SKC fundamental positions

skc · 19 August 2011

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 · 24 August 2011

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 · 29 August 2011

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 · 29 August 2011

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 · 2 September 2011

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 · 2 September 2011

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 · 7 September 2011

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 · 7 September 2011

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 · 7 September 2011

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 · 8 September 2011

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 · 9 September 2011

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 · 14 September 2011

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 · 23 September 2011

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 · 4 October 2011

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 · 4 October 2011

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 · 4 October 2011

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 · 4 October 2011

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 · 5 October 2011

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 · 7 October 2011

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 · 7 October 2011

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...

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