cost 1c each while the 3000 new MLM shares cost me 40c.

The porfolio now holds 5,3000 MLM at average price ~31.7c. Profits already taken on CBX and PMQ distributions...


----------



## skc

*End of Week 37 Summary*

Portfolio value up 21.3%
XJO -3.0% (Last 4602.9, Starting value 4745)
XJOAI -1.37% (Last 34164.3, Starting value 34639.1)

Today's portfolio value is a new weekly closing high. Last high was back in 8 April @ $121,292. So basically a flat quarter for me, but the XJO is down 300 pts so good out-performance imo. 




*Commentry*

The market went for a big 150 point plunge than rally in the last 2 weeks and pretty much ended where it began. The US debt ceiling will most likely be raised, and we will be back to living week by week on US jobs and China inflation figures. Having said that I am feeling reasonably bullish and will be digging for positions in preparation of the reporting season in August.

*CFE*- Putting in a very strong climb on the back of SDL receiving a takeover bid, showing that there is life in West African iron ore development assets. 

*MLA*- Released their quarterly report. Cash receipts up ~10% from last quarter to $2.2m, and they achieved a positive operating cash flow (a whopping $31K). Back in Apr I was looking for revenue ~$12m which now look way too optimistic. I will wait for their report and reassess the position.

*MLM*- Continues to power along. Indian interest in MTE supposed to come in latte July so let's see if there's any fire to the smoke. They've completed their cap raising so now has ~$10m cash but less PMQ shares (which incidentally is holding up rather well).


----------



## SilverRanger

skc said:


> *End of Week 37 Summary*
> 
> Portfolio value up 21.3%
> XJO -3.0% (Last 4602.9, Starting value 4745)
> XJOAI -1.37% (Last 34164.3, Starting value 34639.1)
> 
> Today's portfolio value is a new weekly closing high. Last high was back in 8 April @ $121,292. So basically a flat quarter for me, but the XJO is down 300 pts so good out-performance imo.
> 
> View attachment 43718
> 
> 
> *Commentry*
> 
> The market went for a big 150 point plunge than rally in the last 2 weeks and pretty much ended where it began. The US debt ceiling will most likely be raised, and we will be back to living week by week on US jobs and China inflation figures. Having said that I am feeling reasonably bullish and will be digging for positions in preparation of the reporting season in August.
> 
> *CFE*- Putting in a very strong climb on the back of SDL receiving a takeover bid, showing that there is life in West African iron ore development assets.
> 
> *MLA*- Released their quarterly report. Cash receipts up ~10% from last quarter to $2.2m, and they achieved a positive operating cash flow (a whopping $31K). Back in Apr I was looking for revenue ~$12m which now look way too optimistic. I will wait for their report and reassess the position.
> 
> *MLM*- Continues to power along. Indian interest in MTE supposed to come in latte July so let's see if there's any fire to the smoke. They've completed their cap raising so now has ~$10m cash but less PMQ shares (which incidentally is holding up rather well).




How does CSE look to you? Currently @ 14.5c they received an offer from their largest shareholder KZL of $16 million + cancellation of shares (worth about $3.8m at current share price) for their flagship asset. If all goes well, there will be about 19c per share in cash and listed securities alone. They also mentioned they plan to return 14c per share to shareholders in cash after the sale and share cancellation.
The risks are obviously the uncertainty of the deal and the timing of it.

http://www.businessspectator.com.au...for-Copper-Strike-JH34S?OpenDocument&src=srch

http://www.businessspectator.com.au...ours-Kagara-offer-JH35H?OpenDocument&src=srch


----------



## skc

*New Position*

25/7/2011 Buy 35,000 CSE @ $0.15 = $5,250.

*Rationale*

Thanks Silver Ranger for point out the opportunity. Net assets in CSE is worth ~19c so there's 20% gap to be picked. The risk of the asset sale deal (upon completion will see 14c capital return to shareholders) not going is small as this is the second time KZL has knocked on the door. CSE has a couple of Chinese major shareholders that might block the deal, but if they do there's the potential upside that they will takeout CSE themselve. So the risk is balanced by the upside imo.

I will sell these on market for 19c or wait until the completion fo the deal.

Cash on hand ~$24k.


----------



## Billyb

Well done skc. A 21% return in well under a year is a phenomenal result. Even Roger Montgomery - Australia's most well known fundamental investor - hasn't achieved results like that. Granted, the two strategies are very different.


----------



## SilverRanger

skc said:


> *New Position*
> 
> 25/7/2011 Buy 35,000 CSE @ $0.15 = $5,250.
> 
> *Rationale*
> 
> Thanks Silver Ranger for point out the opportunity. Net assets in CSE is worth ~19c so there's 20% gap to be picked. The risk of the asset sale deal (upon completion will see 14c capital return to shareholders) not going is small as this is the second time KZL has knocked on the door. CSE has a couple of Chinese major shareholders that might block the deal, but if they do there's the potential upside that they will takeout CSE themselve. So the risk is balanced by the upside imo.
> 
> I will sell these on market for 19c or wait until the completion fo the deal.
> 
> Cash on hand ~$24k.




The Chinese have actually indicated their intention to withdraw the share placement @ 18c, which makes sense as their intension was to co-develop the key asset, so they must go all-in or get out. (if they decide to go all-in, this week is their last chance)

In the latest quaterly report, KZL had a 12% drop in copper production vs a 120% increase in Zinc. Their copper reserve is also relatively weak compared to other base metals. So they would be keen to boost their current copper reserve a bit by picking up any low hanging fruits. The Einasleigh copper can be brought to production with minimal effort by KZL as they already have processing plants nearby (it saves them time for any feasibility study that CSE is doing as they have to build everything from scratch, and figure out how to sell the stuff)

I am hoping to get out before the capital return, just to avoid the extra tax complications.


----------



## skc

Billyb said:


> Well done skc. A 21% return in well under a year is a phenomenal result. Even Roger Montgomery - Australia's most well known fundamental investor - hasn't achieved results like that. Granted, the two strategies are very different.




Thanks Billy. Actually had 20% in 4 months  So pretty poor quarter since then.

No point comparing this to Roger... apples and oragnes like you said. His methods have good merits and a rolling 12 month performance means very little. Although I do prefer my apples better.



SilverRanger said:


> The Chinese have actually indicated their intention to withdraw the share placement @ 18c, which makes sense as their intension was to co-develop the key asset, so they must go all-in or get out. (if they decide to go all-in, this week is their last chance)
> 
> In the latest quaterly report, KZL had a 12% drop in copper production vs a 120% increase in Zinc. Their copper reserve is also relatively weak compared to other base metals. So they would be keen to boost their current copper reserve a bit by picking up any low hanging fruits. The Einasleigh copper can be brought to production with minimal effort by KZL as they already have processing plants nearby (it saves them time for any feasibility study that CSE is doing as they have to build everything from scratch, and figure out how to sell the stuff)
> 
> I am hoping to get out before the capital return, just to avoid the extra tax complications.




That's my sense as well. The placement had to be cancelled since you can't ask people money for an asset you are about to sell. So that in itself doesn't mean a lot. KZL is very keen, and any Chinese bid will be a bonus, not that I am counting on it. 

Hopefully the only extra tax implication is that your cost base is reduced by the capital return, but apparently if you bought <14c you will have to pay tax on the difference straight away.


----------



## skc

*New Position*

27/7/2011 Buy 10,000 AUN @ $1.06 = $10,600.

*Rationale*

I am calling ACCC bluff here on the AUN takeover. Austar doesn't really compete with Foxtel, they work together and buy contents, the NBN will increase competition on all fronts and similarly digital TV. ACCC can't use hypothetical post-NBN competition landscape to ban this deal. If they do it will be challenged in court without doubt.

With a $1.52 takeover offer on the table and AUN trading around this price before the bid announcement, I can see it falling to 95c or so if the deal is dead, but with 40c upside if the deal goes ahead. The reward to risk is justified imo.

9 September is the date of ACCC's decision. Let's see.

Cash in hand ~$13.5k


----------



## robusta

skc said:


> *New Position*
> 
> 27/7/2011 Buy 10,000 AUN @ $1.06 = $10,600.
> 
> *Rationale*
> 
> I am calling ACCC bluff here on the AUN takeover. Austar doesn't really compete with Foxtel, they work together and buy contents, the NBN will increase competition on all fronts and similarly digital TV. ACCC can't use hypothetical post-NBN competition landscape to ban this deal. If they do it will be challenged in court without doubt.
> 
> With a $1.52 takeover offer on the table and AUN trading around this price before the bid announcement, I can see it falling to 95c or so if the deal is dead, but with 40c upside if the deal goes ahead. The reward to risk is justified imo.
> 
> 9 September is the date of ACCC's decision. Let's see.
> 
> Cash in hand ~$13.5k




That is interesting SKC I was looking at AUN as well with the same sort of thought process, on the down side however I will have to delve a little deeper and try to work out what what the negative equity or book value is all about.


----------



## skc

robusta said:


> That is interesting SKC I was looking at AUN as well with the same sort of thought process, on the down side however I will have to delve a little deeper and try to work out what what the negative equity or book value is all about.




I don't know but it would be accounting related rather than real. AUN has net debt ~$500m and quarterly free cash flow ~$20-25m so I am not concerned about the company's solvency per se.

Not to mention the fact that I am buying the takeover, not the balance sheet. It has proven itself to worth ~$1 before the bid so there's a fair chance it will stay there abouts even if the bid was to fail.


----------



## skc

skc said:


> SNL made an annonucement yesterday that the full year EBIT is expected to be ~$3.5-$3.8m. The company has ~$3m debt (so more than managable), so expect NPAT to be $2.3-$2.5m, or 6.6 to 7.2cps. That's the 3rd such profit upgrade announcements for the last 3 reporting periods.
> 
> This pitches the company at a PE ~7. Last year dividend was 4c (which is well covered by the EPS) so a prospective yield of ~8% fully franked at my buy price. Revenue should grow in the high single digit, and margin should be helped by the high $A.




Earnings forecast announcement today. FY11 EBIT to be $3.8m which is the top range of previous forecast. NPAT of $2.5m which is exactly as I expected. EPS 7.3cps so current PE ~8.6. Interim dividend a fully franked 3c and DRP is not required due to ample cash. 

The target remains PE ~12 or ~85c.


----------



## skc

skc said:


> Today they released a market update. Revenue for FY10/11 will be $12.7m (up 22%) and PBT of $1.51m (up 147.5%). EPS = ~1.5c after tax. Management is forecasting further growth. One of the division (responsible for all of the profits) is moving to a new premise that is 2.5x the existing size by the end of the financial year. The other division is turning around showing small profit for the half year.
> 
> The company has debt ~$0.7m. Operating cash flow was positive $468K in H1 against profit of $363K, so cash conversion is pretty good. If they can continue their growth at say 20% top and bottom line, the share price at PE ~6 is very cheap. Tentative target is PE ~12 or 18c. Usually a thin stock which may be a good thing when it wants to move up. Would have bought more at my entry price but that's all I could get.




LBL came out of its trading halt today with a profit upgrade. PBT is now $2.06m, so EPS is 2cps after tax. Nice spike up today to 15c to it is now trading at a PE ~7.5. Target updated to 24c based on the increased EPS. There's still the facility expansion to come so potential upside remains.


----------



## skc

*End of Week 38 Summary*

Portfolio value up 23.9%
XJO -6.75% (Last 4424.6, Starting value 4745)
XJOAI -4.35% (Last 33132, Starting value 34639.1)




*Commentary*

Another weekly close high thanks mostly to good gains from MLM. LBL and SNL also put on new highs but have now fallen back due to the lack of liquidity. The market on the other hand had a shocker of a week, XJO down almost 4% and XSO 3.5%, showing that it was a pretty broad based sell off on the majors.

I said last week I was bullish but now I am quite bearish. I think we are in for some sustained falls, regardless of whether there is a debt ceiling deal or not. We will most likely see a bounce if we do get a deal, but any deal now will not solve the underlying problem. 

I've got some ES put options on the account as a small hedge. I hope they will expire worthless, but at least they will cushion any damage should the worst is to happen.
I've also closed the AUN position today at $1.06. I just wanted to stand aside while for the crucial next week. I will put it back on if it falls to the low 90c area.


----------



## skc

*Position Closed*

2/8/2011 Sell 15,000 MLM @ $0.465 = $6,975.
3/8/2011 Sell 15,000 MLM @ $0.43   = $6,450.

Realised P&L = $5,471.3 (Based on average cost ~$0.317 per share).

*Rationale*

I had a mental trailing stop loss at 10% and 15% for 2 portions of the position and they were hit yesterday and today. MLM's main holding, MTE, is suffering a drag down by fellow coal firm BND, which lost 35% in the last 3 days because of concerns over their asset sale process. MTE is going through the same thing and the market reacts accordingly. 

With my bearish views and the global market looking a bit sick, it feels prudent to stick to the stops. The market isn't always right, but staying out of the path of a raging bear is probably wise, irrespective whether that bear is right or not!

Cash on hand $28.5k


----------



## skc

skc said:


> Cash on hand $28.5k




Actually cash on hand ~$38K (as the AUN position was exited at breakeven).


----------



## skc

*End of Week 39 Summary*

Portfolio value up 14.5%
XJO -13.48% (Last 4105.4, Starting value 4745)
XJOAI -12.03% (Last 30472, Starting value 34639.1)




*Commentary*

What a week! I have always been a naturally bearish person but the market managed exceed my expectation in that category. 

For this thread I have decided to close the majority of positions. Actually, I have a confession - I have been closing my actual holdings over the last 2 weeks, but my posting didn't keep up. For the sake of fairness to this thread I have recorded the exits based on today's prices.

People like to say things like "But the fundamentals haven't changed". Well, the fundamentals have changed, and that fundamental is called earnings risk and earnings multiple contraction. The companies I hold might still earn 10cps, but people are no longer putting a PE of 12 on that - they are only willing to pay PE of 8 (or 3 or 4 at the depths of the GFC). Sure you can buy the cycle in hope that you will catch the earnings multiple expansion...I just don't want to hold my breath for that.

Capital preservation is key in times of uncertainty. If one wants to trade a rebound they should just long some index future with a stop loss.

2 weeks ago I also bought a number of put options on the US market. These are still open and are enjoing profits that would have exceeded the portfolio losses you see this week. That was my learning from the GFC. This time I felt ready and in control. I hope followers of this thread learned and practiced those lessons also.

Here are the positions that are closed.

Sold 8,000 AAD at $1.125. P&L = -$615.2 (including dividends)
Sold 5,000 CFE @ $0.5. P&L = $587. Total P&L = -$1724 (over 2 parcels)
Sold 22,857 IDM @ $0.215. P&L = -$369.15 (including rights issue, small option position still open)
Sold 23,000 MLM @ $0.385. P&L = $1552.86. Total P&L  (including rights issue and distribution of CBX and PMQ shares) = $7,098.1
Sold 10,000 SNL @ $0.67. P&L = $1,638
Sold 50,000 EVZ @ $0.051. P&L = -$962.0
Sold 24,165 LBL @ $0.13. P&L = $833.78
Sold 25,000 MBD @ $0.13. P&L = $116 (including dividends). Total P&L = $232 (over 2 parcels)
Sold 15,000 IRI @ $0.35. P&L = $63

Normally coming into the reporting season I wouldn't mind holding profitable small caps that don't otherwise garner enough market attention... like SNL, LBL, MBD and IRI. However, they are all too illiquid and if the shet hits the fan there is no easy escape route. Again, capital preservation above all.

Cash in hand = ~$84k.


----------



## skc

Just some quick notes on the remaining positions...

BAU - Holding at cash backing.
CAJ - No bid to exit (exactly what I meant by illiquid stock even though they are profitable).
IDMO - Market value small.
MLA - No bid to exit.
PSA - Holding at cash backing.
QML - Takeover offer at current level.
BMN - Takeover offer.
CSE - Asset sale pending.

Total at risk ~$30k.


----------



## skc

*Position Closed*

9/8/2011 Sell 35,000 CSE @ $0.16.

Realised P&L = $338.

Limited upside, plenty of downside. It's not an environment to muck around with little plays like this one.

Cash on hand = $89k


----------



## suhm

Seems like your much more ready to cut positions quickly than I am, have a problem also with a lack of bids to offload some of my stock.

Need to learn how best to hedge my longs in a downtrending market, atm shorting an index etf seems to be the best option for me, though with the 20% drop another 20% is possible but it is a much more precarious position at the moment and with my trading skills I'd more than likely blow myself up trying it out.

I have always prefered something with a higher payoff possibility as that has always sat better with me even if it has a negative carry. The positive carry of shorting is appealing especially in this climate and gaps are less of a problem with the index, barring days like today but that is research for another day and I'm busy with job applications again, bloody annoying, have to do them every year.


----------



## skc

suhm said:


> Seems like your much more ready to cut positions quickly than I am, have a problem also with a lack of bids to offload some of my stock.
> 
> Need to learn how best to hedge my longs in a downtrending market, atm shorting an index etf seems to be the best option for me, though with the 20% drop another 20% is possible but it is a much more precarious position at the moment and with my trading skills I'd more than likely blow myself up trying it out.
> 
> I have always prefered something with a higher payoff possibility as that has always sat better with me even if it has a negative carry. The positive carry of shorting is appealing especially in this climate and gaps are less of a problem with the index, barring days like today but that is research for another day and I'm busy with job applications again, bloody annoying, have to do them every year.




Yes I ran away in a hurry. Standing in front of a savage bear / runaway train / tsunami is a bad idea. On hindsight people/market was way too complacent at the beginning of the debt ceiling debacle.

I think the ability to run away quickly comes from just having a flexible view of how crazy the world can get, and trusting that you have the skill to make it back later.


----------



## nomore4s

skc said:


> Yes I ran away in a hurry. Standing in front of a savage bear / runaway train / tsunami is a bad idea. On hindsight people/market was way too complacent at the beginning of the debt ceiling debacle.
> 
> I think the ability to run away quickly comes from just having a flexible view of how crazy the world can get, and trusting that you have the skill to make it back later.




I agree, if in doubt get out!

Who cares if you leave some profits on the table, will be other opportunities, this game is about protecting capital imo.


----------



## skc

*Position Closed*

10/8/2011 Sell 40,000 PSA @ $0.165

Realised P&L = -$1012.08.

*Rationale*

As at end of Jun the company had $50.5m in the bank of which $7.7m is restricted rehab money. So that is still 18.5cps. PSA produces some gas but the operation is barely cashflow positive, and the wad of money is earmarked for drilling and exploration, so none seems to be coming the way of the shareholders. 

I don't know the management, I don't trust the market at the moment, and my initial entry for a quick 10% was probably flawed. Exit seems to be the right thing to do.

Cash on hand ~$96k


----------



## skc

*End of Week 40 Summary*

Portfolio value up 15.0%
XJO -12.06% (Last 4172.6, Starting value 4745)
XJOAI -10.49% (Last 31006, Starting value 34639.1)




*Commentary*

Hands up those who thought on Monday that the market would end *higher *this week than it started?!



> We can't keep free falling like this for too much longer...
> 
> Buying today would probably see one in profit by the end of the week. But unless those profits are taken, heavy losses by end of the month is also a likely scenario.



https://www.aussiestockforums.com/forums/showthread.php?t=23227&p=650569&viewfull=1#post650569

The recent volatility is remarkably similar to Jan 2008. On 23 Jan 2008, the share market fell 7.05% to ~5,200 points. General market comments around the time was that economy is strong, there is a risk of US recession and there is a risk of subprime crisis. But stick to your plan and she'd be right... And for a while they were correct. Market bounced back and reached 6,000 (15%) by May 2008 (4 months). But we all know what happened there after. The market fell to 4,800 points by mid Jul, without a single panic episode. The real panic didn't start again until Oct/Nov 2008 when a new bank blew up every day, and the bottom not found until Mar 09 some 10 months later and 50% lower. 

I don't think we must follow the same path. There are worries in the world economy and soverign debt systems, but I don't know if/when some of the recent rumours / worries will come true. However, in my personal opinion, good things don't usually follow crazy market gyrations. Things only gyrate a lot when it is tipped at the balance point. The future may not be determined yet in terms of which way the chips will fall, but I choose not to ignore the risk that is being signalled. 

The huge market swings are ideal conditions for volatility based systems. What I do in this thread, however, is "confidence-based" (just invented that term myself). It's all well and good that XYZ is worth $1 or trading at PE of 6, but unless there is confidence by other market participants, no one will be willing to bid it up to PE of 12.

In light of this, I am going to twigg my strategy a little bit. 

- There will be no new positions until I see some normality and confidence returns. How? For a start, the Dow shouldn't have a flagfall of plus/minus 400 points. With the profit season upcoming, I also want to see positive results being cheered for straight away. 

- I will limit positions to the more liquid shares. Liquidity vanished for a good part of last 2 weeks. You want to exit your position but the spread is 15% and the bid only has half your volume. You don't want to bite the bullet, you keep holding and the market tanks another 8%. Liquidity will be your best friend when you want to get out in a hurry. CAJ/MLA in the portfolio are a prime examples.

- I will adopt lower exit targets. I might leave some on the table, but I rather do that than getting caught in the down move and have my profits taken from me. AAD was a lesson for me.


----------



## skc

*End of Week 41 Summary*

Portfolio value up 15.3%
XJO -13.55% (Last 4101.9, Starting value 4745)
XJOAI -8.52% (Last 31686, Starting value 34639.1)




*Commentary*

As savage as today's sell off is, the market is only down ~70pts for the week. Europe is on the ropes and plenty of contagion fear (and risks) in the banking system of both Europe and US. It's not just the risk of writedowns on PIIGS debts on the banks balance sheet that is the concern. The unregulated CDS on these debt are the new disease that will freeze the banking system yet again. 

Australia should outperform both US and EU over the next 3 months, but that's no reason to start buying shares just yet. The 2 conditions I've outlined last week have both failed. DJIA registered another 400pt+ move last night, and strong corporate results are not being followed through. Here are a table to illustrate the point.




Quite a few decent results from yesterday (IDL, MIN, WES, ASZ) and their share price managed to close near the top of the range, but today the market smack them back down without hesitation. I don't think it's time to dive back in just yet for this portfolio.


----------



## skc

*Position Closed*

24/8/2011 Sell 75,000 MLA @ $0.023 = $1,725

Realised P&L = $-1,287

MLA released their profits yesterday. A small full year loss $342k despite a 20% rise in revenue and a small profit reported at half year. 

Looking back this position was a bit of a stretch in terms of revenue growth and profit estimates. Bad loss percentage wise, thankfully a small position size means the loss in $$ terms is something bad but not terrible.

Cash in hand $97.7k


----------



## skc

*Position Closed*

29/8/2011 Sell 15,000 QML @ $0.295 = $4,425.

Realised P&L = $1,413.

I got the higher bid I was holding out for. The bid price is now increased to 31c subjected to 3 weeks due diligence. With only 1.5c (5%) left on the table I am happy to take the profit instead of risking anything funny. The 31c was close enough to my own valuation as well so I don't expect anything higher, certainly not in the current envrionment.

Cash in hand  ~$102k.

P.S. Quite a bit of opportunities around and I might debble a bit around the edges over the next month.


----------



## skc

*New position*

29/8/11 Buy 25,000 DKN @ $0.775 = $19,375

*Rationale*

DKN is the subject of a takeover bid by IOOF (IFL) at 80c plus 2.5c dividend. It is all but a done deal with the Scheme Implementation Agreement signed last month. IFL also OK'd DKN's FY financials (which included some writedowns). Shareholder meeting on 29 Sept is the last formality and implementation date is slated for 17 Oct, or ~50 days away.

With the 82.5c coming in that's a profit of 6.45% over 50 days, or 47% annualised. Seeing that there is so much free cash and I am unlikely to deploy it all within this time, it's good low risk return.


----------



## skc

skc said:


> *New Position*
> 
> 10/2/2011 Buy 150,000 CAJ @ 3.7c = $5,550.
> 
> *Rationale*
> 
> CAJ is a small scale independent diagnostic imaging outfit with 28 sites. FY09/10 was a turnaround year when the company grew revenue by 25% and posted a small NPAT of $0.7m (vs $1.3m loss the year before).
> 
> In FY10/11 management is forecasting $1.6m NPAT supposed by 9 new sites and like-for-like growth (14% from FY09 to FY10). That however may be conservative given that Sept Qtr already saw NPAT ~$0.5m.
> 
> If they can achieve $2m profit (0.66cps) and 15% growth for a few more years, the current PE of ~6 is more than cheap compared to larger listed firms operating in similar fields (PRY PE=13, SHL PE=15.6).
> 
> Exit target with PE~10 or 6.5-7c.
> 
> P.S. CAJ reports tomorrow so I am sticking my neck out here a bit on expectation of a good result.




*Position Closed*

2/9/2011 Sell 150,000 CAJ @ $0.034 = $5,100.

Realised P&L = $-462.

*Rationale*

CAJ reported yesterday and the full year results were disappointing in my view. The full year NPAT figure of $962k compared poorly with ~$700k recorded at the half year mark. One off costs seemed to be the culprit but I think they lumped some additional costs in the full year that didn't appear at the HY market. Not sure I like the way they do their reporting...

With hindsight this company was way too illiquid and I should simply have sold when I had a 25% profit in the first week. From now on I won't include these kinds of companies in this portfolio, even though they may offer good trading opportunities for the quick triggers.

Cash on hand = $88.5k.


----------



## skc

*End of Week 43 Summary*

Portfolio value up 16.9%
XJO -10.58% (Last 4242.9, Starting value 4745)
XJOAI -8.06% (Last 31846, Starting value 34639.1)

*Commentary*

The magical QE3 carrot is being dangled in front of the market and the US is responding with a lot of strength and that has pulled us higher. My view remains that this is not a healthy market for short term long investments. May be after the US Fed meeting on 12 Sept, or after Greek officially defaults... until then there are too much uncertainty.

Plenty of companies reporting good results here and my potential buy list has expanded substantially. If the air clears it won't take long to fill the portfolio.

DKN went ex-div today for 2.5c unfranked.


----------



## skc

skc said:


> *New Position*
> 
> 27/7/2011 Buy 10,000 AUN @ $1.06 = $10,600.
> 
> *Rationale*
> 
> I am calling ACCC bluff here on the AUN takeover. Austar doesn't really compete with Foxtel, they work together and buy contents, the NBN will increase competition on all fronts and similarly digital TV. ACCC can't use hypothetical post-NBN competition landscape to ban this deal. If they do it will be challenged in court without doubt.
> 
> With a $1.52 takeover offer on the table and AUN trading around this price before the bid announcement, I can see it falling to 95c or so if the deal is dead, but with 40c upside if the deal goes ahead. The reward to risk is justified imo.
> 
> 9 September is the date of ACCC's decision. Let's see.






skc said:


> I've also closed the AUN position today at $1.06. I just wanted to stand aside while for the crucial next week. I will put it back on if it falls to the low 90c area.




*New position*

Buy 10,000 AUN @ $1.17 = $11,700.

Apparently the ACCC decision is tomorrow...I've re-established this position, but I have used OTC CFD with guaranteed stop loss (which cost 1%). This stop is now moved to $1.135 so I am risking at most $500. The bid price is $1.52 so potential reward is ~$3,100. The reward to risk is ~6.2. Another way of thinking is that if the deal has >16% chance going through then I have a positive edge.

Last month the high court overturned ACCC's block on Metcash's bid based on incorrect market definition. This is exactly the same issue with AUN. There is no such thing as the pay TV market. There is only the market for entertainment media which the competitors include free-to-air, pay-TV, IP TV, DVD rentals etc etc. 

Let's see what tomorrow brings, and whether the market is right in market such a sharp discount.

P.S. I said I was going to re-buy AUN at low 90c area and it did get there. Unfortunately I wasn't watching closely enough to snatch it. But if I did I would have done a swap today to a CFD position with a guaranteed stop as well.


----------



## notting

I have Austar in a country area and there is no Foxtel as an alternative.  
I believe this is the case in most regional areas.
In other words, there is no competition to compromise if the two become one.
It makes sense that they should and would be better for regional areas as far as I can see!


----------



## skc

notting said:


> I have Austar in a country area and there is no Foxtel as an alternative.
> I believe this is the case in most regional areas.
> In other words, there is no competition to compromise if the two become one.
> It makes sense that they should and would be better for regional areas as far as I can see!




That's right they only compete on the Gold Coast... like I said, ACCC is using post-NBN hypothetical competitive landscape + narrow definition of market to question the deal. 

I hope logic and common sense will prevail.


----------



## skc

skc said:


> *New position*
> 
> Buy 10,000 AUN @ $1.17 = $11,700.
> 
> Let's see what tomorrow brings, and whether the market is right in market such a sharp discount.




*Position Closed*

Sell 10,000 AUN @ $1.195 = $11,950.

Realised P&L = $115.

No ACCC decision today. I thought I knew the decision was delayed but I saw another article which says today is decision time. Anyhow, the truth is ACCC has yet to announce a new decision date...

While it may look silly to close the trade having just paid 1% in guaranteed stop, I don't want the stop to be tripped while we wait. The initial stop must be placed at 5% from market and can be moved as the market moves. I had the stop up to $1.155 and a sharp between now and D-day could easily see that triggered. 

Will now wait until the ACCC decision date is set.

I won't even record this transaction towards P&L...


----------



## skc

skc said:


> *Position Closed*
> 
> Sell 10,000 AUN @ $1.195 = $11,950.
> 
> Realised P&L = $115.
> 
> No ACCC decision today. I thought I knew the decision was delayed but I saw another article which says today is decision time. Anyhow, the truth is ACCC has yet to announce a new decision date...
> 
> While it may look silly to close the trade having just paid 1% in guaranteed stop, I don't want the stop to be tripped while we wait. The initial stop must be placed at 5% from market and can be moved as the market moves. I had the stop up to $1.155 and a sharp between now and D-day could easily see that triggered.
> 
> Will now wait until the ACCC decision date is set.
> 
> I won't even record this transaction towards P&L...




Dodged a small bullet here with shear luck. ACCC challenges high court decision on Metcash means they haven't given up on baning Austar... This might fall back <$1 if the market wobbles.


----------



## skc

*Position exited*

14/9/2011 Sell 12,000 BMN @ $.305 = $3,660.

Realised P&L = $1,512.

The deal was looking iffy before and the ASIC investigation into insider trading by Hanlong executives is definitely not a positive development. On the infomration now it looks like those trading was done at an individual level, but reading some other information around seems to suggests that Hanlong may have a dodgy track record of such undertaking...

It's a uranium stock so if there is no deal it will fall pretty badly on current market sentiments. Risk off!


----------



## skc

*End of Week 46 Summary*

Portfolio value up 15.9%
XJO -17.74% (Last 4242.9, Starting value 3903)
XJOAI -13.71% (Last 31846, Starting value 29891)

Outperformance = 33.6%




*Commentary*

The market is down 8.7% since the last update. The Fed has ran out of bullets and the market realised there are no stimulus coming the way of the US economy. And as someone else said on another thread... we haven't even had a default yet. Nor do we have a doucemented China slowdown, although one glance at the Chinese sharemarket you would say things are not looking that promising there either.

My list of stocks to buy are growing, but if the market really tanks (i.e. down another 20-30%) then I would probably just look to buy something simple... 1 or 2 x Big 4, 1 x health (CSL or RHC), 1 x utilities, 1 x stables (CCL, MTS, WOW, WES), 1 x energy (STO, ORG) and 1 x big miner.

But for the time being, the sideline still feels right.

I started this portfolio with a one year timeframe, and chances there won't be too many new positions to add until 52 weeks are up. I would probably keep this thread alive after that, esp if we hit a time when buying makes sense again.


----------



## skc

skc said:


> *New position*
> 
> 29/8/11 Buy 25,000 DKN @ $0.775 = $19,375
> 
> *Rationale*
> 
> DKN is the subject of a takeover bid by IOOF (IFL) at 80c plus 2.5c dividend. It is all but a done deal with the Scheme Implementation Agreement signed last month. IFL also OK'd DKN's FY financials (which included some writedowns). Shareholder meeting on 29 Sept is the last formality and implementation date is slated for 17 Oct, or ~50 days away.
> 
> With the 82.5c coming in that's a profit of 6.45% over 50 days, or 47% annualised. Seeing that there is so much free cash and I am unlikely to deploy it all within this time, it's good low risk return.




*Position Closed*

Sell 25,000 DKN @ 80c = $20,000.

Realised P&L = $1,234.5 (incl. dividned of $625).

DKN is delisted from today. The takeover is completed and the cash should be paid out by 20 Oct. So total time of turnaround ~55 days and net return ~6.4%. Better than term deposit for a whole year.

Cash on hand = ~$112k


----------



## sinner

skc said:


> *Position Closed*
> 
> Sell 25,000 DKN @ 80c = $20,000.
> 
> Realised P&L = $1,234.5 (incl. dividned of $625).
> 
> DKN is delisted from today. The takeover is completed and the cash should be paid out by 20 Oct. So total time of turnaround ~55 days and net return ~6.4%. Better than term deposit for a whole year.
> 
> Cash on hand = ~$112k






sinner said:


> Loving this thread skc, keep it up!
> 
> I keep forgetting to look at it, and when I come back so many interesting things have happened.
> 
> Someone better edit wikipedia and put your name in here:
> http://en.wikipedia.org/wiki/Alpha_(investment)





Said it before, saying it again. 

skc *is* alpha.


----------



## kid hustlr

skc i've only found this thread in recent weeks and I've slowly worked through it. It's been a really enjoyable read and I hope you keep it going!


----------



## skc

sinner said:


> Said it before, saying it again.
> 
> skc *is* alpha.






kid hustlr said:


> skc i've only found this thread in recent weeks and I've slowly worked through it. It's been a really enjoyable read and I hope you keep it going!




Thank you for the kind words and support. It has been a rollar-coaster 12 months for all market participants...


----------



## barney

Ditto to the lads above SKC   

Under difficult market conditions you've managed to graft out some nice percentages ......  well done.

ps. ... Your shout:


----------



## skc

*New Position*

Buy 150,000 MII @ $0.125 = $18,750.

*Rationale*

MII is under a takeover offer from its majority holder (Northwest Nonferrus with ~32%) at 14c per share. The Scheme Implementation Agreement has already been signed, and FIRB has given her blessing.

The deal should be as good as done and the cash proceeds should arrive by 10 Dec.

Took me a while to line up at 12.5c and get my fill. With 1.5c upside that's 12% return over 2 months on something that "should be" relatively certain.

Still plenty up for grabs at 13c which will only return 7.7% for 2 months... still beats term deposite.


----------



## skc

*New Position*

7/10/2011 Buy 13574 CSV @ $1.105 = $15,000.

*Rationale*

CSV is usually called an IT company but a large part of it is really just in the business of distributing and fixing photocopiers. 

Last week CSV announced that they have been approached with a non-binding proposal from unknown bidder for $1.20 for the whole company, and today they announced that they have attracted interests from more secret admirers. The board has adviced to take no action but is engaging with the suitors. Share price jumped from 70c to $1 after the initial news.

The deal is at an early stage and plenty can go wrong, but I've looked at CSV before as a standalone investment proposition and the numbers are not that bad.

Last year NPAT was $40.4m (up 26%) or 14.3cps which puts the $1.20 price at PE ~8.4 (not expensive imo). CSV did a cap raising back in Apr 2011 at $1.10 which brought their debt down to $47m. Operating cash flow was $14m boosted by some better receivables / inventory management. So their balance sheet looks reasonable for the nature of its business.

They have been a bit unloved for some time however, as CSV is heavily reliant on their distribution / service agreement with Canon, has a messy court case with Fuji Xerox, and probably some other smelly fleas that I've yet to discover. 

With EBITDA ~$69m and debt of $47m, a reasonable deal say at 6-8x EBITDA would be $1.3 to $1.8 per share. Given the overall market I would take anything above $1.30. I also reserve the right to get cold feet and exit for no reason...


----------



## skc

*End of Week 50 Summary*

Portfolio value up 18.2%
XJO -12.7% (Last 4141.9, Starting value 4745)
XJOAI -9.72% (Last 31271, Starting value 34639)

Outperformance = 31%

*Some notes*

*BAU* - Not a great deal happening. This position is pretty dead and should be closed. But since it is trading at cash backing may be there will be some interest on it at some stage to allow me a better exit.

*MII* - The transaction moving along nicely. FIRB approval received, scheme meeting convened, scheme booklet registered and share price moved to 13.5c accordingly. Not much point for new buyers now but holding to 14c should still make sense.

*DKN* - Received the takeover consideration today. IB was quite up to speed on that.

The overall market is still a difficult place for long-only medium term holders as it swings wildly between hourly headlines and rumours out of Europe. The Europe situation is still not getting resolved as no one is addressing the actual problems. They just banned naked CDS on sovereign debt... sort of like throwing away the thermometer to cure a fever. The last few major US economic data were not as bad, but the expectations were pretty low. There will always be concerns with China's hard landing but the data hasn't actually indicate that either.

If there is reasonable progress on Europe over the weekend, it might not be completely foolish to put on a few positions...


----------



## Muschu

Thanks for going to so much trouble skc.  I will do my own research into these and any others you care to mention.

Best wishes

Rick


----------



## skc

*New Position*

28/10/2011 Buy 12,000 CLH @ $0.775= $9,300.

*Rationale*

Collection House Limited (CLH) is an Australian receivable management provider,
operating in Australia and New Zealand. CLH's core businesses include: Debt
Purchasing; Commission Collections; Receivable Management; and Specialist
Services. In 2010, CLH and its two subsidiaries, Lion Finance Pty. Ltd. (Lion
Finance) and Midstate Credit Management Services Pty. Ltd. (Midstate), have
obtained Australian Credit Licenses under the National Consumer Credit
Protection Act and the National Credit Code. (From WebIress).

Today CLH announced their FY12 earning forecast. Full year NPAT forecast is $11-11.5m (~11-11.5cps), up from 10c last year. Q1 in particular was a bumper quarter, with EPS ~3.6c. Given that CLH didn't really have much reasonality in earnings in the past, the full year forecast may be conservative compared with the Q1 numbers.

The purchase price of 77.5c represents a PE ~7 to the forecast. There's 3.1c fully franked dividend coming on 7 Nov (full year yield ~11.4% gross). Hisotrical payout ratio is 60% so the dividend should rise if the full year forecast is achieved.

With a growing EPS and dividends, a PE of 10+ wouldn't be a stretch (with the right overall market sentiment of course), which brings the tentative target to ~$1.15. 

Cash on hand = ~$70k (will sell down MII at 13.5c if more cash needs to be released).


----------



## VSntchr

Why do you prefer this over say CCP for example..

It also has a low PE, from memory its single digit.


----------



## skc

VSntchr said:


> Why do you prefer this over say CCP for example..
> 
> It also has a low PE, from memory its single digit.




Yes CCP is pretty much the same thing with PE~8.3 on forecast EPS ~46-51c (~+10%) and dividend yield ~5% (7.1% gross). CLH has slightly lower PE, similar growth, and higher divdiend. While these numbers are slightly in favour of CLH they are close enough.

But the intangible is that CCP announced their forecast back in early Aug when the market was not in the mood to mark them up. Whereas CLH announced the update today that might garner some positive attention and demand in a more positive market.

Imgaine like 2 people stranded on an island with similar intelligence and physical attributes. One fired his flare 2 months ago on a cloudy day in non-fishing season. The other fired his flare today on a clear night during fishing season (so a fleet of fishing boats might be around the bay - yes it's a very elaborate analogy). So I pick that there's a higher chance that the second person will be rescued first.

My investment horizon is short (haven't held anything over a year) and I like to see share prices move the moment I pick it up. Time can be the worst enemy sometimes... stock positions are called "exposure" for good reasons.


----------



## VSntchr

skc said:


> Yes CCP is pretty much the same thing with PE~8.3 on forecast EPS ~46-51c (~+10%) and dividend yield ~5% (7.1% gross). CLH has slightly lower PE, similar growth, and higher divdiend. While these numbers are slightly in favour of CLH they are close enough.
> 
> But the intangible is that CCP announced their forecast back in early Aug when the market was not in the mood to mark them up. Whereas CLH announced the update today that might garner some positive attention and demand in a more positive market.
> 
> Imgaine like 2 people stranded on an island with similar intelligence and physical attributes. One fired his flare 2 months ago on a cloudy day in non-fishing season. The other fired his flare today on a clear night during fishing season (so a fleet of fishing boats might be around the bay - yes it's a very elaborate analogy). So I pick that there's a higher chance that the second person will be rescued first.
> 
> My investment horizon is short (haven't held anything over a year) and I like to see share prices move the moment I pick it up. Time can be the worst enemy sometimes... stock positions are called "exposure" for good reasons.




Thank you for such a detailed and enlightening response with regard to your view and strategy.
Good luck with the position!


----------



## suhm

CLH has more debt on their books though compared with CCP, was comparing the 2 today as well since they released their results. It seems they upgraded their forecast for profit based on the increase in Q1 profits only with the rest of the quarters static so earnings could increase.

Not quite ready to build up positions yet, I let a couple of stocks get away from me in this rally because I don't really see what has changed, europe and the US are still a basket case and China to follow soon.


----------



## skc

suhm said:


> CLH has more debt on their books though compared with CCP, was comparing the 2 today as well since they released their results. It seems they upgraded their forecast for profit based on the increase in Q1 profits only with the rest of the quarters static so earnings could increase.
> 
> Not quite ready to build up positions yet, I let a couple of stocks get away from me in this rally because I don't really see what has changed, europe and the US are still a basket case and China to follow soon.




And CLH in a halt pending capital raising. I am guessing they are raising money to buy more receivables rather than retire existing debt... but probably a bit of both.

Let's see how much they decide to raise, at what price and for what reason... it's not a terribly good environment to be doing capital raising.


----------



## ROE

why bother with CLH, I reckon CCP is a far superior business and you get them for the same price ....

Remember you want to own superior business at a fair price ...not inferior business cheap.

because superior business time is on your side


----------



## skc

*End of Week 55 Summary*

Portfolio value up 16.7%
XJO -16.04% (Last 3984, Starting value 4745)
XJOAI -12.60% (Last 30273, Starting value 34639)

Outperformance = 32.7%




*Some notes*

*BAU* - A new low of 13c this week. The company has $50m or 21.5cps in cash backing, some resources in the ground and a partnership with a Chinese company. Cash burn is ~$2m per quarter so it can survive a good 5 or 6 years. The intrinsic optionality value means that there is still value, although it also has value in reducing the tax payable when I do sell it. 

*CLH* - Went ex-div (paying out ~$3m) and then went and raised $5.8m from instos at 70.1c, a small discount to last traded price of 74c. They originally planned to raise $5m but the demand was good so that is encouraging. 

The announcement simply said "Funds will be applied to the purchase of debt ledgers and to maintain the debt ratio at a prudent level". So it was a bit about expanding the business and a bit about deleveraging.

The market didn't hate it and the stock is pretty much trading where it was last week, despite the weakness in the overall market.

*MII* - Scheme is voted through. Chinese gov't has given the approval. Just need court approval and it's a done deal at 14c.

*CSV* - Held its AGM this week. It's been 2 months since the announced takeover proposal and several parties are undertaking due diligence. Nothing is guaranteed as per usual but an outcome before Xmas would be good. 

The external variables are such a mess at the moment. Nothing that the European leaders did has generated sustainable return of confidence. The Italian and Spainish governments are on the verge of requiring bailout (from who?!) and complete the PIIGS acronum. It's amazing how something that appeared to be troublesome so early on (I first heard PIIGS back in ~2007) took 4+ years to reach breaking point.

It seems to me there are only two end games here. One is for a breakup of the EU, the PIIGS default/restructure/substitute their Euro debt with domestic currency debt, and massive losses to the European banks. This will no doubt cause huge pain to the financial markets and will have flow-on effect to the real economy. All shares will see their GFC lows challenged, some won't survive but it will also present opportunity to buy the survivors. 

The other end game is to simply turn on the ECB printing press. I am sure there will be an initial rally but I am not so sure that will make me invest long term confidently. 

I wish we can return to a time when investing involves only simple market and company risks, but now it feels like everything involves systemic risks. Or may be I am just pessimistic because I still have funds tied up with MF Global


----------



## Huskar

Well done again SKC! As Sinner says, SKC is alpha! My first comment on this thread but just wanted to say I have learnt a lot from your willingness to share and enjoy following it. Glad you have continued beyond the initial 52 weeks as well..


----------



## tech/a

SKC
Sensational effort given the market over the last 12 mths.
Anything that can make a quid is a tough gig these days


----------



## Huskar

Any thoughts on a merger arbitrage position in Flinders Mines skc? If you could get it at 27.5c then still about 8% on the table - although granted that the offer is by scheme of arrangement and will not be finalised for a while. Also the possibility of a counter-bid by Rio or FMG.


----------



## skc

Huskar said:


> Well done again SKC! As Sinner says, SKC is alpha! My first comment on this thread but just wanted to say I have learnt a lot from your willingness to share and enjoy following it. Glad you have continued beyond the initial 52 weeks as well..






tech/a said:


> SKC
> Sensational effort given the market over the last 12 mths.
> Anything that can make a quid is a tough gig these days




Thanks for sharing the love. 



Huskar said:


> Any thoughts on a merger arbitrage position in Flinders Mines skc? If you could get it at 27.5c then still about 8% on the table - although granted that the offer is by scheme of arrangement and will not be finalised for a while. Also the possibility of a counter-bid by Rio or FMG.




It's on my watch list. The process will take ~4 months so time value of money alone means you need to discount 2.5%. At 27.5c you get 2.5c so a 9% return over 4 months is not bad. But is the total real return of 6.5% enough to compensate the risk of the deal not going through? I don't know much about the Russian bidder to know how well/not well they usually carry through with their deal making. Hence no position from me yet.

Not familiar with FMS so can't comment on the chance of counter-bid.

BTW Personally wouldn't call it a merger arbitrage... you are taking an educated guess on the merger going through. You are not arbitraging anything.


----------



## MichaelSy

I think this is evidence that using fundamental analysis can beat the market.

I am a complete novice but is your total return for 52 weeks thus far 17%?

Michael


----------



## nomore4s

MichaelSy said:


> I think this is evidence that using fundamental analysis can beat the market.
> 
> Michael




Nearly any form of decent analysis can beat the market imo if applied consistently, the key to SKC's success is his risk and trade management which is something that is normally missing from fundamental portfolio's I have seen.

Most other fundamental portfolio's seem to assume their valuations are correct and the market is wrong and therefore pay little regard to risk and trade management and therefore get burnt in bad market conditions.


----------



## skc

skc said:


> *New Position*
> 
> Buy 150,000 MII @ $0.125 = $18,750.




*Position Closed*

30/11/2011 Sold 150,000 MII @ $0.14 = $21,000.

Realised P&L = $2,235.

MII's scheme is all go and the share is delisted today... so just marking the book for this journal. The position worked out as expected with 11.9% profit in around 2 months. 

Cash in hand ~$91k.


----------



## notting

tech/a said:


> SKC
> Sensational effort given the market over the last 12 mths.
> Anything that can make a quid is a tough gig these days




I second that wholeheartedly.
Thanks also to bothe of you for contributing your thoughts and expert analysis here it's greatly appreciated.


----------



## skc

skc said:


> *New Position*
> 
> 7/10/2011 Buy 13574 CSV @ $1.105 = $15,000.
> 
> *Rationale*
> 
> CSV is usually called an IT company but a large part of it is really just in the business of distributing and fixing photocopiers.
> 
> Last week CSV announced that they have been approached with a non-binding proposal from unknown bidder for $1.20 for the whole company, and today they announced that they have attracted interests from more secret admirers. The board has adviced to take no action but is engaging with the suitors. Share price jumped from 70c to $1 after the initial news.
> 
> The deal is at an early stage and plenty can go wrong, but I've looked at CSV before as a standalone investment proposition and the numbers are not that bad.
> 
> Last year NPAT was $40.4m (up 26%) or 14.3cps which puts the $1.20 price at PE ~8.4 (not expensive imo). CSV did a cap raising back in Apr 2011 at $1.10 which brought their debt down to $47m. Operating cash flow was $14m boosted by some better receivables / inventory management. So their balance sheet looks reasonable for the nature of its business.
> 
> They have been a bit unloved for some time however, as CSV is heavily reliant on their distribution / service agreement with Canon, has a messy court case with Fuji Xerox, and probably some other smelly fleas that I've yet to discover.
> 
> With EBITDA ~$69m and debt of $47m, a reasonable deal say at 6-8x EBITDA would be $1.3 to $1.8 per share. Given the overall market I would take anything above $1.30. I also reserve the right to get cold feet and exit for no reason...




Deals fallen through. Share price crashing 40%... 

But I am going to keep this and look to sell around mid 70s for the purpose of this portfolio.

One might even argue that it is a good fundamental buy at 60c...

P.S. Not a real position. I needed to shuffle some cash so it was out of my portfolio. Phew...


----------



## suhm

Looks intriguing especially if it breaks below 50, could be smashed into oblivion. The last quarter of cashflow looked great but unsustainable, there seems to be a lot of fluctuation in that figure. Going from the comments the next quarter may not look so great which could provide an opportunity as cashflow.

Debt looks manageable, not sure about the long term prospects of the business but definitely looks like it might be worth a look when the dust settles.


----------



## skc

suhm said:


> Looks intriguing especially if it breaks below 50, could be smashed into oblivion. The last quarter of cashflow looked great but unsustainable, there seems to be a lot of fluctuation in that figure. Going from the comments the next quarter may not look so great which could provide an opportunity as cashflow.
> 
> Debt looks manageable, not sure about the long term prospects of the business but definitely looks like it might be worth a look when the dust settles.




The volumes weren't great on a takeover news... probably only ~20m odd shares. So once they are washed out the selling should ease. 

And you are quite right about the fluctuation in the financials. It all looks pretty good on paper but it's trading so cheap you really need to ask if there are flees that you just can't see.


----------



## JTLP

Hi SKC.

Quite enjoyed following this thread - you're a learned fellow and from what I can gather an NBA fan (where else would amazing happen  ).

Any updates?


----------



## skc

JTLP said:


> Hi SKC.
> 
> Quite enjoyed following this thread - you're a learned fellow and from what I can gather an NBA fan (where else would amazing happen  ).
> 
> Any updates?




Thanks Snoopy. I know I said I'd keep this alive.... but the website Smartportfolio recently stopped offering free access and I couldn't be bothered to re-record the transactions. Yes a pretty lame excuse the abandon the thread.

Still doing plenty of buying and selling using similar approach so may be I will revive this some time down the line. 

P.S. Yes I am an NBA fan and the NBA league pass broadband makes it difficult to focus on trading during the day!


----------



## JTLP

skc said:


> Thanks Snoopy. I know I said I'd keep this alive.... but the website Smartportfolio recently stopped offering free access and I couldn't be bothered to re-record the transactions. Yes a pretty lame excuse the abandon the thread.
> 
> Still doing plenty of buying and selling using similar approach so may be I will revive this some time down the line.
> 
> P.S. Yes I am an NBA fan and the NBA league pass broadband makes it difficult to focus on trading during the day!




Ok cool - understandable about the portfolio debacle!

Good to hear about the NBA - the league pass is some insane value!

PS Go Celtics =)


----------



## herzy

Ah what a thread! I've read both yours and Robusta's wtih great interest (am just starting out). Just a question - how do you find mergers, and analyse how likely they are to succeed? Seems like quite a nifty way of making relatively quantifiable profit over a short period of time (e.g. 6% in 2 months).

What a shame you had to end the experiment...


----------



## skc

herzy said:


> Ah what a thread! I've read both yours and Robusta's wtih great interest (am just starting out). Just a question - how do you find mergers, and analyse how likely they are to succeed? Seems like quite a nifty way of making relatively quantifiable profit over a short period of time (e.g. 6% in 2 months).
> 
> What a shame you had to end the experiment...




To find mergers I just follow all the ASX announcements.

To assess likelihood... 
- Who's the acquirer (are they legit with money or are they dodgy). Plenty of Chinese and Indian companies are all talk and no action. 
- Who are the major holders of the target and identify if there are potential resistance. 
- What sort of commentary are being made by media and holders (forums are good for that).

While it looks like easy money, one mis-hap will cost you plenty (look at CSV on this thread, or those who are in the FMS mess).


----------



## herzy

I will listen to both this:



skc said:


> To find mergers I just follow all the ASX announcements.
> 
> To assess likelihood...
> - Who's the acquirer (are they legit with money or are they dodgy). Plenty of Chinese and Indian companies are all talk and no action.
> - Who are the major holders of the target and identify if there are potential resistance.
> - What sort of commentary are being made by media and holders (forums are good for that).





AND this:


skc said:


> While it looks like easy money, one mis-hap will cost you plenty (look at CSV on this thread, or those who are in the FMS mess).




Thanks!


----------



## sammy84

SKC

Have you given up the fundamental trading for now?

Also haven't seen any action in the pairs thread, how is that going?

Cheers.


----------



## skc

sammy84 said:


> SKC
> 
> Have you given up the fundamental trading for now?
> 
> Also haven't seen any action in the pairs thread, how is that going?
> 
> Cheers.




I am still doing both but just not posting on them.

I am quite serious about reviving this thread but just hasn't come across a good stock to get it started.

Pairs trading is still profitable but less so then before. I've had to increase position size to get the same $ returns.


----------



## Ves

Didn't Buffet make 20-25% pa  on merger / corporate takeovers and other such "risk arbitrage" events?


----------



## nulla nulla

skc said:


> ....Pairs trading is still profitable but less so then before. I've had to increase position size to get the same $ returns.




Been tough the last few months. Shares I trade seem rangebound with an even tighter spread than before. Found we are doubling the size of the position, taking half the movement to extract a reasonable profit. Where we were able to take between 2-3% return on a trade, we are now having to take 1-1.5%. Still, they add up over time.


----------



## skc

Ves said:


> Didn't Buffet make 20-25% pa  on merger / corporate takeovers and other such "risk arbitrage" events?




You will have to ask him :

The market is actually reasonably efficient when it comes to pricing merger probabilities imo. Usually the first couple of days upon deal announcement there are opportunities for a decent entries (being ~20% annualised, but probably ~5-8% net) when holders who bought at much lower prices cash out at profits. But if the price falls for no reason weeks afterwards, chances are the probability of the deal going through has changed for the worse.

There are several deals in the market at the moment that has unusally high returns, and I bet you some of them won't go through.
- NGF - bid at 27c, last ~23c
- PRH - asset sale to SLR for SLR script in return. Value ~22c, last ~18c
- FMS - crazy Russian games going on

Having said that, if you get into a bidding war by accident, you would be pretty happy. My finger was hovering over the buy button for LDW after the first bid... and that would have been pretty sweet. Oh well.

These few variables determine whether you achieve 30% return or -15% running this strategy.


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## skc

nulla nulla said:


> Been tough the last few months. Shares I trade seem rangebound with an even tighter spread than before. Found we are doubling the size of the position, taking half the movement to extract a reasonable profit. Where we were able to take between 2-3% return on a trade, we are now having to take 1-1.5%. Still, they add up over time.




You talking about Pairs trading? That sums up reasonably well. Do continue the discussion over at the pairs trade thread if you wish.


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