This was a poor quarter for me,
reversing much of my out performance of the first quarter. Unfortunately
large idiosyncratic fluctuations are the price one pays for running a
concentrated portfolio. If a few stocks take a dive, then the effect will
be substantial. The good news for me is that I think I understand the
reason for the falls and I think the declines are temporary.
Emeco Holdings: Investors
continue to shun stocks related to the mining sector amid the uncertainty
around future prospects. Yet the thesis remains the same. The
business will normalise to a lower level of assets and earnings in a few years,
and large amounts of cash will be released.
Commerzbank seems relatively
healthy to me. The stock fell sharply yesterday on news of a fine that
was less than 15% of what BNP incurred and was less than what was
provisioned. This quarter they've sold the majority of their Spanish Real
Estate assets and there has been little other adverse news. I believe the
stock continues to live under the cloud of the ECB Financial Stability
Review. As one of the banks with the lowest capital levels, there is a
belief that it may have to raise capital. As it is priced for this, I
don't see a capital raise as too much of a threat to long term returns and
indeed it may hasten the return of the perception of strength. Things
will be a lot clearer by the end of the year.
Safestyle seems absurdly cheap to
me. It is priced at a P/FCF of around 10* and I believe it has suffered
because the whole of the UK Small Cap has suffered, along with a swathe of
IPOs.
AIG continues its grind higher
and I believe this will not stop any time soon. In the context of the US
market and US large caps it must be one of the few value stocks still out
there! As long as it trades below book and stock is rebought I'll be
happy.
Hargreaves Services was... an
error. I was stupidly seduced by its optical cheapness and a write up I saw
elsewhere. While it has no doubt been hit by bad sentiment over the coal
sector, and may be oversold, I fully admit to not fully understanding the
business model and future prospects. The recent profit warning it
testimony to the poor quality of earnings. This stock will struggle to
ever achieve a premium multiple because any company operating in the coal
sector will constantly have to adjust its business model to events. There
may be great riches to be made but will the market ever anticipate them?
H&T is another stock where I
have probably not sufficiently considered the potential for multiple
expansion. The exposure to gold prices will remain in investors' minds
for a long time and it will always have a certain cloud hanging over it.
That said, I do expect the upcoming interims to show positive progress on
deleveraging, margins and revenues. The payday loan industry is being
squeezed and pawnbrokers may receive some collateral benefit. In
addition, Albemarle and Bond have gone bankrupt, been bought and dramatically
reduced their estate of stores. The collapse of the gold price will have
hurt many of the pawnbrokers that have opened in the last few years and H&T
have indicated that the opportunity will exist for bolt on acquisitions.
In short, there appear to be multiple ways that good things can happen to this
stock. Even typing that sentence, I remembered that there is a trend
towards people using their tablets and other electrical devices as
collateral. These are often one of the most valuable possessions that
someone owns and many more people own tablets that gold jewelry, I would
asset. Again, I eagerly await their interim financials. http://www.bbc.co.uk/news/business-27035109
http://www.ft.com/cms/s/0/141899d6-dcf6-11e3-ba13-00144feabdc0.html#axzz36yMLQMOr
Dolphin Capital is truly a slow
burner. But read last weekend's FT and its special report on Greece,
which highlighted expected growth in the luxury hotels sector and record
numbers of tourists in Greece. Dolphin are the experts in this sector and
I remain happy to own assets at far less than book value. http://www.ft.com/cms/s/0/cda98386-fd41-11e3-bc93-00144feab7de.html?siteedition=uk#axzz36yMLQMOr
This brings me to my recently initiated
position in Avesco PLC. I can take no credit for it, as it is the idea of
Red Corner (http://quinzedix.blogspot.co.uk/2014/04/avesco-is-collection-ofbusinesses-that.html).
My investment priority is not to write a great blog or come up with great
ideas. It is to make as much money as possible, and so when I see a
superior idea elsewhere I'm going to take it. What I can add to his
superb write up is that the interims have come out since, and they appear to
make reality the thesis that growth Capex obscures the true earnings power of
the business. Market Cap is £21mln and trading profit (EBIT before
restructuring) was £4.5mln in H1. The management statement said all the
right things, and they increased the dividend. I am very happy to have
this in my portfolio.
Finally,
Alternative Asset Holdings (TLI): When I bought this stock I acknowledged that
there was currency risk involved but was comfortable bearing this risk.
The USD has since fallen pretty much in a straight line against GBP, cancelling
out growth in underlying NAV and a promising amounts of realisations. The
company recently announced that it would start distributing cash, via returns
of capital. While buybacks would be ideal as the long as it is trading
well below NAV, I appreciate that it is probably hard to execute a buy back
programme with a micro cap such as this. So, going forward, we can expect
regular returns of cash. At some point, the market has to realise the
attractions of this security.
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