SKC fundamental positions

[smartmoney]

New Position

23/6/2011 Buy 15,000 QML @ $0.20 = $3,000.

Rationale

Takeover offer from the US for 23c a share.
QML sells software for coal mines etc and have a decent revenue and profit growth projections. QML rejected the offer a low ball and rightly so.

A comparable company is RUL which trades at ~12x EBITDA. QML management is expecting EBITDA FY11 ~$3m so at 12x, EV ~$36m. Debt is ~$4m, so equity value ~$32m or 40c per share.

Hopefully an offer north of 30c can be extracted.

This is an extremely opportunistic bid which can be clearly seen by all the references relating to the recent stock price. The bid shuts shareholders out from he earnings growth which will build strongly from now as the company looks to yield the results of its growth strategy in opening up a number of ofices in strategic global markrtplaces.

This offer would need to be doubled to be taken seriously. Worth buying this one for the strong chance of a sweeter second offer coming along.

 

[smartmoney]

Im a firm believer of buying and selling on fundamentals. Well actually just buying really,because if you get the fundamental analysis right you should never really contemplate having to sell the stock at the time you are buying it. The concept of buying something and immediately trying to extract a favourable sell price from the market has always perplexed me. There is so much to be gained by relying on the ravages of time to do the work for you once you have secured a desirable entry level on a stock with strong fundamentals. Of course chart watching is always good to gain an insigt as to what the hordes are thinking at any given time.

Looks like the present is a very appealing time to buy on fundamentals with the market having pulled back quite strongly but also coming into what should be a healthy reporting season.

We havnt had too many downgrades coming out during the tyical confession season of May/June

 

[skc]

Im a firm believer of buying and selling on fundamentals. Well actually just buying really,because if you get the fundamental analysis right you should never really contemplate having to sell the stock at the time you are buying it. The concept of buying something and immediately trying to extract a favourable sell price from the market has always perplexed me. There is so much to be gained by relying on the ravages of time to do the work for you once you have secured a desirable entry level on a stock with strong fundamentals. Of course chart watching is always good to gain an insigt as to what the hordes are thinking at any given time.

Looks like the present is a very appealing time to buy on fundamentals with the market having pulled back quite strongly but also coming into what should be a healthy reporting season.

We havnt had too many downgrades coming out during the tyical confession season of May/June

I call this thread fundamental position but really it's opportunistic trading with fundamental news (as opposed to technical analysis). There is a place for buy-and-never-sell type investments. But they are not on this thread.

I am am firm believer that the world is a very uncertain place and so I focus on 'relative value' rather than 'fundamental value'. And so far I've identified 3 types of relative value.

1. Company has $10m in hard assets (e.g. cash) but only trading at $5m.
2. Company AAA and BBB are all but equal except AAA is on PE of 7 and BBB is on PE of 12.
3. Company XYZ historically trades at PE ~12 but been sold down to PE 6 for no reason.

This thread attempts to exploit these relative values.. and once exploited then it's time to sell...

 

[skc]

I am am firm believer that the world is a very uncertain place and so I focus on 'relative value' rather than 'fundamental value'. And so far I've identified 3 types of relative value.

1. Company has $10m in hard assets (e.g. cash) but only trading at $5m.
2. Company AAA and BBB are all but equal except AAA is on PE of 7 and BBB is on PE of 12.
3. Company XYZ historically trades at PE ~12 but been sold down to PE 6 for no reason.

This thread attempts to exploit these relative values.. and once exploited then it's time to sell...

Actually a 4th type...

4. Company is being taken over / have good change of being taken over but is trading meaningfully below the takeover price.

 

[skc]

End of Week 33 Summary

Portfolio value up 14.3%
XJO -5% (Last 4508, Starting value 4745)
XJOAI -3.7% (Last 33352, Starting value 34639.1)



Commentry


3 weeks since the last summary. The market fell ~1.6% (but it sure feels worse than that) while the smaller end (XSO) fell 4.3%. The portfolio, dispite being ~45% in cash, is down ~2.4% So it is pretty much tracking the XSO at the moment.

This down leg has been long, ~2.5 months, but we have not seen the type of 'true' panic in 2008 or even May 2010. Let's hope that is a bullish sign.

AAD - Went ex-div for 5c unfranked.

IDM- Rights issue shares allotted. Plus some free IDMO which expires on 8 Jun 2013 with exercise price of 35c.

MLM- Announced a very different rights issue. For 42c subscription price you get 1 MLM shares and 2 PMQ shares. Note the PMQ shares are not new shares but are coming out of existing MLM holdings. So with PMQ @ ~9.5c and MLM @ 33.5c, the value of the rights is ~10c. They are current going for 4.5c.

From MLM's point of view, this reduces their asset value as they essentially gave away PMQ shares at half the prevailing price. But from my point of view, I paid nothing for PMQ shares anyway and now I can cash out so it's not half bad.

Of course the danger is that PMQ will be sold down heavily after the rights are taken up. The last distribution in CBX saw a stampede to the exit that pushed price from 35c down to 22c. But I don't believe the same will happen to PMQ. I won't explain it here but it doesn't take much research to find out.

I will sell my rights on the market at ~7.5-8c, but if there were no buyers for them I am happy to exercise them.

PSA- So much for a quick swing! The proceed from the asset sale has come through and now they should have ~$50m in cash. Let's hope the market values them that way before management can spend all of it...

 

[skc]

Position added

5/7/2011 Buy 20,000 MLM @ $0.375 = $7,500.

Rationale

The valuation of MLM is getting more attractive... on it's holding of MTE alone it is worth ~42c. Plus all the other bits and bobs it is worth ~55c, and that's with a very low value ascribed to their actual flagship project.

And MTE itself is said to be attracting Indian bidders to the tune of $600m... (i.e. ~$300m or ~$2.4 a share for MLM). Take any haircut you like, but the story is the same - there are like 3 layers of margin of safety in MLM.

I also still hold 3000 rights to MLM @ 42c + 2x free PMQ shares.

 

[skc]

New Position

7/7/2011 Buy 15,000 IRI @ $0.345 = $5,175

Rationale

Integrated Research Limited (IRI) is a software company that develops, produces
and distributes performance monitoring tools and solutions for business-critical
IT infrastructures. (Fr WebIress).

Today IRI announced a profit forecast of $7.1 to $7.5m for the full year, compared to $5.4m last year and $2.4m at the half. So H2 was a bumper one with ~$5m NPAT.

That full year figure equates to ~4.4cps, pitching my buy price at PE ~7.8.

Most business segments showed good growth on the HY report so it will be interesting to see if the H2 performance can be sustained. If so, NPAT run rate of $10m + growth, followed by a PE of 10 gives a tentative target 60c. We will only get there however if the market doesn't crap itself when the next European country goes bust.

Cash in hand ~$30K

 

[skc]

End of Week 35 Summary

Portfolio value up 19.3%
XJO -1.9% (Last 4654.7, Starting value 4745)
XJOAI -1.3% (Last 34184, Starting value 34639.1)



Commentry

A strong rally by the market in the last two weeks after the Greek fears retreated. Everybody knows that it's just 'kicking the can down the road' but the market sure can stay irrational longer than I can stay on the sideline.

BAU - Down to low of 16c at one stage and below cash backing, but I wasn't quick enough to pull the trigger...

CFE - Sure enough it goes up ~15% as soon as I sell. Good resource numbers coming out of Marampa and the company is looking to float that asset in a London IPO said to worth $500m. Market cap of CFE = $300m. I think I will short term trade these guys on the news but I won't include that position in the thread.

MLM - Increased my exposure during the week. Had a big 2 weeks thanks to increase resources and Indian interests for MTE which MLM holds 80m shares. Still has zero value attributed to its other holdings and flagship project.

QML - Making all sorts of noises about the bid being too low and formally rejected the bid today. Apparently the bidder has talked about 27c a share before but somehow decided to lowball it at 23c. Share price is trading above the offer meaning the market is expecting further action. Let's see if they (and I) are right.

 

[skc]

Partial Position Closed

12/7/11 Sell 25,000 MBD @ 13c = $3,250

Realised P&L = $116 (including dividend).

Rationale

As I've said before the position size for this small company was a little bit too big so good time to take half off the table. Essentially just pocketing the small dividend.

 

[skc]

New Position

Buy 12,000 BMN @ $0.43 = $5,160

Rationale

Bannerman Resources Limited (BMN) is a uranium exploration and development
company with interests in uranium properties in Namibia and Botswana, South
Africa. BMN principally focuses on its flagship project, Etango Uranium Project,
located in Namibia. (From WebIress).

With the uranium sector in tatters after Fukushima it is only a matter of time before someone sees value in some of these assets. The Sichuan Hanlong Group has come along and pitched 61.2c cash. That's a premium of 18.2c or 42.5% from today's close.

The offer has the usual conditions and is yet to receive board recommendation. BMN also refused the 3 month exclusivity period as they are still discussing joint venture opportunities with other parties.

The deal may or may not go ahead... if it falls through BMN was trading as low as 20c, although it shouldn't fall all the way down there given that it has attracted some corporate interest. So the bet is 18.2c upside vs ~15-20c downside.

Will hold until further update on the deal, but I reserve the right to run for cover if things aren't looking good.

Cash on hand ~$29K.

 

[SilverRanger]

Any thoughts on ESG/STO takeover? There's still 3% to be milked

 

[skc]

Any thoughts on ESG/STO takeover? There's still 3% to be milked

Unless you hedge by shorting STO that 3% isn't guaranteed.

Then someone might come and takeover STO without raising the ESG bid and you are toasted for a capped gain.

If you want a 3% gain from takeover VPG is probably a better proposition...

 

[skyQuake]

Unless you hedge by shorting STO that 3% isn't guaranteed.

Then someone might come and takeover STO without raising the ESG bid and you are toasted for a capped gain.

If you want a 3% gain from takeover VPG is probably a better proposition...

lol vpg does indeed look better

STO/ESG = 3% over 7 months + transaction costs.
Given that you'll need to short STO and buy ESG thats tying up twice the capital effectively halving your return to 1.5% + transaction costs + risk of deal unravelling.

 

[skc]

lol vpg does indeed look better

STO/ESG = 3% over 7 months + transaction costs.
Given that you'll need to short STO and buy ESG thats tying up twice the capital effectively halving your return to 1.5% + transaction costs + risk of deal unravelling.

The easiest 3% was actually ISF on the open auction this morning. I just couldn't get any at 16.5c. 17c coming in by end of the month.

 

[SilverRanger]

lol vpg does indeed look better

STO/ESG = 3% over 7 months + transaction costs.
Given that you'll need to short STO and buy ESG thats tying up twice the capital effectively halving your return to 1.5% + transaction costs + risk of deal unravelling.

The 3% is now down to 2%, so probably not worth taking it further. But normally I would expect the gap to close much sooner than Feb 2012. All it takes is some assurance, either things like board recommendation, independent expert report, regulator approval etc.

 

[SilverRanger]

The easiest 3% was actually ISF on the open auction this morning. I just couldn't get any at 16.5c. 17c coming in by end of the month.

Why not bid at 17c in market auction? Queuing at 16.5c might take you ages to get a fill (if any)....

Actually this is something I would try I can offload my current holdings at 17c

 

[skc]

Why not bid at 17c in market auction? Queuing at 16.5c might take you ages to get a fill (if any)....

Actually this is something I would try I can offload my current holdings at 17c

Because there's only limited volume selling at 16.5c and if you are not careful you end up buying at 17c which is a waste of time and brokerage.

Today's the last day anyway they are delisted tomorrow.

 

[skc]

Position Closed

20/7/2011 Sell 6,000 PMQ @ $0.09 = $540.

Realised P&L = $474.

Got my MLM rights issues + 2x PMQ shares. PMQ isn't doing a great deal but it does have reasonable cash backing. But it's not something I intend to hold and the position size is too small anyway.

The MLM rights cost 42c to exercise. So for the purpose of P/L I've just assumed these PMQ shares cost 1c each while the 3000 new MLM shares cost me 40c.

The porfolio now holds 5,3000 MLM at average price ~31.7c. Profits already taken on CBX and PMQ distributions...

 

[skc]

End of Week 37 Summary

Portfolio value up 21.3%
XJO -3.0% (Last 4602.9, Starting value 4745)
XJOAI -1.37% (Last 34164.3, Starting value 34639.1)

Today's portfolio value is a new weekly closing high. Last high was back in 8 April @ $121,292. So basically a flat quarter for me, but the XJO is down 300 pts so good out-performance imo.



Commentry

The market went for a big 150 point plunge than rally in the last 2 weeks and pretty much ended where it began. The US debt ceiling will most likely be raised, and we will be back to living week by week on US jobs and China inflation figures. Having said that I am feeling reasonably bullish and will be digging for positions in preparation of the reporting season in August.

CFE- Putting in a very strong climb on the back of SDL receiving a takeover bid, showing that there is life in West African iron ore development assets.

MLA- Released their quarterly report. Cash receipts up ~10% from last quarter to $2.2m, and they achieved a positive operating cash flow (a whopping $31K). Back in Apr I was looking for revenue ~$12m which now look way too optimistic. I will wait for their report and reassess the position.

MLM- Continues to power along. Indian interest in MTE supposed to come in latte July so let's see if there's any fire to the smoke. They've completed their cap raising so now has ~$10m cash but less PMQ shares (which incidentally is holding up rather well).

 

[SilverRanger]

End of Week 37 Summary

Portfolio value up 21.3%
XJO -3.0% (Last 4602.9, Starting value 4745)
XJOAI -1.37% (Last 34164.3, Starting value 34639.1)

Today's portfolio value is a new weekly closing high. Last high was back in 8 April @ $121,292. So basically a flat quarter for me, but the XJO is down 300 pts so good out-performance imo.

View attachment 43718

Commentry

The market went for a big 150 point plunge than rally in the last 2 weeks and pretty much ended where it began. The US debt ceiling will most likely be raised, and we will be back to living week by week on US jobs and China inflation figures. Having said that I am feeling reasonably bullish and will be digging for positions in preparation of the reporting season in August.

CFE- Putting in a very strong climb on the back of SDL receiving a takeover bid, showing that there is life in West African iron ore development assets.

MLA- Released their quarterly report. Cash receipts up ~10% from last quarter to $2.2m, and they achieved a positive operating cash flow (a whopping $31K). Back in Apr I was looking for revenue ~$12m which now look way too optimistic. I will wait for their report and reassess the position.

MLM- Continues to power along. Indian interest in MTE supposed to come in latte July so let's see if there's any fire to the smoke. They've completed their cap raising so now has ~$10m cash but less PMQ shares (which incidentally is holding up rather well).

How does CSE look to you? Currently @ 14.5c they received an offer from their largest shareholder KZL of $16 million + cancellation of shares (worth about $3.8m at current share price) for their flagship asset. If all goes well, there will be about 19c per share in cash and listed securities alone. They also mentioned they plan to return 14c per share to shareholders in cash after the sale and share cancellation.
The risks are obviously the uncertainty of the deal and the timing of it.

http://www.businessspectator.com.au...for-Copper-Strike-JH34S?OpenDocument&src=srch

http://www.businessspectator.com.au...ours-Kagara-offer-JH35H?OpenDocument&src=srch