SKC fundamental positions

[skc]

Partial Position Closed

12/4/2011 Sell 7,500 ZGL @ $0.52 = $3,900

RealiseD P&L = $1600 (Including dividend)

Rationale

Initial target was PE 8-10 which has been reached. For a growth company that PE isn't expensive, but the market looks to have run too far too fast and poised for a fall. If ZGL falls substantially towards low 40s then it will be very decent value again.

Also today I opened a couple of small shorts on the index to protect my long positions. But as usual this is for information only and not included in the portfolio performance record.

P.S. It is quite amazing how the global market turns on a dime like today. It reminds me of a school of fish that, somehow, all change direction at the same time... definitely primal herd mentality observed in a modern setting.

 

[suhm]

Not sure if links are allowed but http://australianshareholders.com.au/asa_site/images/pdf_archive/presentations/pick issue 1.pdf is a copy of the magazine that was included in the AFR. Its a PR mag, printed by Fairfax so i'm sure they got some money. Good info none the less.

I think IDM makes a lot more sense as an investment than iluka, if you look at the faesability studies they were based on a zircon price of about 700 whereas now they are double that, the ausd USD currency exchange rate was also lower though. Still a lot of risk at present as the plant hasn't been commissioned yet and the court case (I think that is more of an annoyance though). I do have a preference for things already in production.

I think ZGL probably still has more to run, ventrade is probably just about finished selling and the montgomery crew still seem to be buying, add to that a possible profit upgrade from the full year results and you might have a bit of seller's regret down the track.

 

[skc]

Not sure if links are allowed but http://australianshareholders.com.au/asa_site/images/pdf_archive/presentations/pick issue 1.pdf is a copy of the magazine that was included in the AFR. Its a PR mag, printed by Fairfax so i'm sure they got some money. Good info none the less.

I think IDM makes a lot more sense as an investment than iluka, if you look at the faesability studies they were based on a zircon price of about 700 whereas now they are double that, the ausd USD currency exchange rate was also lower though. Still a lot of risk at present as the plant hasn't been commissioned yet and the court case (I think that is more of an annoyance though). I do have a preference for things already in production.

I think ZGL probably still has more to run, ventrade is probably just about finished selling and the montgomery crew still seem to be buying, add to that a possible profit upgrade from the full year results and you might have a bit of seller's regret down the track.

Down the track? Already have regrets now! How much money is following Roger?

 

[skc]

New Position

15/4/2011 Buy 30,000 MLM @ $0.27 = $8,100.

Rationale

MLM is an explorer and holding company who own assets that are significantly above their share price. The net tangible assets of all listed investments come to 45c per share. In fact, the 80m MTE shares they hold is worth 28c per share. So by buying at 27c I got free shares in CBX, PMQ and ORM (collectively worth ~18c). MLM also has a nickel-cobalt-scandium project in North Qld, which again comes free at current share price. Cash in hand ~$5.6m with no borrowings.

MLM has always traded below NTA but and I have decdied to take a position now due to a number of reasons...

1. Price/NTA is the lowest in the last 6 months.
2. MTE (a coal play) has spiked in recent weeks on the back of a drill program and has a good chance of generating some positive news.
3. MLM declared an in-specie distribution of its holding in CBX. Although CBX is very illiquid it does unlock the value (esp that I paid $0 for them).
4. The Nornico project scoping study is due to be released around now.

With quite a few things going on I am betting these events will help close the valuation gap. I will implement a time stop of 3 months if nothing comes of it. Sell target is ~40c to 45c.

 

[skc]

End of Week 23

Portfolio value up 21.1%
XJO +2.26% (Last 4852.1, Starting value 4745)
XJOAI +3.86% (Last 35977.3, Starting value 34639.1)

Commentary

Not much changed at the portfolio level despite a weak overall market. Gains in IDM, ZGL and WHC offset by retreats in AAD, CFE and BSA.

WHC - A number of formal proposals have been received after detailed due diligence and the board will now sit back and think... The end is nigh I hope. Got my timing all wrong and there were plenty of opportunities to buy in at lower price since my entry back in Nov last year. Not sure there is that much of a premium on current prices - 10-15% like RIV is probably the most I hope for.

MLA - Quarterly 4C out today. No real increase in receipts but operating cash flow of -$57K is a bit better than the last 2 quarters. They've signed quite a few new deals since March so higher revenue numbers should start flowing through next quarter. Cash on hand is ~$547K which sounds low but it's actually reasonable compared to the size of the business. Depending on the nature and terms of their new contracts they might go raise some money, most likely via a quick placement.

CFE - Made two separate announcements regarding their projects and the market didn't seem to care too much. In my valuation the big picture is still the Marampa Iron Ore project that should worth around the same as the whole company now. The Pick's article (thanks suhm for the link above) gives a good overview of what CFE is doing.

ZGL - Company presentation out and contains some pretty pictures. They have an interal, VC type, incubation business unit that hold invetments in early stage technologies... probably a good fun thing to do (surgical robots!) from their own engineer's point of view, but I much rather they focus on expanding their immediate market first.

 

[investorpaul]

New Position

15/4/2011 Buy 30,000 MLM @ $0.27 = $8,100.

Rationale

MLM is an explorer and holding company who own assets that are significantly above their share price. The net tangible assets of all listed investments come to 45c per share. In fact, the 80m MTE shares they hold is worth 28c per share. So by buying at 27c I got free shares in CBX, PMQ and ORM (collectively worth ~18c). MLM also has a nickel-cobalt-scandium project in North Qld, which again comes free at current share price. Cash in hand ~$5.6m with no borrowings.

MLM has always traded below NTA but and I have decdied to take a position now due to a number of reasons...

1. Price/NTA is the lowest in the last 6 months.
2. MTE (a coal play) has spiked in recent weeks on the back of a drill program and has a good chance of generating some positive news.
3. MLM declared an in-specie distribution of its holding in CBX. Although CBX is very illiquid it does unlock the value (esp that I paid $0 for them).
4. The Nornico project scoping study is due to be released around now.

With quite a few things going on I am betting these events will help close the valuation gap. I will implement a time stop of 3 months if nothing comes of it. Sell target is ~40c to 45c.

Another one that popped up on my radar some time ago.

Every odd that it trades at such a large discount to its assets (cash & share holdings in particular).

Given it has traded at a discount for a considerable amount of time it will be interesting when and how it closes the gap.

 

[suhm]

I wouldn't knock surgical robots, look at intuitive surgical, its a 13bn USD company and what they do is make surgical robots. If you knew how TRUS biopsies were done you would see why this is such a step forward and medical people all like to have the newest machinery, the desire to be at the cutting edge and all. Also with the ageing population and the lowering of the accepted PSA levels, a lot more people will be getting biopsies.
Current/previous practice for biopsies - Shove a needle into where you think the tumor is.
Best current practice for biopsies - Hold an US probe with one hand and a needle with your other hand and put the needle where you see the tumor is on the screen.
Biobot - Same as above but in 3D and with the robot holding the probe and needle, improvements on current practice are a) the robot has steadier hands, b) US images are very grainy.
This can then be used for other types of biopsies, i.e. breast, lung, liver, renal.

It is the diagnostic equivalent of the Da Vinci robot, those cost more than USD 1m each, margins are very good in the medical field and the biobot will not be able to be sold at anywhere near that price though.
As an aside for margins in medical equipment, hammer used in orthopaedic knee or hip replacement surgery cost $500, cost of a hammer at bunnings ?$10. Difference in use of said hammer, none. Why does it cost 50 times more, you can sterilise the orthopods hammer.

 

[skc]

Another one that popped up on my radar some time ago.

Every odd that it trades at such a large discount to its assets (cash & share holdings in particular).

Given it has traded at a discount for a considerable amount of time it will be interesting when and how it closes the gap.

Hopefully the factors I outlined will provide MLM with some lift. Like someone rich once said 'Buy something that has a rising value and the share price cannot lag forever'... or can it? That's why I am putting a 3 month time stop on this position.

I wouldn't knock surgical robots, look at intuitive surgical, its a 13bn USD company and what they do is make surgical robots. If you knew how TRUS biopsies were done you would see why this is such a step forward and medical people all like to have the newest machinery, the desire to be at the cutting edge and all. Also with the ageing population and the lowering of the accepted PSA levels, a lot more people will be getting biopsies.
Current/previous practice for biopsies - Shove a needle into where you think the tumor is.
Best current practice for biopsies - Hold an US probe with one hand and a needle with your other hand and put the needle where you see the tumor is on the screen.
Biobot - Same as above but in 3D and with the robot holding the probe and needle, improvements on current practice are a) the robot has steadier hands, b) US images are very grainy.
This can then be used for other types of biopsies, i.e. breast, lung, liver, renal.

It is the diagnostic equivalent of the Da Vinci robot, those cost more than USD 1m each, margins are very good in the medical field and the biobot will not be able to be sold at anywhere near that price though.
As an aside for margins in medical equipment, hammer used in orthopaedic knee or hip replacement surgery cost $500, cost of a hammer at bunnings ?$10. Difference in use of said hammer, none. Why does it cost 50 times more, you can sterilise the orthopods hammer.

Haha sorry if I sound like I was knocking surgical robots. I was more making the point that, as a shareholder in ZGL, I rather them focus on what they are doing well, and not branch out to something completely different.

Their rationale was that their precision engineering expertise can be leveraged into these new products - which I guess is true to some extent. But things like surgical robots have completely different markets, customers, channels, distributions, regulations etc etc. Can they give it the attention / capital that is needed to build that into a real business, without hindering existing operations?

I doubt they have exhausted all they could do in their existing markets.... and if I want exposure to surgical robots, I will go buy companies that do surgical robots. Let me do the diversification thanks.

You did bring a very interesting point about medical devices and supplies... *thinking

 

[skc]

New Position

21/4/2011 Buy 10,000 SNL @ $0.505

Rationale

SNL is a small supplier of automative parts for buses and trucks, with a tiny market cap of $17m.

SNL made an annonucement yesterday that the full year EBIT is expected to be ~$3.5-$3.8m. The company has ~$3m debt (so more than managable), so expect NPAT to be $2.3-$2.5m, or 6.6 to 7.2cps. That's the 3rd such profit upgrade announcements for the last 3 reporting periods.

This pitches the company at a PE ~7. Last year dividend was 4c (which is well covered by the EPS) so a prospective yield of ~8% fully franked at my buy price. Revenue should grow in the high single digit, and margin should be helped by the high $A.

I think PE ~12 would be a fairer price, so target ~80c. I am wrong if earning growth is not achieved.

Small and illiquid company, and usually pretty quiet announcement-wise throughout the year.

Portfolio has cash ~$35K.

 

[skc]

Position Closed

29/4/2011 Sell 7,500 ZGL @ $0.60 = $4,500

Realised P&L = $2199.75 (incl. dividend)
P&L on full position = $3799.50.

Best win for the portfolio to date. 60c was the target initially so when it was reached I trailled a stop at ~5%. The rising $A probably doesn't help as these guys do their accounting in $S.

Cash in hand ~$37K

 

[skc]

New Position

2/5/2011 Buy 50,000 EVZ @ $0.07 = $3,500

Rationale

EVZ is a small engineering services outfit doing work in water, power, drainage, coating etc. 2010 was a poor year and they recorded a loss on some project over-runs. This year however they look to have turned it around. H1 NPAT was $0.8m on rising revenue of $46m (up12% from H1 FY10).

Today management provided an update on recent contract wins and tenders - and while no forecast was provided, evidences point to continued increase in revenue and profitability.

Using existing margins and fixed costs, if they achieve revenue ~$100m (runrate) a NPAT ~$3m is probably in order. That equates to ~1cps so my buy price was at PE~7.

Target exit PE ~12, wrong if the revenue and profitability are not up to assumption.

 

[tech/a]

SKC

Hows the open profit/loss going.
I note that mainly those in profit appear to be sold.
Those in drawdonw--not all but most--seem to be still open?
It appears 3 arent treading?

 

[skc]

SKC

Hows the open profit/loss going.
I note that mainly those in profit appear to be sold.
Those in drawdonw--not all but most--seem to be still open?
It appears 3 arent treading?

Thanks for dropping in. Will post a summary at EOD today. 2 long weekends in a roll (for QLD) means I didn't post a summary last Friday.

 

[Frank D]

EVZ

Primary & Secondary cycles are currently Weak...

good sign would be to trading above 0.077 cents (2nd quarter 50% level)

better sign would be trading above 0.103 cents..

if above .103 I would hold until $15 cents:- break and extend pattern...

Current support @ 0.057/.06

 

[skc]

Start of week 26

Portfolio value up 17.2%
XJO +1.69% (Last 4825.3, Starting value 4745)
XJOAI +2.57% (Last 35527.9, Starting value 34639.1)



This portfolio is approaching the half year mark and it's return is respectable (considering market condition), but unspectacular. Portfolio value peaked back in week 15 and again in week 22 at ~21.3% profit, but has retreated 4% since then.

The Australian market is trailling behind the rest of the world in the last few weeks, with most blaming the high $AUD. In partciular small end of resources are smashed quite badly. XJO is down ~2.5% in the last 3 weeks, while XSO is down ~5.5%.

At this halfway point I am going to review every open and close position... (I hate to see tech/a going on his holiday worrying about my positions )

 

[skc]

I note that mainly those in profit appear to be sold.

Here's a summary of all the closed positions. I am reasonably pleased with how the positions were managed. Most of them were exited in line with the original plan.



There were a few regrets for sure...

- VPG received its takeover offer last week from an external source @ $1.80. Management did mention that they were fidling offers and the value was there, but I chose not to hold.

- MFC reached a high of 16c but I sold for 12.5c. I mixed technical analysis with fundamental by putting a trailling stop on its main asset (BSM shares) and gave too much open profits away.

- ZGL / HFA jumped up very quickly following my entry and I took profit a earlier than my target exit.

 

[skc]

Comments on open positions

AAD - Happy to hold this as a 'portfolio hold' (as opposed to event-based trade). Yield is 9% on current prices compared with sector average ~6.5-7%. Only 10% income from US so $AUD rise should have few impact. Target $1.8-$2 remains.

BAU - Presentation out today with cash $42m (~17.5cps) so I am still holding a very cheap potential project. Company's position hasn't change much in terms of assets and has no major cash outflow commitment. Comfortable with hold but definitely regret not taking part profits when the price spiked up back in Feb.

BSA - No update from the company since results announcement in Feb. The income and earnings should be pretty stable but a delay in the NBN cable laying work probably resulted in some holders exiting. The percentage loss looks big but I am not too worried given my position size.

CAJ - A small thin stock that I don't expect too much movement unless some tipster picks it or they issue some company update. Not too worried about the lack of liquidity given my position size.

CFE - Still plenty of value based on sum of assets. Quarterly report out last week showing ~$70m, no debt, and a US$715m NPV value for the Marapa Iron Ore Project. My valuation is ~85c for CFE and only has a value of $350m for the project.

CIF - Got a speeding ticket last week for falling too fast. With all its earnings from US that fall was probably a result of the rising $A. With the negative FX effect my target has fallen 10% accordingly, but still well above current prices. I've mentioned a few times that this is a position I'd sell if there is a need for cash, however.

Part II after dinner...

 

[tech/a]

Very respectable result.
Nicely managed.
Took a hit myself now at 34%
and flat.
Great work and a worthwhile exercise.

 

[skc]

Comments on open positions

EVZ - Not much to add since this morning. Thank Frank for the technical view.

IDM - Awaiting news on plant commissioning.

MLA - Not expecting too much movement until confirmation of sales increase.

MLM - The underlying assets (MTE) have come down a bit but still worth well north of current share price.

MYE - Most mining service firms have come off 10-15% from the peak, and MYE pretty much in line with the overall market. Volume has really fallen off and spread is quite wide. I do want some exposure to this sector and I might switch to another company in this space if the opporutnity arises.

SNL - Market has reacted positively to the trading update. Probably benefits from the strong $A as they are an importer.

WHC - Definitely a problem child. Very poor performance in the last few weeks and some jittery about whether the takeover deal will get done. Normally I would have sold when they announced profit problems following the floods all the way back in Dec, but the takeover carrot was dangling... I did actually sell my real position on 21 June when it fell heavily on rumour that one bidder has pulled out, followed by a WHC response that didn't calm the market. At current prices the risk of no takeover is probably falling back towards $5.5 (price before the rumour) while a takeover price should still be above $7.0, so I will maintain the position until the transaction is concluded one way or the other. But management costed a lot of shareholder value by dragging out the process and running into a lot of troubled weather.

 

[skc]

A couple of meaningful announcements from the portfolio today

MLM - went ex for the in-specie distribution on 1-for-10 CBX shares (total 11.6m dished out). So the portfolio will have 3,000 CBX at $0 cost (although I am not sure what number to use for tax purpose). MLM still holds 26.9m CBX shares. CBX is very illiquid however (with a lone bid at 30c) and I will need to take a good look at that company before I make a hold/sell decision. Good to see MLM holding its price despite the distribution - probably because it was valued at nothing to start with. The distribution was worth 3c per MLM share so I've reduced my target for MLM to 40c.

IDM - Announced a 1-for-7 rights issue at 20c + 1 option (35c, Jun 13) for every 2 new shares subscribed. The money will go towards final construction payment, parts inventory and working capital. I will be taking up the rights which will be completed around early June.

AAD - 3rd quarter update which saw revenue of ~$289m for the 9 months. Revenue was $196m for the first half so 3rd quarter net of $93m was slightly down compared to the first half, but ~6% ahead of last year's 3rd quarter of $87.6m. Not bad considering the weather impact and high $A deterring tourists.