# Value Hunting - Longer Term?



## Muschu (16 November 2008)

I don't want to start an inappropriate thread and ran this past Joe first.
I share his view that ramping is inappropriate and that anything posted here should be backed up and add to our capacity to make informed decisions.

I also doubt that, for good reasons, this thread will interest short term traders.  It may be more suited to people like myself who have their own SMSF and are either retired or close to that stage.

The question is:

Given where the market is now, acknowledging that the volatility is continuing, and anticipating that interest rates will continue to go down: Is it possible to identify companies out there that are worth entering for the long haul [with monitoring], provide a good dividend yield, some prospects of even modest growth and the capacity to withstand the storm?

Is anyone interested in suggesting [not recommending] such a company and offering reasons for that suggestion?

For example I have an interest in IVC.  From Etrade:

"InvoCare (IVC) is a private provider of funerals, burials and cremations. The company operates a network of 155 funeral homes across Australia as well as 12 crematoria in New South Wales and Queensland, and eight cemeteries. IVC also has a 10% stake in Singapore Casket Company."

Death is not going to go away so I can barely see this company dying.

IVC's 12 month price range has been from around $4.40 to about $7.50.  Current SP = $4.98.  Dividends are fully franked and are about 4.5%.

Again from Etrade:
"Total Debt 154,547 Interest: 12,095 
Long Term Debt 154,547 (72% of capital) 
Preferred Stock 0   
Shareholders Equity 59,454 (28% of capital)"

Perhaps this debt level is an issue?  The major shareholders seem pretty solid [to me].

From Etrade once more:

"Company Strategy
IVC will build on its strong market position, expanding slowly by acquisition and continuing to enhance brand strength through advertising. Several brands address different market segments. InvoCare reported NPAT up 6.9% to $12.29m for the half-year ended 30 June 2008. Revenues from ordinary activities were $112.67m, up 6.9% from the same period last year. The key factors influencing sales in this half-year were the number of deaths remained above the long term growth trend and sales generated by acquired business. Basic EPS was 12.3 cents compared to 11.6 cents last year. Net operating cash flow was $11.7m compared to $13.8m last year. The interim dividend declared was 10.5 cents fully franked compared with 10 cents last year. Looking ahead, the volatile equity markets are expected to continue to adversely impact prepaid funeral funds and continue the trend of a reduced prepaid surplus for the remainder of 2008."

This is a company I am watching but do not hold at this time.  [In fact I hold only one stock and the rest of our fund is in cash.] Perhaps IVC is a defensive stock, as are many health stocks, in that it provides an essential service.

Anyway, constructive comments welcomed as always - on this or other stocks.  

And, repeating myself, I suggest this will interest only a sector of ASF members.  I don't see much point in a day trader coming in with a brief comment that it's all a nonsense and then exiting.  In my retirement I don't want to spend too much of my day at my PC monitoring price movements.

Rick


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## nunthewiser (16 November 2008)

MTS

my pick of the bunch

ppl have to eat, growth as a business , strong in current market ( see chart )

i hold , suggest anything i say be researched

avaniceday

ps.

sorry for lack of intelligent looking analysis but ones own research beats anything i sprew out anyday


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## Muschu (16 November 2008)

nunthewiser said:


> MTS
> 
> my pick of the bunch
> 
> ...




Thanks NTW... Interesting that this is another on my watch list.  Like WOW it seems to have held its ground pretty well.

Rick


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## nick2fish (16 November 2008)

For me it is AWE considering the thread title of Value (2.20) and Longer Term (oil should be first commodity to recover)

Forecast production full year 9.3 million barrels

Holds cash reserves of 370 million

15 months - 15 well drill program

Unless we all go back to the horse and cart AWE looks to be a stand out performer in the near term

Thats my opinion and I have been known to be wrong more than right
 
so consult someone qualified and DYOR cheers


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## cutz (16 November 2008)

Muschu said:


> "InvoCare (IVC) is a private provider of funerals, burials and cremations. The company operates a network of 155 funeral homes across Australia as well as 12 crematoria in New South Wales and Queensland, and eight cemeteries. IVC also has a 10% stake in Singapore Casket Company."
> 
> Death is not going to go away so I can barely see this company dying.




Hi Rick,

Yes, I also went through the numbers on InvoCare, they look pretty good at the moment and my portfolio could use an additional defensive play, unfortunately the thought of investing in funeral homes sort of gave me the creeps so I chickened out, pretty pathetic yeah.


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## drsmith (16 November 2008)

Avoid anything that might need additional capital in the short term to shore up the balance sheet.

Some capital raisings in recent times have been at very deep discounts to the pre-raising share price.


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## Muschu (16 November 2008)

cutz said:


> Hi Rick,
> 
> Yes, I also went through the numbers on InvoCare, they look pretty good at the moment and my portfolio could use an additional defensive play, unfortunately the thought of investing in funeral homes sort of gave me the creeps so I chickened out, pretty pathetic yeah.




Good comment - I liked it.  I suspect I had similar feelings but as we have heard too often - 2 things in life are unavoidable -- taxes and the other.

Now I actually feel OK about this.  We need funeral companies.

And, to be frank, I'd rather invest here than in gambling, alcohol or pollutants such as coal. Tobacco I need not even mention.

But naturally personal preferences, in terms of share-type, are a part of our decision making processes.

Enjoyed your comment.  Thanks.


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## skc (17 November 2008)

Rick, similar topic on another thread here:

https://www.aussiestockforums.com/forums/showthread.php?t=13123&highlight=prosper

I also had IVC and MTS on my watchlist (see post #18 on above). 

You do have to approach the "deathcare" industry with a slightly different attitude . For example, they are the few industries out there that can't actually increase demand (in volume terms anyway) through marketing!


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## jman2007 (18 November 2008)

Muschu said:


> The question is:
> 
> Given where the market is now, acknowledging that the volatility is continuing, and anticipating that interest rates will continue to go down: Is it possible to identify companies out there that are worth entering for the long haul [with monitoring], provide a good dividend yield, some prospects of even modest growth and the capacity to withstand the storm?
> 
> Is anyone interested in suggesting [not recommending] such a company and offering reasons for that suggestion?




Hi Rick,

IVC an intersesting one. Reminds me of Peter Lynch's book "One up on Wall Street" where from memory he also advocated investing in a very similar type of company using the simple argument that there will always be a demand for this type of service.... 

In broader terms of identifying value-plays you need to consider your own circumstances, the likely period before investment return and your attitude towards risk. I can think of four resource companies that are currently trading close to, or less than their cash backing and have very little or no debt. This means that the market is either attributing very little value, or in some cases -ve value to their projects, meaning you essentially get the projects for free! 

*Independence Group: (IGO)*
52 week high: $9.30
52 week low:$1.235
Capital Structure: 115.36M shares fully diluted
Cash on hand: $145M
Market Cap: $152M
Top 20 shareholders: Hold 65% of issued capital
Debt:$620K

*Comments:*
IGO's main asset is the Long Nickel mine in WA, which it has owned and operated since around 2004. IGO appear to have attained a good measure of high-grade nickel sulfide exploration success in the last 12-15 months through near-mine exploration. The company announced a $51M profit for the recent FY. IGO also have a 30% free-carried interest in the Tropicana Gold project (JORC compliant resource 4.5M oz). Appears to have a very large land tenure across WA and is actively exploring for Ni and Au. Full-franked divy payments during the last fy totalled $20M (17 cents). IGO also recently completed an on-market share buy-back of 11.5M shares.

On a more cautionary note, the company's first Corporate foray has ended in disaster with their $4.5M investment in Matrix Metals wiped out (as they are now in administration). Hopefully IGO will learn valuable lessons from this affair.

The 1-2 year outlook for Ni remains uncertain, but perhaps it is a question of not "if" but "when" demand will return? Ni-sulfide miners also have the advantage over the laterite producers (such as MRE) of being able to high-grade in times of price retreats.

*Troy Resources: (TRY)*
52 week high: $3.90
52 week low: $0.76
Capital Structure: Approx 70M shares fully diluted
Cash on hand: $60M
Market Cap: $56M
Top 20 shareholders: Hold 70% of issued capital
Debt:Zero

*Comments:*
Two operating gold mines, Sandstone in Australia and Andorinhas in Brazil. Troy is now a 50,000oz p/a Au producer, total Au production in last quater was 17Koz at a cash cost of AUS$700/oz. Troy also have delineated a small 6.5Mt iron ore resource on the Andorinhas leases, grading at 50% Fe. Also actively exploraing for coal and Au in Mongolia (some big gold discoveries in this country). The company paid out a fully franked divy of 3c/share in the last FY. 

CEO recently purchased 60,000 shares on-market and commented ".. at these levels you are essentially getting the Andorinhas gold mine, the Sandstone gold operation, the Andorinhas iron ore reserve and the Cobar gold processing plant (currently in storgae) - all at no cost". 

Now a couple of wildcats: 

*Cape Lambert Iron Ore: (CFE)*
52 week high: approx $0.92
52 week low: approx $0.195
Capital Structure: 553.94M shares fully diluted
Cash on hand: $330M
Market Cap: $111M
Top 20 shareholders: Hold 75% of issued capital
Debt: $15.6M

*Comments:*
Basically a cashed-up junior on the prowl, some might say there is nothing more scary than a junior with more money than they know what to do with!  Closed a deal with China Metallurgical Corporation worth $400M (hence the cash balance - have so far received $320M, the other $80M to come in next two years) with the sale of the Cape Lambert iron ore project - at a time when many people said it couldn't be done. Still hold ground in the 'Cape Lambert South' region, and are targeting extensions to the main mineralised zone of the main ore body which lies to the north... they've been pumping this project up a fair bit.

CFE recently returned $100M to shareholders by way of a capital return from the sale of the Cape Lambert project. Now here's the interesting part, CFE recently formalised an agreement to become a 30% investor (and Manager) in an iron ore project in Sierra Leone called Marampa. Some people (including myself) may question this move in the current climate of uncertainty and undoubted price contractions in the iron ore sector...er, and the Sierra Leone bit as well. On the other hand, CFE's strategy may be one of a "project maker" in the making: acquire undeveloped projects and prospective tenure, prove up a resource, release a JORC figure, sell the project for a tidy profit, return a portion to shareholders and move on to the next project. There are companies who have done very out of this strategy.

*Vulcan Resources: (VCN)*
52 week high: $0.45
52 week low: $0.06
Capital Structure: 228M shares
Cash on hand: $32M
Market Cap: $17.75M
Top 20 shareholders: Hold 61% of issued capital
Debt: Zero

*Comments:*
The company's prime asset is the undeveloped, 100% owned Kylylahti base metal resource in Finland, which has cobalt, copper, nickel, zinc and gold credits. VCN acquired the assets in 2004. It hasn't been an easy few months for VCN, with the company forced to defer development due to the global credit crisis and plunging commodity prices. If/when Kylylahti becomes feasible again, I would expect VCN to attempt to try and form a partnership to develop Kylylahti, as the capex going it alone would be crippling for a company of this size (at least US$200M I would think). The company is not exactly clear on how it plans to proceed forward, other than stating "we have moved quickly to reduce spending and preserve our cash", and the vague statement "we have commenced a search for opportunities to put our cash to work". Certainly looks a bit speccy, one for the watchlist perhaps? 

Hope this provides some food for thought Rick, sorry for it being so looong.
Cheers
jman (Disclosure: I hold CFE)

Comments welcome


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