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(although I can't promise I won't look at a chart ) I will also take losses when the reason to enter the trade is no longer valid.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.

 

[prawn_86]

Looking forward to it SKC

 

[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%)

 

[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%)

 

[prawn_86]

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

 

[skc]

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...

 

[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.

 

[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)

 

[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.

 

[skc]

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.

 

[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.

 

[skc]

Position summary (QRN not yet listed).

 

[skc]

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

 

[skc]

End of Week snapshot



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

 

[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.

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.

 

[skc]

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...

 

[prawn_86]

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

 

[skc]

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.

 

[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

 

[skc]

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.