SKC fundamental positions

[skc]

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!

 

[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.

 

[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

 

[skc]

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.

 

[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]

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]

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]

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]

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]

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]

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.