MIR - Mirrabooka Investments

[Dona Ferentes]

I think I will be adding them to my LIC holdings.

It's interesting; I got the sense from the meeting that there was a bit of rueful reconsideration about the SPP. As per AFI (asked if there would be a raise, the answer was, sensibly, that pricing was difficult as that LIC was well above NTA but current holders shouldn't be disadvantaged/ diluted)), the pricing looked tricky but the desire to get extra funds in the door high ("end December 2021, Mirrabooka was close to fully invested ").

But where are we now? Between results at 17 Jan and SPP announced on 03 Mar, the SP has traded from $4+ to around $3.55. Mainly down, as with the rest of the market (-9%) and in fact a little more ( down 15%) ,..... slide 15, Jan n Feb ; "Rotation - market sells highly valued recent winners, buys resources".

With the terms of SPP pricing (SPP issue price will be the lower of $3.18 per share or by applying a 10% discount to VWAP) , looking at the last few weeks I'd guess a VWAP of $3.30 and hence an issue price of $3.00 (not even a napkin employed) which is likely below the NTA. So, all guesswork, the lower calc should throw up some cheap MIRNB. And if others think the same way and applications flow, Directors retain the right to scale back the Plan.

 

[divs4ever]

It's interesting; I got the sense from the meeting that there was a bit of rueful reconsideration about the SPP. As per AFI (asked if there would be a raise, the answer was, sensibly, that pricing was difficult as that LIC was well above NTA but current holders shouldn't be disadvantaged/ diluted)), the pricing looked tricky but the desire to get extra funds in the door high ("end December 2021, Mirrabooka was close to fully invested ").

But where are we now? Between results at 17 Jan and SPP announced on 03 Mar, the SP has traded from $4+ to around $3.55. Mainly down, as with the rest of the market (-9%) and in fact a little more ( down 15%) ,..... slide 15, Jan n Feb ; "Rotation - market sells highly valued recent winners, buys resources".

With the terms of SPP pricing (SPP issue price will be the lower of $3.18 per share or by applying a 10% discount to VWAP) , looking at the last few weeks I'd guess a VWAP of $3.30 and hence an issue price of $3.00 (not even a napkin employed) which is likely below the NTA. So, all guesswork, the lower calc should throw up some cheap MIRNB. And if others think the same way and applications flow, Directors retain the right to scale back the Plan.

i am GUESSING management suspect a crash is coming ( but maybe they are eyeing some upcoming IPOs ) and decided to cash up , hoping they will look gifted in a year or two time , i notice some rivals have been trimming selected holdings , will others have benefited from take-over activity ( crystallized profits )

interesting times coming good luck holders

 

[Dona Ferentes]

i am GUESSING management .....

the commentary wasn't along those lines.

 

[Belli]

Directors retain the right to scale back the Plan.

Thanks for the analysis @Dona Ferentes.

In regard to a potential scale back, while possible, I don't consider it will happen. Unlike the MIRNA SPP, this one isn't capped. The maxium number of shares to be issued is as per the announcement on 3 March is below. By my calcs - and I could be incorrect - this number assumes all shareholders apply for the maximum amount of $30k and at $3 per share that would be a max of $156m raised. Strongly doubt that will occur.

With the previous SPP I did ask the company why it was capped. The response was the investment team having identified possible placementshad made a recommendations along these lines to the Investment Committee and the Board. That and the view of holding too much cash would have had a drag on any performance.

 

[divs4ever]

the commentary wasn't along those lines.

not many fund managers would make that argument when asking for extra funds to share-holders ( to the corporate bankers , MAYBE )

however i believe MIR uses an options strategy , so should have some useful trading skills among them

That and the view of holding too much cash would have had a drag on any performance.

again , i would have avoided mentioning SOME fund-managers were on the acquisition trail and usually find LICs with cash reserves particularly attractive , so being low cash could be seen as a defensive stance ( against predators ) but as optimistic by the investors

 

[peter2]

@Dona Ferentes Thank you for the series of posts and your opinions. I'm not a trader of LICs as I'm a harsh critic of their performances. However they do have short periods of outperformance that can boost longer term averages. MIR outperformed in a two year period 2012-2014, then matched the market for six years until after the Covid selloff (2020) where they really did well (+100%).

Reasons for the recent selloff (that reduces their recent outperformance) are hard to know but they could be due to uncertainty about the SPP pricing or that their portion of banks and LC materials is much lower than the index. As we know the recent rally has been mostly due to rallies in the banks and large cap materials.

If the banks and LC materials continue to rally then the rest of the market will join in quickly. Raging inflation and fuel costs will dampen bullish sentiment though. I notice that the largest holding in the MIR portfolio is Mainfreight (logistics). It won't like the higher fuel costs.

MIR management seem to be more flexible than others as I read they actually sell their winners and redeploy that capital into new positions.

I'll slip MIR into the reversal watchlist and keep an eye on it as an interest to see what happens after the SPP is done.

 

[Belli]

however i believe MIR uses an options strategy , so should have some useful trading skills among them

Hardly relevant. The trading portfolio is around 1% of the investment portfolio. It's a very minor activity overall. Have you bothered to look at the composition the investment team?

again , i would have avoided mentioning SOME fund-managers were on the acquisition trail and usually find LICs with cash reserves particularly attractive , so being low cash could be seen as a defensive stance ( against predators ) but as optimistic by the investors

No relevance to the subject matter. Another of your red herrings.

 

[Ferret]

I notice that the largest holding in the MIR portfolio is Mainfreight (logistics). It won't like the higher fuel costs.

AFIC also have a large holding of Mainfreight and at there Investor briefing today they were asked about the effects of rising fuel costs on Mainfreight.

They answered that Mainfreight use an owner-driver model, so the company is not directly effected by fuel costs.

 

[Dona Ferentes]

....With the terms of SPP pricing (SPP issue price will be the lower of $3.18 per share or by applying a 10% discount to VWAP) , looking at the last few weeks I'd guess a VWAP of $3.30 and hence an issue price of $3.00 (not even a napkin employed) which is likely below the NTA. So, all guesswork, the lower calc should throw up some cheap MIRNB. And if others think the same way and applications flow, Directors retain the right to scale back the Plan.

and Mirrabooka has 'nudged' the punters with an announcement

The estimated net tangible asset backing (NTA) before tax as at 31 March 2022 is $3.20 per share.....
..... Directors note the Company’s share purchase plan offer to shareholders is due to close on Monday 4 April 2022.

 

[Belli]

and Mirrabooka has 'nudged' the punters with an announcement

So an ~6% discount to NTA based on those numbers.

 

[Dona Ferentes]

So an ~6% discount to NTA based on those numbers.

Close. Looking at 3.03 (?), but don't forget MIRNB carries a lower dividend, likely 3.25c FF, so have to knock off 5c. Still, it's on the right side of having a benefit.

 

[Dona Ferentes]

Close. Looking at 3.03 (?)

SPP closed on 4 April 2022 with applications from 2,069 eligible shareholders (representing a participation rate of 27%) totalling $42.2m. There was no scale back of applications under the Plan.

The Company further advises that the price set in order to calculate the number of shares to be issued to participants in the 2022 Share Purchase Plan is $3.01 per share and the new SPP shares (ASX:MIRNB) will be issued on Monday 11 April 2022 and tradeable on the ASX on Tuesday 12 April 2022.

 

[Dona Ferentes]

2022 Share Purchase Plan is $3.01 per share and the new SPP shares (ASX:MIRNB) issued on Monday 11 April

a month later and MIRNB is trading back down to $3.01 (got to 3.24 in April)

I trust the powder is dry and opportunities abound

From the presentation at the time :

Funds to be raised .. support Mirrabooka purchasing preferred quality companies in the recent market selloff and will provide capacity to take advantage of likely further share market volatility

 

[Dona Ferentes]

• The final dividend of 6.5 cents per ordinary share fully franked, the same as last year (3.25 cents for holders of the MIRNB shares, also fully franked), will be paid on 17 August 2022 to shareholders on the register on 28 July 2022.
• In addition, a special dividend of 2 cents fully franked will also be paid to MIR ordinary shareholders on the same dates (and with the same record date and ex-dividend date) as the final dividend. The equivalent amount for the MIRNB shares is 1 cent.
• Total dividend for the year for an MIR ordinary share is therefore 12 cents, in line with last year.
• The entire 6.5 cents of the final dividend and the 2 cents special dividend are sourced from capital gains, on which the Company has paid or will pay tax. The amount of the pre-tax attributable gain, known as an “LIC capital gain”, attached to this dividend is 12.14 cents. This enables some shareholders to claim a tax deduction in their tax return.

 

[Dona Ferentes]

Portfolio Adjustments - FY to 30 June

• Computershare and Worley were new holdings that we bought well through the period, having been two of the strongest performing stocks on the ASX since our purchase during the financial year. JB Hi-Fi was also an addition to the portfolio, which we are comfortable will be a solid long-term holding for the portfolio.
• We participated in two smaller company IPOs, IPD Group which has performed well and Chrysos Corporation which has seen a meaningful share price fall since IPO. We believe both remain interesting companies for the long term, that fit with our investment process as small, earlier stage investments.
• The market selloff during the year also saw us add most materially to existing positions in Dominos Pizza Enterprises, Nanosonics, Peet, REA Group, Temple and Webster, IRESS and Corporate Travel Management. Many of these have since sold off further, highlighting the challenge of identifying share price lows in a falling market. Our process in these situations remains consistent. We continue to assess the relative long term prospects of each investment opportunity and look to add to positions as prices fall, where our long term conviction remains strong.
• Much of our selling over the year reflected our concerns about extreme pricing across a number of our highly rated growth stocks. We exited Xero on this basis, as well as reducing positions in Seek, Objective Corporation, ARB Corporation and Reece at very high prices that have since fallen materially. These sales were the largest contributors to the significant realised capital gain of $36.4 million that was recorded for the financial year.
• Thirteen stocks were exited from the portfolio, many of which had performed well for us historically, but where we had reduced our conviction, including Qube Holdings, NIB Holdings, Atlas Arteria and Tassal. As is generally the case in emerging company investing, there were others that were sold as our expectations were not being met, including Lark Distilling Co. and Superloop. Outlook

 

[Belli]

Thanks @Dona Ferentes. I was about to go and have a look at the announcements but you've saved me the trouble.

 

[finicky]

I take most of my measures from Commsec summaries. I've never understood the summary of MIR's historical performance. Why are the ROEs so miserably low and the PE sky high? The LIC seems a good performer although I am not sure why I think that - some wised up followers of it maybe, the dividend payments and the stock selections? Is it some accounting thing that they do, that WAM for example does not? MIR'S dividends well outstrip their eps - do they somehow subtract dividends before calculating earnings? Weird, it's been enough to put me off in the past, too hard.

 

[Belli]

MIR'S dividends well outstrip their eps

LIC Capital Gains are excluded from EPS calculations. AASB requirements. See Note A5 to the accounts.

 

[finicky]

Thanks, that clarifies . I guess that means WAM or AFI for examples get more of their earnings from dividends than capital gains then.

 

[Dona Ferentes]

As the statement said:
"Much of our selling over the year reflected our concerns about extreme pricing across a number of our highly rated growth stocks. For XRO, SEK, OBJ, ARB, REH, we exited as well as reducing positions at very high prices.... These sales were the largest contributors to the significant realised capital gain of $36.4 million that was recorded for the financial year."

If you think about it, small cap companies are either small dividend payers or reinvest earnings for growth, hence alot of the MIR payout comes from the realised capital gain.