Whilst difficult at the moment I believe property has been and will continue to be a source of good returns for those that operate well. However one factor I am becoming aware of is a saying that it’s the third owner who gets rich from a property. The first builds it in good times and with too much leverage. This leads to the second owner being a bank, who doesn’t really want it so it’s the third owner the buyer from the bank who reaps the reward. I am conscious with this story in mind just how committed BLND is too future developments. I will be looking for future info and doing more work on this, not to get out of property but to try and decide whether BLND is really my best idea for a property exposure. That being said I have again seen a US article mentioning the low value of UK property companies and mentioning BLND, amongst others, as being of a size that they could be snapped up by someone wanting a UK exposure.
1st July Lookers gets suspended. This is an intentional action as the company continues to investigate the huge amount of fraud, corruption and incompetence within the business. The strange thing is that the information given out so far suggests that the fraud is easily survivable and a number of motor vehicle dealers are reporting very good trade since the lockdown eased. Given this I am a little concerned that Lookers has taken yet another month to deliver its results. Were the initial reports wrong and the frauds worse than reported?
Small dividend from FXPO. Also a Q2 update with a 5% rise in production and a 21% rise in sales. There have also been management changes which I think reflect bringing in more professional management to replace that with links to the largest shareholder and still majority holder who is in trouble for corruption and seems to be running out of options to avoid trial. FXPO started the month as a sub 1% position so I look for addition or divestment rationales. In this case I have added twice in the month and now more than doubled my position from a low base.
During the month PHTM put out results which I commented on in a separate blog post.
Following further consideration of these results I closed out my position for about a 20% gain.
Bought a small position in ARTL. This proved difficult to do and needed buying over 2 days. This is broadly a property investor that for the recent while has been going to cash, which is now over 50% of the assets and market cap. I think this is a poor time to be in property and over the next 18months there will be a lot of losers, many of them over leveraged. I think that this will enable ARTL to be the third owner.
ARTL with its strong cash balances and market knowledge is well placed to optimise at this time and be a decent winner over the next 3-5 years.
GCAP put out an announcement saying that its offer for the shares in Georgia Healthcare are now fully unconditional. This raises a couple of issues – firstly one of the mechanisms that GCAP had for realising value was to spin off its successful subsidiaries. Clearly this has not worked for Georgia Healthcare and so value realisation is going to be harder. Secondly GCAP seems at the moment to be worth more than the sum of its parts. Going forward if it can buy for 4 times PE/ EBITDA/ EBITDAC and simply by being GCAP get it valued at 5 times whatever metric then there is value accreation to be had.
8th July MPAC put out an operational update. I commented on those in a separate blog post. My strategy remains no holding greater than 10% and MPAC remains on that line and I am happy to hold it at that level for my portfolio. During the month the share price rose and this was a material gain on the month for me.
On the 9th July TSTR put out a very mediocre trading/situation update. Tri-Star’s asset is a 40% holding in a gold and antimony production facility in Oman. TSTR is under the control of Odey Asset Management who hold about 72% of the shares. TSTR has 3 issues 1-The Omani Sovereign wealth fund believes it is owed a bigger % of the project and has gone to court to get this. This case will run through 2021. 2-The group needs additional funding in order to develop the facility and has not been able to get it as yet. This in part may well be due to the shareholders issues, but its ongoing non delivery does not help the project. 3-With this funding the project can ramp up to full capacity, but every time there is a substantive update the potential ramp up date moves back. The date is now March 2021. Whilst this is certainly related to financing even if the financing was to be in place it isn’t simply a matter of hitting a switch, so I see the ramp up as a related but different issue.
As a trading position TSTR can move up and down significantly just on talk, but should it start moving on these three issues there is a significant opportunity for a revaluation. Equally should these matters not get resolved and the court case will not be quick by TSTR’s own admission, then the price could lag for a considerable time. If the case is lost we already may be at peak valuation.
Vistry (VTY) gave out a half year to the 30th June 2020 trading update. Results heavily hit by C19 were pretty poor, but overall the language was upbeat and looking to the future. The best real information was that the intergration of Linden Homes into the business is well ahead of plan. As Linden Homes was the quality business in the group it is to be hoped that the intergration will raise the Vistry parts to Linden levels, rather than take the Linden parts down to Vistry standards.
Most disappointing was shenanigans over the dividend. To conserve cash VTY withheld a planned dividend and is now paying the dividend in shares. This is not a dividend, but a farce, as the shareholders now have more shares each proportionately worth less. Not only is it totally pointless management took the opportunity to base it on the December share price of £13.73 rather than the £7.27 the company is currently at. I find this very disappointing, mainly because until now I have been impressed by the CEO and felt he was on the side of the shareholders, whereas with this activity it seems that he thinks we are idiots. (Share dividends as an option instead of cash have a place. They allow holders to increase their relative holding in the company against those who want cash now. But a dividend of only additional shares is both pointless and costly. And may for some shareholders crystalise a tax event).
With its dividend scam VTY moves out of “management aligned to shareholders” and off my recommendation list. I have sold about 25% of my holding for 706p, bought at an average of 948p. So about a 25% capital loss. Once dividends are factored in it is about breakeven. Which is a very poor return for the time I have held. The sale was conditioned as one check I have is a theoretical stop loss amount. If I cross this amount I have to reconsider my holding and decide whether I think the fundamental thesis is intact. If so I readjust the stop loss and on occasion even buy. If I feel the thesis is changing then I must sell at least a part of my holding before I can reset the stop loss at a different (lower) level. This can lead to a death of a thousand cuts but it is supposed to weed out a blind hold and demonstrate that I am just making the same mistake again and again.
I am also reducing my sell at price as I no longer see this as a long term holding.
$BBBY came out with quarterly results. They were as expected awful, but worse than many analysts had predicted. Overall sales down circa 50%, digital up high 80’s%. 200 stores of the BBBY franchise of a total 950 to be closed. I maintain a small position in what I see as a high risk high reward position. The main risk being that management do not seek to maximise the current position for shareholders but do something via Chapter 11 that maximises for management. In theory there are a lot of monetizable assets within $BBBY that far exceed the current market cap and a potential management team that can revitalise the trading business.
SOM put out a trading update which goes under the category as being as positive as it could be given the circumstances. It did not cause me to feel that the position should be increased.
BMN have done a few interviews over the month. In the one with Crux they admitted that a UK retail listing was not working for them. Either they need more institutional investment in the UK or they may delist. The more I look at this company and its very well remunerated CEO the more I understand why the business is valued so lowly. I hold but it’s more likely that I will be a seller than a buyer.
$ABT beat analysts estimates for the ½ year. Gave forward guidance, which in this climate is a sign of confidence and a largely upbeat presentation of the results and expectations for the rest of the year. I doubled my existing small holding.
Sold all of ELTA. Loss about 25%. I sold a chunk of this in May and have been considering the residual since then. As it is, I now think the TGI franchise will stay lower for longer and the Hotters franchise is probably in an even worse place than I first realised. Given the world has changed for many firms, some terminally some for the next few years I am reviewing my whole portfolio and looking to narrow down what I hold. In particular I am looking to not add more positions but if I want to add to validate the addition against my least favoured hold and where relevant swap the holding rather than expand the number of holdings.
$MSFT put out what I consider to be good results for Q4 2020. They were a little bit mixed and in some areas came in below analysts expectations. But overall expectations were beaten and Microsoft continues to be a winner from C19. In reality some of the resurgence of Xbox may well be temporary but most of the other steps forward are in my opinion from trends that will continue and beating expectations represents at least as much a shortening in the time period as from any one-off opportunity itself. Working from home is here to stay. Some commentators have suggested that the beat was more hardware than cloud driven but to my mind the hardware needs to be delivered for the home worker to go cloud. It also, in the case of Surface, does allow some development of an eco-system. I added a small buy to my $MSFT holding.
Guidance for Q1 2021 largely reflected the trends seen in Q4 2020. Again $MSFT is one of the companies that can still give guidance in a Coronavirus world.
Sold some more RDSB. (loss circa 10% after dividends). The problem with Shell is that it has a long history of misallocating capital. It seemed to have recently got over this with its move into gas, but as it increasingly talks about investing in green energy I see all the same hubris and let’s throw money at the wall that we used to see on its mining and exploration investments. At the end of the day Shell managers seem to have forgotten that they work for the shareholders but instead are using the shareholders money to build their own brands and to revalidate the company as a green business. Q2 results at the end of the month made this a wise decision as whilst the company did declare a dividend it did nothing to suggest that it was clear on a return to high profits.
Small further buys to $MA. $V. both of which continue to demonstrate that their business has been moved on by some years by C19. As an example, my local council no longer accepts coins in its car park machines. Continuing to disadvantage retail and the unbanked, but benefitting card issuers. Both Visa and Mastercard put out results at the end of the month, which pretty much reflected what was expected. Very low cross border transactions as people did not travel, and pretty poor YoY in all areas, but this was largely in the price. Mastercard may have performed a little better but my knowledge doesn’t stretch to picking one so I continue to hold both.
$MKL also came out with results. These were notably better than expected particularly in lower claims related to C19. What may not have been noticed until the results is that Markel as an insurer can benefit from lower levels of general activity as the insured make less claims. Whilst Markel has had less claims for C19 effects this does not mean they will not come and whilst in 2020 Markel has benefitted from high rates low claims this could well reverse in 2021 as insurers look to build up their business. Mid-term I don’t think the situation has changed much. In the month Markel was a material rise for me.
Bought some TW. Rather poor ½ year results caused a 7% fall in the share price. However I think on an underlying basis the demand for housing remains strong. Even though it may be reduced overall by job issues after C19, C19 itself showed many why a home with a garden would be a great thing. Coupled with the move to home working and the ability to live outside cities. I also went with the explanation of the CEO that the results were in part misunderstood. The cost base remained high as site managers etc needed to stay in place to bring sites back as soon as permitted. As such in a long term reduced demand situation the costs could be more flexed than they were. TW. also returned its furlough money having concluded it was financially strong enough to do so. This is not a long term hold unless I use it to replace Vistry.
Both $GOOGL and $AAPL produced results. Both of them were impacted by C19. From what I have read, and there is still much to read, neither released anything that changes the underlying story. That said $AAPL powers on and materially increased in value in the month as analysts largely upgraded the company in the month.
Decent dividend from BPM. This is in danger of being an unsuccessful investment, when the time of holding is considered. But it also demonstrates that a good business will be delivering cash even when the share price is going down. For me BPM was a material faller in the month even with the dividend factored in.
Genius Brands fell materially. The company is keeping a positive news stream but even the RobinHood investors seem to be waiting to see if any of that news can be turned into profit.
PPHE put out a trading update that might be best described as stating the business was financially secure with sufficient facilities for the mid term. The share price fell during the month and represented a material adverse result for me.
Hopefully we can all have a successful August. As always DYOR as all of the above is opinion only and does not constitute research or a recommendation of action to be taken by the reader.