It should be noted that my “fair value” valuations are invariably no more than a general approximation. When I get within 5% of these I invariably look as to whether I should sell, or revalue. Also if the share routinely bounces into and then out of the range I look very carefully at it.
I know quite a few people bemoaned the month but I had some genuine heavy lifting done by - AEO, MPAC, FXPO, GOOGL, DIS, PPHE, and only AAPL and TET were a significant fallers. In fact MPAC was an incredible gainer for me during the month. My biggest position, quite a lot sold during the month to get down towards the 10% of portfolio level and all that made up and more by the rise in the share price.
Added to my holding in FXPO. I did add last month as well and with a bit more available cash in the portfolio decided to add again and then again when RTZ were so positive about their iron ore operations. Average in now 216p
Also added to SCS. As readers may remember I looked at doing this last month but AJ Bell no bid me. I moved the holding to HL and added with them. Average in 214.5p
Added to my holding in GSK. Their YE 2020 results were as poor as expected and really demonstrated the lack of leadership at the company at present. Management seems focussed on the fact that it will split the businesses in 2022, and being polite. until then we seem to have a holding operation. Aligned with possibly the most boring Investor/Analysts presentations of any large company. Whilst killing time till the split the company continues to be profitable, cash generative and a big dividend payer (though the company has signalled that with the spilt the dividend levels will be reconsidered). I am nervously holding until we get the 2 company structures and we can see whether they have management that can take the businesses forward. I am not convinced that we are not in the period where they intention is to sandbag so as to allow the newco and its management to look good. My average in is now 1338.4p. I think it only fair to say that whilst I have added a couple of people who may know more about this field than I do see the vaccine business of GSK as being very poor quality and therefore GSK as heading for a much smaller overall business. Killick in their weekly update were very negative on GSK. Also Bocconni described the dividend changes as desperate as they see management having to spend to build up a worthwhile pharmaceutical portfolio. It is quite possible that GSK’s main positive is almost everyone thinks it stinks. It therefore has become the purview of only bottom feeding value investors and I note one or two of these are declaring GSK holdings.
Took a small position in Uranium. I am not totally convinced on this market but being a commodity I do think this is in a cycle. It has been low and was at the point where operations were largely loss making. But being open they made sense at a marginal cost basis. With the growth in Uranium prices operations can be profitable. But this growth is driven by demand. As the world moves forward with a green agenda nuclear is not absolutely vital for the future, but it is probably going to be important. Certainly it does need to be queried whether we have moved from an oversupply to an undersupply situation. Given this I have taken a small Uranium basket of $CCJ ($13.76), $DNN ($0.7435) $NXE ($3.31) and $URNM ($45.76). I have a four year time horizon and at the moment am looking for a doubling in valuation.
I sold APP, which I had added to last month, for circa 30% gain. At £60m I felt the business was undervalued. Less so at £80m and when it hit my stop, which I had moved up to reflect the rise, I decided to sell. I have not been overwhelmed by the management and do wonder whether going forward, with an unemployment rate heading for 8% this is a good business to be in. I honestly don’t know and am more persuaded by opportunities elsewhere.
Following my buys last month both $GOOGL and $PYPL delivered above forecast results and moved forward on these. I think $GOOGL has moved from a value holding to GARP. $PYPL was always in the portfolio as a GARP holding.
Reasonably positive Trading Update from APF. Looks like they should make circa £16m pre tax. Which does not make them cheap but not significantly overpriced. Reported very positive coal pricing in 2021 already up 50% and continuing price rises in iron ore and copper. Sold much of their Iron Ore investment in LIORC for £59m. A £13m gain on investment. Other operations generally, but not entirely, going well and it seems to me to be set for significantly improved results in 2021. I added. Average price in 113.3p.
Towards the end of the month the company bought a Cobalt Revenue Stream, but to do this issued circa 20% new shares, having discussed this with institutional shareholders and allowed directors to participate. Retail investors were given an opportunity to participate, but very much as a residual rump, in a time disadvantaged situation and certainly in my case only if I was to take on holding shares in different portfolios. In a rights issue I would probably participate but given the convolutions being presented I decided to move on. Sold for a circa 16% gain. This is not inherently a bad business, just not one I can value as there is currently too many unknowns around the cobalt acquisition. Also as the cobalt acquisition was from experienced investors I doubt the purchase was the bargain some are claiming.
Sold $EDIT. This was a very small holing for me in my medical basket. However it kept bouncing into my lower action point range and with no confidence in it, (it has lost both an important partner, a key researcher and its CEO). I opted to sell.
Just to be clear as I tend to follow a Schloss style, (though massively corrupted from the great man’s system) I operate mostly from a colour coded spreadsheet. This allows me to sit and wait without needing to spend a lot of time checking, but it triggers at certain action points. When a stock hits that point I need to do something buy/sell or reset the trigger. In EDIT’s case it was a sell
I added to my RELX holding. Decent results but they are far too keen on “adjusted” everything, when by and large, imho, the adjustments are much less about helping readers understand the business and much more about making figures better than the accounting standard does. They also word documents and present results as though every mishap was in fact part of a grand plan. But their presentations of the results are impressive and management do seem to have their finger on the pulse of the business. What I also think is clear is that as the business develops, the opportunity to exceed grows. The poorer parts (print/exhibitions) are less and less material so either their decline matters less or they start growing and significantly enhance the business. I expect this to be a relatively slow burner but am very hopeful of being able to eventually look back at a compounder. My average in is now £17.75.
Dipped my toe into RUIB. French company, though it does produce its accounts in English. Recommended by Tweedy Browne and bought into all its funds at the end of last year. Essentially a refiner and distributor of petrochemicals and a distributor of LPG and Bitumen into largely undersupplied markets. In much of the Caribbean they are the sole source and until “Green” solutions become much cheaper will continue to enjoy solid demand. As pricing rises they will make more money from the same margin levels and going forward the more western countries go green and drive down demand for oil and LPG the cheaper Rubis will find material costs and so the wider their margin can be. Who wants to get into an end of life market. I think they are about 16% undervalued at the moment with no real valuation given to what I think will be decent future growth as such a 20% MoS is imho there so I have began a holding with an intention to build on it over time. (The company is still 32% below its Jan 2020 valuation).
Bought MKA. I had looked at this a couple of times but it still seemed very opportunistic. Right area Rare Earth minerals in a non-Chinese jurisdiction Malawi, but the funding seemed rather uncertain. However with the backing of a Chinese state investor it is now proceeding to do a feasibility study of its Songwe mine and whilst this remains a high risk investment it does now look funded. There will be further funding requirements but these will be after proof of concept so more readily available. The first step is always the hardest. Average in 19.8p.
Sold some of my MPAC holding. It had grown above my 10% level and whilst I will allow a bit of leeway I felt it wise to take some to cash. I also struggle to see deep value at the current price. It is a good company, with a very good CEO and the valuation is not unreasonable, but it is no longer the obvious bargain that it once was. Whilst management continue to perform I see little reason to dispose of it provided it sits within my 10% constraint as I do think the CEO will continue to develop the business. Gain circa 260%.
POLR has been in my portfolio for so long that it has reached the time decision criteria point. It needs to go above 1% or be ditched. The problem with POLR is that it is in the general field of great for management and staff, bad for retail customers and shareholders.
All too often financial services firms justify the book “Where are all the customers yachts” and we all know this. But what they also prove themselves adept at is taking the money they make and putting it the staff and management’s pockets with only a small amount of the pie trickling through to the shareholder at the bottom. This is a business that in YE March 2020 paid its staff circa £70m. Had about £40m profit and because it gives out Share Options, SAYE, LTIP etc also gave a chunk of that £40m profit to the staff. None of this is illegal or unusual, but in my experience financial services is one of the worst areas for the agency issue. As your agent I cut the cake and then I pick the first slice.
So I did start with the idea that I had a gain and it might be time to move on. However as I said above, last year the company did deliver £40m PAT. That £40m came from circa £9m of performance fees (potentially very volatile) and £41m of fees for assets under management (ie sitting on investors money and charging them). So £50m of PAT and £10m of tax
At the 9 month stage this year the company disclosed that performance fees were at £19m and assets under management had moved from circa £12bn to circa £19bn. Given the uplift in AUM its perhaps not unreasonable to see the AUM fee moving up by 30% to reflect the rise. The 55% increase in AUM is of course not over the whole year and there may be more in the last quarter. Certainly Polar has been prominent in promoting its offerings. So let us see the AUM fee as (£41m PY * 30% uplift) = £53.3m and with the performance fees of £19m a total profit of circa £72M. Take away tax and PAT is Circa £58m. At a PE of 15 the company is worth £870m. You could assign a lower PE or indeed a higher one (depending on your view of the sustainability of performance fees). The current market cap is £661m and the Enterprise Value lower as the company has cash on the balance sheet. As I see the MoS as being over 20% I have added and await the YE results or other information. Average in price is 571.87p
Added to CAML. I have had a number of people I rate suggest various Copper miners or royalty streams to me. Whilst I have looked at most of them none of them seemed to be demonstrably better than CAML so I made a small addition. Average in price is now 235p.
Sold SUS. Positive newsflow, but it hit my fair value within 1% of the mid point and I didn’t see the need to increase it. Profit circa 20%.
RQIH put out a strong update on the Programme Management Business. Increases depending on the area between 46% and 76%. As this update did not cover the legacy business and was revenue rather than profit focussed I do not want to place too much reliance on it. But I did add to my position. Average in price now 185.36p
Added a little Georgia Capital. CGEO I may be the only, one but I like this business.
There are some real issues.
-It is in a country of real political instability.
-Like many other countries it has been hard hit by Coronavirus.
-It’s investment in Bank of Georgia is a major component of its valuation, (Concentration risk), but it has no control over the Bank.
-The country’s economy is small.
-Perhaps most telling the original strategy of building up businesses and then listing them on the Georgian exchange has failed. The company ended up buying back Georgia Healthcare after the initial flotation went nowhere.
But on the plus side;
-The company has set out a new strategy to build a number of large businesses of such a size that they can become nationally and perhaps regionally dominant, such that they would be of interest to an international firm.
-Alternatively I believe that if they can develop these businesses they will generate cash allowing either strong dividends or significant buy backs.
-The company has always set out its valuation methodology clearly and applied it (in my opinion) realistically and routinely (no sudden with one bound we are worth 2* last month). Now they are also having more and more of the private businesses valued externally. Though largely in the same way as before.
-Each quarter the CEO and FD answer questions on the quarterly results not just from analysts but also the shareholders.
-They in my opinion answer the queries honestly and openly. If they need a “no, that is a really bad idea” that’s all the analyst gets. (See the last analyst day when a suggestion on using shares for acquisitions was made).
-There is a number of businesses in the portfolio that are being developed into the large business format.
-Debt remains well controlled
-NAV per share as at the last quarter remains broadly double the share price. And the NAV is growing (although slowly in Covid times) so for 50p you can buy a £1 asset that should soon be worth £1.10. On top of that the FX rate is against the Georgian Lira compared to its longer term trend so that £1 could quite easily become £1.20.
Average in 441.5p
Sold MSI for a 32% gain. I was a buyer last month at £21m mkt cap. But became a seller this month at £27m mkt cap. This was a 28% increase in valuation in the month and a 60% increase in the business valuation when you strip out the cash. As such the shares at 170p were 2p over my fair valuation. My fair valuation is only a very approximate figure so passing the valuation does not automatically require a sale. That being said MSI has a number of issues to overcome. Not the least of which is that this is a family controlled business and the family rewards itself by generous salaries. So it was always in the assets held for resale pile.
I have every expectation that March will be a quieter month.
“Man plans. And God laughs”-Old Yiddish saying.
Portfolio increase since inception (31/03/16) 202%.