tag:blogger.com,1999:blog-67181592513189540282024-03-13T03:38:05.377-07:00Bull, Bear and ValueMy musings about value investing and my stock portfolio.bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.comBlogger178125tag:blogger.com,1999:blog-6718159251318954028.post-42925155670136357042022-05-14T23:11:00.000-07:002022-05-14T23:11:13.129-07:00GL Sciences: An Undervalued Japanese Technology Company<p>
GL Sciences Inc. (TYO:7705) is a Japanese small cap with two main business segments.
The first makes gas/liquid chromatography equipment
and other related components and equipment. This segment's products are used in a wide array
of industries such as the
chemical, pharma, semiconductor and petrochemical industries.
The second segment makes quartz tools used in the manufacture of semiconductors. This second
segment is a subsidiary called Techno Quartz. Techno Quartz is 65% owned by GL Sciences.
Most of the remainder of the company's stock is publicly traded (TYO:5217).
<br /><br />
The chromatography segment of the company is a traditional and slow-growth business.
In the past year the segment revenue grew at 5%. But in the last 15 years this segment has grew a total of just 20%.
It has a 10% operating income margin.
<br /><br />
The quartz segment is the opposite, however. It is the crown jewel of the company due
to the tremendous uptick in demand for semiconductors worldwide. This segment
grew at 24% last year and similarly the year before. It has a 20% operating margin.
<br /><br />
The company has a third segment involved in automation recognition equipment but it is small
so we'll lump it all with the first segment.
<br /><br />
So GL Sciences is a public company with two parts, one of which is also public.
We can use their publicly traded prices and their financial reports
to deduce the market
value and apparent value of the remaining part.
<br /><br />
In the GL Sciences financial report, the accounting entries of Techno Quartz are
fully consolidated. This means that the revenues, assets and liabilities
of Techno Quartz are completely included in the GL Sciences financials. So,
consolidated financials present such accounting entries as larger than that which belongs to the company shareholders. But the
net income and equity are presented as that belonging to the parent company shareholders.
<br /><br />
The following table shows the financial metrics of the two companies in their financial reports as well as
the portion of the parent company GL Sciences excluding Techno Quartz.
<br /><br />
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</p><table border="1">
</table><table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px;">
<tbody>
<tr> <th> <br /></th> <th> GL Sci </th> <th> Techno Q </th> <th> GL Sci ex.<br/> Techno Q </th> </tr>
<tr> <td align="right"> Price (May 9) </td> <td> ¥ 2530.00 </td> <td> ¥ 34050.00 </td> <td> — </td> </tr>
<tr> <td align="right"> Marketcap (M) </td> <td> ¥ 25957.80 ($ 201.17) </td> <td> ¥ 26218.50 ($ 203.19) </td> <td> ¥ 8915.77 ($ 69.10) </td> </tr>
<tr> <td align="right"> Shares (M) </td> <td> 10.26 </td> <td> 0.77 </td> <td> — </td> </tr>
<tr> <td align="right"> Equity (M) </td> <td> 30220 </td> <td> 13778 </td> <td> 21264.3 </td> </tr>
<tr> <td align="right"> Earnings TTM (M) </td> <td> 2724 </td> <td> 2200 </td> <td> 1294 </td> </tr>
<tr> <td align="right"> ROE (%) </td> <td> 9 </td> <td> 16 </td> <td> 6.1 </td> </tr>
<tr> <td align="right"> PE </td> <td> 9.53 </td> <td> 11.92 </td> <td> 6.89 </td> </tr>
<tr> <td align="right"> PTBV </td> <td> 0.87 </td> <td> 1.94 </td> <td> 0.42 </td> </tr>
<tr> <td align="right"> Div Yield (%) </td> <td> 1.98 </td> <td> 1.47 </td> <td> — </td> </tr>
<tr> <td align="right"> EV/EBIT </td> <td> 5.9</td> <td> 7.7</td> <td> 5.3 </td> </tr>
</tbody>
</table><p>
<br /><br /> The EV/EBIT and PE metrics all show that the market values the two parts of the company very differently. But this is not surprising given what
we know about their profitability. Still, I think the chromatography part of the company (i.e., GL Sciences except Techno Quartz), is maybe a bit too undervalued. In addition, I think Techno Quartz with a PE of 12 is also very undervalued considering its potential. And finally, I think the company is a good bet overall on the Japanese technology sector which has always been vibrant and strong despite the vicissitudes of the last several decades. </p><p> </p><p></p>bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com5tag:blogger.com,1999:blog-6718159251318954028.post-69887351843850382382022-02-08T20:36:00.000-08:002022-02-08T20:36:37.736-08:00Brimag Digital Age: Undervalued Tech RetailerBrimag Digital Age (BRMG:TLV) is a consumer electronic distributor and retailer
based in Israel. The company primarily imports and sells to electronic retailers,
and it has 12 stores of its own.
It also sells its products through its
own website.
<br /><br />
The company has controlling interest in two subsidiaries. One is
a retailer in Israel called
Insfar and the other is a retailer in Georgia called Elit.
The company respectively owns 50% and 38%,
and has management control of the two subsidiaries.
<br /><br />
I have indicated before that I think Israel is a great country for
investment. It is dynamic, has good rule of law, and has great
demographics. This all bodes well for consumerism.
Also, Israel is attractive to me because its development has
only grown very quickly in the last few decades, and it has room for more growth.
<br /><br />
Data going back 5 years shows the revenue growth at the holding company has been
tepid — at around 2 to 3%. However, earnings growth is much better. The following chart
shows the earnings of the holding company and the subsidiaries as well
as the gross margins of the holding company. It appears the
company has enjoyed increased pricing power since the pandemic.
Its gross margin is at 31%. For comparison, Best Buy currently is at 22%.
<br /><br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjP_jylNhes-pp5kXhFUytmj2tljKpOQbUHznhcJahcHWPBkYDkcmAklCLVP7bOpk2LTDNc-t821_jdWd-j12diVKH9bZc2uBcuMTZqo1JmjAkRjLOL9sA_3KFKq3vzuy0cr-lbZ4sGbE6hljB6oqt_v2Hxf8iVm2jQRy32LxOJAfZzvP08wNS7D4kn" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="500" data-original-width="600" src="https://blogger.googleusercontent.com/img/a/AVvXsEjP_jylNhes-pp5kXhFUytmj2tljKpOQbUHznhcJahcHWPBkYDkcmAklCLVP7bOpk2LTDNc-t821_jdWd-j12diVKH9bZc2uBcuMTZqo1JmjAkRjLOL9sA_3KFKq3vzuy0cr-lbZ4sGbE6hljB6oqt_v2Hxf8iVm2jQRy32LxOJAfZzvP08wNS7D4kn" /></a></div>
<br /><br />
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tbody><tr> <th> <br /></th> <th> Brimag </th> </tr>
<tr> <td align="right"> Price (Feb 6) </td> <td> ₪ 38.25 </td> </tr>
<tr> <td align="right"> Shares (M) </td> <td> 10.1 </td> </tr>
<tr> <td align="right"> Marketcap (M) </td> <td> ₪ 386.32 <br /> ($ 121.11) </td> </tr>
<tr> <td align="right"> ROE (%) </td> <td> 26.5 </td> </tr>
<tr> <td align="right"> PE </td> <td> 6.4 </td> </tr>
<tr> <td align="right"> EV/EBIT </td> <td> 5.3 </td> </tr>
<tr> <td align="right"> Div Yield (%) </td> <td> 10.33 </td> </tr>
<tr> <td align="right"> Central bank <br /> 10 yr rate (%) </td> <td> 1.75 </td> </tr>
</tbody></table>
I picked Brimag for the attractive earnings and dividend.
Like a lot of small cap Israeli companies Brimag tends to pay a large percentage of
earnings in dividends. In the last twelve months the company earned
₪6 and paid out ₪4 per share!
<br /><br />
Stocks in a country pays high dividends typically because the national
inflation and interest rates are high. But this isn't so for Israel. The country's
inflation and interest rates are lower than that of the US. Yet I've noticed many Israeli companies require
that they distribute a large portion of their retained earnings.
<br /><br />
So why is this stock out there without any mention in the media?
Brimag is a small company and therefore only trades on the Tel Aviv
Stock Exchange. Tel Aviv is a neglected stock exchange. All companies there file their
financials in Hebrew. So, the language and market cap
will not appeal to investors outside Israel. And to make
things worse, I've noticed that
trading stocks on the Tel Aviv is a hit and miss at brokerages outside
Israel;
some brokers will trade certain stocks but most won't.
<br /><br />
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com0tag:blogger.com,1999:blog-6718159251318954028.post-63147624813002549002021-11-21T20:59:00.000-08:002021-11-21T20:59:14.879-08:00My Annual Schedule of Investments
A few months ago marks the 9th anniversary of this blog. So it is time to post my largest positions:
<br /> <br />
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<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px;">
<tbody><tr> <th> Holding </th> <th> Category </th> <th> Business </th> <th> Duration </th> </tr>
<tr> <td> Senvest Capital ( TSX: SEC ) </td> <td> Canadian midcap </td> <td> Investment Company </td> <td> 6.5 yrs </td> </tr>
<tr> <td> Anthem ( ANTM ) </td> <td> US large cap </td> <td> Health insurance </td> <td> 17 yrs </td> </tr>
<tr> <td> European Reliance ( ATH: EUPIC ) </td> <td> Greek small cap </td> <td> Life and Health insurance </td> <td> 7.5 yrs </td> </tr>
<tr> <td> Kansas City Life ( KCLI ) </td> <td> US small cap </td> <td> Life insurance </td> <td> 7 yrs </td> </tr>
<tr> <td> Riken Keiki ( TSE: 7734 ) </td> <td> Japanese small cap </td> <td> Manufacturing </td> <td> 8.5 yrs </td> </tr>
<tr> <td> Investors Title Company ( ITIC ) </td> <td> US small cap </td> <td> Title Insurance </td> <td> 7 yrs </td> </tr>
<tr> <td> Lewis Group ( JSE: LEW ) </td> <td> South African midcap </td> <td> Fumiture Retail </td> <td> 6 yrs </td> </tr>
<tr> <td> IEH Corp ( IEHC ) </td> <td> US microcap </td> <td> Manufacturing </td> <td> 8.5 yrs </td> </tr>
<tr> <td> Tachibana Eletech ( TSE: 8159 ) </td> <td> Japanese small cap </td> <td> Manufacturing Distributor </td> <td> 8.5 yrs </td> </tr>
<tr> <td> Combined Motor Holdings ( JSE: CMH ) </td> <td> South African small cap </td> <td> Car Retail </td> <td> 7 yrs </td> </tr>
<tr> <td> MIND C.T.I.Ltd ( MNDO ) </td> <td>Israeli small cap </td> <td> Billing Software </td> <td> 1.5 yrs </td> </tr>
<tr> <td> Philip Morris Int ( PMI ) </td> <td> US large cap </td> <td> Tabacco </td> <td> 21 yrs </td> </tr>
<tr> <td> Brimag Digital Age ( TLV: BRMG ) </td> <td> Israeli small cap </td> <td> Electronics Distributor/Retail </td> <td> 1 yrs </td> </tr>
<tr> <td> Globrands ( TLV: GLRS ) </td> <td> Israeli small cap </td> <td> Tobacco </td> <td> 1 yrs </td> </tr>
<tr> <td> Pacific Healthcare ( PFHO ) </td> <td> US microcap </td> <td> Worker's Compensation Management </td> <td> 7 yrs </td> </tr>
<tr> <td> Altria ( MO ) </td> <td> US large cap </td> <td> Tobacco and alcohol </td> <td> 1.5 yrs </td> </tr>
<tr> <td> Karelia Tobacco Company Inc. ( ATH: KARE ) </td> <td> Greek small cap </td> <td> Tobacco </td> <td> 7 yrs </td> </tr>
<tr> <td> Clientele ( JSE: CLI ) </td> <td> South African small cap </td> <td> Insurance </td> <td> 0.5 yrs </td> </tr>
<tr> <td> Nu-World Holdings ( JSE: CMH ) </td> <td> South African small cap </td> <td> Electronics Distributor/Retail </td> <td> 1 yrs </td> </tr>
<tr> <td> Hamat Group ( TLV: HAMAT ) </td> <td> Israeli small cap </td> <td> Household Manufacturing </td> <td> 0.5 yrs </td> </tr>
</tbody></table><p> </p><p>I also have a large short position on the S&P 500 index. </p><p></p><p>My portfolio has changed a lot since the start of COVID. I have closed or drastically reduced my positions of Seaboard, Mcrae Industries, Installux and the Bruce Fund. I've replaced these with several companies from more developing countries. </p><p>For several years, I believed the the US market was overpriced and I believe it now more than ever. Consequently, I believe that the equity gains of the future will come from developing countries such as China, Israel, South Africa. I invested in Alibaba (BABA), although it was not a big enough position to make the above list. I have had positions in South Africa for 7 years now, but it has only recently paid off. </p><p>Israel, on the other hand is a odd country. It is considered a developed country because its per capita GDP is US$42,000. But I still regard it as a developing country. The country has long been hobbled by hostility in a volatile region, but that is recently changing. Its population is growing by 2% annually. And many stocks in Israel appear to trade at multiples more typical of developing or stagnating countries. For example Globrands, the second largest tobacco distributor in Israel has a 13.5% dividend! And Brimag, another Israeli stock that I own, has a PE of 7.5 and a 9.7% dividend yield!<br /></p><p>Looking at this portfolio, it is not surprising to know that I lagged the US market over the lifetime of this blog. Yes, I would have matched the S&P 500 if I didn't have the short. But the fact that my short was a hedge allowed me to go as long as I did. So my longs and short positions must be considered together in their entirely when evaluating my investment acumen.<br /></p><p>Nine years ago I set out to apply Ben Graham's value principles with the goal of beating the "market". Over the last nine years, the S&P500 index returned 17.3% annually, with dividends reinvested. So, comparing to the US market, it appears I failed at my goal.</p><p>Basically, I suck.</p><p>After realizing this, I will no longer strive to beat the market. Instead, just getting a reasonable real return for my passive investment role is enough. By this I mean something like 5% return after inflation, taxes and fees.</p><p>So moving forward, this blog will reflect a very passive, conservative and long term view of things. It will be boring, but I will still write for a number of reasons. First and foremost, I write to improve my writing which helps me tremendously in my job and many other aspects of life. Secondly, I write to give back information and ideas from my long investment journey to the internet community. I have benefitted so much from information on all sorts of topics from other people on social media, internet forums, blogs and the like.
They are almost always free, and I generally do not donate to charity. So, writing this blog
is one way to give back some knowledge to the free internet community. And lastly, I write to help me think through my ideas.</p><p>Click <a href="https://bovinebear.blogspot.com/2021/01/my-annual-schedule-of-investments.html">here</a> for last year's positions.
</p>bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com9tag:blogger.com,1999:blog-6718159251318954028.post-9988328047275491882021-05-11T23:29:00.003-07:002021-05-11T23:49:48.263-07:00Senvest Wins Big on GamestopAnyone following Senvest recently knows that the company
made a huge bet on Gamestop (GME), and it paid off big! Management finally divulged the
details in the Q1 report just released.
<br /><br />
The company accumulated 5.05M shares of GME stock over the fall and winter
of 2020. That is 7.24% ownership in GME. The company hovered
below $20 for all of 2020. In January, the only positive news was
that Ryan Cohen, a big investor with lots of retail creds, announced
three of his people were now on the board. But then,
in late January, Wallstreetbets forum and Keith Gill really got into
touting the stock and the 140% of stocks short.
And the rest is history. We saw an epic short squeeze that only
happens once a decade.
<br /><br />
The following chart shows the meteoric rise of GME in late January.
Based on the Q1 report, Senvest sold all of its holdings between
Jan 22 and Jan 28, also shown in chart. Senvest's timing was almost
perfect and the company managed to sell a portion at the very top of
$380. Remember they had 5M shares. Depending on their exact selling price
they could have made USD$1B. That's billion, with a captial B!
<br /><br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYRecT9hdcbLITkXeJiLGm3WjllyLkVekcmKVzK2BHbaZbAmgy9V4S5s03asHDTAiz5ew1jbH_PrgMQyuqKu2J56egJEqMt1tnbH3A-1HXRZl1046H3ieJGw3j7UmfXyD0-2oGemPc_rg/s500/gme.jpg" style="display: block; padding: 1em 0; text-align: center; "><img alt="" border="0" width="400" data-original-height="400" data-original-width="500" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYRecT9hdcbLITkXeJiLGm3WjllyLkVekcmKVzK2BHbaZbAmgy9V4S5s03asHDTAiz5ew1jbH_PrgMQyuqKu2J56egJEqMt1tnbH3A-1HXRZl1046H3ieJGw3j7UmfXyD0-2oGemPc_rg/s400/gme.jpg"/></a></div>
<br /><br />
Senvest really did its homework on this. They
even spoke with Ryan Cohen.
Well done Senvest. I had no idea all this was in the works, but I am
glad to come along for the ride. Senvest stock has quadrupled from the
lows around when the company was building its GME position.
<br /><br />
Today it trades at CDN$342, which is still only 52% of the book value
of CDN$647!.
<br /><br />
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com3tag:blogger.com,1999:blog-6718159251318954028.post-72240462159752535022021-04-17T14:16:00.002-07:002021-04-17T14:16:38.592-07:00Why I Sold Installux<p>
In my earlier Installux post, I said I was on the fence about my Installux holdings
and I would
wait until annual earnings report before doing anything. Three weeks later I got cold feet
and decided to dump all my shares.
<br />
<br />
My rationale was mainly the price support. The following chart shows that the current
price is at a recent high. But I found that the company in 2020
bought back 5452 shares and the entire year's volume of trading was only 8534. Therefore, the company
bought back 64% of the total shares traded in 2020!
In 2019, the company began its buyback program with a cap of € 410.
I just sold all at € 390 because I figured that's as high as it will get. There isn't
enough support from the open market to ever go above the € 410 cap.
As I have shown in an earlier post, the company's revenue and income numbers have
shown mediocre growth in the last several years. And
the stock price has justifiably never surpassed the 2017 high.
<br />
</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQpFYxw6ylYc8CGFpmLUkFcYFEN4xc0iNcczlh6GWGTHfAQqV_9u2EFYhHqvIFstFTaW0N0v9zH-fFa795oqiTPnoApfo_fAz5RnVzE4URtxWWp5JOiLL4KVlOALJVuNTan7fnztsLhVA/s800/installux_price.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="400" data-original-width="800" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQpFYxw6ylYc8CGFpmLUkFcYFEN4xc0iNcczlh6GWGTHfAQqV_9u2EFYhHqvIFstFTaW0N0v9zH-fFa795oqiTPnoApfo_fAz5RnVzE4URtxWWp5JOiLL4KVlOALJVuNTan7fnztsLhVA/w640-h320/installux_price.jpg" width="640" /></a></div><br /><p>Installux was one of the first stocks I bought since writing this blog. In 8 years
the stock has returned 14.5% including dividends. In USD, my functional currency,
the stock has returned 13.5%. My gut says that's a resounding success. But after
pondering about it for a while, I am a bit disturbed. If 13.5% is a resounding success,
then I am expecting most of my other holdings to perform worse. What is average? Maybe
9-10%. What is bad? Less than 4%? Then by my admission,
my methodology may only be able to get about 10% total returns.
Now I have never disclosed my overall returns, because I simply don't know.
But when I started this blog the back of my mind was saying I could do 12%. I am kind of
disappointed that I clearly cannot.
</p>bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com5tag:blogger.com,1999:blog-6718159251318954028.post-27873458749575141132021-04-06T06:02:00.000-07:002021-04-06T06:02:42.217-07:00Why I Bought Grigeo AB
For much of my investing career, my approach has been based on some
basic value investing principles.
Firstly, I look for cheap, well managed companies
in good industries.
This has been called GARP (growth at a reasonable price).
Secondly, I would concentrate in relatively few companies — around 20.
I would eschew investing in multiple companies
in the same industry and geographical location. This
avoids diversification, which Buffett has often called
di-worsification.
Thirdly, I would focus my investments mostly in the US. As
this where the most famous and successful investors all focus on.
The US has been by far the best market for the average investor
in the past decades. Plus, its laws and regulations are very shareholder friendly.
And fourthly, I would focus on small caps, the purpose is to avoid
the space of the better and more knowledgeable professional investors.
<br /> <br />
But the investing environment is changing all the time.
One reason for this is
that others are learning the same lessons as me. I always want to
maximize my gains by increasing my edge. As a result,
in the last few years, I have
begun to modify my investment strategy in some major ways.
<br /> <br />
Looking for good companies that fit some greatness critieria and holding
for a long time is one of Munger's favourite advice. That's great
and all if you are one of the smartest and most experienced
investors on earth. But what about us little guys, I do not have
an accounting or finance background. I am not as worldly as Munger,
and I am not a great reader.
If I want to outperform,
I cannot rely on more insight on well-known large or mid-sized great companies. And looking around in the small cap
newsletters, blogs, and internet forums, I see some global markets
with very little coverage. For small developing regions in the
world with unique cultures, the biggest companies there may
not be anything but small cap. This is my experience with South
Africa. The companies that I invest there are well known by the local
consumers. But their market cap may "only" be USD $100 M. But I
consider this
still small cap because it would be overlooked by large global
investors with deep pockets.
This fact is also very convenient at a time when
the US market is simply too crowded with professionals and Robinhood investors.
At this point, no rationale is strong enough to
justify the valuation for US equities, it cannot go up much farther.
<br /> <br />
From my experience in the last few years, I have learned it is
too hard to predict the unknowable. It is much better to take
positions in decent profitable undervalued overlooked companies,
and wait for something good to happen. To do this consistently to improve my results,
I would need to expand the number of stocks I own, and pay less
attention to each, and also be very patient.
<br /> <br />
So recently, I have been digging deeper to find more stocks
from hidden away markets. One I just started buying is
Grigeo AB from the Vilnius stock exchange.
Vilnius is the capital of Lithuania.
Lithuania is a Baltic country that used to be part of the
Soviet Union. The other Baltic countries are Estonia and
Lativa. All the Baltic states are part of the EU and therefore
use the Euro. They are also part of NATO, which is very important
since they share a border with Russia. <br /> <br />
I consider the Baltic countries as part of a developing region.
From my past experience investing in Japan, I've realized that
demographics is a very important factor. Countries
with rising populations and therefore a rising consumer market
will have a strong economic tailwind. Companies in countries that do
not, like Japan, are discounted.
Unfortunately, the Baltic countries have a dwindling population
because of a declining birth rate and a restrictive immigration
policy. The three Baltic states have a total population of 6 million
but it is expected to decline by 10% in ten years. Japan's
population is only expected to decline by 4% over the same period.
<br /> <br />
Therefore, I am careful not to invest too much in the area, and I
am also more focused on companies that don't just cater
to the local markets.
<br /> <br />
Grigeo AB (TLX:GRG1L)
is a vertically integrated pulp and paper producer. The company
makes toilet paper, cardboard and other paper and wood products
for Lithuania and other European countries. It sells 30% to
its local market, and 45% to the Baltics including Lithuania.
<br /> <br />
The company has a long history. The company originally started
in the current form as the Gregiskes factory
in 1923 making paper and cardboard. Through the years it was
nationalized by the Soviets and then became private again in
1990. In the years since then it has modernized and
also acquired other paper and cardboard companies.
The following shows the chart of the stock price in the years against
the backdrop of the US dollar against the Euro. As one can see the stock price
growth has been respectable and somewhat consistent.
<br /> <br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5ugOYZy58h5FWwcNvJlZDEPLPzCspZSGSq1dbyXWehPPLvFgF2ZG-c8cu9b_h1uNgGwz9VcTszQq8iuf9t8TkZT3S9B6Q0Z1PTaG4tS8apSrgzYPSRriKmxGV3qGv20IDmGBu63xzFEQ/s800/grg_price.jpg" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="400" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5ugOYZy58h5FWwcNvJlZDEPLPzCspZSGSq1dbyXWehPPLvFgF2ZG-c8cu9b_h1uNgGwz9VcTszQq8iuf9t8TkZT3S9B6Q0Z1PTaG4tS8apSrgzYPSRriKmxGV3qGv20IDmGBu63xzFEQ/s600/grg_price.jpg" width="600" /></a></div>
<br /> <br />
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<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tr> <th> </th> <th> GRG </th> </tr>
<tr> <td align="right"> Price (Apr 6) </td><td align="right"> € 1.34 </td> </tr>
<tr> <td align="right"> Marketcap (M) </td> <td align="right"> € 88.04 <br/> $ 103.8 </td> </tr>
<tr> <td align="right"> ROE (%) </td> <td align="right"> 14.70 </td> </tr>
<tr> <td align="right"> PE </td> <td align="right"> 6.67 </td> </tr>
<tr> <td align="right"> PTBV </td> <td align="right"> 1.02 </td> </tr>
<tr> <td align="right"> Div Yield (%) </td> <td align="right"> 4.48 (2019) <br/> 0 (2020) </td> </tr>
</table>
Grigeo also has great valuation metrics. It has tremendous return on equity and has
negligible debt. The company didn't pay divdends this year due to covid, but has
regularly done so in the past. The following chart shows this. The chart also
shows how well revenue has climbed. It has steadily risen by 10% per year! And
the earnings and dividends have grown even faster. This is a reflection of greater profitability over time.
Please note that I have multiplied the
dividend and income by ten to better illustrate. The company has a few commercial or promotional videos
on youtube, and they show extremely modern and automaticed plants. I think this confirms
why the results have been so good.
So given the company has grown steadily and is so cheap at
present, this is a serious mispricing.
Imagine in the US a company performs like this. The PE would be
20x instead of 6.7x.
<br /> <br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdyOdcViec2Jube4ol17Q76hpZG3iZEVRn769dgzX9lQVj7MrL7IexPYkPpSzPS-td1QuyIHUu6CArnqZaS_sxfFgr3cQOAXQ2TuiTrY3Kr6WYhlLhr97tInZgbaqA-AF4KzgbjZDwKFk/s800/grigeo.jpg" style="display: block; padding: 1em 0; text-align: center; "><img alt="" border="0" width="600" data-original-height="400" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdyOdcViec2Jube4ol17Q76hpZG3iZEVRn769dgzX9lQVj7MrL7IexPYkPpSzPS-td1QuyIHUu6CArnqZaS_sxfFgr3cQOAXQ2TuiTrY3Kr6WYhlLhr97tInZgbaqA-AF4KzgbjZDwKFk/s600/grigeo.jpg"/></a></div>
<br /> <br />
I think it really is true when many investing gurus mention opportunities in the developing markets. I have noticed quite a number of good ones just with the tools I have. This is the second one I have written up in as many months. I have bought several others actually and hopefully will get to write them all. So, stay tuned......
<br /> <br />
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com4tag:blogger.com,1999:blog-6718159251318954028.post-48460173933284194612021-03-01T19:20:00.001-08:002021-03-01T19:20:24.529-08:00Why I Bought Clientele Ltd
Clientele Limited (JSE:CLI) is one of my newest holdings.
The company is in South Africa and is primarily in the business of
providing insurance to individuals of modest means.
Clientele provides life, health, funeral, legal, and estate
insurance. It also provides annuities. Other than financial
products, it generates 10% of revenue as a mobile services provider.
<br /> <br />
The company's business model is unique. Most insurance
companies do not serve the low-end demographic because
the policy premium is not worth the cost to acquire it.
But Clientele has thrived in this area.
<br /> <br />
Clientele manages its costs of acquiring policies by
outsourcing the work to francisees, called Independent
Field Advisors (IFA), who themselves buy the company's
products. The company does a lot of its advertising using
late night informercials. In this way the company
has kept the cost of acquisition at just below 50% the
cost of the policies.
<br /> <br />
Clientele started its business only 23 years ago by the
Enthoven family. The low-profile Enthoven family built its wealth in South Africa specializing
in the insurance sector.
The family owns 80% of the
company through a holding company and
they also own the Hollard Group of insurance companies.
The Hollard Group in turn owns 9% of Clientele
through a subsidiary. So, the Enthoven family has
indirect control of almost 90% of Clientele.
<br /> <br />
Clientele has had phenomenal growth, as the chart below
shows.
While the company has grown steadily through the years, it has done
so without losing underwriting discipline. The company's
loss ratio — the money paid out in claims to the total premiums —
has actually been falling. The loss ratio for the years 2017 to
2020 has been 23%, 22%, 20% and 20% respectively.
<br /> <br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi30zy5dCeo-Gb7arVhqBoRO9vIH8-4s5icDS9ufcomlBE_8vG3IVz6GYXxCu8NL5i3ndKndKuhYZifDL9oqDLaIDVapUzS-8Tx5cZMkGn9BDlvM1E8bZzu4nwjXsz1_e2-2MoGylh7RdI/s800/clirev.jpg" style="clear: left; display: block; float: left; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="400" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi30zy5dCeo-Gb7arVhqBoRO9vIH8-4s5icDS9ufcomlBE_8vG3IVz6GYXxCu8NL5i3ndKndKuhYZifDL9oqDLaIDVapUzS-8Tx5cZMkGn9BDlvM1E8bZzu4nwjXsz1_e2-2MoGylh7RdI/s600/clirev.jpg" width="600" /></a></div>
<br /> <br />
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<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tr> <th> </th> <th> CLI </th> </tr>
<tr> <td align="right"> Price </td> <td align="right">R 9.49 </td> </tr>
<tr> <td align="right"> Earnings TTM </td> <td align="right"> R 329.00 M </td> </tr>
<tr> <td align="right"> Marketcap </td> <td align="right"> R 3182.00 <br/> (US$212 M) </td> </tr>
<tr> <td align="right"> ROE (%) </td> <td align="right"> 32.50 </td> </tr>
<tr> <td align="right"> PE </td> <td align="right"> 9.67 </td> </tr>
<tr> <td align="right"> PTBV </td> <td align="right"> 3.27 </td> </tr>
<tr> <td align="right"> Div Yield (%)</td> <td align="right"> 10.01 </td> </tr>
</table>
Being such a good performer, one would
think the company's valuation metrics are
high. But that isn't the case, as the side table
shows. This stock yields 10% earnings and
dividends! A look at the price chart below gives some
indications why.
The stock has dropped precipitously through the
COVID crisis even though
the company's earning power
has not been drastically affected. In the last three fiscal years, from 2018 to 2020,
the net income did drop. The drop from 2018 to 2019 was mainly due to a large drop
in investment gains. The drop from 2019 to 2020 was mainly due to odd tax accounting. The
EBIT was actually rose significantly from 2019 to 2020.
Furthermore, I've noticed when the Rand falls in value
South Africa stocks fall also. So when
the Rand vs the USD curve rises in the chart, it means the Rand is getting cheaper.
And one would expect Clientele price to fall. And vise versa.
But in recent weeks, the Rand price has been falling and
yet Clientele is not rising. So, unless I am missing something
this is a big mispricing.
<br /> <br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4L5XXoIfEtOSY2JTcImBh055poh7TJ7FnmqSGA9pxtTGRt6jDnilZG8ohmkU-7VxQBBLdjEds1tsQQwccUG-PIEBtqnzrXuHU8M93MYCivCaG0GTJUaEr5ZEMLVKsJQdw6864UA5w4vo/s800/cli.jpg" style="clear: left; display: block; float: left; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="400" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4L5XXoIfEtOSY2JTcImBh055poh7TJ7FnmqSGA9pxtTGRt6jDnilZG8ohmkU-7VxQBBLdjEds1tsQQwccUG-PIEBtqnzrXuHU8M93MYCivCaG0GTJUaEr5ZEMLVKsJQdw6864UA5w4vo/s600/cli.jpg" width="600" /></a></div>
<br /> <br />
For the last several years I have held a strong belief that the US markets are overvalued. I believe this more than ever now. I believe we may be at an inflection point for the emerging markets. The value of the Rand as shown in the previous chart may be a good proxy for this. Note how it rose for pretty much the last ten years but it has handily recovered from the all time lows of the COVID crisis. There is no more room for the US stockmarket to grow, and emerging markets is where the stock growth will come from in the coming decade. Clientele could be a very good illistration of this.
<br /> <br />
We shall see.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com2tag:blogger.com,1999:blog-6718159251318954028.post-44290978515993348962021-02-14T02:23:00.000-08:002021-02-14T02:23:01.266-08:00Some Updates on the First Full Year of COVIDCOVID hit most of the world starting in March 2020. So, many companies have (almost) had a year of impact from COVID.
Many Japanese companies end their accounting year in March and thus their year coincides almost exactly
with the start of COVID. So, their
annual results will be able to tell us a lot about the true extent of the world's business slowdown.
<br /><br />
Tachibana Eletech (TSE:8159)
year end revenue is expected to fall 6.2 % to ¥ 160.0 B (2020 ¥ 170.5 B).
Year end EPS is expected to fall 26.0 % to ¥ 128.8, (2020 ¥ 173.9), which implies a 13.0 x earnings multiple.
<br /><br />
Riken Keiki (TSE:7734)
Year end EPS is expected to fall 19.4 % to ¥ 150.5, (2020 ¥ 186.8), which implies a 20.4 x earnings multiple.
<br /><br />
Takamatsu Machinery Co.,Ltd (TSE:6155)
year end revenue is expected to fall 38.7 % to ¥ 13.4 B (2020 ¥ 21.9 B).
Year end EPS is expected to fall to ¥ -12.7, (2020 ¥ 130.8).
<br /><br />
Installux SA (PAR:STAL) H1
revenue fell 26.6 % to € 52.5 M (2020 € 71.5 M).
H1 EPS fell 73.7 % to € 4.4, (2020 € 16.6). Their year
ends in December.
<br />
<p>In H1 2020,
installux experienced shutdowns in their Spain and France
locations and therefore revenues fell significantly.
They were still profitable though.
However, the company
provided no guidance for H2 2020, so we
don't know what happened in the last 7 months.</p>
<p>Installux is conservative, well-run, and
highly profitable. They expand opportunistically
and thus do not overpay for acquisitions.
Their expansion has mainly focused on control
of the supply chain.
Their niche aluminum product offering remains unchanged.
Still their sales figures are respectable.
It has consistently risen by about
3.5% per year for the last dozen years.
And of course they have no debt!</p>
<p>The company currently trades at 13 times 2019 earnings,
the last full year of data before COVID. While this
PE is not super cheap. The company looks much better when
using the EV to EBIT ratio because it has no debt
and ample cash. The company's EV is 7.2 times 2019 EBIT.
</p><p>
The coming challenges for the company is how to put
its cash to use.
The following figure shows the cash and
equity buildup through the years. Note that in 2018,
cash dipped and PPE rose by the same amount because of
the acquisition of a factory in Spain.</p>
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhIwv9j6UEJNYET6xn3ZjutiqzWNWqo-B3141BJN7gyX2_9UK9ihQdHPy7gcHTVjoUsKZQz3YNlocHkgmLmIShqD1qpSzETmUxkhEt-gsRicvIEctksZNYE2YHdiDM3qdTuh-47YlHm2Sg/s480/installux.jpg" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="480" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhIwv9j6UEJNYET6xn3ZjutiqzWNWqo-B3141BJN7gyX2_9UK9ihQdHPy7gcHTVjoUsKZQz3YNlocHkgmLmIShqD1qpSzETmUxkhEt-gsRicvIEctksZNYE2YHdiDM3qdTuh-47YlHm2Sg/s400/installux.jpg" width="400" /></a></div>
<p>The simplest way to get rid of cash is to pay generous dividends
but management indicated it prefers
not do do so to show solidarity with stagnant employee wages.
I suppose this can partially explain why the company recently
began share buybacks. So far the company has bought back 2% of the shares. </p><p>Right now, I am really not sure whether I should hold Installux
for the longer term, or reduce my position. At € 390, it is probably
fairly valued. So,
I'll just wait and see. Their annual report should out by April,
then I'll decide.
</p>bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com1tag:blogger.com,1999:blog-6718159251318954028.post-57173577459618675192021-01-30T11:52:00.001-08:002021-01-30T11:52:59.151-08:00New Century Group HK: My Worst Performer
<br /> <br />
New Century Group Hong Kong (HK:234)
has been a sad performer for a long time in
my portfolio. I bought it initially around
HK$0.13 and today it is at $0.06!
<br /> <br />
New Century operates in several segments in primarily Hong Kong. Formerly,
they were cruise lines, hotels, rental properties,
and securities (i.e., stocks) trading.
Besides the rental properties business, all
the other segments are becoming less prominent
on the company's bottom line. In fact, the
company sold it's last hotel and exited
that business several years ago.
<br /> <br />
The company's cruise lines wasn't doing all that great before
covid came along, and understandably its revenue
dropped considerably during this time.
<br /> <br />
The company has a security trading business because of an unique feature of
Hong Kong tax laws. In most other countries a company
must pay capital gains taxes on realized securities gains.
But Hong Kong does not. So effectively Hong Kong encourages
companies like New Century that have ample cash to
engage in securities trading.
<br /> <br />
In the place of the under-performing segments,
the company added a money lending business
two years ago, called ETC. This business was completely owned by
the same family trust that owns the majority
of New Century. And New Century acquired
60% of the lending business in exchange for
the cash equivalent of the equity acquired.
<br /> <br />
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<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tr> <th> Assets (HK ¢ )</th> <th> 2020 </th> <th> 2021 H1 </th> </tr>
<tr> <td align="right"> Cash </td> <td align="right"> 7.59 </td> <td align="right"> 7.13 </td> </tr>
<tr> <td align="right"> Stocks </td> <td align="right"> 0.24 </td> <td align="right"> 1.12 </td> </tr>
<tr> <td align="right"> Receivable </td> <td align="right"> 2.14 </td> <td align="right"> 1.15 </td> </tr>
<tr> <td align="right"> PPE </td> <td align="right"> 5.85 </td> <td align="right"> 4.98 </td> </tr>
<tr> <td align="right"> Rental Property </td> <td align="right"> 9.54 </td> <td align="right"> 9.28 </td> </tr>
<tr> <td align="right"> Private co. </td> <td align="right"> 0.03 </td> <td align="right"> 0.04 </td> </tr>
<tr> <td align="right"> ETC loans </td> <td align="right"> 11.88 </td> <td align="right"> 12.47 </td> </tr>
<tr> <td align="right"> Repossions </td> <td align="right"> 0.24 </td> <td align="right"> 0.63 </td> </tr>
<tr> <td align="right"> <center><b>Liabilities</b> </td></center> <td align="right"> </td> <td align="right"> </td> </tr>
<tr> <td align="right"> Payables+Dep </td> <td align="right"> 0.35 </td> <td align="right"> 0.73 </td> </tr>
<tr> <td align="right"> Misc liabilities </td> <td align="right"> 0.35 </td> <td align="right"> 0.42 </td> </tr>
<tr> <td align="right"> Debt </td> <td align="right"> 1.93 </td> <td align="right"> 1.93 </td> </tr>
<tr> <td align="right"> Minority Interest </td> <td align="right"> 6.91 </td> <td align="right"> 6.57 </td> </tr>
<tr> <td align="right"> Shareholder Equity </td> <td align="right"> 27.98 </td> <td align="right"> 27.15 </td> </tr>
</table>
The company usually has had a lot of very liquid assets
and I always wished the company would distribute it to
shareholders, either with stock buybacks or dividends.
Unfortunately, the company used the available cash
to buy a company from its owners. The company
paid HK$480 mil for the money lending business. That's
$0.08 per share.
<br /> <br />
New Century's investment property business consists of high-end
retail and office real-estate. Their
rental occupancy has consistently been 100%. And the real-estate
value on their books is not an illiquid asset that is held
indefinitely. In 2011, for example, the company sold a large chunk
of their property for
HK$485 mil. On the right is the company's balance sheet with values divided
by the number of share and expressed in
HK ¢. As the table shows,
their real estate value is only about a third of the companies
equity, so it is not overly exposed to a housing bubble.
<br /> <br />
I liked New Century because of the company's huge and
liquid balance sheet.
I feel showing the value per share can really put
a perspective on the attractiveness of this stock.
<br /> <br />
Note that the minority interest ownership is
almost entirely a claim on the
money lending business.
<br /> <br />
Note also that the company debt are monies owed to related parties paying
little or no interest.
<br /> <br />
Other than these two items, pretty much the rest of the company
belongs to the shareholders.
The following chart shows the company grew its equity consistently
throughout the last 16 years.
The chart also shows the company paid out more than HK$0.07 per share
in dividends over that period. That's pretty good considering
the current price of $0.06 ! Please ignore the
spike in book value in 2019, that is only due to an accounting quirk that
requires the company to recognize the money lending business one year
before the money is paid to acquire it.
<br /> <br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1mEHTejuzbH1cba9gqJJyoNNXgkX-hPHDZuZVbXSwKB3yXODqtmW4xJFPXcNzSgAlZMa0jG9lrbZ_Kp3nJPJDuATHqeI0kSRe2OwFIQtR9h4eDT2huMKAx4gVfB2XQiSi5D3xdmzuq-g/s480/newcbook.jpg" style="display: block; padding: 1em 0; text-align: center; "><img alt="" border="0" width="400" data-original-height="480" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1mEHTejuzbH1cba9gqJJyoNNXgkX-hPHDZuZVbXSwKB3yXODqtmW4xJFPXcNzSgAlZMa0jG9lrbZ_Kp3nJPJDuATHqeI0kSRe2OwFIQtR9h4eDT2huMKAx4gVfB2XQiSi5D3xdmzuq-g/s400/newcbook.jpg"/></a></div>
<br />
On the face of things
there isn't much justification for the stock
to trade at $0.06. But the narrative on such
an obscure Hong Kong
stock can deter the market. Namely,
Hong Kong is experiencing a slowdown due to the
political turmoil of the last few years.
There may be a long term exodus from the island
which will make it less of a financial
hub of southeast Asia.
In addition, the stock is of the foreign and small cap value
variety, which
has suffered terribly in the last 10 years.
<br /> <br />
The company's owners also haven't done much to help the stock price.
It hasn't been paying regular dividends last few years.
And it siphoned off a huge chuck of the company's cash to buy the money lending business. Initially, I was
extremely worried when New Century acquired the lending business. Are the owners enriching themselves at the expense of us minority shareholders?
Recently, I am less worried because I see the lending business become a big contributor
to income.
<br /> <br />
So all-in-all New Century has become the worst holding in my current portfolio, but I still use the logic of analysis and I feel
the stock is still good enough to hold.
<span><a name='more'></a></span>bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com1tag:blogger.com,1999:blog-6718159251318954028.post-66254244582920302622021-01-02T00:47:00.000-08:002021-11-21T12:37:52.664-08:00My Annual Schedule of Investments
2020 has arguablly been the wildest year in the history of the stockmarket.
As is the annual tradition, I post my largest positions.
<br/> <br/>
Click <a href="https://bovinebear.blogspot.com/2019/12/my-annual-schedule-of-investments.html">here</a> for last years positions.
<br/> <br/>
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<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px;">
<tr> <th> Company </th> <th> Category </th> <th> Business </th> <th> Duration </th> </tr>
<tr> <td> European Reliance ( ATH: EUPIC ) </td> <td> Greek small cap </td> <td> Life and Health insurance </td> <td> 6.5 yrs </td> </tr>
<tr> <td> Kansas City Life ( KCLI ) </td> <td> US small cap </td> <td> Life insurance </td> <td> 6 yrs </td> </tr>
<tr> <td> Senvest Capital ( TSE: SEC ) </td> <td> Japanese small cap </td> <td> Investment Company </td> <td> 5.5 yrs </td> </tr>
<tr> <td> IEH Corp ( IEHC ) </td> <td> US microcap </td> <td> Manufacturing </td> <td> 7.5 yrs </td> </tr>
<tr> <td> Tachibana Eletech ( TSE: 8159 ) </td> <td> Japanese small cap </td> <td> Electronic Distributor </td> <td> 7.5 yrs </td> </tr>
<tr> <td> Installux SA ( PAR: STAL ) </td> <td> French microcap </td> <td> Manufacturing </td> <td> 7.5 yrs </td> </tr>
<tr> <td> Riken Keiki ( TSE: 7734 ) </td> <td> Japanese small cap </td> <td> Manufacturing </td> <td> 7.5 yrs </td> </tr>
<tr> <td> Investors Title Company ( ITIC ) </td> <td> US small cap </td> <td> Title Insurance </td> <td> 6 yrs </td> </tr>
<tr> <td> Lewis Group ( JSE: LEW ) </td> <td> South African midcap </td> <td> Fumiture Retail </td> <td> 5 yrs </td> </tr>
<tr> <td> MIND C.T.I.Ltd ( MNDO ) </td> <td> US small cap </td> <td> Billing </td> <td> 0.5 yrs </td> </tr>
<tr> <td> Philip Morris Int ( PMI ) </td> <td> US large cap </td> <td> Tabacco </td> <td> 20 yrs </td> </tr>
<tr> <td> Altria ( MO ) </td> <td> US large cap </td> <td> Tobacco and alcohol </td> <td> 0.5 yrs </td> </tr>
<tr> <td> Karelia Tobacco Company Inc. (ATH:KARE) </td> <td> Greek small cap </td> <td> Tobacco </td> <td> 6 yrs </td> </tr>
<tr> <td> Combined Motor Holdings (JSE:CMH) </td> <td> South African small cap </td> <td> Car Retail </td> <td> 6 yrs </td> </tr>
<tr> <td> Seaboard Corp ( SEB ) </td> <td> US midcap </td> <td> Food conglomerate </td> <td> 15 yrs </td> </tr>
<tr> <td> McRae Industries ( MCRAA ) </td> <td> US microcap </td> <td> Footware </td> <td> 8 yrs </td> </tr>
<tr> <td> New Century Group HK ( HK: 0234 ) </td> <td> Hong Kong microcap </td> <td> Hotel,cruise line </td> <td> 6 yrs </td> </tr>
</table>
<br/> <br/>
We all know there was a huge crash in March followed by an amazingly
fast rebound. Like almost all investors, I've been busy repositioning
my portfolio. What I did this time was like in past corrections,
I have opportunisticly added to some
formerly small positions and initiated a few new ones.
<br/> <br/>
ITIC was a large position that I regrettably reduced five years ago.
Now I have added back sufficiently that my position is the same as
back then.
The same story goes for PMI,
my position now is the same as before.
A similar story goes for MO. I closed my position 9 years
ago, and my position now is the same as before.
<br/> <br/>
I have also added to EUPIC, SEC, IEHC, KARE.
<br/> <br/>
The only completely new stock that I own is MNDO. This is an
incredible dividend payer that I've followed for several years. To get into it, I will have to make
a writeup sometime in the future.
<br/> <br/>
The only position that I reduced is SEB.
<br/> <br/>
I still own S&P 500 shorts. In fact I have added to it this year!
And this has been the big drag on my portfolio performance. I
am down slightly for the year, but the bright side is that my long positions
are up by single digits percentage points.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com3tag:blogger.com,1999:blog-6718159251318954028.post-43777926809392001612020-12-29T17:42:00.000-08:002020-12-29T17:42:04.486-08:00Will Kansas City Life Ever Go Up?
Kansas City Life Insurance (KCLI) is a conservatively family-run company that has been in business for over a
hundred years.
The company does mostly life insurance and annunities with some
health insurance. It has paid $1.08 in annual dividends for the last two
decades. Currently it is trading at $37.65. So its
dividend yield is almost 3%, a full 50% higher than the 2% of the S&P500
as a whole.
<br />
<br />
I've added to my position significantly in the past two years
because of its attractive price to book ratio. In other
words, this is the classic 50 cent dollar.
<br /> <br />
During the market crash this spring, the market braced for a wave
of corporate defaults. Life insurance companies were considered
really vulnerable because of their large corporate bond holdings.
KCLI had $2.1B of investment grade corporate bonds out of $3.9B in investments on its
balance sheet. The stock cratered to $23 and
I feared the company was going under.
The yield on investment grade corporate bonds was usually a little over 2%, but it
doubled to almost 5% at the worst time of the crisis.
Thankfully, though,
the Fed pulled out all the stops and declared it was going to
purchase investment grade bonds to prop up the market.
<br /> <br />
Since that announcement in march and the massive market trough and peak,
the company's book value now is at its highest ever. The tangible book
value per share is $88, but the stock price is $37.65. Go figure!
<br /> <br />
The following chart shows the relationship of the book value per share
and the share price for the last 15 years. Note that right now
the spread between the book value and the price is the biggest ever.
I am simply hoping (or better yet praying) that this spread will
return more to "normal".
<br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheYuzgUHOzy87n6cjgN6Etg_1b1QZNxIa0CdQT4XBHHn6DzAxzYbAD8mvfb2t13cMt_M18hFDqE_vd9tUkTcaKnFmLWwkEQoY67lx3eg7qCZuK-1qmoKVx_xCyD2MsXsp_-NLSVWTa1Z8/s0/kcliprice.jpg" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="480" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheYuzgUHOzy87n6cjgN6Etg_1b1QZNxIa0CdQT4XBHHn6DzAxzYbAD8mvfb2t13cMt_M18hFDqE_vd9tUkTcaKnFmLWwkEQoY67lx3eg7qCZuK-1qmoKVx_xCyD2MsXsp_-NLSVWTa1Z8/s0/kcliprice.jpg" /></a></div>
<br /> <br />
But how is it possible for a company to be this cheap in such a raging bull
market? There are some obvious explanations. This is a value stock which is very
much out of favor. The company is a private smallcap in a very boring industry.
It is also very much a value stock in a time when value is out of favour.
<br /> <br />
But I think
the most convincing reason for the depressed valuating on KCLI
is its poor earnings performance. The company
consistently earns no more than 4% on equity in the past
decade. I feel this is
in part the result of a very conservative investment strategy. The investments in
turn earn ever lower returns due to ever lower interest rates.
To illustrate,
the following chart shows the total annual insurance revenues and the dividend and interest income.
Note the underwriting is fine but income has steadily
declined. Note also that when company's book value appreciates
due to the big unrealized gains on investments. However, such appreciation is not counted
as regular earnings but as comprehensive income. Therefore, it
doesn't count as part of earnings per share.
<br />
<div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzBk0uU84ItKjT5DMKJXGnrkzlBtFpe0mjiuaDUS8Fn_ct0YVR_-l_chp-72rue-sTJExWob9lqDupkelEIhlDSLYYqCaLC35nvmRnIWN8UpeWMRh6-9AZKkuMnIEE1u7qOKyqzUbAU2M/s0/kclirev.jpg" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="480" data-original-width="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzBk0uU84ItKjT5DMKJXGnrkzlBtFpe0mjiuaDUS8Fn_ct0YVR_-l_chp-72rue-sTJExWob9lqDupkelEIhlDSLYYqCaLC35nvmRnIWN8UpeWMRh6-9AZKkuMnIEE1u7qOKyqzUbAU2M/s0/kclirev.jpg" /></a></div>
<br />
So what to do with KCLI? Recently, I have leaned more towards diversification and
taking a more long term view of my holdings. I can afford
to be patient with safe companies like KCLI
because the company's dividend payout is about the same
as my borrowing costs. So, for now, I will just sit and wait for some
company surprise or market sentiment to change.
<br /> <br />
Lastly, before I conclude, I want to give a shot out to the provider
of <a href="http://tikr.com">tikr.com</a>.
The website is the best fundamental research tool for the retail
investor that I've come across. It
provides very detailed financial data for every market worldwide going back 15
years. The above two charts was made possible with data
from the website. The site is beta and I am a trial user. If you want to be a beta
customer like me you can search around or contact the website.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com0tag:blogger.com,1999:blog-6718159251318954028.post-68917739445951728602020-08-16T00:19:00.002-07:002020-08-16T00:19:41.090-07:00A Look at Senvest Capital
Senvest Capital is a company that I've discussed many times but not recently. Many
things have happened since I lost wrote about it. So, I am going to
review the company here.
<br /> <br />
Senvest Capital is well-known for being home to the Senvest Master Fund and the
Senvest Technology Partner fund. The Mashaal family are majority owners
of the company and these two funds are hedge funds managed by
Richard Mashaal. This means that
Richard Mashaal (through a company he owns) is the general partner. Senvest Capital is
a limited partner in this enterprise. And there are also many LPs who are outside investors.
The company also owns a lot of illiquid stuff like real estate, REITs, and private
companies.
<br /> <br />
So by owning Senvest Capital, a shareholder actually downs several hedge funds and
investments that the public don't normally cannot access.<br /><br />
So the pros and cons of buying this stock is, in principle, very simple.
The stock trades at a tremendous discount to equity value — more about this later.
And the investment management has an exceptional track record.
However, on the negative side, the employee salaries and fees are very high, and they
have never paid out dividends.
<br /> <br />
Another characteristic, which can be good or bad depending how you look at it,
is that Senvest
Capital's financial fortunes can be wild!
The company earned CDN$(51.72) and CDN$39.16 per share in 2018 and
2019, respectively. And the first quarter 2020 has been a disaster,
shareholders lost CDN$(129.38) per share!
These are all due to the drop in market values of equities, be it
realized or unrealized.
<br /> <br />
For the reset of this document I will refer to all amounts as Canadian dollars.
<br /> <br />
Senvest Capital promptly posts its monthly hedge fund resulte online. This gives
us some idea of the company's performance. The
Master fund lost 53% in Q1! No wonder its earnings were so bad. However,
it has come back for Q2 and gained back half of the losses by August 1.
The Senvest Technology fund was up 25% in Q2 and is positive for the year.
<br /> <br />
Just like
Berkshire Hathaway, the main gauge of Senvest's stock value is the
company's equity.
<br /> <br />
The company's stock should rise and fall proportionally with its
equity.
Senvest has traditionally traded at 60%-70% of equity. But
the recent market drop has increased the discount
significantly.
<br /> <br />
To illustrate the company's value, I have broken down the
balance sheet into five components. The
first is working capital.
This is the safest part of the equity. Market
conditions should not affect the value.
The second component is the hedge fund portion of the company.
The company consolidates the entire hedge fund value onto
its balance sheet. So, it must also consolidate
the amounts owed to the funds other partners as liability, as well
as short positions.
The third component comprises the illiquid assets including
a lot of real estate, investments in private REITs and
private companies. The company tends to put
the illiquid investments onto its own books and more
liquid investments into its hedge funds.
The fourth component of the balance sheet includes assets and liabilities that don't
fit in the above three categories. And the last componenent is the amount owed to
Richard Mashaal as minority interest.
<br /> <br />
The following table shows the equity values of the five components
at the end of 2019 and Q1 2020, the most recent balance sheet data. All values are
thousands of CDN dollars.
<br />
<br />
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%;">
<TR> <TH> </TH> <TH> Aug 2020 </TH> <TH> Q1 2020 </TH> <TH> 2019 </TH> </TR>
<TR> <TD align="right"> Working Capital </TD> <TD align="right"> </TD> <TD align="right"> 29873.00 </TD> <TD align="right"> 14284.00 </TD> </TR>
<TR> <TD align="right"> + Equity investments and other holdings </TD> <TD align="right"> </TD> <TD align="right"> 496424.00 </TD> <TD align="right"> 818797.00 </TD> </TR>
<TR> <TD align="right"> + Real Estate and Illiquid Assets </TD> <TD align="right"> </TD> <TD align="right"> 125701.00 </TD> <TD align="right"> 113107.00 </TD> </TR>
<TR> <TD align="right"> + Other assets minus liabilities </TD> <TD align="right"> </TD> <TD align="right"> 3750.00 </TD> <TD align="right"> -3533.00 </TD> </TR>
<TR> <TD align="right"> - Non-controlling interests </TD> <TD align="right"> </TD> <TD align="right"> 16374.00 </TD> <TD align="right"> 23265.00 </TD> </TR>
<TR> <TD align="right"> = Shareholder Equity </TD> <TD align="right"> 780000 (est) </TD> <TD align="right"> 639374.00 </TD> <TD align="right"> 919390.00 </TD> </TR>
<TR> <TD align="right"> Shares </TD> <TD align="right"> 2630.00 (est) </TD> <TD align="right"> 2634.00 </TD> <TD align="right"> 2652.00 </TD> </TR>
<TR> <TD align="right"> BVPS </TD> <TD align="right"> 296.58 </TD> <TD align="right"> 242.74 </TD> <TD align="right"> 346.68 </TD> </TR>
<TR> <TD align="right"> Price </TD> <TD align="right"> 135 </TD> <TD align="right"> 110.00 </TD> <TD align="right"> 172.25 </TD> </TR>
<TR> <TD align="right"> PTBV </TD> <TD align="right"> 0.46 </TD> <TD align="right"> 0.45 </TD> <TD align="right"> 0.50 </TD> </TR>
</table>
<br /> <br />
So the bulk of the Q1 loss appears to be from the second components which is mostly
the hedge funds. The equity value went from $818M to $496M. And we already saw that
Q2 hedge fund numbers are much better. The other assets are either liquid and safe, or are illiquid assets which I just assume didn't change in value. So
then, the company has a lot of equity that are not tied to hedge funds. Therefore, the company did not do nearly as badly as the hedge funds.
<br /><br />But note the extreme low stock value when
compared with the equity.
This is not a reasonable valuation. And I don't know the reason
for it considering that this was the case at the start of 2020 before
the coronavirus impacted the markets. But there is a long-held perception that
the company insiders do not treat the minority shareholders
fairly. Company insiders are excessively compensated.
The company has just
32 employees and they were paid
$35 M. That is an average of over $1M per employee!
<br /> <br />
On top of this, Richard Mashaal, the vice-president of the company, is also paid
his fees for running the GP of the hedge funds.
The hedge fund charges 1.5% of assets
plus a 20% share of profits as
management fees.
Senvest Capital gets 60% of that fee for providing the infrastructure and
employee resources for the hedge funds. But still, 40% goes to
Richard Mashaal's company.
<br /> <br />
The company does not disclose how much it owns in the hedge funds. Instead
it lumps all the hedge fund holdings together with its own holdings.
The company does show the the external portion of the
hedge funds as "Liability for redeemable units"
Based on this, I can calculate that the Senvest Capital portion of the hedge funds is about
35%.
<br /> <br />
The accounting for the hedge funds' fees can be quite confusing, so I've broken it down into
a table for clarity. The following table shows who pays the fees and who receives it.
<br /> <br />
<br />
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%;">
<tbody>
<tr>
<th>Recipient</th>
<th>External Partners Fees <br /> (65%)</th>
<th>Senvest Capital Fees<br /> (35%)</th>
</tr>
<tr><td> Senvest Capital <br /> Shareholder Equity <br /> (60%)</td><td> From: income, liabilities <br />39% </td><td></td></tr>
<tr><td>Minority Interest <br /> (40%) </td><td>
From: income, liabilities <br />21% </td>
<td>From: income, shareholder equity <br />14%</td>
</tr></tbody>
</table>
<br /> <br />
So the Senvest Capital receives 39% from external partners and
pays Richard Mashaal 14%. This means the company get a net
25% to pay employees salaries.
In a down year where the only fee is the 1.5% of assets, one
can see it is ony a few million, and that is only a tiny fraction of employee
payroll.
And even this amount is an overestimation of fees because
$189M of assets owned by "employees" are exempt from fees.
<br /> <br />
On the other hand, Richard Mashaal
gets 40% of the fees as minority interest, which was $5.2M in 2019!
<br /> <br />
Richard Mashaal has certainly been an incredible hedge fund manager.
In his more than twenty years managing the funds,
funds have grown from $5M to more than a billion
under management.
But Richard Mashaal and his father Victor already own more than 50% of Senvest Capital, and yet
Richard still gets $1.7 M compensation from Senvest Capital, plus payments to him
as minority interest.
<br /> <br />
In the end, there isn't much I can do as a tiny minority shareholder. I
do not have the capital nor the time to be an activist. My cold calculation
says that no matter the employee compensation, the company is a profitable enterprise in the long run. As such its assets, which are all investments, should not trade at 46% of equity, which is what it is trading at today. The current valuation is 55% off its peak a few years ago. To simply go back to 60% of equity, the shares will gain 33%. And I am confident it will happen sooner than later.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com2tag:blogger.com,1999:blog-6718159251318954028.post-54875239546010734712020-07-04T17:27:00.001-07:002020-07-04T17:27:55.722-07:00Why I Bought Altria, Again
My most old and familiar holding is Philip Morris. Altria (MO) is the
US version and Philip Morris International (PMI) is the
international version.
They are the famous makers of the Marlboro brand.
</br>
</br>
In a way these two companies are the simplest businesses to understand. They spit
out copious amounts of cash. And the majority of the cash goes to the government
coffers. At the same time
these governments want to ostensibly regulate the tobacco industry out of business.
And finally, people are generally smoking less than before. Today in the
US only 16% of the population smoke and the per capita consumption is 1/4
the number at the peak in 1960.
</br>
</br>
First, I'll discuss Altria. In the US the best selling
cigarette by far is Marlboro. It is 43% of the market!
</br>
</br>
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tbody>
<TR> <TH> </TH><TH> MO </TH> </TR>
<TR> <TD align="right"> Price </TD> <TD> $39.1 </TD> </TR>
<TR> <TD align="right"> Marketcap (M) </TD> <TD> $72726 </TD> </TR>
<TR> <TD align="right"> PE </TD> <TD> 2019: (loss) </br> 2018: 10.49</TD> </TR>
<TR> <TD align="right"> Div Yield (%) </TD> <TD> 8.18 </TD> </TR>
</tbody></table>
In my table,
I have omitted the equity metrics because they have negative tangible book value.
That is not to say that these companies are not valuable.
It is just that their value is almost entirely
in their brand. Moreover,
these companies have enormous debt that is more than
tangible assets they have.
So their
investment utility is solely based on their dividends. And they
are very generous with dividends. Their pay ratios approach 100%.
But everyone knows
the future looks bleak for tobacco. But this has been the case for more than
20 years. In the last 10 years after Altria and PMI split into two companies, Altria
has increased dividends at a 9.5% rate! And today it yields 8.2%.
Somehow Altria has managed to increase profits when cigarette sales have
steadily declined consistently. Just last year US cigarette volume decreased 5.5%.
</br>
</br>
Because of Altria's simplicity, we can deduce its value simply from its cash flow
to shareholders. Imagine this plausible situation. Tobacco
consumption and regulation will drive companies like Altria to
bankruptcy in 30 years. But right now it is doing ok, and say it continues
to pay generous dividends and grow at 9.5% as the recent past for the next five years.
Then growth will taper. So for simplicity say dividend growth becomes
zero for five years. And
after that the dividend falls until zero 20 years later.
So what I described can be shown by the following chart.
The return from just the dividends is 8.3%!
</br>
</br>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwmLXpk15bOK0qvTW6bNwasncwLsYdwgyU5D6Z2JPWFbWoI2xH3lKkYqSf8pvkuGZtR89ttVVwIVptS6ji-wESQKkg2wUZ4PmXhpLGC-1lj0M4-wff_dLGvMzBYBwip1GFwOG92jwdoO8/s1600/line.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwmLXpk15bOK0qvTW6bNwasncwLsYdwgyU5D6Z2JPWFbWoI2xH3lKkYqSf8pvkuGZtR89ttVVwIVptS6ji-wESQKkg2wUZ4PmXhpLGC-1lj0M4-wff_dLGvMzBYBwip1GFwOG92jwdoO8/s1600/line.jpg" data-original-width="480" data-original-height="480" /></a></div>
</br>
</br>
Evaluating Altria using discounted cash flow (DCF) analysis would require
the cash return in this scenario to be greater than the risk-free return plus the risk premium.
In my analysis, I'd like to replace the risk-free rate with the cost to borrow money
to buy the stock. In today's low interest environment, this can be as low as 2%.
And a common risk premium is 6%. So therefore, I have a 8% hurdle for this investment,
which Altria just passed. And this is a very negative case scenario.
So Altria's cash flow can be worth the price today.
</br>
</br>
So putting the worse case aside, there are positive factors in Altria's future.
Cigarette consumption has declined consistently,
but
I think there is a limit. Society has clamped down on minors smoking and
smoking in public places. But for the hard-core smokers, nothing will deter
them. And taxation is already 45% of the current cigarette price. It is
primarily a business for the government! It is not
in the government's interest to kill cigarettes. This also means that companies like
Altria have big hidden pricing power. Altria gets less than 20% of each cigarette
sold, so when it increases the selling price by 10% the consumer only feels a 2% increase.
</br>
</br>
Also, some of the decline is due to the switch to new and old alternative products such as
e-cigarettes, smokeless tobacco and marijuana.
It is easy to see the appeal of a nicotine fix without the social stigma.
And marijuana does less damage to health than tobacco products.
</br>
</br>
Altria, has dabbled in all these areas. Altria is the leading US supplier of smokeless
tobacco products such as Copenhagen.
They bought a $13 B stake in JUUL Labs, a
e-cigarette maker. However, this deal was a disaster for the Altria and the
company has written off 2/3 of the investment.
And finally, the company has also tried to invest in marijuana through its
45% ownership of Cronos, a Canadian cannabis company. That hasn't worked out well either
as Cronos stock has dropped by 2/3 also!
</br>
</br>
Aside for tobacco and marijuana, Altria is also big into their sin companion:
alcohol.
Altria owns a small wine maker, and most importantly, a 10% stake in Anheuser-Busch InBev,
which is worth $18B.
</br>
</br>
The human race may get more and more health conscious, on average, but
I think there will always be a place for sin. We are living better and longer,
then we should also live it up more!
So,
over the long
term, I think that Altria may very well be able to hit on a killer product that
will replace cigarettes, if and when cigarettes are regulated to oblivion.
</br>
</br>
All these factors support my view that Altria and other tobacco companies are
underestimated companies with a large margin of safety and are well worth the
risk to invest. They are the quintessential value stocks.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com0tag:blogger.com,1999:blog-6718159251318954028.post-91069854757346698382020-06-09T01:05:00.000-07:002020-06-09T01:05:36.531-07:00Update on My Insurance Holdings
Kansas City Life Insurance (OTC:KCLI) is a smallcap
life and health insurance company with a long and stable history.
In the company's Q1 earnings report their investments were down $38 M due to the market
downturn. Consequently
the company equity dropped $3 per share but
book value is still $81 per share.
</br> </br>
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<TR> <TH> </TH> <TH> KCLI </TH> <TH> EUPIC </TH> </TR>
<TR> <TD align="right"> Price </TD> <TD> $29.4 </TD> <TD> € 3.69 </TD> </TR>
<TR> <TD align="right"> Marketcap M</TD> <TD> $282.24 </TD> <TD> € 101.47 ($ 114.97) </TD> </TR>
<TR> <TD align="right"> ROE %</TD> <TD> 2.6 </TD> <TD> 11.8 </TD> </TR>
<TR> <TD align="right"> PE </TD> <TD> 14.11 </TD> <TD> 6.55 </TD> </TR>
<TR> <TD align="right"> PTBV </TD> <TD> 0.36 </TD> <TD> 0.78 </TD> </TR>
<TR> <TD align="right"> Div Yield % </TD> <TD> 3.67 </TD> <TD> 6.5 </TD> </TR>
</TABLE>
KCLI makes 30% of its revenue from
investments, therefore investment income is critical to be profitable.
But in this low interest environment
the company must sacrifice safety to get decent yield.
The company
has more than half of its assets in corporate bonds. Virtually
all of its bonds are investment grade, but there is still a lot
at the bottom tier of investment grade.
When the downturn happened, there was a big fear that we would
see a wave of corporate downgrades and defaults.
Fortunately, the Fed pulled out the bazooka and said it was
willing to buy up corporate debt to shore up the market.
</br> </br>
In the report, the company still has $779 M of equity, even
after factoring in Q1 losses.
That may seem like plenty but the company's capital and surplus (equity) for statutory regulation
purposes is only $260 M at 2019 year end. This $260 M amount is used by
regulators determine if the company is solvent and can do more business.
So a deep downturn in the bond market can be
very scary for the company. But they dodged a bullet, maybe, as the
bond market has been quite bullish recently.
</br> </br>
KCLI is a really conservative old insurance company.
The Bixby family has run it for four generations! Philip Bixby CEO has run the company for
the last two decades. Because the company is so stable, past data can be very useful
to understand the company and its management intentions.
</br> </br>
In the last 15 years,
their overall book value has gone from $692 M to $779 M.
Over the same period, their shares outstanding have gone from 11.9 M to 9.6 M, as
they have consistently tried to buy their shares back, mostly in the $40-$50 range.
So the net result is that
their book value per share has gone from $51 to $81 in 15 years.
That's a paltry 3.13% return.
</br> </br>
Along with equity growth, shareholders also get a steady dividend.
Sadly, since the current CEO has taken over the company twenty years ago, they
have never increased the dividend, although one year, they did distribute
a special dividend of
$2 per share.
</br> </br>
The stock is right now at $29.40 after the recent market drop, but at this level
it still
hasn't recovered like the favoured US large caps.
If the company could return to around $36, that is a 3% dividend.
Add the dividend to the 3.13% equity growth and
overall,
shareholders can expect around a 6.13% return.
</br> </br>
This isn't a great return, but I just live with KCLI as a steady
source of income. If I have spare cash, I can put it to work at KCLI.
Or if I want to get adventurous, I could borrow money to buy KCLI. With interest
rates so low, I can pocket the spread between the dividend and the
interest cost.
</br> </br>
My second insurance holding is European Reliance (ATH:EUPIC).
This company is similar to KCLI. It does life, health and auto insurance for the Greek
market.
EUPIC had a great 2019, the company earned € 17.5 M, and € 22.4 M pre-tax.
Of the pre-tax profit, € 7.3 M was from underwriting, and all other was € 15.1 M.
As expected however,
Q1 2020 was bad news. The company's book value dropped by € 13 M.
Again, it was better than I feared, because I saw that they have downside exposure to
€ 30 M of Greek mutual funds.
The ratios in the table are as of Q1 2020, so they still aren't bad.
If
that is the worst of it, EUPIC is a good company selling for really cheap.
And it is very generous with the dividends.
I added to my position during this downturn.
</br> </br>
That's the second update of my holdings. Next post I will update my cigarette stocks.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com0tag:blogger.com,1999:blog-6718159251318954028.post-4827818726386904222020-06-03T22:33:00.000-07:002020-06-03T22:33:58.283-07:00Adding More Japanese Value Stocks
In the last entry I described my view that the way
to win in this market is to arbitrage across time and
markets.
</br> </br>
I've described here that right now the US largecap market is the
most overpriced ever.
But many overseas markets are reasonable. I am quite heavily invested in
Japan and South Africa. I feel quite strongly the coming decade is
going to be all about emerging markets and value stocks.
</br> </br>
Japan is a value country. It is a very developed
country that has been heavily discounted for a generation. But, whereas
in previous times Japanese companies mainly disregarded the minority
shareholders, now they are much more generous. One
can find dozens and dozens of companies that pay more than 3% dividends,
and are growing dividends around 10%.
</br> </br>
Yes, the persistent explanation for stocks being so cheap is the aging population
and their ballooning debt. But look at the US. Their debt is getting
up there, and the dollar is stronger than ever.
And the same goes for the euro.
</br> </br>
In March this year, the US market fell 35% off the peak.
And I took the opportunity to add to my Japanese holdings. The table here shows
the four stocks I currently own. The latter two I have had for
7 years. Both are up more than 3x when factoring in dividends.
</br></br>
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px; ">
<tbody>
<tr>
<TR> <TH> </TH> <TH> San </TH> <TH> Takamatsu </TH> <TH> Tachibana </TH> <TH> Riken </TH> </TR>
<TR> <TD align="right"> Price </TD> <TD> ¥ 1234 </TD> <TD> ¥617 </TD> <TD>¥ 1760 </TD> <TD> ¥2402 </TD> </TR>
<TR> <TD align="right"> Marketcap (M) </TD> <TD> ¥ 13820.80</br> ($ 127.38) </TD> <TD> ¥ 6663.60</br> ($ 61.42) </TD> <TD> ¥ 45760.00</br> ($ 421.75) </TD> <TD> ¥ 56687.20</br> ($ 522.46) </TD> </TR>
<TR> <TD align="right"> ROE %</TD> <TD> 6.8 </TD> <TD> 9 </TD> <TD> 6.3 </TD> <TD> 8.7 </TD> </TR>
<TR> <TD align="right"> PE </TD> <TD> 7.45 </TD> <TD> 4.71 </TD> <TD> 10.42 </TD> <TD> 13.78 </TD> </TR>
<TR> <TD align="right"> PTBV </TD> <TD> 0.51 </TD> <TD> 0.42 </TD> <TD> 0.66 </TD> <TD> 1.27 </TD> </TR>
<TR> <TD align="right"> Div Yield % </TD> <TD> 2.59 </TD> <TD> 4.05 </TD> <TD> 2.73 </TD> <TD> 1.67 </TD> </TR>
<TR> <TD align="right"> P/NCAV </TD> <TD> ‐ </TD> <TD> 0.6 </TD> <TD> 0.71 </TD> <TD> ‐ </TD> </TR>
</tbody>
</TABLE>
</br> </br>
I also added two new stocks. My main criteria
are
<ul>
<li>little or no debt</li>
<li>high dividend yield</li>
<li>growing dividends</li>
<li>low PE</li>
</ul>
The first, is San Holdings (TSE:9628) a smallcap
funeral home operator.
One might think I bought it because of the recent
coronavirus death toll. But not so.
The funeral business is hardly a growing business. Coronavirus
or no coronavirus, the death toll hardly changes from year to year
meaningfully.
There is one negative that concerns me. Management said
that
attendance is lower at funerals because of
the dwindling population and cultural trends, This may result
in less spending on funerals.
I will be paying attention to the number of funerals and the
total revenues in the future.
But right now San Holdings is the kind of stock that I am looking for:
stability during the market turmoil.
Yet San Holdings is down 25% off the peak!
That 25% is my margin of safey.
</br></br>
The other stock is Takamatsu (TSE:6155) , which is a small niche manufacturer of
sophisticated lathes. Now I know very little about lathes in the same way
I know little about funeral homes. But their products look very
complicated and expensive, as seen below.
And they must be very expensive.
If there is anything we learned from the current crisis, it is
that the coming decades
we need to rely more on automation.
We need automation to serve the sick and to reduce overcrowding in
factories.
When you have this kind of a backdrop and the company
sells for less than 5x earnings and pays 4% dividends. That's all I
need to know to decide to buy.
</br> </br>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg00fKiCf6wDYJIhp04fUYiaMAC3uoZsPZyNG0pi6TsG5gGy9hfOOSBinqhf2m5hlTjC1BXBqMTmhdMWyo-QewikH5aLHUlB6Pt16Zx2hmSKxw0iS8yEtQj24NfjJUbSOOWQ7tbRrYByPM/s1600/lathe.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg00fKiCf6wDYJIhp04fUYiaMAC3uoZsPZyNG0pi6TsG5gGy9hfOOSBinqhf2m5hlTjC1BXBqMTmhdMWyo-QewikH5aLHUlB6Pt16Zx2hmSKxw0iS8yEtQj24NfjJUbSOOWQ7tbRrYByPM/s320/lathe.png" width="320" height="291" data-original-width="615" data-original-height="560" /></a></div></br> </br>
A reader may think my analysis is very simplistic. But I make no apologies!
My analysis will never mention fancy terms like
enterprise value (EV), bullshit earnings
(EBITDA) or sharpe ratio.
My investment theme is based on
simplicity, as explained best by this <a href="https://youtu.be/wml0xO4cG8g">video</a>.
I highly recommend watching it.
</br> </br>
That's it for Japanese stocks. In my next post I will go into some other new stocks that
I acquired during the recent crash.
Right now is an exciting time to invest, and I've been busy!
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com0tag:blogger.com,1999:blog-6718159251318954028.post-39185850295647322602020-05-30T17:49:00.004-07:002020-05-30T17:49:48.557-07:00How Do We Beat the Market?
It's been two months since my last post when the coronavirus really became the world's
biggest problem. Back then, people were saying life will never be same, the world will hit a recession
worse than the great depression, and on and on.
To me what people are saying is not necessarily wrong, but it is the peoples tone that
I focus on. The media is having a field day with this. Their job is to maximize
their views or sell their papers and magazines. They will emphasize the
worst news over and over because it gets people's attention and hence sells.
After a long period of this blanket coverage, it
cloud peoples judgement.
</br></br>
And the key to successful investment is good judgement, even though
investment has a huge luck component.
When an investor's judgement is clouded they can seriously lose. An
investor whose judgement is not affected can win. Or to put it more bluntly,
the latter can take advantage of the former.
And the latter group consists of the great investors. They are
coming out of the woodwork to make some serious money. Among them are
Paul Ichan and Bill Ackman.
These people made bets against the market, against the coronavirus.
And they succeeded not because they were lucky but because
they noticed their bets had huge risk/reward ratios and
they had the guts to act on it.
One can easily google their names and
see their recent interviews on Youtube. I found them
highly informative and recommend others to watch.
</br></br>
Back in the 50s in Buffett's heyday when Buffett made 30 plus percent every year, his
secret
was find individual cheap stocks from
the Moody's Manual. That was an edge back then because
it is hard to read through several thousand pages of three-column
text and numbers.
And he did it twice! Today that doesn't work, because all such information
is digitized. So one can simply use screeners or write their own code to
do what Buffett did much faster and for much more stocks. Plus
Buffett has already spread the gospel of value investing, so his secret
is out.
Because of these two factors,
I heard many people suggest that
the stock market is more efficient today than before.
</br></br>
I vehemently disagree.
</br></br>
Take a look at the following log graph of the
S&P 500 (at top). The economy and market grow exponentially, so the trendline should be a straight
line. When gods are the only participants in the market I guess the S&P500 should also be a straight line,
because gods have perfect information.
But since the stock market participants are mortals with limited information, the graph is not
smooth. That doesn't mean the market is not efficient.
</br></br>
Next, we can look at two different time periods, one contemporary and one from the past.
The second graph show the index over the last 40 years. And the third graph show the index in the period covering the two world
wars, including the great depression.
If the market is more efficient today than earlier times then
it should show in differences between the second and third graph.
But looking at graph two and three it isn't clear that one is more volatile than the other. We have had massive peak to trough moves around 1989, 2000 and 2008.
Just as we had them in the 1910 panic and the great depression.
</br></br>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvI-koG0EFnycK19BlpGAAFW4b4w0NPylMau-HYdL9EhmlIBr1IZgVMnbQXmL1uO0V_u3Mr97qAH0GdCVOyo_PT3nX3osLebTNMSpYj7d6w0b2XpAf-VvP4NE-Gw3YBdx5dmPp8-bIjEQ/s1600/out3.jpg" imageanchor="1" ><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvI-koG0EFnycK19BlpGAAFW4b4w0NPylMau-HYdL9EhmlIBr1IZgVMnbQXmL1uO0V_u3Mr97qAH0GdCVOyo_PT3nX3osLebTNMSpYj7d6w0b2XpAf-VvP4NE-Gw3YBdx5dmPp8-bIjEQ/s1600/out3.jpg" data-original-width="480" data-original-height="1440" /></a>
</br></br>
So I can argue the market is not any less volatile than earlier years! So the market has been and still is inefficient. But how can we take
advantage of this inefficiency. I already stated that stock picking is harder today than
in Buffett's early years. Well, the market is inefficiency today simply
because
all good American companies are expensive.
</br></br>
Take Microsoft for example. In the last 7 years the stock price has gone
up by approximately 7x. Meanwhile its earnings has only doubled!
Compare this with Tachibana Electech (TSE:8159), in the 7 years that I have held it the stock has
gone up 2.5x but its earnings also doubled.
And while Microsoft is selling at 30x earnings, Tachibana is selling at 10x earnings.
And I know different people will say that this anomaly is justified in different ways. I can
guess some of the reasons:
<ul>
<li> the investors don't care about earnings and value </li>
<li> the investors believe in America but don't believe in foreign currencies and foreign economies</li>
<li> the cheaper company is more likely to be a fraud</li>
<li> future growth will justify it.</li>
</ul>
But in my opinion
all these arguments do not justify the anomaly, and there are many counter arguments
against it. Therefore, in my opinion, these two stocks reflect
the current market inefficiency. But they are not the exceptions right now.
Many many companies like Microsoft are just as expensive. And in the Japanese
market many many smallcap companies are as cheap as Tachibana.
</br></br>
So, following this train of thought, it is natural to
wonder how to take advantage. The solution, as with all investing strategies
is by arbitrage. But whereas Buffett arbitraged across the different companies
in the Moody's manual. I believe successful arbitrage today must be across entire markets
and across different periods. For example, in the US, the market has swung between value
and growth over long periods. In the 90's it was all tech growth. But the 2000s it
was value, and now 2010 is the decade of growth again. Well, you can guess what I am betting
on today. I am convinced the coming decade is going to be a roaring decade for value.
If there was ever a time to invest in value stocks, it is now!
This also means that different sectors of the
market are treated very differently at the same time;
for example, Japan versus US stocks.
</br>
</br>
I've come to realize this simple concept slowly over the lifetime of this blog, which is around 8 years.
And consequently, I can easily see the reason behind active management's poor performance. After 2009, a lot of people started their own hedge funds. And their returns were phenomenal, even better than the high performance of the market overall. I am convinced these people realized that the way to have a successful fund is to
start at a time when stock picking really is useful; i.e. when the market is depressed. That is
time arbitrage. But in the last
few years when the market is inflated, people who ran funds cannot put their portfolios into a defensive
position even if they know the market is inflated. No investor who is paying high fees wants their money
in cash. So the investors are implicitly forcing money managers to go headlong into a market that is inflated. So, these money managers oblige by taking more risk, whether they realize it or not.
And now, we are seeing and we will see stories of money managers who were swimming naked as the tide
comes down. As an example, I saw one manager of a small hedge fund whose equities are down
50% in the first quarter! And seeing the stocks in the portfolio, I think this is going to be a permanent loss. So what is that
manager to do? I think the most prudent action is to close up shop, and hope that people will forget
and start another fund later.
</br></br>
So, for brevity I will conclude this post here.
This post is really the first half of an article regarding my current views, strategies and investments.
My next post will follow up with
the second half of the article, where I will describe what I have done in the last three months of market
turmoil.
</br></br>
In the meantime, stay safe!
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com2tag:blogger.com,1999:blog-6718159251318954028.post-81691799075321753672020-03-15T23:38:00.002-07:002020-03-15T23:38:50.238-07:00People, Let's get a Grip!
Happy Sunday everyone. I just had to get that out of the way!
</br></br>
The hysteria around where I am, is almost laughable. People are hoarding toilet
paper like it will give them immunity to Coronavirus! So, get a grip!
</br></br>
So, I am thinking that if people hoard toilet paper as a gut reaction to a virus, then certainly
everyday retail investors are capable of selling way beyond what the current situation calls for.
</br></br>
Unfortunately for me, I own a lot of lower-tier stocks, stocks that are in emerging markets and the
cheaper stocks in developed markets. So my stocks have actually dropped farther than the market
as a whole.
</br></br>
Below are four of my holdings. Notice that they all yield dividends way above average.
All four of these companies have improved earnings.
All four of these companies have increasing earnings.
Tachibana Electech (8159:TSE) is in
fact is a netnet. This means that it is worth more dead than alive! While I do realize that the
coronavirus crisis will materially impact Tachibana Electech — the company issued a profit warning for the current
quarter — nothing that happens this year should take 35% off the valuation!
</br></br>
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tbody>
<TR> <TH> </TH> <TH> Lewis </TH> <TH> Tachibana </TH> <TH> Riken </TH> <TH> EUPIC </TH> </TR>
<TR> <TD align="right"> Price </TD> <TD> R 23.81 </TD> <TD> ¥ 1248.00 </TD> <TD> ¥ 1770.00 </TD> <TD> € 3.38 </TD> </TR>
<TR> <TD align="right"> Shares (M)</TD> <TD> 80.3 </TD> <TD> 26 </TD> <TD> 23.6 </TD> <TD> 27.5 </TD> </TR>
<TR> <TD align="right"> Earnings </br>TTM </TD> <TD> 398.1 </TD> <TD> 4422 </TD> <TD> 3857 </TD> <TD> 10.9 </TD> </TR>
<TR> <TD align="right"> Marketcap (M)</TD><TD> R 1911.94 </br> ($ 117.30) </TD> <TD> ¥ 32448.00 </br>($ 306.11) </TD> <TD> ¥ 41772.00 </br>($ 394.08) </TD> <TD> € 92.95 </br>($ 103.17) </TD> </TR>
<TR> <TD align="right"> ROE </TD> <TD> 8.3 </TD> <TD> 6.3 </TD> <TD> 8.3 </TD> <TD> 8.3 </TD> </TR>
<TR> <TD align="right"> PE </TD> <TD> 4.8 </TD> <TD> 7.3 </TD> <TD> 10.8 </TD> <TD> 8.5 </TD> </TR>
<TR> <TD align="right"> PTBV </TD> <TD> 0.43 </TD> <TD> 0.46 </TD> <TD> 0.96 </TD> <TD> 0.79 </TD> </TR>
<TR> <TD align="right"> Div Yield </TD> <TD> 10.46 </TD> <TD> 3.85 </TD> <TD> 2.2 </TD> <TD> 3.85 </TD> </TR>
<TR> <TD align="right"> Price / </br> NCAV </TD><TD>-</TD> <TD> 0.73 </TD> <TD> 1.36 </TD> <TD> -</TD> </TR>
</tbody>
</TABLE>
I am posting this table to share and also to remind myself that we shouldn't pay
attention to the markets because the fundamentals reflect the value of
shares, not the market whims.
</br></br>
While we always suspect the market is due to get a shock that will cause a drop, where the shock
comes from is near impossible to guess with any certainty.
I never thought that when the 10 year run ends, the shock would
come not from geopolitical or world economic events, but from a
germ!
</br></br>
In 2009 when the world was suffering a financial meltdown, I read up on the great depression, and tried to
draw parallels. I found there weren't that many similarities.
</br>
</br>
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tbody>
<TR> <TH> </TH> <TH> Fatalities </TH> <TH> % of World </TH> </TR>
<TD align="right"> 1918 Flu </TD> <TD> 50 M </TD> <TD> 3 </TD> </TR>
<TD align="right"> 1958 Asian Flu </TD> <TD> 2 M </TD> <TD> 0.06 </TD>
</TR><TD align="right"> 1962 Hong Kong Flu </TD> <TD> 50 M </TD> <TD> 0.03 </TD> </TR>
<TD align="right"> 2020 Coronavirus </TD> <TD> 10,000 </br> so far </TD> <TD> 0.0001 </TD> </TR>
</tbody>
</TABLE>
Now in 2020, the world seemingly is going through a cataclysmic pandemic, I think it pays to read up on similar pandemics
of recent history. The table here shows the most deadly flu outbreaks during the last 150 years when we've had sophisticated financial
markets. In that time, I can safely say that these worldwide health crises have not had a negative impact on world economic growth. World War I and
the 1918-1919 influenza pandemic did not prevent the roaring twenties. The two pandemics in the 50's and 60's did not affect Warren Buffett's generation
in the least bit.
</br>
</br>
Sure, the world economic output could be reduced significantly because of the Coronavirus, but probably only for two quarters. China, the vanguard in this crises,
is already starting to stabilize its new infection rates. I wouldn't be surprised if things go back to 3-6 months there. And my feeling
is the lessons learned when this crises is over will spur new economic activity in the health care and infrastructure sector to
prepare for the next one. Also, lost production can be recovered when the world consumer market returns back to normal.
</br>
</br>
But many in the world will not try to rationalize the situation and instead make a sport of hoarding toilet paper and other necessities.
It is in our human nature to do something active when danger is lurking and is out of our control. And really there is no harm in doing so. However,
the same mentality cannot apply to retail investing, because the market will be rational in the end.
</br>
</br>
Today, the S&P 500 is down 25% from the peak because of a germ. I think this is definitely the time to be contrarian like Baron Rothschild, who famously said:
"Buy when there's blood in the streets, even if the blood is your own.".
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com0tag:blogger.com,1999:blog-6718159251318954028.post-955602126237304012020-03-11T20:59:00.000-07:002020-03-11T22:07:24.955-07:00My Views on IEH Corp
Hi all, in the last year since I've been mostly silent, I've received the most inquiries about IEH Corp (OTC:IEHC). I have attended a number of the annual shareholder meetings and today I am going to give an update on how I see things. Note: the text below are
my impressions and opinions and recollection of conversations, take everything in here with a grain of salt. And with that out
of the way, let's dive in.
<br /> <br />
My impression from the meetings generally aligns
with the market perception.
The company is hitting a
very good spot and things are generally on the up and up.
Just look at the last seven years' revenue numbers below.
<br/>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTPygzdoGMVr2d4n-eCO75C-cOCOk0uOWwUNxA6rT8SPJIzEJHF5VA3MfA79OUcmTZ0nnlqD8JHtPqrDdxNriQgutLk8N65JDrDUvX4Co5TPQfd3X2SGlyIJ9QXjlsa6RXK5wTQvyb1YU/s1600/rev.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTPygzdoGMVr2d4n-eCO75C-cOCOk0uOWwUNxA6rT8SPJIzEJHF5VA3MfA79OUcmTZ0nnlqD8JHtPqrDdxNriQgutLk8N65JDrDUvX4Co5TPQfd3X2SGlyIJ9QXjlsa6RXK5wTQvyb1YU/s400/rev.jpeg" width="400" height="400" data-original-width="480" data-original-height="480" /></a></div>
<br /> <br />
The CEO though, constantly reminds us that their customers are
long-term customers and they are slow adopters.
This means that
it takes a long time to bag a new customer but when they do they
stay as customers.
A new customer must design in
these hyperboloid connectors, and once they do they are hard to substitute.
<br /> <br />
So, sales improvement in this company take time. And one can expect more years
of revenue increase. That said, there is also a limit to how much the company can sell. This is
not a company making technological breakthroughs. Instead, it is a niche provider riding on society's
increasing reliance on technology in more and more rough and extreme environments.
Their technology is not new, in fact it is old enough to be out of patent protection.
<br /> <br />
Their main customers are the big drivers of our economy: defense, old and gas, commercial
aerospace and the medical field.
So long as the S&P 500 does well, so will the company, provided it can execute.
<br /> <br />
And execution is the main thing I am monitoring during my yearly visits. The company
of course, has a very long history with a single family, the Offermans, as owner-operators.
Recently, the fourth generation of the family has taken the helm.
I am very pleased with this change.
The current CEO, David Offerman, has taken the helm for three years. In that time, I just
feel things look better to us shareholders. Firstly, the governance wasn't impressive, their
non-executive board members did not even reside near the company and dialed into every board meeting.
With some shareholder prodding, they have added more
conventional and local people for board members.
<br /> <br />
The previous CEO, Michael Offerman, had also relied on
a small-time accounting firm to do their books and inventory. This firm
was replaced by a related accountant who was also a small operator.
Last year, that accountant left. Incidentally, that second accountant attended the
last shareholder meeting to tell everyone that it was all an amicable break.
As I remember, he said that he liked the job but in the end he felt that he was
too small to handle the task. And so, we are
here today with a more traditional firm Marcum LLP as
accountants.
<br /> <br />
Shareholders in past meetings have also expressed concerns
when retained earning for grew several quarters as IEH had good numbers, but
the value all just went to more inventory, instead of more cash.
Furthermore, in the last meeting one shareholder pointed out that the company wrote off $400k
in inventory for 2019, whereas was it was only $200k for 2018.
So many shareholders are looking at the inventory and pressing for improvement.
<br /> <br />
On the positive side,
in the last shareholder meeting I heard that the company
was moving to SAP software. I also noticed the company hired a new, and much younger, controller.
And the
new controller just happens to specialize in SAP. I would expect that with this and the accounting changes
we will see improvements in inventory controls and hence better margins.
<br /> <br />
So with the new CEO in this fourth year, I am watching for inventory levels and margins.
My best scenario
is that inventory stays flat and there are no significant write-offs, and
margins continue to improve. The CEO used to be in charge
of sales and clearly has done a great job in the sales department. By showing better control of
inventory and margins he will be
able to keep up the earnings growth. In the last seven years that I have owned this stock, I have seen
annual EPS go from $0.63 to $2.15.
Of course, as most people know, the unusual spike in sales last year was due to a single
customer order. That customer had decided to switch to hyperboloid from a cheaper technology.
But no single customer contributes more than 14%
of revenue, so even if this customer cut off all future orders, the company is still
growing at a goodly pace.
<br /> <br />
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tbody>
<TH> IEHC </TH> </TR>
<TR> <TD align="right"> Price </TD> <TD align="right"> 17.40 </TD> </TR>
<TR> <TD align="right"> Shares (M) </TD> <TD align="right"> 2.32 <br/> (2.74 fully diluted) </TD> </TR>
<TR> <TD align="right"> Equity (M) </TD> <TD align="right"> 26.20 </TD> </TR>
<TR> <TD align="right"> Earnings TTM </TD> <TD align="right"> 3.71 </TD> </TR>
<TR> <TD align="right"> Marketcap (M) </TD> <TD align="right"> 40.60 </TD> </TR>
<TR> <TD align="right"> ROE </TD> <TD align="right"> 14.1 </TD> </TR>
<TR> <TD align="right"> PE </TD> <TD align="right"> 10.9 </TD> </TR>
<TR> <TD align="right"> PTBV </TD> <TD align="right"> 1.55 </TD> </TR>
</tbody></table>
The previous year spike also contributed significantly to operating margins. The operating margin
for the last five years are 20%, 16%, 14%, 19% and 27% in 2019. Other than the previous year,
the company has never achieved margins over 20%. If the company can be a bit more consistent and keep the margin
say, at 23%. I would feel confident that things have really changed to take this company to the next level;
the CEO has indicated that he wants to take the company back on to the Nasdaq someday.
<br />
<br />
And so, having weighted all these
thoughts, I feel that the company at $17.40 today is about fairly priced. I know the stock was at a high of $25, reflecting the rich valuations of stocks everywhere. But I feel IEHC has to have another good year, maybe not as good as 2019, to deserve a price over $20. That said I did not sell at $25 because there is just too much upside. Like I said earlier, one really has to be patient with this stock. And if the stock drops under the $14 - $13 range, I definitely will start buying more. At $12, I would back up the truck!
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com4tag:blogger.com,1999:blog-6718159251318954028.post-10751636138364094842019-12-31T14:42:00.001-08:002019-12-31T14:42:32.368-08:00My Annual Schedule of Investments
Happy New Year!
<br />
<br />
A whole year without a post! Well, it reflects my investing attitude in the year. I
haven't traded much.
I have added
significantly to two positions: KCLI and PM. But probably for the time, I have not
opened any new positions.
PMI and MO - the two Philip Morrises -
announced briefly that they were in talks to re-merge. But that got shot down quickly. I PMI bought just
after the announcement when it was not well received. It dropped to $72 from $80 when I bought, now it is at $86.
<br />
<br />
For my holdings from a year ago, use
<a href="http://bovinebear.blogspot.com/2018/12/my-annual-schedule-of-investments.html">this link</a>.
<br />
<br />
<table border="2" bordercolor="#dedede" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px;">
<tbody>
<tr>
<th>Long Position</th>
<th>Category</th>
<th>Business</th>
<th>Holding </br> Period</th>
</td></tr>
<tr><td>IEH Corp (IEHC) </td><td>US Microcap</td><td>Manufacturing
</td><td>6 ½ yrs
</td><tr>
<tr><td>Anthem (ANTM) </td><td>US Large cap</td><td>Health insurance
</td><td>
15 yrs
</td></tr>
<tr><td>Kansas City Life (KCLI) </td><td>US smallcap</td><td>Life insurance
</td><td>
5 yrs
</td></tr>
<tr><td>European Reliance (ATH:EUPIC)
</td><td>Greek smallcap</td><td>Insurance
</td><td>
5 ½ yrs
</td></tr>
<tr><td>Tachibana Eletech (TSE:8159) </td><td>Japanese smallcap</td><td>Electronic Distributor
</td><td>
6 ½ yrs
</td></tr>
<tr><td>Seaboard Corp (SEB) </td><td>US Mid cap</td><td>Food Conglomerate
</td><td>
14 yrs
</td></tr>
<tr><td>Senvest Capital (TSX:SEC) </td><td>Canadian smallcap</td><td>Investment Company
</td><td>
4 ½ yrs
</td></tr>
<tr><td>Installux SA (PAR:Stal) </td><td>French microcap</td><td>Manufacturing
</td><td>
6 ½ yrs
</td></tr>
<tr><td>Riken Keiki (TSE:7754) </td><td>Japanese smallcap</td><td>Manufacturing
</td><td>
6 ½ yrs
</td></tr>
<tr><td>Pacific Healthcare (PFHO) </td><td>US Microcrap</td><td>Health insurance
</td><td>
5 yrs
</td></tr>
<tr><td>Philip Morris Int. (PMI) </td><td>US Largecap</td><td>Tobacco
</td><td>
19 yrs
</td></tr>
<tr><td>New Century Hong Kong (HK:0234) </td><td>Hong Kong smallcap</td><td>Hotel, cruise line
</td><td>
5 yrs
</td></tr>
<tr><td>Bruce Fund (BRUFX) </td><td>Mutual fund</td><td>Mid-cap value
</td><td>
12 yrs
</td></tr>
<tr>
<tr><td>McRae Industries (MCRAA) </td><td>US Microcap </td><td>Footware
</td><td>
7 yrs
</td></tr>
<tr><td>Lewis Group (JSE:LEW) </td><td>S Africa midcap</td><td> Furniture Retail
</td><td>
4 yrs
</td></tr>
<th>Short Position</th>
<th></th>
<th></th>
<th></th>
<tr><td>S&P500 E-mini (CME:ES) </td><td>Index Futures</td><td>
</td><td>
2 yr
</td></tr>
<tr>
<tr><td>Direxion S&P500 Bear (SPXS) </td><td>ETF </td><td> 3x Inverse ETF
</td><td>
1 yr
</td></tr>
<tr>
</tr>
</tbody></table>
<br />
<br />
Note this year I continue to hold two market short positions. They have been hemorrhaging
money. I take solace in the fact that the higher they go, they more they are likely to make money.
<br/>
<br/>
To me, the US public markets are just too mature and saturated. In the coming decade or two it will only yield around 3-5%. I think people look back to the good old days when value investors prospered, like in the 50s to the 90s. This was a time when investing isn't as hot a thing as it is now.
In the coming years I believe money will chase other areas, like foreign markets, developing markets, and private equity.
<br/>
<br/>
Despite not much activity on my part, there are still some things that I'd like to post but just didn't have the time. Things I would have like to write about are:
<ul>
<li>
Adrenna Property Group screwing the small minority shareholders like me royally.
</li>
<li>
New Century Group HK majority shareholders extracting HK$497M (US$63M) cash from the company.
</li>
<li>
IEH stock, revenue and profits did great. But the CEO also got a generous option package that could give shareholders 10% dilution.
</li>
<li>
My chess sucks. But playing chess is serving it's purpose. It has distracted my overactive mind from making impulsive moves with my porfolio.
</li>
</ul>
<br/>
Happy new year and may 2020 be a happy and prosperous year.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com2tag:blogger.com,1999:blog-6718159251318954028.post-74919080903207724302018-12-25T10:48:00.000-08:002018-12-25T10:48:57.011-08:00My Annual Schedule of Investments
Merry Christmas and happy new year!
<br />
<br />
Another year has come to an end and again it is time to list my
largest holdings. This year I also disclose the approximate time
that I have held the oldest shares in these holdings. A lot of these stocks I have bought
and sold repeatedly
over the years. So, although you may see a chart has risen spectacularly
through my holding period, I probably did not profit as much as you think
because I may have reduced a position before the best times or increased
a position
too late to catch all the upside.
Nonetheless, I find the holding period information very useful to put a perspective
on my investment strategy through the years.
For example, it has made me much more forgiving of my mistakes. I
have been kicking myself for reducing some positions before some
great gains (IEHC). But I see now that I also
had the wherewithal to hold on to
some stocks for over a decade, which turned out
to be great calls.
<br />
<br />
For my holdings from a year ago, use
<a href="http://bovinebear.blogspot.com/2017/09/my-6th-annual-schedule-of-investments.html">this link</a>.
<br />
<br />
<table border="2" bordercolor="#dedede" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px;">
<tbody>
<tr>
<th>Long Position</th>
<th>Category</th>
<th>Business</th>
<th>Holding </br> Period</th>
</tr>
<tr><td>Anthem (ANTM) </td><td>US Large cap</td><td>Health insurance
</td><td>
14 yrs
</td></tr>
<tr><td>Kansas City Life (KCLI) </td><td>US smallcap</td><td>Life insurance
</td><td>
4 yrs
</td></tr>
<tr><td>IEH Corp (IEHC) </td><td>US Microcap</td><td>Manufacturing
</td><td>
5.5 yrs
</td></tr>
<tr><td>European Reliance (ATH:EUPIC)
</td><td>Greek smallcap</td><td>Insurance
</td><td>
4.5 yrs
</td></tr>
<tr><td>Tachibana Eletech (TSE:8159) </td><td>Japanese smallcap</td><td>Electronic Distributor
</td><td>
5.5 yrs
</td></tr>
<tr><td>Senvest Capital (TSX:SEC) </td><td>Canadian smallcap</td><td>Investment Company
</td><td>
3.5 yrs
</td></tr>
<tr><td>Seaboard Corp (SEB) </td><td>US Mid cap</td><td>Food Conglomerate
</td><td>
13 yrs
</td></tr>
<tr><td>Installux SA </td><td>French microcap</td><td>Manufacturing
</td><td>
5.5 yrs
</td></tr>
<tr><td>New Century Hong Kong (HK:0234) </td><td>Hong Kong smallcap</td><td>Hotel, cruise line
</td><td>
4 yrs
</td></tr>
<tr><td>Riken Keiki (TSE:7754) </td><td>Japanese smallcap</td><td>Manufacturing
</td><td>
5.5 yrs
</td></tr>
<tr><td>Pacific Healthcare (PFHO) </td><td>US Microcrap</td><td>Health insurance
</td><td>
4 yrs
</td></tr>
<tr><td>Karelia Tobacco (ATH:KARE) </td><td>Greek smallcap</td><td>Cigarettes
</td><td>
4 yrs
</td></tr>
<tr><td>McRea Industries (MCRAA) </td><td>US Microcap</td><td>Footwear
</td><td>
6 yrs
</td></tr>
<tr><td>Bruce Fund (BRUFX) </td><td>Mutual fund</td><td>Mid-cap value
</td><td>
11 yrs
</td></tr>
<tr>
<th>Short Position</th>
<th></th>
<th></th>
<th></th>
<tr><td>S&P500 E-mini (CME:ES) </td><td>Index Futures</td><td>
</td><td>
1 yr
</td></tr>
<tr>
<tr><td>Direxion S&P500 Bear (SPXS) </td><td>ETF </td><td> 3x Inverse ETF
</td><td>
1 mon
</td></tr>
<tr>
</tr>
</tbody></table>
<br />
<br />
Note this year I also listed my first two significant short positions.
I explained in previous posts why I am bearish on the US market, and to a lesser extent,
the whole world.
<br />
<br />
And finally, I should mention that I opened a large position in Folli Follie (OTC:FLLIY)
late last year. I did not do a writeup because I cut corners and didn't do enough
of my own research. I was going to get around to it. But before I could, everything
went south for this Greek company. The world found
out that the company founders and insiders have been committing
massive fraud. Nine insiders have been fined already
and they are currently facing fraud
and money laundering charges. I hope they go to jail and pay restitution to the
innocent shareholders like me. The stocks I still own are down 85%!
That's all I can say for now. The loss is probably my biggest ever and dwelling
too deeply can serve no constructive purpose.
<br />
<br />
But let's hope that next year brings us all better results! cheers!
<br />
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com3tag:blogger.com,1999:blog-6718159251318954028.post-21864160095344252852018-11-15T21:43:00.000-08:002018-11-17T11:00:17.210-08:00Why I Shorted the S&P500
The S&P 500 now has returned around 0% this year-to-date. This is Trump's second year in office
and the euphoria from his economic policy changes has worn off. As I mentioned throughout much of the year
I have had a significant short position on the S&P 500 index. So I have luckily come out slightly ahead in this position. So effectively I am running a long-short portfolio. Counting only my long positions, I am very much at less than 100% invested in stocks. And counting the short position, I am at even less exposed to the market. So, the purpose of the short is to remove my exposure to stocks since my primary market, the S&P 500, is way way overpriced. In this way I can still play the stock picking game while at the same time shield myself from the correction that I feel is just around the corner.
<br/><br/>
I have seen two major US corrections and I have come to realize, by living in the US, that the
euphoria for the markets is bound to come once or even twice every generation. I am seeing another
case now. The US is simply at an unsustainable level.
My reason for this is grounded on the principle that a stock investment should be based on the value of
the company. And this value is the present value of all future cash flows. This is a basic value investing principle.
<br/><br/>So the S&P500 index should be priced at the present value of the cash flows from of its constituent companies. The latest TTM earnings of the S&P 500 is only 122 whereas the index is at around 2700 today. That
means the entire index is trading at PE of 22! This is way over the normal traditional range of 15. And 15 is being very generous. I want to use this latter PE multiple to help get an estimate of the potential return of the S&P500 over
the near future, say 10 years.
<br/><br/>
The future cash flows of a stock, which reflects the value, is somewhat reflected by the earnings of that stock. If the earnings grow
by a certain percentage every year, then the value of the stock should grow by that amount also.
I will be generous and say that the S&P500 will grow earnings by 5%. I will also be generous and say that the
S&P500 will yield 2%. Therefore, from just this data, we can see that the S&P500 will return around 7%. Not bad but not great either considering I keep hearing returns have traditionally been around 10-12%.
<br/><br/>
But there is still a flip side to the investing reality: the index is at a very high PE multiple now. It must return to more normal levels. Say it returns to a more traditional, albeit still elevated, level of 15. That means for the same earnings, the stock prices will have to drop to 68% of the elevated level!
If this happens in 10yrs that is an annual drop of 2.5%. That is a lot considering that the return I just derived was only 7%.
<br/><br/>
And wait, it gets worse.
<br/><br/>
All investors will constantly face three impediments: inflation, taxes and fees. So far, I have not mentioned them in calculating returns. Firstly, there is inflation. Inflation
is a fact of life and is often ignored when talking about returns. The reason for this is that inflation varies from year to year and to simplify discussion, we talk in terms of nominal returns. Nominal returns are the opposite of real returns which factor in inflation. The 10-12% return commonly touted is always the nominal amount.
<br/><br/>
The second impediment is taxes. We can avoid this temporarily by investing in tax-sheltered retirement accounts, but there is a limit to how much we can put in such accounts. We can also reduce it by holding stocks for a long time, if not forever. And there must be many other creative ways of avoiding it, for example by cheating on taxes. Because of this variability, I will only look at dividends, which is forcibly taxed. Suppose the tax rate on dividends is 30% and suppose that half of one's portfolio is not tax sheltered. Then using the 2% dividend number, we will pay 0.3% of our portfolio into taxes.
<br/><br/>
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 100%px;">
<tbody>
<tr><td>Earnings growth </td><td width="80px" align="right">+5%</td>
<tr><td>Dividend yield </td><td align="right">+2%</td>
<tr><td>PE shrinkage </td><td align="right">-2.5%</td>
<tr><td>Expenses</td><td align="right">-0.2%</td>
<tr><td>Taxes on dividends </td><td align="right">-0.3%</td>
<tr><td>Net return </td><td align="right">4%</td>
<tr><td>10 yr net return </td><td align="right">48%</td>
</tbody></table>
<br />
Thirdly, there is the fees. This is the most manageable impediment. How much one saves depends on how much effort one expends. I depend on myself for all my financial decisions, I hardly own any funds or ETFs. Therefore, the only fees I pay are transaction fees, currency exchange fees and travel costs to visit companies. All this I estimate is only 0.2% of my portfolio. And subtracting all this up gives me a net return of 4% per annum or 48% per decade. See table. I bet this will be an incredibly low number compared to the average retail investor's expectations. In the long term, stock prices will be grounded by the PE ratio. When the current euphoria subsides and reality sets in, the mood of the market will probably cause prices to fall significantly below the 4% estimate, maybe it could even turn negative at the end of ten years! In the given calculations, I said that the PE shrinkage from 22 to 15 would reduce returns by 2.5%. If the PE goes from 22 to 11.5, the nominal return would not be 4% but 0%!
<br/><br/>
It is easy to see why I shorted the S&P500.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com2tag:blogger.com,1999:blog-6718159251318954028.post-23173213724253290962018-07-01T17:19:00.002-07:002018-07-01T17:19:43.044-07:00Portfolio Update<br />
This blog is so devoid of recent entries that I felt compelled recently
to post something, anything.
Fortunately I have a lot of odds and ends I can update on my portfolio and
the market in general.
<br />
<br />
After riding high under Trump for a year, I am convinced the US
market cannot go any
higher. The Shiller PE ratio is at a mind boggling 32.3! That
is higher than anytime before the great depression and is only surpassed by the
dot-com bubble in 2000.
On the other hand, I have holdings that are still reasonably valued
overseas and even some in the US.
Plus I hate paying capital gains taxes.
So, instead of selling a lot I settled on hedging the US market.
After all, this is a perfect time to short the US market if I am convinced it cannot
go any higher.<br />
<br />
I hedged the US market by shorting the S&P500 mini futures. Each of these futures
is a contract to buy or sell a contract that will pay out $50 times
the S&P 500 index on the delivery date.
So suppose on the contract expiry the S&P500 is 2700. Then the contract
would conceptually pay out $135,000.
In reality the contract settles financially everyday, so the original
purchase amount and the settlement payout do not happen but instead
the delta in the value of the contract is debited or credited at the
close of each trading day.
So far I am turning a profit shorting the mini futures. However, I really
prefer that were not the case, as each gain means an overall downward bias
in my portfolio. But it only confirms my belief that the market cannot
go any higher.<br />
<br />
A Prussian general once said that "No battle plan survives first contact
with the enemy". I feel that way looking back at
<a href="http://bovinebear.blogspot.com/2016/01/playing-anthem-cigna-merger-arbitrage.html">my first merger arbitrage situation</a>
, between Anthem and Cigna.
As it turned out, all the forecasts about
its chances of success were too optimistic. The
merger fell apart after various state governments voiced objections and sued
to block it.
Despite this, I fell into the golden period for managed care organizations
and both companies rose handsomely.
I have since sold my Cigna shares.
So the moral of this story is that with careful thought and
due diligence, even if I am wrong in my predictions, I can
still come out ahead. The S&P 500 hedge is another play
from this same playbook.<br />
<br />
In addition to the hedge I have also reduced my exposure
to US companies whenever he
opportunity arose. This was the case with IEHC and Senvest.<br />
<br />
While the S&P 500 and
my US holdings have done wonderfully since
Trump's presidency. My international holdings are a mixed bag
There have been laggards such as Lewis Group of South
Africa. And
there are some wonderful stocks, such as Installux, European
Reliance, Tachibana Eletech and Riken Keiki.
I have listed the basic metrics of some of my
international holdings below. <br />
<br />
<br />
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px;"><tbody>
<tr><th></th> <th>Tachibana </th> <th>Riken </th> <th>EUPIC </th> <th>Installux </th> <th>Lewis </th> <th>CMH </th> </tr>
<tr> <td align="left">Price </td> <td>¥ 2028.00 </td> <td>¥ 2504.00 </td> <td>€ 3.47 </td> <td>€ 415.00 </td> <td>R 31.20 </td> <td>R 27.50 </td> </tr>
<tr> <td align="left">Marketcap <br />
($Mil) </td> <td>¥ 51105.60 <br />
($ 461.66) </td> <td>¥ 58092.80 <br />
($ 524.78) </td> <td>€ 95.43 <br />
($ 110.79) </td> <td>€ 125.83 <br />
($ 146.09) </td> <td>R 2602.08 <br />
($ 190) </td> <td>R 2057.00 <br />
($ 150.2 ) </td> </tr>
<tr> <td align="left">ROE % </td> <td>6.4 </td> <td>11.2 </td> <td>13.8 </td> <td>9.7 </td> <td>4.8 </td> <td>35.6 </td> </tr>
<tr> <td align="left">PE </td> <td>13.1 </td> <td>14.1 </td> <td>6 </td> <td>14.5 </td> <td>9.9 </td> <td>8.3 </td> </tr>
<tr> <td align="left">PTBV </td> <td>0.84 </td> <td>1.67 </td> <td>0.94 </td> <td>1.39 </td> <td>0.49 </td> <td>2.97 </td> </tr>
<tr> <td align="left">Div <br />
Yield %</td> <td>1.97 </td> <td>1.2 </td> <td>3.46 </td> <td>1.93 </td> <td>6.41 </td> <td>5.85 </td> </tr>
</tbody></table>
<br />
<br />
Note that all these companies, with the exception of CMH of South Africa, all have very little debt. The companies whose stock appreciated significantly did so with a combination of increased profits and multiple expansion. I am still waiting for that to happen in my South African stocks. I have not wavered in my belief that the long term future of world economy is in the emerging markets. But in the meantime while I wait, they are yielding 6%. bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com2tag:blogger.com,1999:blog-6718159251318954028.post-30014171001393317912018-03-01T17:55:00.000-08:002018-03-01T19:43:13.108-08:00Why I Bought Adrenna PropertiesOnce in a while a company a catches my eye because of its performance relative to price. But the company ownership structure makes it not feasible to buy. I remember one German company I saw once with very attractive returns relative to stock price, but it is 99% owned by a single entity. So I didn't want to buy because the price does not reflect the fundamentals but whatever a few small retailers value.<br />
<br />
Recently I found Adrenna Property Group (ANA:JSE). Adrenna is a South African Property investment company. Its properties are business and residential held for rent buildings in the Cape Town area. Cape Town is the capital of South Africa and is a relatively affluent city in South Africa.<br />
<br />
The whole Adrenna story started in 1999 when the Quyn Group first listed on the Johannesburg Stock Exchange in 1999. At first it was a recruitment and outsourcing company. Then Quyn acquired the Colliers group of companies in South Africa and changed its name to Colliers South Africa Holdings Limited. Initially the combined company struggled and decided to delist in 2004. Later, after some major restructuring and some decent results, the company changed its name to Adrenna Property Group Limited in February 2012, and it relisted on the JSE.<br />
<br />
From that time onwards, the Adrenna has steadily improved its results. And that caught my eye. The following shows the results in the years following the relisting. All monies are in units of millions. Note that the company has consistently reduced debt while increasing equity through fair value appreciation. The capitalization rate is the net operating income before interest and revaluation divided by the property value.<br />
<br />
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px;">
<tbody>
<!-- html table generated in R 3.2.2 by xtable 1.8-2 package -->
<!-- Fri Feb 16 18:22:46 2018 -->
<tr> <th> </th> <th> TTM </th> <th> 2017</th> <th> 2016 </th> <th> 2015 </th> <th> 2014 </th> <th> 2013 </th> </tr>
<tr> <td align="left"> Price </td> <td> R 1.00 </td> <td> R 1.55 </td> <td> R 0.65 </td> <td> R 1.45 </td> <td> R 0.80 </td> <td> R 0.40 </td> </tr>
<tr> <td align="left"> Shares </td> <td> 55.9 </td> <td> 55.9 </td> <td> 55.9 </td> <td> 55.9 </td> <td> 55.9 </td> <td> 55.9 </td> </tr>
<tr> <td align="left"> Equity </td> <td> 151.1 </td> <td> 146.5 </td> <td> 125.4 </td> <td> 117.6 </td> <td> 110.1 </td> <td> 98.2 </td> </tr>
<tr> <td align="left"> Earnings TTM </td> <td> 19.5 </td> <td> 21.1 </td> <td> 7.9 </td> <td> 7.8 </td> <td> 12.2 </td> <td> 10.5 </td> </tr>
<tr> <td align="left"> Marketcap </td> <td> R 55.90
($ 4.58) </td> <td> R 86.64 ($ 7.10) </td> <td> R 36.34 ($ 2.98) </td> <td> R 81.05 ($ 6.64) </td> <td> R 44.72 ($ 3.67) </td> <td> R 22.36 ($ 1.83) </td> </tr>
<tr> <td align="left"> ROE </td> <td> 12.9 </td> <td> 14.4 </td> <td> 6.3 </td> <td> 6.6 </td> <td> 11.1 </td> <td> 10.7 </td> </tr>
<tr> <td align="left"> PE </td> <td> 2.9 </td> <td> 4.1 </td> <td> 4.6 </td> <td> 10.4 </td> <td> 3.7 </td> <td> 2.1 </td> </tr>
<tr> <td align="left"> PTBV </td> <td> 0.39 </td> <td> 0.62 </td> <td> 0.3 </td> <td> 0.73 </td> <td> 0.43 </td> <td> 0.24 </td> </tr>
<tr> <td align="left"> Div Yield </td> <td> 0 </td> <td> 0 </td> <td> 0 </td> <td> 0 </td> <td> 0 </td> <td> 0 </td> </tr>
<tr> <td align="left"> BVPS </td> <td> 2.7 </td> <td> 2.62 </td> <td> 2.24 </td> <td> 2.1 </td> <td> 1.97 </td> <td> 1.76 </td> </tr>
<tr> <td align="left"> Debt </td> <td> 0.4 </td> <td> 0.37 </td> <td> 0.52 </td> <td> 0.53 </td> <td> 0.63 </td> <td> 0.84 </td> </tr>
<tr> <td align="left"> Cap Rate (%) </td> <td> 8.2 </td> <td> 7 </td> <td> 6.7 </td> <td> 4.8 </td> <td> 6 </td> <td> 6.4 </td> </tr>
</tbody></table>
<br />
<br />
The company actually has high earnings through fair value reappraisal. So beware when looking at the incredible PE numbers!<br />
<br />
The company's cash flow mostly pays for expenses and interest on debt. South Africa is a country with high inflation and therefore interest rates are also high. The company's operating income is 2.5 times interest expense. This ratio is a bit lower than I'd like but it is still acceptable.<br />
<br />
So Adrenna looks very cheap, but is there a catch? And indeed, there is a problem when investing in Adrenna. That problem is the company's market cap. The company's five largest shareholders own 72% of the company. They include two board member and affiliated entities. This is encouraging in that the board has aligned interests with the average shareholder but it also means there is very little float, possibly much less than USD $1 million. Still I have built as large a position as possible without excessively moving the stock price. Hence, I regard my position in Adrenna as only a trial run of my investment approach because this is not a stock I can buy in size.bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com2tag:blogger.com,1999:blog-6718159251318954028.post-20067182621478741222017-11-18T13:29:00.000-08:002017-11-18T13:29:52.357-08:00Latest Earnings from Four HoldingsI usually write about my investments' latest financial
results once or even twice a year.
Recently I haven't done that. So, I will catch up on four of these
today.
<br /><br />
<b>McRea Industries</b> is a shoe company that sells military footware,
industrial footware, and ladies luxury cowboy boots.
The company occupies a niche in the military footware space because
US military boots must be made by US companies.
So, McRea has a North Carolina manufacturing plant devoted to supplying the US military
with boots. The rest of the company's manufacturing
is in Asia. Obviously, Asia can manufacture footware cheaper than any American
company. These boots include women's luxury cowboy boots, industrial footware
and even military boots that soldiers can purchase as spares.
<br />
<br />
McRea's sales has been flat and its mix of military to luxury boots has tilted
to military in recent years. This is bad news because the military
boots have lower margin.
The overall sales of the company has been $104 to $108 M for the last 3 years. So it
is basically flat. And the net earnings is down to $5M from $6.6M 2 years ago.
<br />
<br />
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; float: right; width: 90%px;">
<tbody>
<tr> <th></th> <th>MCRAA </th> <th>SEB </th> <th>PFHO </th> <th>Installux </th> </tr>
<tr> <td align="left">Price </td> <td>34 </td> <td>4350 </td> <td>13.45 </td> <td>€ 415.00 </td> </tr>
<tr> <td align="left">Marketcap (M)</td> <td>81.6 </td> <td>5089.5 </td> <td>10.76 </td> <td>€ 125.83 ($ 148.60) </td> </tr>
<tr> <td align="left">ROE (%) </td> <td>6.9 </td> <td>9.6 </td> <td>14.3 </td> <td>11.2 </td> </tr>
<tr> <td align="left">PE </td> <td>16 </td> <td>15.6 </td> <td>11.7 </td> <td>12.9 </td> </tr>
<tr> <td align="left">PTBV </td> <td>1.14 </td> <td>1.5 </td> <td>1.67 </td> <td>1.45 </td> </tr>
<tr> <td align="left">Div Yield (%) </td> <td>1.53 </td> <td>0.1 </td> <td>0 </td> <td>1.93 </td> </tr>
<tr> <td align="left">Price/NCAV </td> <td>1.27 </td> <td>2.18 </td> <td>1.71 </td> <td>1.97 </td> </tr>
</tbody></table>
The table on the right
gives the financial metrics for McRea (MCRAA) and three other companies. The company has had a recent run-up which I cannot really understand because the fundamentals have not changed. The only plausible explanation is the general change in sentiment towards tiny microcaps in our long powerful bull market. But overall, my opinion is that this company is quite fairly valued for a shoe company.
<br /><br />
The way I see it, the company can only increase its earnings if it increases margins and efficiency in the military boot segment. And it appears to be doing that. Last year the company had $27M of inventory and this year it is only $18M. This helped to increase its cash position from $16M to $28M yoy.
<br /><br />
<b>Seaboard Corp (SEB)</b> is a food conglomerate that I have owned for over 15 years. I have always seen it trade at about 10x earnings. But in this bull market it has jumped to 15.6x. The company's management has proven itself to be disciplined and shrewd capital allocators. But it is still a commodity producer. The company currently still drives 75% of the operating income from pork. We have had food deflation for the last several years. But pork has actually benefited as the cost of feed (i.e., corn) has dropped much more than the cost of pork products, hence the decent earnings in recent years. But commodities are always cyclical and things can and will turn. I just don't see how this stock can go any higher.
<br /><br />
<b>Pacific Healthcare Organization (PFHO) </b> is in a two-year recovery after losing Amtrust, a huge customer in 2015. Thus far it is doing just fine, earning about $0.30 a quarter for the last three quarters. And it has a great balance sheet, with $7 per share in cash and no debt!
<br /><br />
<b>And last but not least on my list today is
Installux (PAR:STAL) </b>.
Installux has been a star performer in my portfolio. In the five years that I have owned it,
the French maker of aluminum building products has increased sales marginally. But profit has increased by about 9% per year in those years because of increased gross margins and increased profit margins. The company's metrics are still quite good and it has € 130 per share cash and no debt.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com2tag:blogger.com,1999:blog-6718159251318954028.post-44646418046930961442017-10-22T02:24:00.000-07:002017-10-22T02:24:52.025-07:00Calculating Lifetime Returns Using XIRRI feel that one big
purpose of the many investing forums, blogs and financial articles
is to bring basic financial information to the masses.
Consequently
there can be a lot of repetition of information.
In this
post, I will describe a useful financial tool
that is known to seasoned investors.
So, this
post is for those who may not be familiar the topic.
<br />
<br />
In the investment world we need a simple
way to measure the performance of a portfolio. People in finance often refer to it as the compound annual growth rate (CAGR).
This is for example very important measure when a
investor chooses his mutual fund. From my experience
almost all investors look at the 1, 3, 5 and 10 year
CAGR that are mandatory in all official fund reports.
<br />
<br />
The definition of a CAGR is easy to understand in the
mutual fund literature. They describe the growth
of a $10,000 investment in a fund from, say, 5 years ago
to today and calculate the average annual return
of that investment assuming all distributions
are reinvested.
This CAGR is the equivalent annual interest of a daily
compounded savings bank account over the same 5 year
period.
<br />
<br />
For example, as of their annual report ending June 30, 2016
the Bruce Fund reported a CAGR with dividends and distributions
reinvested of 9.7%. This means that a $10,000 investment
fives years ago would be
worth $15,866 on June 30, 2016 because 1.097<sup>5</sup> is 15866.
<br />
<br />
So far so good, but real-life investors have cashflows
in and out of their investment portfolios. How does
one find a CAGR of their portfolio to see how
they are performing as their own portfolio manager?
To do this we need a clear definition of the CAGR of a
portfolio with arbitrary cashflow. I see
my own CAGR as given above. It is the
the equivalent annual interest of a daily
compounded savings bank account over the period
in question given that the hypothetical bank account
receives the same cashflows as my real portfolio
account.
<br />
<br />
I find this result extremely useful because it tells
me how much return I will need if
I save
diligently and I have some retirement goal in mind.
For example, suppose I am 60 years old and I want to retire
at 65. Over the next 5 years I will contribute $20,000/year
to my retirement fund. My retirement fund now has $200,000 and
I want to have $400,000 at 65. What return do I need?
<br />
<br />
The answer is simple using the xirr() function available in all spreadsheet programs such as MS Excel.
The xirr() describes the returns given cashflows. The following is the way to enter the data.<br />
<ul>
<li>Each cashflow entry should have a date and an amount in one row.</li>
<li>Each cash flow entry into the retirement amount should be a negative
amount.</li>
<li>Each cash flow entry out of the account should be a positive. </li>
<li>The final entry should be a withdrawal of the remaining balance on the
account.</li>
</ul>
<br/>
So in the above example, assuming that I begin on 4/15/2017 at the age of 60 my
initial account balance is $200,000. And on each anniversary I add $20,000.
Then on the 5th anniversary, my account has a $400,000 balance.
The cashflow entries are entered in order each on a row. As shown below.
The xirr() function takes two parameters. One is the region containing the
dates of the cashflows, and the other is the amount of the cash flows.
I entered the following in my example: =xirr(a1:a7,b1:b7).<br />
<br />
And the xirr result is 8.55% in the example shown in yellow.<br />
<br />
<table border="2" bordercolor="#0033FF" cellpadding="3" cellspacing="3" style="background-color: #99ffff; width: 100%px;">
<tbody>
<tr>
<th> </th>
<th>A</th>
<th>B</th>
</tr>
</td><td>1</td><td>4/15/2017</td><td>-200000</td></tr>
</td><td>2</td><td>4/15/2018</td><td>-20000</td></tr>
</td><td>3</td><td>4/15/2019</td><td>-20000</td></tr>
</td><td>4</td><td>4/15/2020</td><td>-20000</td></tr>
</td><td>5</td><td>4/15/2021</td><td>-20000</td></tr>
</td><td>6</td><td>4/15/2022</td><td>400000</td></tr>
</td><td>7</td><td></td><td></td></tr>
</td><td>8</td><td>XIRR:</td><td bgcolor="yellow">8.55%</td></tr>
</tr>
</tbody></table>
<br/>
<br/>
The xirr() function can also tell me how much money I will
have at retirement given that I can achieve some return.
In the above example, I can calculate
how much I can have if I can improve my returns to 10%.
To do so, I would simply replace different values for the final withdrawal
until the xirr value is 10%. The current final withdrawal value in this case is
400,000.
<br />
<br />
Note that the values of deposits and withdrawals can be any amount and at any time.
<br />
<br />
Knowing the CAGR for all cashflows is an extremely tool that can answer what a return
really translates to in terms of wealth. And it can also be extended to compare the value of
future cash streams such as annuities or defined benefit plan such as social security.
In doing so, this tool gives the average consumer an objective way to compare different types of retirement
products. It can make more clear many financial products that, I feel, are designed to obfuscate
the and confuse the consumer through complexity.
<br />
<br />
I hope you will find this as useful as I do.
bovinebearhttp://www.blogger.com/profile/04228265833456707316noreply@blogger.com1