Time flies, we are now in the pivotal September / October time frame when bad corrections usually happen. This year it looks muted.
I have been finding more and more reading material that interest me.
Calpers, the huge California pension fund, has decided to scrap hedge fund investing. That is not surprising if you read this negative article on the industry.
I also enjoyed this following succinct article that explains what is risk.
I am also starting
Silent Investor, Silent Loser by
Martin Sosnoff, which
is a little-known book written by a money manager's in the 80's. I am not really sure what is the point of the book, but the stories from that time period gives me a very important sense of perspective.
I discovered this thorough analysis of Sears Holding's real estate by Baker Street Capital. It is a must-read for anyone contemplating buying Sears.
Another older book I found is The Go-Go Years: When Prices Went Topless by John Brooks. I read a chapter here and there to get a perspective from the last market excess before the dot-com era.
And finally, I am reading yet another book on Warren Buffett: Of Permanent Value: The Story of Warren Buffett by Andrew Kilpatrick.
My next reading material post will be a list of links to articles about Warren Buffett Partnership investments. Enjoy this list for now.
Wednesday, September 24, 2014
Tuesday, September 23, 2014
Globus Martime H1 2014 Resuls
Globus Martime, a Greek microcap shipping company, reported a loss for H1 due to impairment charges. Without the impairment charges, the company would have profited $0.13 per share. Revenue was roughly flat versus a year ago.
The company has shifted five of its seven ships to the spot market. Apparently, this is a strategic move to take advantage of the expected recovery in charter rates. The CEO George Karageorgiou said in the report that by next year, when rates are higher, the company will move the ships to longer term charters. The CEO appears to have a much more positive tone compared to last several years. He even said he intends to grow the fleet in the next few years.
The company reported a $1.7M impairment charge for H1. This impairment has been fluctuating recently because one of the company's ships is held for sale. And its value changes every quarter due to mark-to-market accounting. The impairment has even been negative in the past.
An investor in Globus Maritime must weight two issues. One is the charter rates, which one can gauge using the benchmark like the Baltic Dry Index (BDI). And the other is the company's debt. BDI right now is above the average of the last few years; see here. But it is still depressed, though the CEO is optimistic. The debt issue looms quite large. The company has $85M in debt and $60M of equity. The company's adjusted EBITDA is 5.5 times the interest expense. However, EBITDA doesn't include depreciation. With depreciation, then the interest coverage is an unacceptable number.
In other news, IEHC's CEO wrote a shareholder letter along with the 2014 annual proxy. In the letter, he summarized the published 2014 results. But more importantly, he stated that, at this point in Q2 FY2015, the company's order backlog is $8M. This is the highest level ever and a $2.1M increase since FY2014 end. The company is buying equipment to increase capacity to meet this demand. The stock jumped 12% to $5.10 per share on the news.
The company has shifted five of its seven ships to the spot market. Apparently, this is a strategic move to take advantage of the expected recovery in charter rates. The CEO George Karageorgiou said in the report that by next year, when rates are higher, the company will move the ships to longer term charters. The CEO appears to have a much more positive tone compared to last several years. He even said he intends to grow the fleet in the next few years.
The company reported a $1.7M impairment charge for H1. This impairment has been fluctuating recently because one of the company's ships is held for sale. And its value changes every quarter due to mark-to-market accounting. The impairment has even been negative in the past.
An investor in Globus Maritime must weight two issues. One is the charter rates, which one can gauge using the benchmark like the Baltic Dry Index (BDI). And the other is the company's debt. BDI right now is above the average of the last few years; see here. But it is still depressed, though the CEO is optimistic. The debt issue looms quite large. The company has $85M in debt and $60M of equity. The company's adjusted EBITDA is 5.5 times the interest expense. However, EBITDA doesn't include depreciation. With depreciation, then the interest coverage is an unacceptable number.
In other news, IEHC's CEO wrote a shareholder letter along with the 2014 annual proxy. In the letter, he summarized the published 2014 results. But more importantly, he stated that, at this point in Q2 FY2015, the company's order backlog is $8M. This is the highest level ever and a $2.1M increase since FY2014 end. The company is buying equipment to increase capacity to meet this demand. The stock jumped 12% to $5.10 per share on the news.
Saturday, September 20, 2014
Putprop Earnings Looks Too Good
Putprop finally came out with the year end results after two pre-annoucements. The company earned 2.48 Rand per share which, on the face of it, is fantastic for a company priced at 7.35 Rand per share.
Putprop is a South African real estate company primarily engaged in renting to businesses. South Africa follows the IFRS accounting standards, as is most of the world but notably not USA. IFRS defines what is the standard regular earnings, but it also allows companies to report a variation called headline earnings. I read that companies use headline earnings to present a more meaningful measure of operations. For Putprop, regular earnings is equal to headline earnings plus its share of associates' earnings plus fair value gains on property. In other words, headline earnings removes the effect of mark-to-market accounting and focuses only on the core company's earnings. But the mark-to-market gains are huge, worth 39% of the regular earnings. The company's gains from the associated companies Belle Isle Investments Proprietary Limited and Pilot Peridot One Proprietary Limited are also large at 26% of the regular earnings. This leaves headline earnings per share of only 0.86 Rand.
Company management emphasized they have been diversifying away from renting to the bus business which is their largest customer by far. To that end, the company acquired shares in other rental companies. This made a dramatic contribution to the bottom line, adding 19 M Rand to earnings versus 1 M in 2013. This is the bulk of the 0.74 Rand earnings per share increase between 2014 and 2013.
I think the regular earnings per share is the most useful number to gauge the company. But doing so implies the company trades at 3 times earnings! How is that possible? Well, my impression is that the market uses the headline earnings as the gauge. A month ago the company pre-announced that its earnings this year would rise significantly over a year ago. The stock shot up 30%. However, two weeks later the company revised its pre-annoucement. It maintained its regular EPS but removed the associates' income from the headline earnings. The stock then dropped back to its previous levels. See the table below.
The company also announced it will maintain its dividend, which is a 5% yield. And the stock trades at 56% of book with no long-term debt. I don't know why this stock hasn't doubled yet.
Putprop is a South African real estate company primarily engaged in renting to businesses. South Africa follows the IFRS accounting standards, as is most of the world but notably not USA. IFRS defines what is the standard regular earnings, but it also allows companies to report a variation called headline earnings. I read that companies use headline earnings to present a more meaningful measure of operations. For Putprop, regular earnings is equal to headline earnings plus its share of associates' earnings plus fair value gains on property. In other words, headline earnings removes the effect of mark-to-market accounting and focuses only on the core company's earnings. But the mark-to-market gains are huge, worth 39% of the regular earnings. The company's gains from the associated companies Belle Isle Investments Proprietary Limited and Pilot Peridot One Proprietary Limited are also large at 26% of the regular earnings. This leaves headline earnings per share of only 0.86 Rand.
Company management emphasized they have been diversifying away from renting to the bus business which is their largest customer by far. To that end, the company acquired shares in other rental companies. This made a dramatic contribution to the bottom line, adding 19 M Rand to earnings versus 1 M in 2013. This is the bulk of the 0.74 Rand earnings per share increase between 2014 and 2013.
I think the regular earnings per share is the most useful number to gauge the company. But doing so implies the company trades at 3 times earnings! How is that possible? Well, my impression is that the market uses the headline earnings as the gauge. A month ago the company pre-announced that its earnings this year would rise significantly over a year ago. The stock shot up 30%. However, two weeks later the company revised its pre-annoucement. It maintained its regular EPS but removed the associates' income from the headline earnings. The stock then dropped back to its previous levels. See the table below.
| Official EPS | Headline EPS | Subsequent Price | |
|---|---|---|---|
| 2013 results | 1.74 | 0.87 | 7.00 |
| 1st Pre-accouncement | 2.40 | 1.50 | 9.00 |
| 2nd Pre-accouncement | 2.40 | 0.86 | 7.35 |
| 2014 final results | 2.48 | 0.86 | 7.35 |
The company also announced it will maintain its dividend, which is a 5% yield. And the stock trades at 56% of book with no long-term debt. I don't know why this stock hasn't doubled yet.
Tuesday, September 2, 2014
My 3rd Annual Schedule of Investments
I have written my blog for two years (!!) and once a year I list my largest holdings. So the following are my largest 13 holdings. Because I run a relatively concentrated portfolio, these stocks form the vast majority of my portfolio value. As a comparison, my last year holdings are here.
My largest positions are little changed. But I did trim my WLP and SEB positions, and I added to Tachibana during a dip. In the last year, I continued my shift from large caps to small and microcaps. My new positions include Hanover Foods, ITIC, New Century HK and Putprop. Since I started moving from large caps to small caps two years ago, I have probably done more trades than the previous decade. I think I have a good mix now and I will trade a lot less in the coming year.
I am sure any reader is curious about my rate of return. My answer has always been: I don't know. Money flows into my accounts from paychecks and dividends. Money flows out for expenses and taxes. I can't keep track of it all. But I am not unhappy with anything on my list. If I was unhappy I would have sold it. And I did sell OiBr. I last sold it around $2 and it is $0.60 today! Whew, that was a close call. But still, OiBr is my biggest mistake of the last six years.
I first bought OiBr 8 years ago and loved the 10% dividends as well as the stock appreciation. But three years ago I failed to follow the stock closely and didn't even notice the drop. It isn't trivial tracking a stock that merges multiple times, pay a 10% dividend and is denominated in Raeis. I also failed to notice the deteriorating economic situation in Brazil and BRIC's in general. Most importantly, I feel now that OiBr has inadequate corporate governance, but I didn't see that early on. This lack of care cost me. Since then, I have identified and corrected my errors in judgment with OiBr. My investments of the past year reflect this.
I built up this list over many years. The stocks in the list appear to be an eclectic bunch from all corners of the globe. But there is a method to the madness. I focus mainly on profitable companies with great balance sheets; in other words, the best cigar butts. A reader would notice that my company writeups do not emphasize the company's operations or area of business. I purposely do this because I learned my lessons when bought stocks in the tech companies where I used to work. I found that the knowledge I gain about a business' products can easily make me overconfident about the company's future. So I don't spend my time reading too much into it anymore.
My research on a company focuses on the balance sheet and income statement. I use the simplest and most common accounting measurements. I am an engineer by profession, and in my work I always keep in mind a fundamental principle for any task: Keep It Simple and Stupid (KISS). You'd be amazed at how many practitioners in engineering and finance forget that. When an investor reads too much into some trend or data, he can easily put too much weight in conclusions based on information of little or no value.
It is for this reason that my investments and analysis may appear somewhat superficial. For example I compare companies mostly by the PE ratio. I feel no single metric gives so much information for lightly levered companies. And after the OiBr experience I will avoid capital intensive and highly levered companies. Leverage is simply too risky and too complex for me.
The lifetime of my blog has coincided with a raging bull market. But my investing approach isn't all about bull markets. When the next market correction comes, and it will, I think this blog will make even more interesting reading. But of course, I hope for the best, and I ask the market gods to give me another year like the last two!
| Position | Category | Business |
|---|---|---|
| Wellpoint (WLP) | US Large cap | Health insurance |
| McRea Industries (MCRAA) | US Microcap | Footwear |
| Tachibana Eletech (TSE:8159) | Japanese Small cap | Electronic Distributor |
| Seaboard Corp (SEB) | US Mid cap | Food Conglomerate |
| Installux SA | French microcap | Manufacturing |
| AIG (AIG) | US Large cap | Insurance |
| Investor Title Insurance Company (ITIC) | US Small cap | Title insurance |
| Petsmart (PETM) | US Large cap | Pet retailer |
| Bruce Fund (BRUFX) | Mutual fund | Mid-cap value |
| Putprop | South African Microcap | Real estate |
| New Century Hong Kong (HK:0234) | Hong Kong Small cap | Hotel, cruise line |
| Hanover Foods (HNFSA) | US Small cap | Processed food |
| Philip Morris International (PM) | US Large cap | Tobacco |
My largest positions are little changed. But I did trim my WLP and SEB positions, and I added to Tachibana during a dip. In the last year, I continued my shift from large caps to small and microcaps. My new positions include Hanover Foods, ITIC, New Century HK and Putprop. Since I started moving from large caps to small caps two years ago, I have probably done more trades than the previous decade. I think I have a good mix now and I will trade a lot less in the coming year.
I am sure any reader is curious about my rate of return. My answer has always been: I don't know. Money flows into my accounts from paychecks and dividends. Money flows out for expenses and taxes. I can't keep track of it all. But I am not unhappy with anything on my list. If I was unhappy I would have sold it. And I did sell OiBr. I last sold it around $2 and it is $0.60 today! Whew, that was a close call. But still, OiBr is my biggest mistake of the last six years.
I first bought OiBr 8 years ago and loved the 10% dividends as well as the stock appreciation. But three years ago I failed to follow the stock closely and didn't even notice the drop. It isn't trivial tracking a stock that merges multiple times, pay a 10% dividend and is denominated in Raeis. I also failed to notice the deteriorating economic situation in Brazil and BRIC's in general. Most importantly, I feel now that OiBr has inadequate corporate governance, but I didn't see that early on. This lack of care cost me. Since then, I have identified and corrected my errors in judgment with OiBr. My investments of the past year reflect this.
I built up this list over many years. The stocks in the list appear to be an eclectic bunch from all corners of the globe. But there is a method to the madness. I focus mainly on profitable companies with great balance sheets; in other words, the best cigar butts. A reader would notice that my company writeups do not emphasize the company's operations or area of business. I purposely do this because I learned my lessons when bought stocks in the tech companies where I used to work. I found that the knowledge I gain about a business' products can easily make me overconfident about the company's future. So I don't spend my time reading too much into it anymore.
My research on a company focuses on the balance sheet and income statement. I use the simplest and most common accounting measurements. I am an engineer by profession, and in my work I always keep in mind a fundamental principle for any task: Keep It Simple and Stupid (KISS). You'd be amazed at how many practitioners in engineering and finance forget that. When an investor reads too much into some trend or data, he can easily put too much weight in conclusions based on information of little or no value.
It is for this reason that my investments and analysis may appear somewhat superficial. For example I compare companies mostly by the PE ratio. I feel no single metric gives so much information for lightly levered companies. And after the OiBr experience I will avoid capital intensive and highly levered companies. Leverage is simply too risky and too complex for me.
The lifetime of my blog has coincided with a raging bull market. But my investing approach isn't all about bull markets. When the next market correction comes, and it will, I think this blog will make even more interesting reading. But of course, I hope for the best, and I ask the market gods to give me another year like the last two!
Thursday, August 28, 2014
S&P 500 Triples in 5 Years!
It was a little over five years ago that the S&P 500 index hit the intraday low of 666. A few days ago it reached 2000. That means the stock market tripled in 5 years! After two crashes in the last 15 years I don't blame the average person for not noticing. But sooner or later, the public will recalibrate their thinking of the stock market and the economy. Maybe this expansion is here to stay and we are in the middle or early stages of a secular bull market.
I am no economist and I know my opinion and even the opinion of experts are only vague guesses at what the future holds. But I must pay attention to the overall market and economy as it is one of many factors in my investing decision process. I remember five years ago at the depths of the financial crisis, I told anyone who would listen that we are in a once-in-a-lifetime opportunity. Today I am very unsure where we are. But instinctively I feel that this bull market cannot last much longer. We have had probably the best five year bull market in history; if not then definitely one of the three best? Maybe?
Then again, I think I don't really know for sure and I should find out. So I decided to find out if my belief is reality. I don't know of a published source for this information so I decided to derive it myself based on Robert Shiller's market data. This is the data source for the Cyclically Adjusted PE (CAPE) by the recent Nobel prize winner. From the data, I used the S&P index going back to the late 1800s factoring in inflation and assuming that dividends are always reinvested. I feel factoring dividends and inflation is the best way to compare returns in different periods1. And I came up with the following table of the best 5 to 9 year real annualized returns with reinvested dividends. The results for each period must be non-overlapping.
The results are fascinating. The last five years only ranks 5th overall. The table gives a sense of perspective which is paramount in investing. But I am not using it to make any strong conclusions about the market over the coming years. But I can say that the current bull market can return 10% for the next two to three years and we still would not be breaking the record. The table shows that the best two 7 or 8 year periods have returned more than 15%!
The US economy appears to have room to expand based on unemployment and other economic results. The retail investor may suddenly see this and notice the market run up and forget the pain of the last fifteen years and finally jump in. To me, this scenario is as plausible as the stock market crashing, which is what most retail investors have been expecting for five years. I sure hope they get tired of waiting and dive in!
1. The S&P 500 index does not include dividends. To know the market index with dividends one should use the S&P 500 Total Return index.
I am no economist and I know my opinion and even the opinion of experts are only vague guesses at what the future holds. But I must pay attention to the overall market and economy as it is one of many factors in my investing decision process. I remember five years ago at the depths of the financial crisis, I told anyone who would listen that we are in a once-in-a-lifetime opportunity. Today I am very unsure where we are. But instinctively I feel that this bull market cannot last much longer. We have had probably the best five year bull market in history; if not then definitely one of the three best? Maybe?
Then again, I think I don't really know for sure and I should find out. So I decided to find out if my belief is reality. I don't know of a published source for this information so I decided to derive it myself based on Robert Shiller's market data. This is the data source for the Cyclically Adjusted PE (CAPE) by the recent Nobel prize winner. From the data, I used the S&P index going back to the late 1800s factoring in inflation and assuming that dividends are always reinvested. I feel factoring dividends and inflation is the best way to compare returns in different periods1. And I came up with the following table of the best 5 to 9 year real annualized returns with reinvested dividends. The results for each period must be non-overlapping.
| 5 Year Period | Sept 1924 — Aug 1929 | 27.4% |
| Jul 1932 — Jun 1937 | 25.5% | |
| Dec 1994 — Nov 1999 | 22.8% | |
| Aug 1982 — Jul 1987 | 20.8% | |
| Mar 2009 — Feb 2014 | 17.3% | |
| 6 Year Period | Aug 1923 — July 1929 | 25.1% |
| Apr 1994 — Mar 2000 | 18.8% | |
| Jul 1949 — Jun 1955 | 17.0% | |
| Jul 1932 — Jun 1938 | 15.5% | |
| 7 Year Period | Jan 1922 — Dec 1928 | 19.0% |
| Jun 1949 — May 1956 | 16.5% | |
| Jul 1992 — Jun 1999 | 15.9% | |
| Aug 1982 — Jul 1989 | 13.9% | |
| 8 Year Period | Sept 1921 — Aug 1929 | 21.7% |
| Jan 1991 — Dec 1998 | 15.4% | |
| Mar 1948 — Feb 1956 | 14.3% | |
| 9 Year Period | Aug 1920 — Jul 1929 | 18.7% |
| Nov 1990 — Oct 1999 | 15.0% | |
| Jul 1950 — Jun 1959 | 12.3% |
The results are fascinating. The last five years only ranks 5th overall. The table gives a sense of perspective which is paramount in investing. But I am not using it to make any strong conclusions about the market over the coming years. But I can say that the current bull market can return 10% for the next two to three years and we still would not be breaking the record. The table shows that the best two 7 or 8 year periods have returned more than 15%!
The US economy appears to have room to expand based on unemployment and other economic results. The retail investor may suddenly see this and notice the market run up and forget the pain of the last fifteen years and finally jump in. To me, this scenario is as plausible as the stock market crashing, which is what most retail investors have been expecting for five years. I sure hope they get tired of waiting and dive in!
1. The S&P 500 index does not include dividends. To know the market index with dividends one should use the S&P 500 Total Return index.
Monday, August 18, 2014
Summer Quarterly Updates
Tachibana Eletech reported Q1 total income increased 18.9% yoy; revenue
increased 6.7% yoy. This improvement was partly the result of strong industrial demand in Japan.
The results are even more impressive because the market presumed that last quarter's results were good because customers moved forward purchases to avoid the impending consumption tax increase. Q1 results were the first that included the consumption tax increase, and the results would have been impressive even if there was no tax increase!
The company also upped its year end EPS guidance from ¥161.41 to ¥170. The stock has rallied recently but it is still selling for only 8 times EPS guidance.
Riken Keiki reported earnings increased 19% yoy. Revenue increased 6.6% yoy. This company is firing on all cylinders. Last year its earnings increased 14% and the year before it increased 22%. This is my best performing Japanese holding, increasing by 90% in the 18 months that I've held it. When I initially bought the stock 18 months ago, the fact that it was a netnet was my margin of safety. Now it has risen 90% and is no longer a netnet. The market has priced it more as a earnings growth engine. But the stock still trades below book and and at 11x EPS guidance. This is Ben Graham's value investing at work: buy a good cheap stock, and usually something good happens!
Fujimak reported a ¥ (38.39) loss per share versus ¥ 3.5 a year ago. Revenue decreased 5% yoy. This was a surprise...no... a shock! The company said much of this was the result of a natural pullback from its knockout Q4, when it earned ¥ 99 a share, and to a lesser extent the consumption tax increase.
The company gave an EPS guidance of ¥98, which I hope is true but I also fear may not be met. The company trades at 8x EPS guidance.
Now on to US stocks. Seaboard Corp had one of its best quarters in history. Because of record pork prices, EPS was $79 versus $33 a year ago. H1 EPS was $119 versus $81 a year ago. The stock didn't budge after the earnings reports. In fact it dropped a bit because of plunging pork futures. Pork meat was regularly around $0.80/lb for the last several years, then it suddenly jumped to a high of $1.30. Today, futures for delivery in the next several months is back at $0.90s. Next year delivery dropped but now is back in the 90s also! So the weak stock performance is understandable.
Kansas City Life Insurance reported Q2 earnings slight down. Q2 EPS was $0.77 versus $0.98 a year earlier and premium revenue was down 5%. Book value has grown steadily and now the stock trades at 2/3 book. It also pays a 2% dividend. I feel this is one undervalued and neglected company.
Investors Title Insurance Company reported earnings were down 20% yoy. Premium revenue was flat yoy, which is encouraging considering the exceptional refinancing activity last year. The decrease in earnings was primarily the result of increased commissions. The company now trades at 1.1x book.
Putprop pre-announced that the company's earnings will be approximately ZAR$1.50 vs ZAR$0.86 a year ago! That is a 75% increase and even after the stock jumped by 30% from my initial purchase, it is still trading at 6 times earnings!
IEHC reported Q1 EPS $0.17 versus $0.23 a year ago. Sales was down 4% yoy. I would've liked to see better yoy results, but last year's Q1 was exceptional. I don't really know what to make of this tiny company. I had hoped based on my reading that this company's sales would take off in the last several quarters. But this hasn't happened. The company's sales are quite erratic. I'll pay close attention to this one in the coming quarters.
The company also upped its year end EPS guidance from ¥161.41 to ¥170. The stock has rallied recently but it is still selling for only 8 times EPS guidance.
Riken Keiki reported earnings increased 19% yoy. Revenue increased 6.6% yoy. This company is firing on all cylinders. Last year its earnings increased 14% and the year before it increased 22%. This is my best performing Japanese holding, increasing by 90% in the 18 months that I've held it. When I initially bought the stock 18 months ago, the fact that it was a netnet was my margin of safety. Now it has risen 90% and is no longer a netnet. The market has priced it more as a earnings growth engine. But the stock still trades below book and and at 11x EPS guidance. This is Ben Graham's value investing at work: buy a good cheap stock, and usually something good happens!
Fujimak reported a ¥ (38.39) loss per share versus ¥ 3.5 a year ago. Revenue decreased 5% yoy. This was a surprise...no... a shock! The company said much of this was the result of a natural pullback from its knockout Q4, when it earned ¥ 99 a share, and to a lesser extent the consumption tax increase.
The company gave an EPS guidance of ¥98, which I hope is true but I also fear may not be met. The company trades at 8x EPS guidance.
Now on to US stocks. Seaboard Corp had one of its best quarters in history. Because of record pork prices, EPS was $79 versus $33 a year ago. H1 EPS was $119 versus $81 a year ago. The stock didn't budge after the earnings reports. In fact it dropped a bit because of plunging pork futures. Pork meat was regularly around $0.80/lb for the last several years, then it suddenly jumped to a high of $1.30. Today, futures for delivery in the next several months is back at $0.90s. Next year delivery dropped but now is back in the 90s also! So the weak stock performance is understandable.
Kansas City Life Insurance reported Q2 earnings slight down. Q2 EPS was $0.77 versus $0.98 a year earlier and premium revenue was down 5%. Book value has grown steadily and now the stock trades at 2/3 book. It also pays a 2% dividend. I feel this is one undervalued and neglected company.
Investors Title Insurance Company reported earnings were down 20% yoy. Premium revenue was flat yoy, which is encouraging considering the exceptional refinancing activity last year. The decrease in earnings was primarily the result of increased commissions. The company now trades at 1.1x book.
Putprop pre-announced that the company's earnings will be approximately ZAR$1.50 vs ZAR$0.86 a year ago! That is a 75% increase and even after the stock jumped by 30% from my initial purchase, it is still trading at 6 times earnings!
IEHC reported Q1 EPS $0.17 versus $0.23 a year ago. Sales was down 4% yoy. I would've liked to see better yoy results, but last year's Q1 was exceptional. I don't really know what to make of this tiny company. I had hoped based on my reading that this company's sales would take off in the last several quarters. But this hasn't happened. The company's sales are quite erratic. I'll pay close attention to this one in the coming quarters.
Wednesday, August 6, 2014
Time to Reevaluate Wellpoint
Wellpoint just released the company's Q2 earnings. The stock dropped a few
percent right after the release. But the results
seem fine to me and management upped its 2014 GAAP earnings guidance to $8.81.
The stock drop tells me that the market has
finally revalued Wellpoint and the entire
managed care industry. Two years ago Wellpoint was trading at half
of the current $110 price. That priced the company at less than
10 times trailing earnings.
Joe Swedish has improved the
company's operations and appears to be a very shareholder friendly CEO.
Now it is trading at 13 times projected 2014 earnings.
This is a multiple expansion is what I had hoped or expected
when I last added to my position two years ago.
Now it is a half year after Obamacare's individual mandate and we have a better but still foggy picture of heathcare. This is a good time for me to reevaluate WLP.
Obamacare affects Americans not just through its individual mandate. But the individual mandate is the most controversial and far-reaching part of the legislation. From what I see so far, the uninsured aren't dragged kicked and screaming to get coverage. And the new enrolees aren't just the sick and unprofitable members of the pool. I can tell because the Obamacare first year enrolment exceeded projections. And as further evidence, the California Obamacare insurers plan to raise rates 4.2%, which is less than the healthcare industry overall. This means that the first year rates were adequate and the enrolment mix had enough healthy to cover the unprofitable sick. Remember, Obamacare cannot discriminate the sick from the healthy with different rates.
Another controversial part of Obamacare is the Medicaid expansion. Medicaid expansion under Obamacare raises the level at which a person qualifies for Medicaid. However, each state can opt out if they wish because of the 2012 Supreme Court ruling. So far about half of the states have opted out. However, the most populous of the 14 states where Wellpoint does business are participating in Medicaid expansion. And Medicaid enrolment is up 15% this year compared to last in participating states. Wellpoint should be well positioned with its recent Amerigroup acquisition.
Joe Swedish has been all gung ho on Obamacare since joining Wellpoint more than a year ago. Preliminary facts looks like it will pay off. The medical loss ratio (MLR) is now at 82.7%. The MLR is the ratio of benefits paid to revenue. It is one of the key metrics to measure medical insurance companies. It was at 85% before he took over. And the company bought back 8 million shares in the last quarter alone. Mr. Swedish seems to be really focused on improving the company's bottom line.
Wellpoint recently has been the cheapest of the MCOs because of missteps before Mr. Swedish arrived. But the valuation is catching up. The following table compares all the major MCOs.
Buying and selling stocks is a balancing act on a scale. In a perfectly efficient market the scale is balanced. I see possible future scenarios that would weigh in favour of holding WLP:
Now it is a half year after Obamacare's individual mandate and we have a better but still foggy picture of heathcare. This is a good time for me to reevaluate WLP.
Obamacare affects Americans not just through its individual mandate. But the individual mandate is the most controversial and far-reaching part of the legislation. From what I see so far, the uninsured aren't dragged kicked and screaming to get coverage. And the new enrolees aren't just the sick and unprofitable members of the pool. I can tell because the Obamacare first year enrolment exceeded projections. And as further evidence, the California Obamacare insurers plan to raise rates 4.2%, which is less than the healthcare industry overall. This means that the first year rates were adequate and the enrolment mix had enough healthy to cover the unprofitable sick. Remember, Obamacare cannot discriminate the sick from the healthy with different rates.
Another controversial part of Obamacare is the Medicaid expansion. Medicaid expansion under Obamacare raises the level at which a person qualifies for Medicaid. However, each state can opt out if they wish because of the 2012 Supreme Court ruling. So far about half of the states have opted out. However, the most populous of the 14 states where Wellpoint does business are participating in Medicaid expansion. And Medicaid enrolment is up 15% this year compared to last in participating states. Wellpoint should be well positioned with its recent Amerigroup acquisition.
Joe Swedish has been all gung ho on Obamacare since joining Wellpoint more than a year ago. Preliminary facts looks like it will pay off. The medical loss ratio (MLR) is now at 82.7%. The MLR is the ratio of benefits paid to revenue. It is one of the key metrics to measure medical insurance companies. It was at 85% before he took over. And the company bought back 8 million shares in the last quarter alone. Mr. Swedish seems to be really focused on improving the company's bottom line.
Wellpoint recently has been the cheapest of the MCOs because of missteps before Mr. Swedish arrived. But the valuation is catching up. The following table compares all the major MCOs.
| Wellpoint | Aetna | Humana | Cigna | Unitedhealth | |
| Price | 111 | 78.3 | 120 | 91.67 | 81.5 |
| PE | 12.6 | 12.0 | 16.0 | 12.6 | 14.7 |
| ROE | 0.10 | 0.16 | 0.12 | 0.18 | 0.16 |
| P/BV | 1.3 | 1.9 | 1.8 | 2.2 | 2.4 |
| MLR | 82.7% | 83.1% | 83.1% | 84.5% | 81.6% |
Buying and selling stocks is a balancing act on a scale. In a perfectly efficient market the scale is balanced. I see possible future scenarios that would weigh in favour of holding WLP:
- Americans increasingly want health care, but are adamantly against government control. Obamacare increases in popularity.
- Healthcare has great pricing power, costs have been and will be rising significantly above GDP growth.
- Joe Swedish is the real deal, he will continue to improve the company's operations
- More Republican states accept Obamacare and actively participate (for example Medicaid expansion).
- Obamacare enrollment falls to below expectations and causes the enrollment mix to be more skewed towards the sick.
- The president who takes office in 2017 is Republicans and he repeals Obamacare.
- Joe Swedish slips and is not as good as the media makes him out to be.
Saturday, July 12, 2014
IEHC Reports Higher 2014 Earnings
| IEHC | |
| Price | $ 5.00 |
| Market Cap | $ 11.51 M |
| P/E TTM | 7.9 x |
| Div yield | 0.0 % |
| P/TBV | 1.14 |
| ROE | 14.4 % |
The only negative is that all the yoy earnings increase came in the first half of the fiscal year. The revenue was better in the second half versus a year ago. However, the earnings didn't improve yoy because of higher SG&A expenses. But then again I wouldn't read too much into the quarter by quarter fluctuations. This is a very small company after all and an extra business trip would have an impact on the bottom line.
I am holding this baby long-term because it has potential for significant gains in the coming years.
Tuesday, July 8, 2014
Installux Expanding Despite Economy
The Installux CEO Chistian Canty recently gave an update on the company.
In it, he expressed pessimism towards the current French economic
situation — just like last year. However, he believed that the company could maintain
its revenue and margins in the company's core aluminum business
in the current year.
He also said management could try to grow the company using its excess cash and equivalents to acquire businesses. However management feels that is risky because of the current economic malaise. Instead, they decided to focus on organic growth in the coming two years.
The company owns six divisions. One is FAC, which does aluminum coloring and surface treatment. The company will double the floor capacity of this division in 2015. The management feels they can fund the expansion with increased business and, if necessary, by bringing back work doled out to subcontractors.
A second division is IES, which makes metal of a specific cross-sectional shape. This is a process called extrusion. Management has decided to buy a second press to do this job as the division has been running at full capacity for two years now. The location for the expansion is still unknown, but it will happen in 2015 also. IES is the largest of the company's six divisions.
In other company news, preliminary first quarter numbers indicate an 8% increase in revenue. However, Canty said the number can fluctuate unpredictably from month to month.
I bought this stock 16 months ago and it has risen 45%. I am holding on to it because I believe the company is undervalued without the expansion plans. With it, I have even more to reason to wait to see how things go in the coming year or two.
The company owns six divisions. One is FAC, which does aluminum coloring and surface treatment. The company will double the floor capacity of this division in 2015. The management feels they can fund the expansion with increased business and, if necessary, by bringing back work doled out to subcontractors.
A second division is IES, which makes metal of a specific cross-sectional shape. This is a process called extrusion. Management has decided to buy a second press to do this job as the division has been running at full capacity for two years now. The location for the expansion is still unknown, but it will happen in 2015 also. IES is the largest of the company's six divisions.
In other company news, preliminary first quarter numbers indicate an 8% increase in revenue. However, Canty said the number can fluctuate unpredictably from month to month.
I bought this stock 16 months ago and it has risen 45%. I am holding on to it because I believe the company is undervalued without the expansion plans. With it, I have even more to reason to wait to see how things go in the coming year or two.
Tuesday, June 24, 2014
Portfolio Earnings Reports and Macro Musings
A slew of earnings reports have come in. I will summarize them in 60 seconds.
McRae Industries reported earnings that were flat compared to last year. But looking at last year's fantastic results, this is an accomplishment. If the company can show that last year was not an anomaly, then we have a new normal for this company. If so, I feel the company should trade around $40 instead of $30 now.
Wellpoint reported decent earnings. But the market pays more attention to the company's guidance because it is so committed to Obamacare. The company raised its 2014 earnings guidance from $8.20 to $8.50 per share. The new CEO Joe Swedish seemed to have aimed low with this guidance earlier and he is carefully managing the expectation upwards.
Wellpoint is spending considerable money to upgrade its IT systems for Obamacare. The company has already spent $550M. This leads me to believe that the company will have an advantage over other smaller competitors who do not have the scale to do such large upgrades. Wellpoint's success will be tied to Obamacare and the first year Obamacare enrollment numbers do not look so bad. People can slice it or dice it in many ways, but I think the Obamacare enrollment is as good as one could have expected a year ago. The bottom line is, people who don't have healthcare will buy it at a reasonable price.
I think the mainstream is starting to agree with me on this one. Barron's just published a bullish piece on Wellpoint. But I think when the mainstream starts to tout a company, watch out! The stock probably hasn't got much more room to run, and it is time to be contrarian on the stock. I definitely wouldn't add to my position, the only thing I will do in the future is selling.
Petsmart reported mixed first quarter results and they also lowered the year-end guidance. Same store sales this year will be flat compared to a year ago. The stock has tumbled 20% off its peak of a year ago. Today it trades at 14 times forward earnings. But here again, Barron has a positive piece on the company recently, which help the stock recover a bit. I wouldn't buy any more but I also don't want to sell because I dislike the capital gains tax.
In other news, Seaboard Corp completed their tender and announced that it was not fully subscribed. Therefore the buyback price will be $2950, which is the maximum price. I tendered about 15% of my shares.
And ITIC is down more than 20% since I started buying 5 months ago! And I don't really have an explanation for it. I have looked over the company a bit further to see if there is something about it that I missed in my initial analysis. I cannot find anything. Overall the housing market is stable and near-term should improve. The job market is improving which will do wonders for the housing market. Interest rates are up a bit but still near 12 month lows. So, in the absence of red flags, I have added to my position on the way down.
The US has seen inflation pick up to 2.1% yoy in May. Inflation directly affects interest rates and I'll be watching both closely. I own ITIC and four other insurance stocks. Insurance companies have large bond portfolios which would take writedowns if interest rates rise. But everything considered, inflation is a heck of a lot better than deflation.
Sunday, June 15, 2014
Why I Bought European Reliance
| ATH:EUPIC | |
| Price | € 1.390 |
| Market Cap | € 38.22 M ($ 52 M USD) |
| P/E TTM | 3.9 x |
| Div yield | 0 % |
| P/BV | 0.63 |
| ROE | 16.3 % |
EUPIC offers insurance and pensions and mutual funds to individuals in Greece. The company insurance offerings include life, health, fire and car. Its underwriting operations are outstanding. And it trades significantly less than book. I am sure the main reason it trades so low is because it is in Greece. The world knows that Greece had a very difficult 2011 and 2012. In fact, the country has been in recession for 5 years, and it is far from over. The country still has 25% unemployment. But from what I gather, the country has turned the corner and is on the way to recovery. One can see this from how the bond markets are pricing Greek 10 year government bonds. See chart below from the WSJ.
I invested in EUPIC partly because the company had a stellar earnings record through the last four years. The company did suffer losses in its investment portfolio in 2011, but the company's outstanding underwriting results made up for it. Prior to four years ago, the company's underwriting was decent but not as good as it is now. The company also took a € 15M writedown in its equity in 2008, when the financial crisis hit. Before that the company was trading above book and it hasn't traded close to book since then. See the following table. All numbers except dividends are in millions.
| Income | Equity | Investment income | Dividend/shr | Shares | |
| Q1 2014 | 60.4 | 0.9 | 27.5 | ||
| 2013 | 9.5 | 57.5 | 0.8 | 0.000 | 27.5 |
| 2012 | 9.0 | 50.0 | 0.9 | 0.100 | 27.5 |
| 2011 | 2.7 | 39.5 | (7.0) | 0.050 | 27.5 |
| 2010 | 1.3 | 37.9 | 1.5 | 0.040 | 27.5 |
| 2009 | 3.1 | 37.7 | 3.4 | 0.040 | 27.5 |
| 2008 | (0.0) | 30.2 | 4.2 | 0.040 | 27.5 |
| 2007 | 2.5 | 44.5 | 1.6 | 0.073 | 19.2 |
| 2006 | 3.2 | 25.5 | 1.9 | 0.000 | 19.2 |
| 2005 | 1.8 | 20.0 | 0.8 | 0.000 | 19.4 |
| 2004 | 1.7 | 21.6 | 0.5 | 0.000 | 18.3 |
The company's balance sheet is like most life insurance companies. The company has investment assets, mostly bonds and some equities. The company's liabilities are just the company's underwriting obligations. The company states that 75% of the company's bonds are in the US and "core European countries". I take this to mean countries like UK, France, Germany, Netherlands and not Greece.
EUPIC was established in 1977. The current CEO has been CEO or Chairman since its founding. Some of its founders are still directors. This shows a commitment and stability in the organization. I have found company statements going back to 2001, beyond that I have nothing. In 2007, the Greek bank Piraeus bought a 30% stake in the company. In exchange the bank gave the company the fire insurance business from its mortgage sales.
My impression (or hope) is that the company's insurance profile after the Piraeus investment has made the company much more profitable. But the financial crisis followed by the Greek bond crisis has overshadowed the company's solid underwriting performance. So when the sentiment turns and drives equities upwards, this company should once again trade for book.
The company's auditor is PKF Euroauditing SA going back to 2001. I have never heard of the auditor but their website seems to indicate it is a stable and big European company.
The one thing that worries me about the company me is that it has inexplicably chosen not to pay a dividend for the 2013 fiscal year. I cannot really think of a good reason for this.
Note**: investing in Greek microcaps is a risky business. I have tediously gathered the data in this article from filings written in Greek. But I am sure I have made mistakes. If you are considering investing in this please read the disclaimer on the right.
Thursday, June 12, 2014
My Current Reading List
Money Myth an interesting article about a poor immigrant's thoughts after fulfilling the American dream.
Anatomy of the Bear by Russel Napier. Interesting history published in 2009. The author goes on to say we are in a going to be in a recession from 2000 to around 2014. I think that is pretty prescient.
Confidence Game by Christine Richard: I devour any investment book with behind the scenes stories about Wall Street. This one is about Bill Ackman's fight with MBIA.
Tap Dancing to Work, by Carol J. Loomis. One more book on Buffett which adds more insight to the best investor of our time.
Investing in the Unknown and Unknowable. This article adds a lot to my thinking about probability theory and the real investment world. It is on the same topic that I discussed here.
Poor Charlie's Almanack, Edited by Peter D. Kaufman. This is a well-known book which addresses the issues of the above, based on speeches and quotes of Charlie Munger.
An anonymous writer accuses Chaoda of rampant corporate fraud. This company interests me now that I have invested in a Hong Kong stock.
An anonymous writer accuses Huabao International of being a huge pump and dump.
I also am playing around with a cool new tool that can reveal the differences in the text of different 10Qs and 10Ks of a company.
Anatomy of the Bear by Russel Napier. Interesting history published in 2009. The author goes on to say we are in a going to be in a recession from 2000 to around 2014. I think that is pretty prescient.
Confidence Game by Christine Richard: I devour any investment book with behind the scenes stories about Wall Street. This one is about Bill Ackman's fight with MBIA.
Tap Dancing to Work, by Carol J. Loomis. One more book on Buffett which adds more insight to the best investor of our time.
Investing in the Unknown and Unknowable. This article adds a lot to my thinking about probability theory and the real investment world. It is on the same topic that I discussed here.
Poor Charlie's Almanack, Edited by Peter D. Kaufman. This is a well-known book which addresses the issues of the above, based on speeches and quotes of Charlie Munger.
An anonymous writer accuses Chaoda of rampant corporate fraud. This company interests me now that I have invested in a Hong Kong stock.
An anonymous writer accuses Huabao International of being a huge pump and dump.
I also am playing around with a cool new tool that can reveal the differences in the text of different 10Qs and 10Ks of a company.
Thursday, June 5, 2014
SEB is Trading Near Tender Price
Seaboard Corp's tender offer is due in a week. And the stock is
approaching the maximum tender price. The price today reached $2920.
The maximum tender price is $2950. Volume at this price
has been more than daily average. So, when I try to guess
the intentions of the buyers and sellers, I can only deduce one thing.
The market does not think that the stock is worth the tender price,
and the company will not be able to buy Seaboard stock with all the
allocated $100M.
Several news items are affecting the Seaboard stock recently. Seaboard announced quarterly earnings of $40.55 per share compared to $47.98 a year ago. Revenue was also down slightly versus a year ago. However, operating income actually rose compared to a year ago. The operating income rose but net income fell because the company benefited from a one-time tax benefit last year. This means that last year was the anomaly and this year is the norm. The company now trades at 18 times TTM earnings.
Pork prices have jumped by more than 30% recently. I am not exactly sure why, but there has been some kind of pig virus spreading about.
The other news is that Pilgrims and Tyson Foods are in a bidding war for Hillshire Brands. Hillshire Brands in turn is trying to buyout Pinnacle Foods. It looks like food company valuations are going up amidst consolidation. In 2013, Smithfield Foods was purchased by Shuanghui. Nonetheless, Seaboard's return on equity is 7.8%. The company does not appear undervalued unless one believes that it is a takeover target. Seaboard trades at a EV/EBITDA of 10, while Pinnacle and Hillshire trade at 13.
Seaboard is my third largest position and I must consider taxes carefully if I want to close the position. I wrote about taxes in another another post but it doesn't really guide me on whether to sell. Today I have another way to think about taxes.
Suppose my Seaboard investment has gone up 100% over a long period. Also suppose the tax rate is 25%. If I sell it, the capital gain is $50 for every $100 that I should pocket. But the government takes a $12.50 tax on that, which leaves me with $87.50. Suppose further that Seaboard returns 10% a year in the future. So, by the rule of 72, it doubles about every 7 years. Then that $12.50 which would be in Seaboard if I did not sell, would give me $12.50 in gains in 7 years.
So the fundmental question is: can I get a further $12.50 in gains in 7 years on my $87.50 if I sell Seaboard and buy something else? When put in this way, tax considerations become much more straightforward.
So I think soon I will sell or tender at least some of my Seaboard shares.
Several news items are affecting the Seaboard stock recently. Seaboard announced quarterly earnings of $40.55 per share compared to $47.98 a year ago. Revenue was also down slightly versus a year ago. However, operating income actually rose compared to a year ago. The operating income rose but net income fell because the company benefited from a one-time tax benefit last year. This means that last year was the anomaly and this year is the norm. The company now trades at 18 times TTM earnings.
Pork prices have jumped by more than 30% recently. I am not exactly sure why, but there has been some kind of pig virus spreading about.
The other news is that Pilgrims and Tyson Foods are in a bidding war for Hillshire Brands. Hillshire Brands in turn is trying to buyout Pinnacle Foods. It looks like food company valuations are going up amidst consolidation. In 2013, Smithfield Foods was purchased by Shuanghui. Nonetheless, Seaboard's return on equity is 7.8%. The company does not appear undervalued unless one believes that it is a takeover target. Seaboard trades at a EV/EBITDA of 10, while Pinnacle and Hillshire trade at 13.
Seaboard is my third largest position and I must consider taxes carefully if I want to close the position. I wrote about taxes in another another post but it doesn't really guide me on whether to sell. Today I have another way to think about taxes.
Suppose my Seaboard investment has gone up 100% over a long period. Also suppose the tax rate is 25%. If I sell it, the capital gain is $50 for every $100 that I should pocket. But the government takes a $12.50 tax on that, which leaves me with $87.50. Suppose further that Seaboard returns 10% a year in the future. So, by the rule of 72, it doubles about every 7 years. Then that $12.50 which would be in Seaboard if I did not sell, would give me $12.50 in gains in 7 years.
So the fundmental question is: can I get a further $12.50 in gains in 7 years on my $87.50 if I sell Seaboard and buy something else? When put in this way, tax considerations become much more straightforward.
So I think soon I will sell or tender at least some of my Seaboard shares.
Sunday, May 25, 2014
Why I Bought New Century Holdings HK
| HK:0234 | |
| Price | HK$ 0.154 |
| Market Cap | HK$ 888.58 M
($ 114 M USD) |
| P/E TTM | 5.7 x |
| Div yield | 5.8 % |
| P/BV | 0.63 |
| Price/Netnet | 1.13 |
| ROE | 11.0 % |
Hong Kong gets a bad rap from me because of its proximity to China. I would not invest in China because I have heard of too many cases of fraud. In addition China's economy depends too much on government-driven construction. I feel China has to be in a real estate bubble now.
I first looked at Hong Kong after hearing about the Third Avenue Funds' investments in Hong Kong real estate companies. Some Hong Kong real estate companies are incredibly cheap; for example, Wheelock is selling for half of book. However, I backed off after looking at the Third Avenue holdings. The companies often have too much real estate in China, and they almost always are family majority owned.
Recently, I looked closely at small caps and they are much better, in part because they are too small for the smart money. The small caps have even better balance sheets and are less exposed to the real estate market. My first find is New Century Holdings Hong Kong (HK:0234).
New Century's ticker goes back at least 18 years. That is the extent of the online information at HKNews. However, 13 years ago it was called Multi-Asia International Holdings. And it was a money-loser basket case. It tried to do a number of ventures, from film processing to manufacturing to real estate. But that doesn't matter now. What matters is the net operating losses (NOL) that it had in the books in 2001. I believe the potential tax savings from the NOL is the reason that the current management, the family of Mr. Huang Cheow Leng, took over the company as New Century Holdings. Initially, in 2001, the Huang family owned 52% of the company. Today the family owns 65%.
In the last 12 years the family has built quite a company. The family has turned the company into a hotel and cruise ship and gaming enterprise. The family owns not only New Century but a number of other businesses, one of which sold New Century two cruise ships. These two cruise ships were the primary business of the company early on. In 2013, the company operates four segments and their operating incomes were in millions HK$:
- cruise ship - 50.2
- hotel operations - (0.1)
- property investments - 53.3
- securities trading - 116.5.
| Basic Shares | Diluted Shares | Dividends HK$ | Equity HK$ | Huang Family Interest | |
| 2002 | 1896.8 | 1896.8 | 0 | 97 | 0.52 |
| 2003 | 3325.6 | 3325.6 | 0 | 175 | |
| 2004 | 3326 | 3378 | 0 | 232 | |
| 2005 | 3355.2 | 3864.4 | 25.4 | 397 | 0.56 |
| 2006 | 3841.1 | 4571.9 | 39.3 | 610 | |
| 2007 | 4655.6 | 4881.8 | 48.2 | 741 | |
| 2008 | 5595.6 | 5645 | 0 | 1095 | |
| 2009 | 5765.2 | 5765.2 | 20.2 | 985 | |
| 2010 | 5765.2 | 5765.2 | 34.6 | 1143 | |
| 2011 | 5765.6 | 5765.6 | 52 | 1323 | |
| 2012 | 5767 | 5767 | 52 | 1316 | |
| 2013 | 5767 | 5767 | 52 | 1406 | 0.65 |
The company's only long term debt is a loan equal to about 10% of the equity to the Huang family. But this loan is interest free and has no due date. On the asset side of the balance sheet, about a third is in investment properties, a third is in securities on the Hong Kong stock exchange, and a little less than a third is in cash. So the balance sheet is highly liquid. And what isn't liquid is mostly properties in Hong Kong, Singapore and Indonesia. They do not own properties in China as far as I can see.
I feel like buying this stock is like buying a Hong Kong stockmarket ETF, with a decent debt-free moneymaking cruise ship and property investment business thrown in for free.
Overall, the New Century seems to be relatively transparent. The company regularly file notices regarding operations and ownership. And the company values its assets and its depreciation reasonably. So, the family ownership does not appear detrimental to the minority shareholders. Still, as a minority shareholder, I will be vigilant. Mr. Huang has three children and one niece as executives directors of the company. They are compensated from $100k to $250k USD. They all also have a generous options package, which currently is underwater.
As a final note, I must remind the reader that New Century is a little-known smallcap stock with very concentrated control in an emerging market. I have done my best to decipher their filings, but I am sure my data has some errors here and there. So, if anyone wants to invest in this company, he should do his own research! And he should also read the disclaimer on the right.
Wednesday, May 21, 2014
My Plans for the SEB and Sterihealth Offers
Seaboard Corp is offering to repurchase $100 M USD in common stock through a dutch auction. The offer gives shareholders the opportunity to tender their shares at a price between $2500 and $2950. The company will pick the lowest price that allows it to buy $100 M worth of shares. Anyone who tenders at or below the chosen price will be selling their shares at the chosen price. The stock was at $2350 before the announcment. The news caused the stock to pop, and it is now at $2615
This means the market thinks the chosen price will be above $2615. No one will tender his shares below $2615 because when he can sell it today. On the other hand, buyers are hoping to buy below the chosen price, and then tender. Those buyers must expect a large enough premium for their risk exposure. Say it is $100. Then, the market expects the chosen price to be $2715. Considering their mediocre results last few quarters, I will tender some shares at $2700, $2800 and $2900.
Sterihealth's largest shareholder Dan Daniels recently offered to take the company private at $1.75. The vote is on June. Today it is trading at $1.73. This means that the market believes the transaction will happen. If the transaction happens, the shareholders will get their payment on June 26. This means that today's buyers expect to make a $0.02 gain within a little over a month. I am selling my shares today at $1.73 and I will forgo the $0.02 because I believe I can return greater than that by investing the capital.
The above is my understanding of two transactions. It may have errors or omissions. Please read the disclaimer on the right.
This means the market thinks the chosen price will be above $2615. No one will tender his shares below $2615 because when he can sell it today. On the other hand, buyers are hoping to buy below the chosen price, and then tender. Those buyers must expect a large enough premium for their risk exposure. Say it is $100. Then, the market expects the chosen price to be $2715. Considering their mediocre results last few quarters, I will tender some shares at $2700, $2800 and $2900.
Sterihealth's largest shareholder Dan Daniels recently offered to take the company private at $1.75. The vote is on June. Today it is trading at $1.73. This means that the market believes the transaction will happen. If the transaction happens, the shareholders will get their payment on June 26. This means that today's buyers expect to make a $0.02 gain within a little over a month. I am selling my shares today at $1.73 and I will forgo the $0.02 because I believe I can return greater than that by investing the capital.
The above is my understanding of two transactions. It may have errors or omissions. Please read the disclaimer on the right.
Sunday, May 18, 2014
Tachibana Eletech and Fujimak Results Fail to Satisfy Investors
| TSE:8159 | |
| Price | ¥ 1161.00 |
| Market Cap | ¥ 25078.12 M
($ 246 M USD) |
| P/E TTM | 6.5 x |
| Div yield | 2.0 % |
| P/BV | 0.57 |
| Price/Netnet | 0.65 |
| ROE | 8.8 % |
Tachibana's revenue was ¥141.9 B versus ¥123.8 B the previous year. The company earned ¥3.8 B versus ¥2.8 B the previous year. In addition, the company increased its dividend to ¥23 from ¥20 a year ago. The stock dropped mostly because the company's 2014 revenue and income guidance was ¥146 B and ¥3.5 B, respectively. And the company intends to give a ¥22 dividend. The market may be disappointed by the guidance, but I don't think that justifies such a low stock price.
In view of the disappointing stock price, I find myself doubting my thesis on this company. Tachibana Eletech is a wholesaler of factory automation and related products. Such a business requires a large large balance sheet. So, now I think being a netnet in this line of business isn't as attractive as in some other lines of business. This is something I am learning to appreciate. Nonetheless, when I bought I had such a margin of safety that I am still sitting on a USD gain today.
| TSE:5965 | |
| Price | ¥ 719.00 |
| Market Cap | ¥ 4712.04 M
($ 46 M USD) |
| P/E TTM | 4.1 x |
| Div yield | 2.8 % |
| P/BV | 0.40 |
| ROE | 9.6 % |
| LT Debt/Equity | 0.33 |
However, the stock tanked because management expects a -44% income drop in their 2014 guidance! But then again I have noticed that these standard projections are always quite conservative. And both companies have expressed worry about the consumption tax increase that comes into effect in April. But as usual, I think the market is discounting the macro issues too much. I wouldn't be surprised if the worries of slowdown don't pan out and these two companies do better than expected in 2014.
Friday, May 9, 2014
ITIC Q1 Earnings Fall
| ITIC | |
| Price (May 7) | $ 66.00 |
| Market Cap | $ 134 M |
| P/E TTM | 10.9 x |
| Div yield | 1.6 % |
| P/BV | 1.04 |
| ROE | 9.6 % |
Saturday, May 3, 2014
Installux and KCLI Report Good Earnings
| KCLI | |
| Price | $ 42.00 |
| Market Cap | $ 460.66 M |
| P/E TTM | 15.4 x |
| Div yield | 2.6 % |
| P/BV | 0.62 |
| ROE | 4 % |
Kansas City Life Insurance (KCLI) reported Q1 2014 results. Revenue was $70.6 M versus $78.8 M the previous year quarter. The company earned $5.5 M versus $5.2 M the previous year quarter. The earnings increase was primarily due to realized gains. The company earned $0.50 per share.
Most interestingly, however, is that the company increased equity by $20 M due to unrealized gain and earnings. That is four times the reported earnings! I do wonder how they did this. I read in their 10K that every percentage rise in interest rates causes a $150M drop in equity and vice versa. Their equity is about $750M.
I mentioned KCLI because I just bought back some stock after closing my position a few months ago. I initially bought a year ago at $37, and then sold recently at $48 and now re-bought at $43. So, I have shown that a trader can buy low, sell high, and buy low again. And I can do this indefinitely with KCLI.
Ok, ok, I couldn't resist a tongue in cheek reference to short-term trading.
Thursday, April 17, 2014
My Current Reading List
Exposure by Michael Woodford. About the whistleblower Olympus president who exposed how how the company covered up its investment losses. I think it gives great insight into Japanese corporate culture and problems.
The Shipping Man by Matthew McCleery. It's a funny fiction about a hedge fund manager who gets swallowed up by the shipping world.
Quality of Earnings by Thornton L. O'glove. Studying financial reports is by far the biggest task for an investor like me. This books points out some common and important gotchas to watch out for.
A good article that says you have to dare to run away from the herd to get superior returns.
A refreshing view of China's unusual economy; i.e. things aren't as bad as some would have you believe.
How the Economy Works by Ray Dalio. It is a neat explanation of the deflationary world that we live in. It may be a bit too simplistic but it certainly helps my understanding.
The Greatest Predictor of Future Stock Market Returns. A very well thought out article, and I am still absorbing it.
Tuesday, April 15, 2014
Why I Bought Putprop
| Price | ZAR $ 7.00 |
| Market Cap | ZAR $ 201.60 M ($ 19 M USD) |
| P/E TTM * | 7.7 x |
| Div yield | 5.1 % |
| P/TBV | 0.59 |
| ROE | 7.7 % |
South Africa a country with 50 million people. Its unemployment rate is high at about 25%. It has a 5.8% inflation rate, and it has about $50 bil USD in gold and foreign exchange reserves. In the last several years the South African Rand (ZAR) has dropped by a third. Today 1 ZAR is worth $0.095 USD. I guess this was in part due to the general decline of emerging markets all over the world. Interestingly, South Africa ranks quite high in corporate governance. Its corporate governance is higher than Singapore, Hong Kong and Germany.
So I looked at South Africa stocks and I was lucky enough to find a cheap smallcap that suits my style. The company is Putprop. Putprop is in the real estate rental business. It is not a REIT as far as I can see. I like the company because it has little debt, is very profitable, and sells for less than book.
So far it is all great news. But as with every great stock story, there usually are some skeletons there also lying in the closet.
Putprop gets 85% of its rental business by renting bus terminals and garages to Putco. Putco is South Africa's largest bus service that serves many disadvantaged areas. I am not an expert on South Africa, but for me cheap buses conjures up images of an integral segregation tool. The poor black population can work in areas where whites run businesses. But after work, they are forced to leave on crowded, rundown and dangerous buses. And Putco has a long history going back to the heyday of Apartheid. At that time it was run by Albino Carleos. At some point Albino Carleo also created Putprop.
Today Putco is still a rundown bus service. But it has less ridership than during the Apartheid days. Taxis and better shuttle services have cut into Putco's business. Putco has also changed ownership. I believe it is now mostly owned by blacks. Albino Carleo is no longer the CEO. And it has delisted eleven years ago. But Putprop still remains in the family. It is run by Bruno Carleo which I presume is related to Albino Carleo's, possibly his son, although I cannot confirm that.
Putco is obviously important to Putprop's well-being. But I think Putco's image also depresses Putprop's stock price. And I think the image portrays a bleaker picture than the reality. Therefore, Putprop is my kind of contrarian stock. The Putprop management says it wants to diversify its customer base. But considering that Putco is 85% of revenue, either management isn't trying very hard or management is very conservative. Still, I would want the company to err on the side of being too conservative rather than rush into reckless expansion. I also think Putco ridership can improve, no matter how bad the buses, South Africans are desperate for jobs, when the jobs come they will put up with the buses.
Putprop is a company with only a $19M USD marketcap. However, the South African Rand is cheap compared to the USD. Therefore, Putprop can be considered a much bigger company than a company with similar marketcap in the US. The company has great earnings power. However, they account for it strangely. The company assesses the value of its properties annually, and counts the unrealized gains or losses in the income statement. I am not used to seeing gains treated this way. I always used to see it as part of comprehensive income, but not regular income. This treatment has greatly exaggerated their reported income. The stock is 4x their 2013 income! For my purposes, I backed out the unrealized gains, and the caption box shows their adjusted earning and numbers.
In addition to the great earnings, the company pays a high dividend. And the company can easily keep this up as it trades at half of book, with no long-term debt.
A final issue to consider is the value of the Rand. South Africa has a slight trade deficit but the country is not desperate for foreign cash. So the currency is not at risk of devaluation. However, the Rand has depreciated by about a third compared to just five years ago. The Rand is at almost the all time lows. Of course, the flip side is that the Rand is low and can only go up.
That is about all I know about this company now, if I find any more info I will update.
Sunday, April 13, 2014
Why I Bought Hanover Foods
| Price | $ 122.00 |
| Market Cap | $ 91.5 M |
| P/E (2012) | 6.7 x |
| Div yield | 0.9 % |
| P/TBV | 0.45 |
| ROE | 6.2 % |
| LT Debt/TBV | 0.11 |
Hanover Foods makes the food products shown above. I do not ever recall buying their products or even seeing it at the grocery store. But I am not a person that studies a companies products when I invest. I focus on financial statements to make investment decisions.
Hanover Foods was a pretty straightforward decision once I had access to the financials. The company like many of my smallcaps, is in a staid business, trades at less than ten times earnings, and less than tangible book value.
In addition, the company is "dark", which could be a plus as well as a minus. When a smallcap company is dark it is under the radar of most investors. This could mean I can build a position at a low price. But of course someone can argue that the company can stay that way indefinitely. But I have faith in the markets and all securities will reach their fair values sooner or later.
Given the great numbers for the company the reader may ask what is the catch, other than the fact that the company is an obscure smallcap. Some internet sources especially Oddballstocks have explained the ownership strife and analyzed the company here and here. The company was founded by Harry Warehime. His descendants are still in control of the company. His grandson John Warehime is the current CEO, and half the board seats are held by the Warehimes. However, the family members are bickering incessantly. And some of their dirty laundry is even documented in lawsuits. From what I can gather there are people who second hand knowledge of the family and for them it appears that issue is about control and not money. As a minority shareholder, I want to ensure that those in control do not cheat the minority, and that the family bickering does not destroy the company. Regarding the first point, the family does not seem to be united so they can't be working together to take away value from minority shareholders. And regarding the second point, this has been going on for decades and in that time the company has grown earnings and equity. For details, the reader can refer to Oddballstocks.
A final issue is the lack of transparency regarding the actual diluted shares out there. The company has various stock option and incentive plans. But from what I have read, it appears to be in the range of 700-800k. So I'll use the mid-point: 750k.
Overall, this company is pretty simple and straightforward and I trust others' research. However, because this company isn't that transparent, I don't have a huge position. But if the reader wants to invest in this stock, she should do her own research! Don't do what I did, which is to rely on information in blogs like this one.
Friday, April 4, 2014
Inflation Is Back in Japan
Japanese companies said in a recent survey that they expect inflation to be 1.5% in the coming year. If true that would be an end to 15 years of deflation that has dragged down the Japanese economy. Though this is lower than the BOJ's stated target of 2%, I think the BOJ target was really using the target as a device to increase people's inflation expectations. I doubt that the BOJ really thought the 2% target was achievable.
The Yen is now at 103.8 to the dollar, which is around a high for the last five years. With this depreciation, may companies will now be able to turn a profit after years of losses, and hence pay taxes. Short term, I think this is great news. My Japanese holdings which I first began to buy 13 months ago are up about 20% in USD, including dividends. It is a decent result but not spectacular considering the current raging US market. It looks like I need to think more long term. I confess I was hoping for a relatively quick profit. I feel my Japanese netnet investments deserve to gain 50%, at least, so I'll keep waiting.
To read about my three Japanese investments, look for them under labels, on the right.
Wednesday, April 2, 2014
Betting Against Headlines
We have reached just a momentous milestone. Yesterday was the
deadline for Obamacare's
individual mandate.
As it stands, Obamacare enrollment met its 7 million
original goal, despite a lot of heckling from its
detractors. And possible more will be tallied in the coming weeks.
However, it isn't clear to me what these numbers mean. It could consist of a lot
people who lost their existing insurance plans and
who turned to Obamacare. In any case, it looks like Obamacare is here to stay.
WLP, my largest holding, has invested more than any other MCO in Obamacare. WLP shares have broken over the $100 barrier recently. That is a 20% rise from just 2 months ago at least in part because Obamacare has turned out reasonably well at this critical juncture,
As I have said before. Obamacare is huge and unprecedented, so it is almost impossible to predict. And I don't try. I just took the bet for WLP and Obamacare because I felt the market was overreacting. Every little glitch or complaint seemed to be magnified by the media. If I was wrong I don't think I would lose much. But if I turned out right like it now appears, I could make some good money. This is an asymmetric bet.
Also, Obamacare became law because Obama shoved his plan down the Republican's throats — not a single Republican voted for it in Congress. He needs all the cooperation from the people and the MCOs. I don't think of insurance companies under Obamacare as a traditional regulated industry. Obamacare is asking the MCO's to take on the risks but the government will backstop the MCO losses. Each MCO can freely enter the market in whichever state it chooses. US healthcare cannot work well if the MCOs are hobbled by the government.
As I described in 2012 when WLP was low, every year or two some crisis appears in the headlines that takes some stock to attractive lows. That's when I try to be brave and buy. This year the headline victim is Russia. As we all know, Ukraine had some political turmoil that forced out a pro-Russian leader. Russia's Putin then used the situation as a pretext for annexing the Crimea, which before the crisis was a part of Ukraine, but which 60 years ago was part of Russia.
I then read that the crisis has caused the entire Russia stock market to trade at about 5 times earnings! So I decided, based on my best estimate of the geopolitical situations and Putin's intentions, to make a bet on Russia. I bought some ERUS, the iShares' Russian ETF. As it has so far turned out, the situation has calmed down and it appears Putin has no more territorial ambitions. It also appears that the West is going to let Russia get away with it. I hope that the Russian market will return to the highs of 2013. If that happens I can make a 40% profit. I don't expect this to happen overnight. I expect it to take a year or two if it happens.
WLP, my largest holding, has invested more than any other MCO in Obamacare. WLP shares have broken over the $100 barrier recently. That is a 20% rise from just 2 months ago at least in part because Obamacare has turned out reasonably well at this critical juncture,
As I have said before. Obamacare is huge and unprecedented, so it is almost impossible to predict. And I don't try. I just took the bet for WLP and Obamacare because I felt the market was overreacting. Every little glitch or complaint seemed to be magnified by the media. If I was wrong I don't think I would lose much. But if I turned out right like it now appears, I could make some good money. This is an asymmetric bet.
Also, Obamacare became law because Obama shoved his plan down the Republican's throats — not a single Republican voted for it in Congress. He needs all the cooperation from the people and the MCOs. I don't think of insurance companies under Obamacare as a traditional regulated industry. Obamacare is asking the MCO's to take on the risks but the government will backstop the MCO losses. Each MCO can freely enter the market in whichever state it chooses. US healthcare cannot work well if the MCOs are hobbled by the government.
As I described in 2012 when WLP was low, every year or two some crisis appears in the headlines that takes some stock to attractive lows. That's when I try to be brave and buy. This year the headline victim is Russia. As we all know, Ukraine had some political turmoil that forced out a pro-Russian leader. Russia's Putin then used the situation as a pretext for annexing the Crimea, which before the crisis was a part of Ukraine, but which 60 years ago was part of Russia.
I then read that the crisis has caused the entire Russia stock market to trade at about 5 times earnings! So I decided, based on my best estimate of the geopolitical situations and Putin's intentions, to make a bet on Russia. I bought some ERUS, the iShares' Russian ETF. As it has so far turned out, the situation has calmed down and it appears Putin has no more territorial ambitions. It also appears that the West is going to let Russia get away with it. I hope that the Russian market will return to the highs of 2013. If that happens I can make a 40% profit. I don't expect this to happen overnight. I expect it to take a year or two if it happens.
Friday, March 28, 2014
McRae Reports Lackluster Q2, Sterihealth Gets Takeover Offer
| Sterihealth at Buyout | |
| Buyout Price | AU $ 1.75 |
| Market Cap | AU $ 34.20 M ($ 31 M USD) |
| P/E TTM | 8.9 x |
| Div yield | 4.0 % |
| LT Debt/TBV | 3.96 |
| EV/EBITDA | 5.35 |
The company blamed the worse Q2 numbers primarily on 1) higher consumer sales in Q1 offsetting the Q2 consumer sales and 2) lower margins due to higher import shipping costs and consumers shifting away from premium boots, among other factors.
The stock went as high as $36 before the earnings report. Now it is $31 due to the lackluster Q2 results. I believe the Q2 numbers are more likely the norm than the exception. McRae has had a great recent run of improving sales and earnings. It's time for them to stop growing and maybe even fall back a bit. The boot business is not high tech. One reason I first bought the stock was the balance sheet. The company has no debt. With returns on equity around 15%, the company is simply growing book by 15%. The price to book ratio is currently at about 1.25. I am hoping the stock goes back to the $36 level before I contemplate selling.
In other news, the Steriheath board has accepted a $1.75 AU per share buyout offer from Dan Daniels. Dan Daniels currently owns almost 50% of the shares. After buying the stock three months ago at $1.30, I'll gladly take my money and run!
Monday, March 17, 2014
Know What You Don't Know
Over the past Christmas holidays I had some free time to pursue
an intriguing project. I wanted to get some insight into the what is the
best cash-stock
allocation mix. In today's world of virtually zero interest yield
we can think of this as the classic bond-stock
allocation problem. The traditionally accepted to invest
is through diversification of between stocks and bonds and also
diversification
within stocks.
For example, Benjamen Graham devotes part of The Intelligent Investor
to explain the percentage allocation of each under different circumstances. His
advice is intuitive and
conventional. When the market appears overvalued, allocate more to cash, up
a maximum of 75%. And when the market
is undervalued, put the money back in stocks.
The 75% number is a bit extreme in my opinion, but I follow his advice
otherwise.
As far as I have seen, though, everyone gives this advice in a heuristic manner. I want to change that. I want to find some mathematical confirmation that the conventional cash and stock mix yields a better result than just all stocks. To this end I will need to make some assumptions of the market behaviour. Under these assumptions I put in a mechanical cash-stock allocator algorithm and repeated simulate it. Each simulation is a possible realization of the stockmarket outcome over say 30 years, using my assumptions. My findings were quite surprising (to me). Try as I might, I could not beat a 100% stock strategy over the long run. So, I gave up. Though, I did not shake my belief that one must have ample cash at any time. Cash saved me in 2008-2009, and many a wise investor such as Buffett, employ this strategy. Then recently while thinking about it again, I think I answered this mystery.
Any probabilistic mathematical analysis requires some assumptions to create a model. I assumed that the stockmarket will return the same as it has for the last one or two hundred years, which is an average of about 10%. But the last two hundred years has been a resounding success for the markets. And no theory says it will continue. To assume a 7 or 10% return for the market is to put total faith in one possible scenario. We shouldn't put too much faith in the assumption because we really don't know! If we don't know what we don't know, bad things happen.
As one example consider one of the most elegant theoretical results in use in finance: the Black-Scholes formula for pricing options. It is a piece of mathematical elegance to price the option on an underlying stock assuming that stock behaves in a simplistic theoretical manner. Some blame Black-Scholes for the financial crises of 2008-2009. But I feel the problem is not the formula. The problem is with the investor who forces real world stocks to fit the Black-Scholes assumption. The Black-Scholes assumption is just one possible way of modeling stocks. This formula certainly does not factor in the human psychology that is part of every market transaction. When market participants overuse the Black-Scholes formula they can then change the behaviour stocks such that the assumption no longer holds. It is like the Truman Show. The Truman show only works if the participating is unaware of his world. If he is aware, then he will change his behaviour unpredictably.
So now back to the cash-stock mix. I realize we should always reserve some cash because we do not know the future of markets. Though I tend to think it will be somewhat like the past, the best approach given this uncertainty is to have a portion in stocks and also hedge the stocks with cash. The cash portion is like a call option on some stock at some cheap price in the future. The cost of this option is the opportunity cost. However I cannot quantify this opportunity cost because I don't know what the market will do. But I do know that the higher the market value, the less is my opportunity cost. And so I would allocate more to cash.
For me then, it is hedging for maximum benefit under all unforeseen scenarios. I know this is a bit contradictory, saying there is a optimal way to operate in a unknown world. But we have to admit we don't know something. That's a lot better than not knowing what we don't know. Investors who ignore this fact do so at their peril.
As far as I have seen, though, everyone gives this advice in a heuristic manner. I want to change that. I want to find some mathematical confirmation that the conventional cash and stock mix yields a better result than just all stocks. To this end I will need to make some assumptions of the market behaviour. Under these assumptions I put in a mechanical cash-stock allocator algorithm and repeated simulate it. Each simulation is a possible realization of the stockmarket outcome over say 30 years, using my assumptions. My findings were quite surprising (to me). Try as I might, I could not beat a 100% stock strategy over the long run. So, I gave up. Though, I did not shake my belief that one must have ample cash at any time. Cash saved me in 2008-2009, and many a wise investor such as Buffett, employ this strategy. Then recently while thinking about it again, I think I answered this mystery.
Any probabilistic mathematical analysis requires some assumptions to create a model. I assumed that the stockmarket will return the same as it has for the last one or two hundred years, which is an average of about 10%. But the last two hundred years has been a resounding success for the markets. And no theory says it will continue. To assume a 7 or 10% return for the market is to put total faith in one possible scenario. We shouldn't put too much faith in the assumption because we really don't know! If we don't know what we don't know, bad things happen.
As one example consider one of the most elegant theoretical results in use in finance: the Black-Scholes formula for pricing options. It is a piece of mathematical elegance to price the option on an underlying stock assuming that stock behaves in a simplistic theoretical manner. Some blame Black-Scholes for the financial crises of 2008-2009. But I feel the problem is not the formula. The problem is with the investor who forces real world stocks to fit the Black-Scholes assumption. The Black-Scholes assumption is just one possible way of modeling stocks. This formula certainly does not factor in the human psychology that is part of every market transaction. When market participants overuse the Black-Scholes formula they can then change the behaviour stocks such that the assumption no longer holds. It is like the Truman Show. The Truman show only works if the participating is unaware of his world. If he is aware, then he will change his behaviour unpredictably.
So now back to the cash-stock mix. I realize we should always reserve some cash because we do not know the future of markets. Though I tend to think it will be somewhat like the past, the best approach given this uncertainty is to have a portion in stocks and also hedge the stocks with cash. The cash portion is like a call option on some stock at some cheap price in the future. The cost of this option is the opportunity cost. However I cannot quantify this opportunity cost because I don't know what the market will do. But I do know that the higher the market value, the less is my opportunity cost. And so I would allocate more to cash.
For me then, it is hedging for maximum benefit under all unforeseen scenarios. I know this is a bit contradictory, saying there is a optimal way to operate in a unknown world. But we have to admit we don't know something. That's a lot better than not knowing what we don't know. Investors who ignore this fact do so at their peril.
Tuesday, March 11, 2014
Seaboard Reports 2013 Results
| SEB | |
| Price | $ 2620 |
| Market Cap | $ 3127.18 M |
| P/E TTM | 15.2 x |
| Div yield | 0.0 % |
| P/BV | 1.26 |
| ROE | 8.3 % |
| LT Debt/Equity | 0.13 |
The pork segment is Seaboard's largest at 1/4 of total sales. This segment made up 3/4 of the company's profit however. The marine segment turned in a loss, though it was profitable last year. Shipping is suffering from a glut of ships and rates don't appear to be improving much. Seaboard is committed to shipping however and it is investing in several new ships. I believe Seaboard wants to stay in shipping to be a vertically integrated food company.
Overall I feel the company's management has a very long term view. They allocate capital prudently with little debt. And this shows in their consistent revenue growth. The last year's numbers came in a bit lower than I would like but in my eye this is a company that is trading at 10 times forward earnings.
In other news from my portfolio, Sterihealth (ASX:STP) resported H1 earnings were $0.10 AUD, which is the same as a year ago. However, sales were up 9%. This indicates some margin pressure. Still the company trades at 6.5x earnings.
Tachibana Eletech (TSE:8159) recently announced the company will expand into Indonesia. But at the same time, Tachibana Eletech will sell ¥ 1 B (about $10 M USD) new and treasury shares! They say the purpose is for buying office buildings which would save on leases. What the heck?? What is that about?? This company has ¥ 13 B in investments, of which ¥ 8 B is marketable equities and ¥ 2 B is bonds. And yet they are issuing shares to raise a relatively small amount. Several possibilities come to my mind. Maybe it is patriotism; the company wants to keep its government bonds. Maybe management management feels the stock price is overvalued; but the company is very profitable. Maybe the company is allocating the shares to favoured shareholders. But I can't find a very plausible reason really. I am baffled. What do you think?
On the other hand, the company seems to be doing great. Sales are up, exports are up. The company just raised guidance for the year to ¥ 179 which means the company trades at 7.2x earnings. The company also raised the dividend payout for the year from ¥ 20 to ¥ 22.
Tuesday, March 4, 2014
ITIC Reports Decline in Q4
| Price | $ 79.90 |
| Market Cap | $ 163.00 M |
| P/E TTM | 11.1 x |
| Div yield | 0.4 % |
| P/BV | 1.27 |
| ROE | 11.5 % |
Still, for the entire year, revenue was up 12% yoy. Earnings was up 34% yoy. The stock has dropped a few percent since I bought it two months ago. It went down as much as 10%. I do not regret owning it. But of course I wish I had slowly accumulated to take advantage of the dips instead of buying it all at once.
The recent results show that ITIC had a good recent run due to the low interest rates. Banks require title insurance when purchasing and when refinancing. So title insurance companies get a cut of each mortgage transaction! Even though refinancing activity may slow due to rising rates, I feel housing is bound to pick up in the coming years. Single home sales are about one million below what I would consider normal for the current population.
ITIC is also a balance sheet play. ITIC's most important metric to me is the book value, and it increased 12% yoy.
Monday, February 17, 2014
IEHC Reports Disappointing Q3
| Price | $ 4.50 |
| Market Cap | $ 10.36 M |
| P/E TTM | 7.7 x |
| Div yield | 0.0 % |
| P/BV | 1.05 |
| ROE | 13.8 % |
The stock has been up some 100% since I bought it because earnings have doubled yoy for the last few quarters. Well that trend did not continue. In fact Q3 earnings were down to $0.08 from $0.11 from a year earlier. Revenues were up 12%, less than the earlier two quarters. Gross margin was a few percentage lower. But Q3 SG&A was $143k higher than last year, due to increased travel expenses. These three factors resulted in the drop in income.
Looking back I of course wish I had sold the stock at its all time high of $6. Now, I'll just wait for next quarter to improve and hope this quarter was just a blip.
Sunday, February 16, 2014
Riken Keiki Reports Great Q3 Earnings, Fujimak Not So Good
| Riken Keiki | |
| Price | ¥ 874 |
| Market Cap | ¥ 20.29 B ($ 198 M USD) |
| P/E TTM | 8.2 x |
| Div yield | 1.9 % |
| P/BV | 0.70 |
| Price/Netnet | 1.02 |
| ROE | 8.6 % |
The company's year-end earnings projection of ¥ 76 / shr did not change, but I think that is a bit conservative. Book value increased 5% over the last 9 months.
Fujimak (TSE:5965) reported disappointing earnings that caused the stock to drop 10%. Fujimak makes commercial grade kitchen equipment. The company reported earnings that came 30% lower than this point last year. I believe the report indicated that the fast food segment was a major contributor to the poor results. Overall, sales were up 10%. But high raw material costs offset the sales gains. Also, SG&A costs were significantly higher than last year. The comprehensive earnings was better at 10% lower. Like many other Japanese companies, Fujimak benefited from gains in its investment holdings in yen.
| Fujimak | |
| Price | ¥ 800 B |
| Market Cap | ¥ 5.24 B ($ 51 M USD) |
| P/E TTM | 5.1 x |
| Div yield | 2.0 % |
| P/BV | 0.58 |
| ROE | 11.55 % |
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