PPHE gave a trading update that did little more than say they would reopen sites in a limited way in accordance with local regulations. The immediate reaction in the market on the day they did, 4th June, was nil. PPHE is however a hotel share and as hotels remain an awful place to be these shares leap up on hope and crash down on reality. One of my two worst (by value) performers this month.
BPM put out full year results for the year ending 31st January 2020. These were reasonable rather than excellent results and as they focussed very much on the pre-C19 world they were at best only indicative of the new reality. The Company put its net asset value (which includes pre-C19 unit valuations at 380.1p a share. Current share price is 215p so even if overstated a decent MoS.
The most interesting part of the results was that BPM has become essentially an investor in Insurance Intermediaries. This is perhaps more a reflection of very poor performance in other financial services than an original intention. But it does at least suggest that management are aware of where they can succeed.
BPM is a little unusual in that the Chairman Mr Marsh (79) is still an important force in the business despite his age and the number 2 officers are the CIO (36) and the FD (45) rather than the CEO. (The CEO was Mr Marsh’s secretary before becoming CEO). PSC Insurance Group of Australia is the second biggest shareholder after Mr Marsh.
As an investor BPM makes its money by divesting its investments. Given the C19 world this may well be a lot trickier than the historic norm. It is possibly a little unfair to say but the main opportunity for a realisation event seems to be when Mr Marsh truly retires from the business. It hasn’t for a number of years been able to get substantial traction and it is limited in its growth for the next couple of years in its ability to divest stakeholdings to realise cash to reinvest. I do think the Company is undervalued and that the downside risk is comparatively limited. But a lot of the upside is now becoming dependant on a crystalisation event.
Over the month BPM having persuaded the market that it had no immediate cash need did trend up significantly and it was a material gain for me over the month.
Towards the end of the month BPM made a small investment in a FinTech insurance software business in the US.
Joules gave out a trading update. Clearly business was hit hard by Coronavirus and whilst digital did well this did not make up for Retail. Alongside this there were a number of additional costs both in operating safely and in already planned business changes. Given this PBT is virtually zero. Management’s underlying (as in not the real numbers) PBT is set at £2-£3m. The TU whilst having more numbers than many was a bit vague in areas, though it was trying to give an overall positive impression for the future the gaps it left are perhaps going to be the real focus when the results come out.
Bushveld Minerals put out the full year results to December 2019. These were singularly unimpressive and need to be seen in light of the fact that they were all pre-Covid.
Revenue was down 39%. Given prices fell 34% there was also a lot of lost business. Whether that was lost customers or lower value customers is unclear. At the same time production went up 15%. So increased production with lost sales has led to a doubling in the stock levels. More so when you strip out Consumables whose increase suggests that management did not see the drop in sales and had over ordered.
The only factor making the figures look decent was revaluing the acquisition of Vanchem. I have no idea why you would want to do this unless it is related to banking covenants ie tangible net assets must be greater than x% of loans. But that suggests business weakness. And it of course does not help with certain future operational metrics such as ROCE. It isn’t fraudulent and was declared but it is suspect.
I also note that in its operational report the management flick between ZAR and $. Though it provides the accounts in $ and that a lot of the revenue discussion is in quantities rather than $, with no clarification on the sales price. In fact on consideration it isn’t a revenue discussion so much as a production discussion and we know that production can just end up sitting unsold in the warehouse.
Whilst acknowledging C19 and some current impacts the forward guidance seemed very much along the line of our plans remain unchanged and attainable. As such BMN remains one of the few companies I invest in that does not see a very different world going forward.
On the positive side the business is cashflow positive. Though I have some doubts about the numbers. Any capital intensive business and BMN is one that can move its “sustaining capital” from $11.2m to $3.6m in a year of acquisition either was doing much more than sustaining before or is doing much less now.
All of that said the free cashflow declared is $24.8m. Say £20m on a current mkt cap of circa £160m.
Broadly I do not think BMN is being terribly well run. It does have a lot of promoters on Twitter but that isn’t a good thing. I bought on a screening process in a dip and to be honest it has managed to undershoot everything else I bought at the time by a margin. It is going forward a play on Vanadium prices. I am not expert on these. I will hold as the recommended time for the screen was hold for at least a year or a double in price. But I am not adding on this news.
RDSB put out its Q2 2020 update. It has dawned on management that the market has changed and oil will be lower for longer. This is still a company with incredible cashflows, but a history of diverting these cashflows from shareholders to managements vanity projects. Capital destruction on a vast scale. This was some years ago corrected and I began to buy into Shell. However as management move on and the top tier changes we are seeing more and more “green” initiatives. These make Shell a leader in green technology and as such an awful money pit. The thing about green is it is new and as such invariably costs a lot to develop. Once developed it gets copied and gets cheaper year on year. As such those that begin it make little from it and those that come in a bit later can undercut as they spend less to set up. The way to stop this is to build proprietary systems, like Tesla with its Tesla only charging points. But this is not beloved of regulators and climate change activists and Shell doesn’t have a great green reputation to get itself allowed super profits for a while. As such the greener it gets in the near future the less money it will make. I hold the shares but they are on review every time a quarterly update comes around.
Added some more Lookers. (Avg in 24.81p). The company gave out its Trading update. Clearly the situation remains poor. But the Mkt Cap is still only £98m more or less what I first bought at. The net debt is now only £57m. This gives and EV of £155m. Against this the property on the books had an NAV of £325m in Dec 2019. Even if you reduce this to £200m there seems to be a decent level of downside protection.
As it is operationally the business has suffered and will suffer during the downturn so £30m of the property has been identified for disposal and £50m of staff payroll savings have been identified against short term redundancy costs of £9m.
The huge unknown is how much of the profit has been faked over the years, but let us say 30% we should still have a business capable of generating £30m a year with a decent property asset. It’s not a 6 month turnaround but I am looking for over a 50% return by the end of 2021.
Following this Lookers gave an update on their fraud investigation. It would seem that there was a £4m fraud. However the investigation uncovered £15m of incompetent misstatements, misapplications and possible frauds in other business units. Overall impression is of mass incompetence across the business, but within that a potentially decent business. There has been a general dismissal of the non-execs which is pretty pointless as they were miles from the errors and probably couldn’t have seen them even if the wanted too. I expect legal action against the accountants and for an awful lot of the back office people to end up unemployed and replaced by people who can count, add up and generally not engage in widespread errors and fraud. I continue to hold and still expect a bounce under any half competent leader. Whether Lookers has found such is of course still the question.
Bought some Ishares S&P 500 Health ETF (£6.05). I have been looking at various health/biotech funds and themes since the start of the crisis. I normally would gravitate towards an Active fund in this area, as it is probably a pickers market. But can’t get over 3 issues. One - the difference between Active and Passive fees in this area. Two - the level with which most of the Active funds that I looked at admit to riding themes that are unknown. Which will make their success as much luck as judgement. Three - the amount of overlap I was finding between Active and Passive. Yes, there are differences and these will deliver underperformance or overperformance, but when its 80% the same you have to wonder is it a conviction play or keeping close to the benchmark to avoid too much underperformance. I may come back to this area if I find a genuine out of the pack firm that I can actually buy. I did find one but couldn’t even get a quote as a UK based investor.
Bought Axon Inc ($95.9). This is the maker of the Taser and also sells body cameras to the police in the US and elsewhere. It is not particularly profitable or well priced. However with what may be changes in the US requiring bodycams and with Tasers removing the need to sit on a prisoner I believe they could be on the cusp of a boom in sales. As such I have taken a small position and will watch for the next 24 months, unless there is a collapse in the share price.
Sold all my BKY holding. In at 11p out at 19.13p I think there may be further to run on this but it is a very convoluted situation dependant in the end on Spanish planning law and local politics. As such I was happy to run from 11p to 16.6p on the genuine assets involved which I felt was well covered. However once above that I see the valuation as being outside its MoS so I have sold. This is not to say that it’s a poor investment at these levels just outside my justification.
Sold a few $GNUS. My average buy in was $1.31 as reported last month. I only started buying in May. I sold at $6.14 and $5.41. This share is all over the shop and my initial fair value was $3, but it shot passed that before I noticed, mainly on idiots buying on rumour. It did in one day 10 times the market cap in trading. It is with every day a massive yo-yo stock and one increasingly disconnected from its numbers. That said its CEO has a history of creating a business that someone else in the media space wants to buy and its suite of revenue streams makes this a decent company in its own right. But the pricing looks to be ahead of itself.
Sold all my $TLRD position. In at $4.51 out at $1.22. The only redeeming factor was it was never more than a 0.4% position. Broadly it sells cheap suits and has been struggling for some time to do that. With the arrival of C19 even this dropped off a cliff and even as stores reopened it hasn’t been coming back. The company has warned it may be entering Chapter 11 and whilst there are realisable assets on the balance sheet there is a lot of debt that has increased at pace during the C19 crisis. It may be a good investment for an investor who understands US restructuring law, but that is not me.
Also to mention is $AAPL this rose materially for me, largely on positive projections for Iphones and the Service business. The scariest thing about AAPL is that it has become hard to find lucid criticism of the valuation. There is an element of what goes up must come down, but there isn’t anyone out there with a $100 target that I can find. So I am running the winner here, having taken profits in the past. But couldn’t advise anyone what to do at this price.
$BBBY is a small position for me. It was larger then got very small, but has bounced materially this month on reopening news and ongoing changes in management. C19 really hit this business hard, but it does seem to have brought in a CEO, who has brought in others, that have a reputation for delivery. I remain underwater, but a lot better off (on paper) than I was.
MPAC shifted materially against me this month. I do not know why as I think this is an undervalued company with a strong product, good leadership and a plan for the future. Nothing is ever certain and I did sell some last month as the company was routinely over 10% of my portfolio. But if it carries on falling I will be a buyer as it is getting substantially below my fair value price.
As always this is my opinion only and DYOR. Bear in mind the free advice is worth what you pay for it. Have a great month and hopefully a profitable one.